With cleanup and rescue efforts still ongoing in parts of Louisiana, the topic of insurance coverage for floods has been discussed widely on social media and in the general media. As I read commentary, I’m noticing more and more that people are surprised, perhaps shocked that flood damage to many of the houses is not covered by insurance. To put it bluntly, these folks are on their own, with many losing virtually everything.
Having spent all but about ten years of my corporate America career working for insurance companies, not only in claims, but also in IT, I can tell you that insurance is not a welfare program, it’s a business. People pay insurance premiums, the insurance company collects those premiums and invests portions in order to earn a rate of return. Depending on how the company decides who is and who isn’t an insurable risk, they shouldn’t have to pay claims for every risk they insure. If the premiums collected exceed the amount in losses paid out, the company has made an underwriting profit. But this isn’t always the case. Sometimes wise investments enable the company to be profitable, and some years, companies do lose money. Of course, we’re all aware that like all other industries, insurance companies do go out of business. I indicated above that insurance is not a welfare program. A poor person is not entitled to more claims’ money that a rich person incurring the same type of loss.
Do people cheat insurance companies and get by with it? Absolutely. I did it once when I was in college. It was the classic fender-bender where the at fault party’s insurer told me to send them two estimates and they would issue s check to me for the lower amount. I got three estimates, forwarded the two highest estimates to the insurer and had the vehicle repaired at the place that gave me the lowest estimate. While this is perfectly legal, it does increase premiums.
Here is a link to an article that explains the reasoning behind private insurance companies’ not covering losses due to flood damage. It also explains the National Flood Insurance Program. Flood Insurance: The Homeowner’s Guide. Flood Insurance: The Homeowner’s Guide
When a tornado or straight line winds whip through areas, not every dwelling or building is going to incur damages and not all dwellings are going to incur the same type and amount of damages. But when water rises, all dwelling and buildings in the water’s path are going to be damaged severely and most like rendered a total loss. Covering flood damage is just not profitable.
I’ve heard it said that the Louisiana flooding is a once in a thousand year event. Should those people have had flood insurance through the National Flood Insurance Program? I don’t know, hindsight’s 20/20. Most people don’t have it. I don’t because I live on the side of a hill.
Again, insurance is a business, not an entitlement program. Going forward, I hope all will keep that in mind when procuring insurance for your vehicles, your dwelling(s), your businesses, your health, and even your life.