HIGH NET WORTH
High Net Flood Risks
Whether high net
take up sufficient
excess flood coverage
is a point of concern.
by Craig Guillot
From the Hamptons and Malibu to Miami and Palm Beach, America’s high net worth class likes building lavish homes on the water. Yet hese multi-million dollar estates are exposed to growing risk from sea level rise and increasingly powerful storms. The fact that these structures are generally non-primary residences
makes them even more vulnerable, and their big price tags can make them expensive
to fully insure. Many of these homeowners are turning to excess flood insurance policies
while others are carrying bare-bones coverage and keeping their fingers crossed.
FLOOD RISK ON THE RISE
Coastal areas have always been at a greater risk of flood. Those risks are rising.
According to the National Oceanic and Atmospheric Administration, sea levels
rise at a rate of an inch every eight years. This pushes storm surges farther inland
than they once did and is creating more frequent nuisance flooding. Research
from Zillow estimates that 1.9 million homes worth more than $800 billion are at
risk of being underwater by 2100 due to climate change. The biggest risks are in
Florida, New Jersey, Massachusetts, California, South Carolina, Hawaii and North
The Private Risk Management Association (PRMA) surveyed agent and broker
members in 2017 about their high net worth clients and found nearly 54 percent
were unprepared for flooding. And while more than 60 percent said catastrophic
weather events like hurricanes and floods kept their clients up at night in 2017,
nearly three-quarters said they wouldn’t increase their preparedness levels.
“Many still think it’s not going to happen to them. It’s just a mindset that
people continue to have,” said Lisa Lindsay, executive director, PRMA.
In recent years, weather events have flooded areas previously not considered
high risk. The U.S. has now experienced more than two dozen 500-year flood
events since 2010, including Hurricane Matthew in 2016 and Hurricane Harvey
in 2017, which caused $125 billion in damages and catastrophic flooding in
Houston. In 2012, Hurricane Sandy flooded thousands of homes in the Northeast
that previously were never considered at risk for flooding.
Going strictly off FEMA flood maps to gauge risk is an “outdated way of
thinking,” Lindsay said. A study in Environmental Research Letters found more
than 41 million Americans live in a 100-year flood zone, more than three times as
many as the FEMA estimate.
Some FEMA flood maps are years outdated and don’t account for how
buildings are constructed, rapid rain accumulation and population growth. Larry
Larson, senior policy adviser and director emeritus, the Association of State
Floodplain Managers, told Bloomberg the maps “will always be obsolete the day
they come out.”
MOVING TO EXCESS FLOOD INSURANCE
PRMA is working with the industry and high net worth homeowners to
promote better ways to assess individual risk exposure. The PRMA survey
found half of homeowners living in high-hazard areas didn’t take steps beyond
purchasing basic flood insurance, and
less than 20 percent purchased excess
flood insurance. This often leaves a
big gap in coverage for high net worth
homeowners because NFIP limits
are only $250,000 for structures and
$100,000 for contents.
“That’s obviously not going to cut
it if you have a $10 million house,”
said Will Van Den Heuvel, senior vice
president, personal lines, Cincinnati
Excess flood insurance is available
• The risk of damage to coastal
high-end properties is increasing
• Despite the risk, many high-end
homes are vastly underinsured.
• The range of effective tools to
mitigate coastal flood damage is
“There’s plenty to do to
minimize the losses, and it’s
necessary given the frequency
— Lisa Lindsay, executive director, Private Risk
Coastal high net worth homes face an increasing storm risk.