Flood Risk Creates Credit Challenges for Eastern & Southern US Insurers

Hurricane Helene’s recent destruction underscores the rising flood risk impacting local economies and tax bases in the Eastern and Southern United States, according to Moody’s Ratings. Beinsure reviewed the report and highlighted the key points. Analysts warn that both coastal and inland flooding events are becoming more frequent and severe, escalating credit challenges such as rising insurance costs, declining property values, and increased demands for climate adaptation investments.

Historically, coastal communities in these regions have contended with hurricanes, heavy rainfall, and storm surges. Efforts to prepare for and mitigate sea level rise have been ongoing.

However, inland areas now face growing flood risks, according to our research about Top Risk in Insurance. Changes in land use, coupled with more frequent extreme rainfall, have led to higher annual flood losses.

Inland areas are increasingly vulnerable to flooding from both tropical storms and severe convective storms, yet the number of homeowners who purchase flood insurance is dismal, reflecting consumer misunderstandings about the coverage, according to the Insurance Information Institute’s Report.

Floods can happen anywhere — just one inch of floodwater can cause up to $25,000 in damage. Most homeowners insurance does not cover flood damage. Flood insurance is a separate policy that can cover both buildings and contents.

Floods can happen anywhere — just one inch of floodwater can cause up to $25,000 in damage. Most homeowners insurance does not cover flood damage. Flood risk insurance is a separate policy that can cover both buildings and contents.

The devastation wrought by Hurricane Helene across a 500-mile swath of the U.S. Southeast, including Florida, Georgia, the Carolinas, Virginia, and Tennessee, is just the latest example in recent years of the growing vulnerability of inland areas to flooding from both tropical storms and severe convective storms.

Property remains underinsured against flood risk

Moody’s highlights a concerning trend: property remains underinsured against flood risk, leaving tax bases vulnerable to economic disruption. Analysts note that most property insurance policies exclude flood damage.

For U.S. households and businesses, federal disaster aid and insurance serve as primary recovery funds. Yet, the lack of flood insurance in high-risk areas undermines regional recovery efforts and long-term property demand.

The report states that less than 5% of residential properties across most US counties hold flood insurance. Even in high-risk coastal zones along the Gulf Coast and Eastern Seaboard, uptake rates range between 10-30%. Commercial properties fare better, with coverage rates near 50%, reaching up to 75% in select areas.

Larger corporations are more likely to supplement National Flood Insurance Program (NFIP) policies with private coverage, while smaller businesses often remain underinsured.

As of September 2024, NFIP policies declined from a peak of 5.7 mn to 4.7 mn, a nearly 20% drop, with limited replacement through private market policies.

The Incident Brief published by UNU-INWEH highlights how the interplay between the local management decisions and the global climate change magnified the hurricane’s impact.

Cities like Asheville, Black Mountain, and Chimney Rock in North Carolina; Greenville in South Carolina; Steinhatchee and Tampa in Florida; and Valdosta in Georgia bore the brunt of Helene’s wrath.

Synthetic aperture radar (SAR) analysis of satellite data by the authors of the Incident Brief revealed that between 14% and 25% of buildings in these areas suffered significant damage, underscoring the vulnerability of existing infrastructure in the U.S. to similar natural disasters and climate extremes. Many of the affected areas were in flood-prone zones, where poor urban planning and aging infrastructure exacerbated the devastation.

Our analysis demonstrates how outdated infrastructure and expanding development in high-risk areas amplify the impacts of extreme weather events

Dr. Manoochehr Shirzaei, UNU-INWEH’s Land Subsidence Analytics Lead

“Our findings highlight the urgent need for investment in resilient infrastructure and improved land-use planning,” said Dr. Manoochehr Shirzaei who led this investigation.

Hurricane Helen’s impact and insured losses

Less than two weeks after Hurricane Helene made landfall along Florida’s Big Bend as a Category 4 storm, Hurricane Milton came ashore near Sarasota, Fla., on Oct. 9, 2024, as a Category 3. While coastal residents in the Southeastern U.S. are accustomed to major storms during hurricane season, Helene in particular resulted in inland devastation that was significantly different.

In some parts of Western North Carolina and Eastern Tennessee the effects of Helene from damaging winds and flooding are still being assessed weeks after the storm, and some local governments remain unable to quantify both the damage and repairs necessary. Hurricane Milton continued across Florida, leading to flooding and nearly 120 tornadoes that destroyed properties along the state’s east coast.

Hurricane Helene alone could generate up to $7 bn in NFIP claims, including loss adjustment expenses, with over 55,000 claims filed by early November 2024.

Hurricane Helene’s projected track across Florida’s panhandle and the South has potential implications for public safety and business continuity.

Nearly 162,000 commercial real estate properties in the state have a greater than 50% probability of being exposed to wind speeds of at least 50 mph — the wind speed at which some damage is likely. The total estimated value of these properties is $426 bn, according to Moody’s estimates.

161,856 commercial buildings have an estimated value of $426 bn

Estimates of total property value and potential damage are limited to the properties covered in Moody’s commercial real estate database, which is a robust dataset of millions of properties but is not necessarily fully comprehensive in all cases.

Methodology: This analysis estimates exposure of commercial real estate properties to wind hazard only, based on Moody’s RMS HWind data using the ExposureIQ™ app to identify the likelihood of locations experiencing 3-second peak gusts above different threshold wind speeds.

This analysis does not consider flooding or storm surge effects and actual damage to these properties will be based on a range of factors, including asset-level and regional risk mitigation measures. Further, the exposure values are based on rough approximation of property values using average price per unit or square foot for recent transactions in the geographic region.

Planning is critical component to prepare for and recover from major storms

Generally experienced management teams operating in communities along the Atlantic and Gulf coastlines, where extreme weather is prevalent, are usually adept at maintaining documentation and working with FEMA for reimbursements, have well-tested emergency response plans, and operate infrastructure that could be more adaptable and resilient to hazards, according to S&P report.

Tthe wind and flooding damage from Hurricane Helene set a new bar for inland destruction and raises questions regarding the resilience of smaller, more vulnerable issuers, particularly if extreme weather becomes more frequent and severe.

Smaller issuers may be the most vulnerable following a major storm, primarily because of their inability to spread costs over a larger tax or customer base. Regardless of an issuer’s size, we review them individually following destructive storms to determine potential rating influences.

Factors that can help support credit quality include:

• Generally strong liquidity and/or reserves to cushion the disruptions in revenue collections and cover the costs of the emergency response. Proceeds from insurance claim payments may also provide an important source of liquidity.
• Availability of federal and state emergency assistance. Natural disasters typically pose immediate dilemmas for local governments, which bear the initial responsibility for responding to the event, but state and federal aid is also generally available.
• FEMA funding for the majority (historically 75% to 90%) of disaster-related costs. However, the federal government’s ability to provide this level of assistance in the future is unclear because of its ongoing budget issues and the escalating costs of disaster relief.

The convergence of Hurricane Helene and the looming dock strike on the East and Gulf Coasts is a worst-case scenario for supply chain operations. With the storm making landfall in Florida tonight, the urgency to expedite cargo movements through ports like Miami and Jacksonville is at an all-time high.

John Donigian, Senior Director of Supply Chain Strategy at Moody’s

“However, the weather will complicate those efforts significantly. These distributions highlight the need for value at risks insights as VaR allows companies to quantify the financial exposure from both the natural disaster and potential strike-related delays, providing a clear, data-driven framework for decision-making under uncertainty. It’s a powerful tool for managing compounded risks and ensuring resilience in the face of such unpredictable challenges”, John Donigian says.

National Flood Insurance Program paid $1.4 bn

The National Flood Insurance Program (NFIP), administered by FEMA, has paid policyholders over $1.4 bn for flood losses stemming from Hurricane Helene recovery, with over 56,000 policyholders having filed claims following the storm’s landfall.

FEMA estimates Hurricane Helene could potentially result in flood insurance claims losses between $3.5-7 bn. The losses include flood insurance claims received from 6 states, with the majority of claims coming from Florida.

Of the amount paid, more than $520 million of this amount has been in the form of advance payments, where policyholders may receive up to $20,000 prior to a visit from an insurance adjuster. Advance payments give policyholders flexibility to begin working on their recovery as they work the remainder of their claim.

Certain NFIP policyholders in Florida, Georgia, Kentucky, North Carolina, South Carolina, Tennessee and Virginia who had flood damage from Helene had until Nov. 26, 2024, to renew their policies, an increase from the standard 30-day renewal grace period. Certain policyholders in Florida have until Dec. 10, 2024 to renew policies due to an additional extension from Hurricane Milton. 

I am deeply committed to helping our policyholders prioritize financial resources to help speed their recovery efforts in the wake of Hurricane Helene’s destruction

Jeff Jackson, the interim Senior Executive of the NFIP 

“By extending the grace period for renewing policies, we are giving our policyholders some breathing room and demonstrating that the NFIP stands with them at time of tremendous heartache and difficulty,” Jeff Jackson said.

Lack of insurance forces property owners to depend on federal aid

Moody’s warns that insufficient insurance coverage forces many property owners to rely on federal aid, which covers only a portion of repair costs. Homeowners without adequate funds often resort to debt, sell properties at distressed prices, or face closures.

Over time, regions with recurring flooding may see reduced property demand and declining values, especially for buildings without modern flood-resilient features.

Governments are exploring various solutions to address these challenges. Proposals include mandatory flood insurance requirements, parametric or community-based insurance models, increased state and federal aid, and investments in property buyouts or home resiliency projects. These efforts aim to bridge the insurance gap and bolster economic stability in flood-prone areas.

Helene is expected to be larger than other recent hurricanes, bringing with it the ability to cause a larger footprint of damaging wind, storm surge, and rainfall.

Generally, the 2024 season has been at or below the 1991–2020 climatological average in number of named storms, hurricanes, major hurricanes, and accumulated cyclone energy – and below the lofty expectations of a hyperactive season

Jeff Waters, Director, North Atlantic Hurricane Models, Moody’s

“Still, we have seen three landfalling U.S. hurricanes already, with an upcoming fourth in Helene. Additionally, several mid-season outlooks are anticipating above average activity for the remainder of the season”, Jeff Waters said.

A number of states across the US are also adopting greater disclosure requirements in real estate transactions regarding past incidents of flood, and private companies are beginning to roll out more tools to help prospective buyers understand flood risk (see Top 10 Costliest Insured Events).

All of these solutions carry a cost, and may make living in flood-vulnerable areas less affordable and less desirable, negatively impacting property values, local economies, and government tax revenues relative to lower risk areas

The water damage – coastal storm surge inundation and inland flooding – is catastrophic. Many parts of the highly vulnerable Tampa Bay area, for example, rewrote their record book for storm surge / inundation heights. Areas from Sarasota to Fort Myers and in the Big Bend (>15 feet) were also heavily affected by inundation.

FAQs on Hurricane Helene’s Impact and Rising Flood Risks

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QUOTES: John Donigian – Senior Director of Supply Chain Strategy at Moody’s, Jeff Waters – Director, North Atlantic Hurricane Models, Moody’s, Dr. Manoochehr Shirzaei – UNU-INWEH’s Land Subsidence Analytics Lead, Jeff Jackson – the interim Senior Executive of the NFIP 

Edited by Nataly Kramer