Texas flash floods to have limited impact on re/insurers: Cotality

Although the recent deadly flash floods in Texas are estimated to have caused $1.1 billion in damage to residential buildings, Cotality believes the event will likely have a limited impact on primary insurers and reinsurers, due to the region’s low flood insurance penetration.

Providing some background on the event, a new report from Cotality noted that heavy thunderstorms during the weekend of July 4 dropped more than 10 inches of rain across several Central Texas river basins. This triggered widespread flash flooding across the region.

The disaster claimed more than 120 lives, with at least 170 people still missing, making it the deadliest flash flood event in the U.S. since the 1976 Big Thompson Canyon Flood in Colorado.

Cotality has classified the Texas floods as a 1,000-year rainfall event based on local totals, which reportedly far exceeds the 100- and 500-year benchmarks in some areas.

The firm noted that the disaster devastated local communities and showed that “low risk” zones do not mean zero risk.

“Since flood insurance penetration in the region is sparse, most losses will fall on homeowners rather than insurers, which will leave households to shoulder nearly all reconstruction costs and expose a significant insurance gap,” Cotality added.

Looking forward, Cotality said that the communities along these rivers now face immense loss, a massive cleanup, and infrastructure repairs, challenges made harder for uninsured homeowners confronting recovery alone.

The firm continued, “Flood insurance will be the primary mechanism for financial recovery for homeowners with flash flood-damaged property. But flood insurance is not included in standard homeowner’s insurance. It is only required for homes that have a mortgage within the Special Flood Hazard Area.

“Unfortunately, flood insurance penetration is low in the counties hit hardest by the flash flooding. An initial analysis of the National Flood Insurance Program policies in force in the nine counties eligible for Federal Individual of Public Assistance shows that there is low take-up of flood insurance in the hardest-hit areas. Across the nine counties, there are under 14,000 policies in force.”

Cotality’s findings were echoed by Aon, which also recently noted that, given the low NFIP take-up rates in rural areas, the deadly Texas flooding is unlikely to result in significant insured industry losses, though total economic losses could still reach several billion.

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