DISASTER PREPAREDNESS
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Household Financial Resilience Amidst Natural Disaster: A Primer on Flood Risk
By Russell Brockett, CFA®, CFP®
Natural disaster preparedness, similar to buying insurance, is something you engage in to hedge a risk that households hope doesn’t happen. But when natural disasters do occur, their social and economic household impacts can have lasting effects on your clients. According to data from Swiss Re, in 2023 natural disasters had a global annual economic cost of $280 billion with insured losses of $108 billion. And on a household level, evacuation costs alone (e.g., gas, transportation, food, lodging, supplies) can run into thousands of dollars, with additional expenses for labor/goods rising after a disaster-related supply shock. Perhaps at the most inopportune time, income is also reduced after a disaster, as places of work and business traffic are slowed.
What can financial planners do to help clients manage costly natural disaster risks? This article focuses specifically on flood risks and potential next actions for clients. We first focus on floods because they are the costliest and most common type of natural disaster (DHS 2024) but can dive into other types of natural disaster risks in future articles.
Flood Risk Fundamentals
Stated simply, a flood is an excess of water across at least two acres or two adjacent properties that are normally dry (FEMA 2025) and whose water originated from outside the home (e.g., mudflow, tidal waters, runoff). Since 1998, 99% of counties have been impacted by a flood, illustrating this is not just a coastal problem. Additionally, just an inch of water can cause $25,000+ damage (FEMA 2023). Most households are financially exposed to flood risks, as only 4% of Americans have flood insurance, which is not covered by standard homeowner insurance policies (Yang et al 2024).
Should Clients Buy Flood Insurance?
Flood insurance purchase is mandatory for households with mortgages from government-backed lenders in a 100-year floodplain and risk disclosure is generally required for purchased homes/businesses in a special flood hazard zone (Resources for the Future 2020). Property disclosure of past flooding outside of a special flood hazard area, however, is more limited, despite the fact that 40% of flood insurance claims filed are outside “high-risk” flood areas (FEMA 2025). This lack of transparency in access to flood risk data for homeowners is counterintuitive given other less expensive assets we buy like automobiles have readily available damage histories—making it more difficult to decide whether flood insurance premiums are worth the cost. This is an opportunity for a financial planner to provide guidance.
The government National Flood Insurance Program (NFIP) provides property limits up to $250,000 and up to $100,000 for contents. Hence, if your clients have more expensive real estate, they may want to consider private or surplus line flood insurance. There are increasingly more flood insurance options in the private market now that the NFIP partners with private insurers (first $250,000 of property risk still borne by NFIP), so clients should thoroughly review the options beyond the government program.
Evolutions in Flood Risk Assessment
FEMA’s recent move to a Risk 2.0 framework has begun changing the nature of flood risk assessment. Whereas in past decades FEMA leveraged static flood maps based on historical data, Risk 2.0 is a more complex integrated approach tied to probability of flooding but also community vulnerability and economic impact. Financial planners now have an opportunity to support clients through dynamic personalized guidance on how much to spend on building structure improvements for risk mitigation/premium discounts or to analyze expectations of premium changes with forecasted climate change. While it might be assumed that insurance brokers would provide this service, the more transactional nature of the insurance business makes fiduciary financial planners a potentially more logical resource to help consumers evaluate the cost-benefit tradeoff of long-term investments like building improvements for flood damage reduction. FEMA’s Floodsmart website provides quality resources regarding pricing expectations and risk level for those who seek it. (Note: As of this writing, FEMA is taking down many of its resources, citing President Trump’s executive orders.)
Creating a Disaster Checklist
Having a disaster plan in place is central for client financial resilience. This includes creating a personal property inventory and an easily accessible list of account numbers, personal records (driver’s license, marriage certificates, etc.), and financial records (insurance information, investment records, income tax statements, etc.).
Having three to six months or more of emergency savings to withstand the flood impact is also crucial as government disaster assistance is not guaranteed; federal assistance requires a presidential disaster declaration. Plus, funds from flood insurance payments or SBA loans can take months to hit client accounts even when filed correctly.
Financial planners can add value to clients by being aware of the disaster resources in their local community and the potential disaster grants available to the households they serve. Creditors will often delay payment penalties if informed of a disaster and there are numerous IRS provisions designed to minimize the tax burden of disaster-affected households. Consider quarterbacking the disaster planning efforts for the households you serve.
Conclusion
Given we have seen several recent high-profile historic floods (e.g., 2024 Hurricane Harvey in the Southeast) and other historically bad natural disasters (e.g., 2025 wildfires in California), clients may be more receptive to implement natural disaster resilience practices than when it was less salient. At your next client meeting, regardless of where you live, consider having a conversation around the natural disaster risks that affect your client community and how you can help.
References
DHS (Department of Homeland Security). 2024. “Natural Disasters: Floods.” www.dhs.gov/naturaldisasters.
Federal Emergency Management Agency. (accessed 2025, January 21). Fact sheet: Myths and facts about flood insurance. FEMA.
FEMA. 2023. “FEMA Fact Sheet May 2023: Everyone Needs Flood Insurance.”.
Resources for the Future. (2020). Perspectives on flood insurance demand outside the 100-year floodplain. Resources for the Future.
Swiss Re Institute. (2023, December 12). New record of 142 natural catastrophes accumulates to USD 108 billion insured losses in 2023, finds Swiss Re Institute. Swiss Re.
Yang, John, Andrew Corkery, and Claire Mufson. 2024, October 6. “Helene’s Destruction Puts Spotlight on Costly Gaps in Homeowners Insurance.” PBS.
Russell Brockett has been supporting financial planners with investments, messaging, and practice management support since 2013. He is a CFA® charterholder and CFP® professional who is currently pursuing a Ph.D. in financial planning at Kansas State University.
image credit: Adobe Stock Images
