By Cedric Stephens, ContributorQUESTION: CAN I buy insurance against flood by itself or is it sold with other risks? I live on the north coast. My family home is located in an area that is prone to flooding. I am not too worried about fire and hurricane. The house has concrete roof, walls and floors. What would it cost to insure my house against flood?
- K.K.,
St. Ann's Bay P.O.
ANSWER: Consumers and insurers often do not speak the same language. This is one of the root causes of conflicts between the two groups. Buyers believe that they and insurers speak their tongue. Insurers, on the other hand, assume that consumers know theirs. Between these two positions, there is lots of room for mix-ups and squabbles. I will first have to explain what insurers mean by the term flood, in order to answer your questions.
FLOOD INSURANCE
There are three kinds of flood in the lingo of insurers. The first is flood caused by hurricane or windstorm. It happens directly as a result of a storm or a hurricane. It includes overflow of the (storm surge) and inundation from normal and man-made water courses. They form part of the winds linked to hurricanes or storms. The second type of flood is associated directly with the tremors of an earthquake. It includes overflow of the sea (tsunami). Flooding arising directly from an earthquake is considered to be a part of the insured peril earthquake. Insurers in Jamaica refer to the third type of flood rather loosely, as "full flood." This sets it apart from the other two. Full flood is defined as the overflowing of rivers, gullies (man-made and natural), drainage channels and other water courses. This type of flood usually the result of excessive rainfall or changes in the weather pattern. Because of this, rivers or gullies are unable to cope with the run-off of surface waters. I assume that this is the type of flood in which you are interested.
Flood insurance is sold bundled. This means that you cannot buy flood linked to hurricane separately from wind damage associated with that peril. The two parts are sold together. The same applies to flood resulting from earthquake. Additionally, full flood is not sold by itself. It can only be bought as part of a package with other perils. The same goes for the two parts of earthquake and hurricane. They are only sold separately in a bundle with insurance against fire.
BUNDLED RISKS
When insurers buy hurricane and earthquake reinsurance, these two perils are sold bundled with other risks. The same applies to full flood. Insurers would therefore be very stupid to unbundle them when selling them to consumers. By unbundling the risks, they would be opening up a can of worms. Only persons whose property has been exposed to hurricane damage would buy hurricane insurance.
FULL COVERAGE FOR ALL RISKS
Earthquake and flood insurance would be no different. Consumers would be 'selecting' against insurers. This would be against one of the basic principles of insurance. It says that the losses of the 'few' are to be paid out of the contributions of the 'many'. In my opinion, insurers would not cover your house only against loss or damage caused by full flood.
Your best bet would be to buy coverage against a full package of risks including full flood. This can be done either under a household or a fire policy. The former coverage would include a wide range of perils. A typical list would include: fire, lightning, hurricane, explosion, flood, earthquake, burglary, theft, riot and strikes, malicious persons, damage by aircraft and bursting and overflowing of water tanks apparatus and pipes. If you opted for coverage under a fire policy, you could limit coverage to fire, hurricane, earthquake and flood. How much you end up paying will depend on how insurers assess the risk of flood. In a "normal case" I would expect that the rate on which the premium would be based would range from $6 to $12 for each $1,000 of insured value. Bear in mind also that insurers are likely to impose a deductible (or excess) for flood damage. This is quite normal for losses caused by natural disasters in Jamaica and other parts of the Caribbean.
Cedric E. Stephens provides advice on risks and insurance. If you need free information or advice to solve a problem, write to The Financial Editor or, contact Mr. Stephens directly at aegis@cwjamaica.com.
