After the June deluge that soaked Wisconsin, Mark Honadel, a state representative and the landlord of a 20,000-square-foot building in South Milwaukee, found himself with a foot and a half of standing water in the basement of his property.
Just then, Honadel felt a similar helplessness that many others in the state did.
“I have never seen anything like it,” he said. “It came in so quick; before I knew it, it was on top of the sump pumps and I couldn’t keep up.”
Two sump pumps overflowed and overheated while the roof leaked into the workshop of his tenant – a master carpenter. The carpenter was building an oak entertainment set that was destroyed by the water.
Honadel called his insurance company. But since they did not consider him a negligent landlord, and because the insurance company believed that the roof was kept in good condition, the entertainment set was not covered under Honadel’s insurance.
Meanwhile, the flooding in the basement began to mix with sewage, destroying furniture and disrupting another tenant’s dog-sitting business.
Had the water been clear rainwater, he would have been covered. Instead Honadel is out about $3,000. It could have been much worse, and it was much worse for many in Wisconsin who learned they did not have adequate insurance coverage.
The Wisconsin Office of the Commissioner of Insurance reports that 18,328 of the 2.1 million policy holders in the area filed flood-related claims with their insurer. The claims totaled approximately $55 million.
Nearly all flood insurance policies are issued through the National Flood Insurance Program (NFIP) directed by the Federal Emergency Management Agency (FEMA). Flood insurance is sold and serviced through private insurers, but is backed by the federal government. More than 85 companies sell flood insurance. Flood insurance costs the same wherever you purchase it, because the rates are set by the NFIP.
As Honadel found out the hard way, sewage backups, sump pump overflows and seepage through covered property are not covered under the NFIP. Such coverage is available through private insurers.
“You can never read these insurance policies well enough. You have to sit down with the agent and take a hard look at what is covered and what is not,” Honadel said.
The cost of insurance depends on a number of factors and can be affected by the risk of flooding as well as the initiatives taken by the community to reduce flood damage. The cost for businesses can range from less than $1,100 a year (in low-risk zones) to over $10,000 a year (in high-risk zones).
FEMA conducts a Flood Insurance Study of a region to identify the community’s risk levels. The study includes statistical data for river flow, storm tides, rainfall and topographic surveys, as well as hydrologic and hydraulic analyses. After examining the data, FEMA creates a map marking the different areas of flood risk.
In communities that participate in the NFIP, all homeowners in high-risk areas are required to get flood insurance in order to get a loan from a federally regulated lender. These areas have a 26 percent chance of flooding over the life of a 30-year mortgage.
Flood insurance is also available to all property owners and renters with low-to-moderate risk of a major flood at a lower cost. A major flood is defined as a flood with a one-percent annual chance of occurring, or a “100-year flood.”
Hindsight is 20/20
To be eligible for the NFIP, businesses and homes must be in a community that meets FEMA standards for flood prevention. However some communities, which were hurt by the flooding the most, such as Lake Delton, did not participate in the flood program this spring, leaving residents and business without insurance.
In Wisconsin, 511 communities participate in the NFIP, while 54 do not. There are six communities in southeastern Wisconsin that do not participate in the flood program. They are the villages of Genoa City, Newburg, North Bay, Waldo, Williams Bay and Merton. Flood insurance is not available to businesses and homes in these communities.
All other communities in the eight counties of southeastern Wisconsin participate, and the NFIP is available to businesses and homeowners. The full list of participating and non-participating communities in Wisconsin can be found at www.floodsmart.gov.
Communities can earn discounts on premiums by taking precautions beyond the minimal requirements for participation in the NFIP. FEMA developed a Community Rating System (CRS) to provide incentives for communities to go beyond the minimum floodplain management requirements. The incentives are premium discounts, given to communities that would volunteer to be rated by the system. The highest rated community in Wisconsin is the Village of Elm Grove. Its property owners receive a 20 percent discount on flood insurance premiums.
No communities in Milwaukee County participate in the rating system.
Flood insurance is operated under the federal government, unlike all other insurance that is covered by private industry, because the risk of sustaining enormous losses is too great for a private company to take on, said Mark Marko, commercial lines operations manager for American Family Brokerage.
“Private carriers look at an event of such a magnitude, with such potential, and would be unable to adequately price it. So, when the federal program came around in the 1960s it became the primary source (for coverage),” Marko said.
In 1968, Congress stepped in and charged FEMA with creating a flood insurance program in response to the rising cost of taxpayer-funded disaster flood relief. Under the act, flood insurance became available to nearly every property owner in a community that participates in the program, no matter how often the property has been flooded.
The standard NFIP coverage maxes out at $500,000 for a non-residential building and $500,000 for its contents.
“Most people fall into FEMA program solely, for whatever reason,” Marko said “But we can provide excess flood insurance coverage through a private carrier when the $500,000 quits.”
“In the end, you have to sit down with your insurance agent. You think you’re going to get some help and it’s not always the case,” Honadel said.
For more information about the NFIP go to www.floodsmart.gov.