How to Assess Private Flood Insurance

Did you know? Private flood insurance options are becoming more common in the marketplace.

While the majority of homeowners still purchase flood insurance through the National Flood Insurance Program, which is administered by the Federal Emergency Management Agency, private flood insurance options are becoming more common in the marketplace.

A standard homeowners policy doesn’t offer protection for flood damage so it is important that a homeowner that lives in a flood prone area purchase a separate flood insurance policy.

The National Flood Insurance Program (FEMA.gov) was created in 1968 and has grown into the default flood insurance provider, but huge storms such as Hurricane Katrina in 2005 and Hurricane Sandy in 2012 put the federal program deep into debt due to massive payouts after these storms.

This has required the government to make changes to the program that will help stabilize it and reduce the subsidies that kept flood insurance premiums artificially low for years. While Congress reversed some of the changes in 2014, rates are still rising and in some cases (oceanfront homeowners) the rate increases have been extremely dramatic.

Homeowners Turn to Private Coverage

Due to the rate increases in the federal program, some insurers are starting to write flood insurance policies in certain markets and Congress is eyeing legislation that will encourage insurance companies to get back into the flood insurance game. Insurers are employing technology and improved building practices to better assess the flood risk of properties and properly price their flood insurance products.

Despite the willingness of some insurers to write flood policies, they still make up a pretty small portion of the market. According to Florida’s Office of Insurance Regulation, there are only 3,000 private flood insurance policies out of the 1.8 million flood policies in the state.

Florida is number one in the country when it comes to federal flood insurance policies and in 2014 they encouraged insurers to start writing policies in the state which had largely been abandoned by private flood insurers.

Insurers writing flood insurance policies in the state may be focused on a specific risks with some specializing in high-risk areas while others focus on lower risk homeowners.

What Are the Differences?

There are some important differences between private flood insurance and National Flood Insurance Program policies:

• Coverage Levels: Policies written by the National Flood Insurance Program limit coverage levels for structures at $250,000 and your personal belongings are insured up to $100,000. These policies will not cover loss of use expenses such as hotels and restaurants if your home is unlivable.
  Private policies on the other hand are free to write whatever coverage limits you are willing to pay for and they are conformable writing. These policies may offer loss of use coverage as well.

• Approvals: If a community participates in the National Flood Insurance Program, almost no one can be turned down for a policy. These rules do not apply to private insurers. They can deny homeowners they feel are too big of a risk, and even pull out of an entire community if they feel the risk factors don’t meet their underwriting standards.

Answers to a Few Common Questions

Flood insurance can be a complicated and expensive product so understanding all of your options is important. Here are a few of the more common questions homeowners have:

Is it possible to switch from a private policy back to a federal policy?

Yes, if you are unhappy with your private policy or the rates go up and the policy becomes unaffordable, you can switch back to a federal policy. However, if your property had “grandfathered” rates under the federal policy, you will lose those rates and your new premium will more accurately reflect the true cost of insuring your property. In short, your federal rates will be going up.

Is there a waiting period for private coverage?

Federal policies require a 30-day waiting period before coverage goes into affect. Private policies on the other hand may not have any waiting period at all or in most cases they will be much shorter. The waiting period can vary and insurers can change their regulations, if for example, a hurricane is headed towards your area.

Should I research private insurers?

Just like when you are shopping for car or home insurance, you should do your due diligence before signing on the dotted line of a new policy. Check their ratings on websites such as A. M. Best or Fitch, both of whom rank insurers financial stability. If you are uncomfortable with what you find out, keep shopping.

Flood insurance is a necessity if you live in a flood zone so make sure you shop all of your options, both federal policies and policies offered by private insurers to make sure that you are getting the best policy at the best price. For Flood Insurance Quotes, please give us a call at 888-620-1954.