Insuring against natural disasters: What Eagle County residents can do
Local insurance agents give advice on supplemental insurance plans
After the July 22 mudslides in Avon left some residents in heavily impacted housing complexes with significant damage not covered by their insurance policies, Lee Froman, an insurance agent with Farmers Insurance, said he got a lot of calls from concerned homeowners.
“It kind of flows with the scare of it,” Froman said. “For that week or two after the storm, the conversations were prevalent, and people wanted quotes on it, and now it’s died down again.”
The rise in global temperatures is causing an increase in wildfires throughout the West as well as floods and mudslides or mudflows.
While homeowners’ insurance plans are required to cover fires and wildfires, floods, flows, mudslides and landslides are all listed exemptions on most “all risk” insurance policies, said Will Comerford, an insurance agent with State Farm who has been working in the valley for more than 40 years.
Other listed exemptions on the standard homeowners’ policy are “normal wear and tear, deterioration, vermin, rodents, war, radiation, smog, settling, earthquakes, mudslides, floods,” Comerford said.
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Homeowners who wish to be covered in the event of an exempted natural disaster must speak with their insurance agent about purchasing a supplemental policy, he said.
In the case of floods, the Federal Emergency Management Agency runs a special program that works with insurance providers across the country to provide flood insurance that is underwritten by the U.S. government. This essentially means that when insurance companies have to pay out big claims to homeowners impacted by flooding, they are reimbursed by the federal government.
“The federal government came out and said, ‘OK, since private insurance companies are no longer going to cover floods and we have banks that are financing these homes, we’re going to step in,’” Comerford said.
FEMA’s National Flood Insurance Program mandates that all homeowners living within areas identified as historical floodplains must purchase a flood plan and offers the supplemental plan to anyone else interested in protecting their home.
Comerford said he has sold hundreds of these plans over the years, including to homeowners who did not live in FEMA-identified floodplains.
“Some people buy because they may not be in a high-risk flood zone, but they know that they read someplace that 25% of all flood-damaged homes are not in flood plains,” he said.
Here is where homeowners, and renters, should understand a few key coverage distinctions used by the insurance industry, Froman said.
What took place in Avon on July 22 was technically a “mudflow” caused by flash flooding, not a mudslide. Mudflows are covered under the FEMA flood insurance program, but mudslides, landslides and earthquakes are not.
In determining whether something is a mudflow or a mudslide, insurance providers use an analogy of chocolate milk — or a chocolate shake, depending on who you ask — and a chocolate cake, Froman said.
FEMA describes mudflows like this: “Heavy or sustained rainfall can accumulate and form a river of liquid and [flowing] mud down a hillside,” thus, chocolate milk, and covered under the plan.
Landslides, rockslides and mudslides, on the other hand, are cake. They are grouped in with earthquakes and can only be covered with other, oftentimes more costly, supplemental plans, Froman and Comerford said. Comerford said he has sold only two of those plans in his 45 years in the valley, both for wealthy property owners who wanted to be insured against everything possible.
Flood damage can be a big burden to carry without insurance. Barbara May, a resident of Beaver Bench, one of two housing complexes most heavily impacted in last month’s mudslide, estimated that her home sustained upwards of tens of thousands of dollars in damages.
She purchased a FEMA flood insurance plan five years ago but chose not to renew it about a year ago. Given last month’s mudflow, she has since decided to purchase the plan again.
“It’s well worth the money,” May said. “I don’t think we can predict where this could happen again, but it seems that the precautions for [my area] haven’t been taken. … We would have the same damage all over again.”
Residents concerned about flooding and mudflows should survey their property as well as the drainage systems in the immediate area to determine the risk posed to their home, Comerford recommended. If possible, they should think about building stone walls or landscaping barriers that might protect their home.
In the case of the Avon housing complexes, Beaver Bench and Sonnen Halde on Nottingham Road, each have below-grade, or below ground level units. That left certain units especially vulnerable, according to Avon Town Manager Eric Heil.
The next step would be to talk to your insurance agent about whether purchasing a flood plan, or other supplemental policy, is right for you.
FEMA flood plan premiums vary but are affordable relative to other supplemental plans, Froman said. He recently sold one to the resident of a complex along Nottingham Road who was concerned about the mudflow, for an annual premium of just over $560, he said.
Froman and Comerford had differing opinions around whether it should be the responsibility of local homeowners’ associations, or individual homeowners, to purchase these plans.
It is unlikely that the homeowners’ associations of condominiums or apartment complexes would purchase a flood plan for the whole building because residents on the upper level won’t want to pay to protect against something that only impacts lower units, Comerford said.
Froman, on the other hand, said that it is the responsibility of the association to do so.
“Homeowners’ associations are responsible for the exterior, right?” he said. “Well, when a [mudflow] happens, where’s that mud coming in to? It’s coming in from the outside into the inside. … I think the association should be picking it up on the entire building and including it in their dues and their overall insurance budget costs.”
So that’s chocolate milk. But there has been a slight uptick in local discussion of “chocolate cake” coverage too, namely, rockslide coverage, Froman said.
“I’ve had discussions with executives at various banks around here saying, ‘Hey, we’re starting to have a roundtable discussion and have worry of rockslides,’” Froman said. “We have tons of homes in East Vail and Wildridge and Edwards, EagleVail where there’s big rocks up on the hillside there and if one gives way and it comes down and takes out a house, what’s the exposure to that?”
“That’s being brought up more and more as natural disasters are more prevalent in the area we live in,” he said.
The insurance industry is very heavily regulated, but private insurers will often look for ways to pull out or stop offering coverage in areas with a high risk of natural disasters because they do not want to be paying out more in claims than they are receiving in premiums, said Paul Buse of Real Insurance Solutions Consulting.
This happened with California’s earthquakes and led to the creation of the California Earthquake Authority, a government-run, privately funded nonprofit that provides supplemental insurance plans similar to the flood plans offered by FEMA.
This is now starting to happen in Colorado as well, Froman said.
“The insurance industry in Colorado is extremely sensitive right now with increasing cost of labor and materials, with wildfires being kind of a natural, cyclical, annual thing, hailstorms in the Front Range, mudslides…” he said. “You’ve got carriers that just don’t want to insure in Colorado anymore because of exposures.”
“As you see more and more resistance of insuring homes in various geographical areas in Colorado, you’re going to see newer products develop whether it be private or government [coming] in and [mandating] these things to be more available,” Froman continued. “I’ve been at this agency for 15 years, and home insurance has changed dramatically over the past 15 years as natural disasters and wildfires continue to mount up.”
“I don’t think it’s anywhere in the near future within the next couple of years, but I wouldn’t discount the fact that something like that could be coming as climate change continues and as we see things that happen that create landslides, like fires in Glenwood Canyon,” he said.
Email Kelli Duncan at firstname.lastname@example.org