Owning property in a place that locals have lovingly christened “The Lowcountry” is clearly going to involve a conversation about flood insurance.
Prior to the National Flood Insurance Program (NFIP) there were virtually zero insurance providers that wrote policies for flood events. For better or worse, homes in the United States could be covered for fires, windstorm damage, and burglaries, while absolutely unprotected for weather-based flooding events.
If I may momentarily be a devil’s advocate for the insurance industry: when a flooding event occurs, thousands of properties could be affected – the result can be devastating for an insurance fund that is designed for handling mostly isolated events.
The NFIP was established explicitly because there were effectively no private market options for purchasing flood insurance in the United States. The program created a fund subsidized by the federal government that would buffer claims for insurance providers, essentially enabling them to write a policy knowing that their losses would be effectively capped. To determine the policy rates, the Program tasks FEMA to work with local governments in assessing the flood risk levels in their communities – the primary gears in this machine are flood zone maps along with elevation certificates for individual properties.
But the Program isn’t simply a subsidization of insurance – the flip side is that it also governs the way new homes are built, so that flood damage claims could be minimized for future U.S. housing stock. Any home built today must be elevated above the base flood elevation (BFE) determined in the flood zone maps.
What is Flood Insurance
Any sensible homeowner will purchase what is commonly known as a homeowners insurance policy that covers any number of losses that could occur, which are understandably required by lenders for homeowners with a mortgage. These policies provide coverage for all sorts of calamities from fires and windstorm damage, to plumbing backups and burglaries, even medical coverage for when a guest is injured on the property. However there is one major omission from virtually every homeowners policy: flooding.
The specification of flood insurance comes down to what defines a flood: essentially, an event that affects at least two properties.
To simplify: if a pipe bursts in your house, or if a storm busts a window and drives in rain, the incurring water damage would be in the realm of the homeowners insurance policy.
However, if an event occurs with rising water that affects multiple properties – typically a major weather event – a homeowners policy would not cover those damages, which can be substantial. This is an event that is only covered by a separate flood insurance policy.
Homes that reside in a FEMA-designated flood zone are eligible – and often required – to purchase flood insurance on the property. New homes may be constructed in a flood zone, however must abide by strict building requirements to minimize damage from a flood event – often by elevating the home above a certain level, the base flood elevation (BFE).
Assessing Flood Risk
Floodplains are defined by FEMA as areas that have a 1% chance to flood during a given year, often termed a “100-year” flood zone. It’s all statistics whose accuracy is limited to available data, and there are no guarantees.
That 1% flood probability can be at or above the actual land height, and base flood elevation is the term used to describe the height above the land that is likely to experience flooding, expressed in reference to the mean sea level (AE10 indicates a 1% flood risk to 10 feet above sea level on that property).
Types of Flood Zones
Low-ish risk: these are areas outside the 1% likelihood zone, but still have the potential to flood. Most of the Charleston area is an X flood zone. Lenders typically do not require a homeowner in an X zone to carry a flood insurance policy, but it still may be advisable to acquire one anyway.
A common misconception in the real estate industry is that X means “not in a flood zone” – this is absolutely not true. Most homes in the Charleston area reside on ground high enough to be reasonably assured it would never flood, while others are a bit iffy while still in an X zone.
We consult insurance providers during the purchase of homes in X zones to assess the risk prior to purchase.
Medium-high risk: these are areas that are deemed likely to flood at least once in 100 years, up to a specified elevation. In Charleston these are typically lower lying areas near marshes and rivers, which is all over the place.
The “E” in AE indicates that a base flood elevation is known, which provides guidance to insurance providers to set rates and to builders for how elevated a new construction home must be.
A home residing in an AE10 zone would have a flood insurance policy based on how high the first floor of the home is above the 10 foot mark above sea level.
In Charleston a new home built in an AE10 zone varies by its ground level: on the beach, just a foot or two above sea level, the home would probably be elevated by 10-12 feet, with parking or storage underneath. Farther inland a new home built in an AE10 zone may be elevated by just a few steps.
An older home – of which there are many in Charleston – can still acquire flood insurance in an AE zone, however for every foot below the base flood elevation of the first floor, the higher the premiums will be.
In that AE10 zone, a historic or midcentury home in Charleston may be in a low lying area and still only elevated by a foot or two, with a flood elevation certificate indicating the first floor is less than 10 feet above sea level. Its flood insurance rates would be substantially higher, and a smart homeowner would take steps to mitigate potential water damage.
A home that is much lower than the AE10 marks would see flood insurance rates that would likely not be tolerable, and a homebuyer may be advised to avoid these homes unless they plan and budget to raise the structure or even replace it.
This occurs primarily in high value properties, such as grand historic homes that can be raised a few feet, or ground level homes on the beaches.
Highest risk: these are areas that are subject not only to rising water levels, but also to impact from waves in a tropical storm. In Charleston these are waterfront homes, or very close to the water.
Oceanfront homes should be designed and constructed to withstand the full brunt of an intense hurricane, far beyond what any typical home would experience. Such storms are relatively uncommon in the Charleston area, however tough lessons from the past can be seen in the beachfront homes we see today.
Before the NFIP, homes on the beaches of Charleston were typically modest affairs; since the homeowner could not insure the property they were kept simple. Many of these austere beachfront homes from decades past were literally swept away during Hurricane Hugo in 1989. They were replaced with the sturdy, elevated structures we see today, often luxurious because they are insurable, albeit at substantial cost.
When buying a home in a VE zone, we work with insurance providers to estimate the real risk and also acquire accurate premium rates before completing the purchase. Many of these homes are intended as beachfront vacation rentals, and the higher insurance rates are considered operating costs by the owner.
Flood Zone Maps
To provide guidance for homeowners and insurance providers, FEMA works with local governments in Charleston to establish maps of flood risk, based on data from past flood events and predictive analysis. The maps are overlays of the Charleston area indicating the boundaries of X/AE/VE zones.
When working with homebuyers, a critical segment of our process is to examine these maps to assess the real risk of flood, and also to acquire flood insurance rates from insurance providers.
Flood zone maps are updated every few years to provide greater accuracy, however a hindrance in the 2004 Charleston County maps is that they were based primarily on storm surge from a Category 3 hurricane – certainly an understandable concern, however they did not adequately address potential flooding from more regular events like heavy rainfall. The flood zone maps for Charleston County are set to be updated with more broadly expansive data in 2021, resulting in changes in designation for many areas.
Before & After
How to Acquire Flood Insurance in Charleston
Once the flood zone of a property is known, we then seek guidance from insurance providers. Homebuyers in AE/VE that are using a mortgage to purchase a home will almost certainly be required to carry a flood insurance policy, even if the home’s first floor is well above the base flood elevation (BFE). Those purchasing without a mortgage in AE/VE are advised acquire a flood policy as well.
Homes that are minimal risk in AE – that is, elevated well above the BFE – may see rates as low as $500/year. Older homes at or below BFE may see rates double, even triple that, or more. Sometimes the risks and costs are acceptable, sometimes they are not.
Homeowners in an X flood zone may also purchase flood insurance, often for very reasonable rates.
While the FEMA flood zone maps indicate the BFE of an area, they must be paired with an assessment of the home itself – that is, how high the first floor is above the BFE. The instrument that insurance companies use is the Flood Elevation Certificate – an official document from a licensed surveyor indicating the exact height of the structure.
Most flood insurance policies – and indeed for a long time the only policies – are underwritten directly by FEMA to buffer insurance losses and keep premiums affordable. These rates are standardized based on BFE and elevation certificates; older homes without an elevation certificate can also acquire a pre-FIRM rate, though often it’s worth the expense to obtain an elevation certificate for a potentially lower rate.
FEMA policies cover flood damage to the building and its components, capped at $250,000 – while many homes are valued above this amount, flood damage rarely affects the entire home, such as may be the case in a fire. Contents and personal belongings of the home are also covered, capped at $100,000.
Private market policies
Over time the NFIP provided some stability to flood insurance markets, and insurance providers began to offer their own non-FEMA policies. Owners of some higher valued homes may wish to purchase coverage above limits of a FEMA policy, and can now purchase supplemental flood insurance from a number of providers in addition to a FEMA policy.
In recent years we have begun to see some of these private market policies with rates that are competitive or even better than FEMA policies – so shop around.