Prof. Daniel Schwarcz Quoted by CNBC About the Lack of Flood Insurance Coverage

Professor Daniel Schwarcz was quoted by CNBC about how the recent catastrophic flash flooding in Texas underscores the importance of flood insurance. In addition to over the 100 lives lost, damage and economic losses due to the flooding are estimated to be $18 to $22 billion. Homeowners insurance policies typically explicitly exclude floods, requiring separate flood insurance coverage with only about 2.5% of homeowners in Kerr County having flood coverage. Nationwide, about 3.3% of households had a government flood insurance policy, but experts say many homeowners would benefit from such coverage. Professor Schwarcz said the reason homeowners insurance doesn't cover floods is that insurers tend to avoid covering risks that produce “highly correlated losses” that can be “catastrophic in nature.” Floods are one such disaster, as are earthquakes. He added, “When it affects one person dramatically, it often affects many, many people dramatically.”