Even with last year's deluges, most CUs aren't carrying flood insurance

MADISON, Wis. - If insurance coverage is any indication, credit unions are not as concerned about flood damage as they are about damage caused by other natural hazards such as fire or wind. Despite the fact that the nation's foremost hurricane expert has predicted several years of severe hurricane activity in the U.S. and considering the flooding problems caused by Hurricane Floyd and Hurricane Dennis last year, credit unions are just not buying flood insurance, said Lowell Carter, manager of CUMIS' Property and Casualty Brokerage. Carter could not give specific numbers, but he said that CUMIS had to turn down a number of claims last year by CUs that suffered flood damage from the hurricanes that battered the East Coast. He said some credit unions were surprised to find that flooding is not covered in a credit union's property and casualty policy. Fire is wrapped into P&C coverage, similar to the way it's wrapped into homeowner's insurance, but flooding is not. "There's been a lot of interest in flood insurance every since Floyd went up the East Coast, but few credit unions have actually purchased it. There's really something of a human nature bias against buying it I guess," said Carter. Carter said CUMIS only has about 150 CUs carrying flood insurance. CUMIS only acts as the broker to CUs for flood insurance. Flood insurance is unique in that the only true underwriter is the federal government, or more specifically the National Flood Insurance Program. Very large insurance carriers will offer large clients some type of flood insurance as a package with other coverage, but almost all flood policies are underwritten by NFIP. "The private insurance industry feels they can't do it (underwrite flood insurance) because of something called adverse selection. That is the only people who are going to buy it are those who have a pretty good chance of getting flooded," said Carter. Carter said insurance carriers are unwilling to wrap flood insurance into P&C or homeowner's policies because they would be forcing those who feel they have no danger of a flood to protect against it anyway. But if it was included, the costs would be much less. Carter said probably the best explanation as to why most CUs don't carry flood insurance is that few have ever been hit by a flood and most CUs aren't located in high-risk flood zones. However, when a hurricane the size of Floyd hits, all areas are at risk. Larry Johnson, President/CEO of the North Carolina Credit Union Network knows that better than anyone. Some North Carolina credit unions that were not in high-risk flood zones were hammered by Floyd and Dennis, sustaining hundreds of thousands of dollars in damage. "We had credit unions flood that were in 500-year flood zones. That was unbelievable," said Johnson. "The likelihood of that happening again is probably remote. I don't know if there's been any real push by our credit unions to look into flood insurance." Johnson said the North Carolina CU Network raised about $160,000 to help those credit unions, CU employees and CU members that suffered losses due to flooding. NFIP paid $250 million in claims due to Floyd last year (see chart). While Johnson said the chances of what happened in North Carolina happening again are probably slim, hurricane experts predict a very active next couple of years. And there are other reasons flooding may increase, said Carter. "Every time someone paves a parking lot, puts up a new building, builds an asphalt roof, or builds a new street, that has changed the water run-off situation. Where maybe you weren't subject to flooding last year, you might be this year if you're in a rapidly developing zone," said Carter. Basically the more concrete and pavement that is put down, the less area water has to soak into the ground, said Carter. "Losses from floods are on the increase. Due to increased urbanization, water has fewer places to soak into the ground. There's also predictions from hurricane experts of several years of increased activity." Credit unions are not alone in their lack of flood insurance. There are only 4,200,766 flood policies in force, and of that number the majority (2,864,542) are for residential properties, meaning most businesses aren't carrying flood insurance either. There are only 187,658 non-residential flood policies in force. Not surprisingly Florida has the most flood policies in place with 1,715,526. Then comes Texas with 338,099; California with 371,476; New Jersey with 167,691; and Louisiana with 351,608. Carter said CUMIS field staff can assist credit unions in finding out the risk of flood in their area and to estimate the cost of flood insurance. The cost varies based on location, size and age of building, amount of deductible, and other factors. NFIP prices polices based on the type of zone a structure is located in. An A zone is the highest risk zone, meaning there is a 1% chance every year that a flood will occur. "Most people would never think about going without fire insurance, but if you're in an A zone your chances of suffering a flood loss over a 30-year period are 26 times greater than suffering a fire loss," said Carter. There is one caveat to credit unions being covered by P&C for flood damage. Most policies cover damage to ATMs, data processing equipment and what's known as "valuable information." Aside from that, the building and its contents are not covered. The maximum flood insurance a credit union can have is $500,000 for the building and $500,000 for its contents. -pgentile@cutimes.com