Most home insurance policies do not include flood insurance coverage. Consequently, owners must generally obtain a second policy if they wish to insure themselves against the risks of flood due to the rising waters. This raises the question of why the insurance company does not include flood cover?
The main reason is that a major storm can cause billions of dollars in flood damage. The risk is so great that most insurance companies are unwilling to offer this coverage. A good example is that when Hurricane IKE struck in 2008, the National Flood Insurance Program (NFIP) paid over 44,000 flood claims totaling over $ 2 billion in Texas alone. A more recent example is Hurricane Sandy in 2012, where losses due to the flood policy are estimated at more than $ 12 billion.
Another reason why risk insurance policies generally do not provide flood coverage is that insurers are reluctant to compete with companies with the federal government's NFIP program. Especially since the government program actually sold NFIP pollicy at a price so low that the program has accumulated billions of losses.
The national flood insurance program was created by the federal government in 1968. Public demand for a government flood insurance program began in the early 1960s. Widespread flooding along the Mississippi River has led most private insurance companies to exit the flood insurance market. The vast majority of flood policies are now issued with the NFIP.
In my state of Texas, there is actually a homeowners policy that includes flood protection. However, this mainly concerns mobile homes, and carriers generally only offer flood protection in areas with low risk of flooding.
Historically, NFIP has offered flood policies at a cost lower than the actual cost of coverage. Taxpayers subsidize the low rates offered by the NFIP. However, the significant losses of the NFIP lead to pressures to make the program more autonomous. In 2012, the Biggert-Watters reform law was adopted. This brought some changes which resulted in higher costs for many NFIP policies. There is a very good chance that NFIP rates will continue to rise as the government tries to reduce program losses. As the cost of government flood policy increases, it becomes more likely that private insurers will be able to start offering some flood protection with their risk policy in the future.