Devastating flooding in California has highlighted that most households are not covered for the risk and that even those participating in a government-backed scheme may be underinsured. 

Catastrophe risk modeller Moody’s RMS says economic losses are estimated at $US5-7 billion ($7-9.8 billion), while insured losses are likely to reach $US500 million ($703 million) to $US1.5 billion ($2.1 billion). 

The insured losses estimate includes National Flood Insurance Program (NFIP) and private market claims, with the low take-up of cover affected by issues including underestimations of risk levels, outdated hazard information and misconceptions over homeowner policy cover. 

The number of state households with flood insurance stands at less than 2% and as of August only 193,281 residential NFIP policies were in place, a decline of around 5% compared to a year earlier, Moody’s RMS says. 

The flooding caused by a series of extratropical cyclones and an “atmospheric river” was exacerbated as water swept over compacted soils hardened by an extended period of drought. 

AM Best says flood cover in California is disproportionately low by several measures and even homes protected by NFIP insurance may still be underinsured. 

The NFIP is limited to $US250,000 ($351,530) per residence, well below California’s median home value of nearly $US685,000 ($963,192), the second-highest in the country. 

Private flood insurance has historically been profitable for California’s top private flood writers, but the damage from the latest storms may be enough to wipe out several years of good results, AM Best says. 

“The current flooding in California looks to be the worst in the state’s history and will be a significant test for the state’s private flood insurance market as a whole as to capacity and underwriting standards,” it says.