Texas Insurance Department Recommends Flood Disclosure on Property Policies

By | January 9, 2019

In its 2018 Biennial Report, the Texas Department of Insurance made several recommendations to the legislature regarding issues the agency believes are worth looking at by lawmakers in the 2019 legislative session.

One, at least partly in response to the massive flooding that occurred during Hurricane Harvey in 2017, concerns the requirement that if a property insurance policy does not include flood coverage the policy must include a prominently placed disclosure informing the consumer that coverage for flood damage is not included.

TDI stated in its recommendations that this could be facilitated by either requiring the agency “to adopt rules for such a disclosure or by providing specific language in statute for the disclosure.”

The department explained that while properties situated within Federal Emergency Management Agency (FEMA)-designated 100-year flood plains are required to have flood insurance in order to secure federally-backed mortgages, there is otherwise no requirement to secure coverage for flood damage to a property. More than half of the homes flooded by Harvey were located outside of federally designated flood zones and most of those properties didn’t have flood insurance, the department noted. Additionally, even some owners and renters of properties within flood zones were unaware that they might need flood insurance, TDI said.

“At least six states (Florida, Louisiana, Minnesota, New Hampshire, New York, and Washington) have adopted laws requiring that property insurance policies include a disclosure that the policy does not cover flood damage,” TDI reported. Stating that Texas, with its propensity for flooding even in areas not officially deemed to be at high risk for flooding, the agency said the Lone Star state “could benefit from a similar requirement.”

TDI said if legislation were passed to requires such notice, it “would work with the industry and consumer groups to develop and test a notice written in plain language.”

At least one piece of legislation has been filed to require flood insurance disclosures in property policies. In December 2018, Rep. Mary Ann Perez of District 144 in Pasadena filed House Bill 283, which “would require all insurers that issue commercial or residential policies that don’t provide coverage for flood losses to include the following statement on top of the policy’s declaration page: ‘WARNING: THIS POLICY DOES NOT PROVIDE COVERAGE AGAINST LOSS CAUSED BY FLOODING.'”

The flooding in Texas during Hurricane Harvey was unprecedented and monumental. In “Eye of the Storm,” Report of the Governor’s Commission to Rebuild Texas, released in November 2018, the commission states: “Flooding covered an area of southeast Texas the size of the entire state of New Jersey. Cedar Bayou on the outskirts of Houston saw nearly 52 inches of rain; about 11,000 square miles of the region received at least 30 inches. Entire cities were cut off by flooded rivers and bayous.”

Harvey caused nearly 780,000 Texans to evacuate their homes, according to FEMA estimates. Deemed a 1,000-year event for Houston, the storm ultimately caused around $125 billion in damage in throughout the state.

The state’s 86th Legislature convened on Jan. 8.

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