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In 2016, five flood-related events exceeded $1 billion in losses each with total flood losses reaching $17 billion or six times greater than overall flood damage in 2015. After borrowing another $1.6 billion from the U.S. Treasury Department to supplement the losses sustained last year, the NFIP now faces expiration in September. The program was last reauthorized in 2012 after a series of lapses and extensions that left policyholders on the fence.
Given the increase in flood losses seen, many feel the NFIP is not sustainable in its current state. There is a push to move more of the flood risk back into the private insurance market, and private sector insurance companies are now coming around to the idea that offering private flood insurance policies would be a strong sector for their balance sheets. Recently, several carriers have launched private flood insurance alternatives to the RCBAP tailored to meet the needs of condo associations located in high-risk flood areas.
All Policies Are Not Created Equal
With national flood insurance, almost anyone can buy a policy if the community participates in the national program. Private companies, depending on the regulations where they operate, may do more extensive risk analysis on a property and may choose not to offer coverage. Private companies that provide flood insurance are few and far between, and their premiums may or may not be considered affordable when compared with the federal flood coverage.
A wise insurance buyer understands the difference between penny wise and pound foolish. The premium is only one of several factors to consider when purchasing flood insurance and ignoring other important considerations can leave you dramatically exposed to loss in the event of hurricane, windstorm, and flood damage.
Your best option when considering what flood insurance to purchase – National Flood Insurance Program or privately sourced insurance – is to sit down and go over the policies with your agent. Comparing policies, understanding exclusions, and selecting a reasonable deductible can go a long way to defraying the expense of flood insurance. If you are in a low risk flood zone you pretty much have your pick. For those in higher risk zones, the options require a closer look and thoughtful examination in order to keep your coverage adequate to your assets.
Right now, we are experiencing the calm before the storm, and hoping for a long-term and timely reauthorization without any lapses. Many industry stakeholders are hoping for more of a 10-year reauthorization, whereas it’s been typically a five-year authorization.
Insiders anticipate a fix for the continuous coverage issue: “If you have a policy with a subsidized rate in a high-risk area, and then you go to the private market, that is viewed as a lapse in coverage. Therefore, if you decide to come back to the NFIP a couple years later, or the private flood carrier you have pulls out of the market, you have to go with the nonsubsidized, full-risk rates, which for some could be quite high.” The U.S. House of Representatives recently passed H.R. 1422, the “Flood Insurance Market Parity and Modernization Act of 2017,” which would clarify that a “lapse in coverage” means “not having any flood coverage at all.” In other words, if you switched to a private flood carrier’s policy, that would still count as continuous coverage.
In addition, the issue of affordability won’t be going away any time soon, and there will be continued pressure on how to fix the current program.
We will continue to stay on top of changes as they relate to the NFIP and private flood options. We recommend that you reach out to your trusted team at Gulfshore Insurance with any questions you may have. Our in-house team of experienced condo association and flood insurance professionals is available to handle your needs and provide guidance.
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