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Texas Mulls Flood Insurance Coverage Disclosures

The Texas Department of Insurance [1] (TDI) has recommended adopting laws requiring that property insurance policies include a disclosure that the policy does not cover flood damage. The agency proposed this step in its biennial report [2] to the state legislature.

The issue at the core of this proposal is the rule that property within the Federal Emergency Management Agency [3] (FEMA) 100-year flood plain must have flood insurance to get a federally backed mortgage. TDI, in its report, said that during Hurricane Harvey, more than half the homes that were flooded were outside of these designated flood zones and most of those didn't have flood insurance.

Another issue was the awareness among homeowners on this rule. TDI noted that some homeowners outside the flood zones and even renters in the flood zones were not aware that they might need flood insurance. The need for such a rule, TDI stated became even more important in the light of the fact that the state was "particularly prone to floods and almost every major city in Texas had areas that were at high risk of flooding." Additionally, since development could change an area's flood risk, it was difficult to keep the flood maps developed by FEMA up to date.

As a result, TDI has recommended amending the state's Insurance Code to require property policies to include a prominent disclosure if the property does not cover flood damage. TDI recommended two alternatives to achieve this:

Currently, six states have a similar law in place. They include Florida, Louisiana, Minnesota, New Hampshire, New York, and Washington.

Floods after Hurricane Harvey not only impacted properties but also homeowners' ability to pay. In a case study conducted in the aftermath of Hurricane Harvey in Texas, CoreLogic found that FEMA designated counties following Hurricane Harvey saw a significant increase in 90-plus day delinquency when compared to delinquency rates just six months prior. In these counties, properties estimated to be damaged saw a 205 percent increase in 90-plus day delinquency, and undamaged properties saw a 167 percent increase in 90-plus day delinquency.