Flood insurance can be purchased from private companies

As part of the notification procedure in making a loan, lenders must inform prospective borrowers of the availability of flood insurance coverage from private insurers as well as through the National Flood Insurance Program (NFIP). In particular, owners whose properties are worth more than the maximum limits insured by the NFIP often turn to private insurers if they want additional coverage. (NFIP limits are $250,000 for home dwellings and $500,000 for businesses).
But if a person purchases a property without taking out a mortgage or chooses, after their mortgage is paid off, to insure their property against flood for the first time, or are not in a flood zone, they may not be aware that private flood insurance is available.
The quotes from these private surplus lines companies are often less than premiums for a NFIP policies, but the coverage, deductibles, exclusions, conditions, may also be different. Consumers are cautioned to compare not only premiums of policies but also the amount of coverage, deductibles, exclusions, and all policy conditions.
Sometimes the difference in premiums is substantial and sometimes only $100 to $200 difference, so the homeowner or business owner should seriously consider whether the savings are worth any differences in coverage and any risk assumed by being insured by a surplus lines company. Ask your insurance agent for their guidance.
The Journal asked both FEMA and a local independent insurance agency, Integrity Insurance, for information on private flood insurance. Their answers follow.

FEMA position on private flood insurance
Provided by FEMA representative Kathy Graf, Hazard Mitigation/NDRS, FPM&INS Specialist; Additional information was obtained from a National Flood Insurance position statement referenced by Ms. Graf.
“Flood insurance coverage under the National Flood Insurance Program (NFIP) may be purchased through an insurance agent who will obtain the policy either directly through the NFIP or through an insurance company that participates in the NFIP. Flood insurance that provides the same level of coverage as a standard flood insurance policy under the NFIP may be available from private insurers that do not participate in the NFIP. Individuals should compare the flood insurance coverage, deductibles, exclusions, conditions, and premiums associated with flood insurance policies issued on behalf of the NFIP and policies issued on behalf of private insurance companies and contact an insurance agent as to the availability, cost, and comparisons of flood insurance coverage.
“Some private companies write flood polices that insure amounts in excess of the primary NFIP policy. Additional flood coverage protects beyond the policy limits offered through NFIP policies. (The NFIP limit is capped at $250,000 for home dwellings and $500,000 for businesses). Some of those companies have written private flood insurance in Louisiana in the past.
“The private flood insurance companies are regulated by State Departments of Insurance and not by FEMA. It should be noted that as a non-user of private flood insurance, FEMA has no relationship or experience with any of the private flood insurance companies or their products, while lending institutions and states do. Therefore, FEMA is not in a position to offer advice regarding the private flood insurance industry.
“FEMA recognizes the necessity for an increasingly viable private flood insurance market to coexist with the National Flood Insurance Program (NFIP). In fact, the NFIP would not exist today if a private flood insurance market had been consistently available to meet the needs of consumers and the regulated mortgage lending industry.
“It is in the interest of all stakeholders for private flood insurance availability to increase to provide consumers with choices, excess coverage above NFIP limits, and flood insurance where NFIP coverage is not available.
“The rates of these private insurers, called surplus lines companies, are regulated in the state where their headquarters are located. To do business in LA, they must register and meet eligibility and financial requirements. If the companies fail, their claims will not be paid by the state’s guaranty fund.
“FEMA has no relationship or experience with any of the private flood companies or their products and therefore is not in a position to offer advice regarding the private flood insurance industry.
“FEMA recognizes the necessity for an increasingly viable private flood insurance market to coexist with the NFIP. In fact, the NFIP would not exist today if a private flood insurance market had been consistently available to meet the needs of consumers and the regulated mortgage lending industry. It is in the interest of all stakeholders for private flood insurance availability to increase (in order to) provide consumers with choices, excess coverage above NFIP limits, and flood insurance where NFIP coverage is not available.”

Statement by local insurance agency, Integrity Insurance
“”Flood insurance in the US is mostly offered by the National Flood Insurance Program (NFIP) for buildings in over 2,200 participating communities, with some private flood companies joining the flood marketplace in selected states.
Generally private flood insurance is sold as a surplus lines product underwritten by private insurance companies or by syndicates backed by Lloyds of London. Private flood insurance coverage currently must meet the standard of NFIP flood coverage to be accepted by federal lenders. Federal lending regulations require properties identified in the high risk flood zone be covered by flood insurance for a federally-backed mortgage to be extended. Private flood insurance policies may offer extended coverage beyond that offered by the NFIP flood policy.
“Property owners now may have a choice to shop for a flood insurance policy that meets their needs—more coverage and deductible options mean better solutions for the customer.
“NFIP has been one size fits all since 1968….but now private flood policies offer higher coverage limits, expanded coverage beyond the building and contents (such as additional living expenses or loss or rents, or other structures) and various deductibles for an improved policy with premiums that match the coverage.”
“It is important to note that the NFIP is available to all structures in a participating community while private flood policies are underwritten individually and offered to selected risks only as determined by the carrier.
“At the end of the day, the NFIP flood policy may be the best available option for those properties evaluated to be at highest risk for flooding and not insurable by the private flood insurance products.”

Editor’s note: FEMA’s “Mandatory Purchase of Flood Insurance Guidelines” booklet previously provided to lenders and consumers has been rescinded. FEMA’ states, “This document will no longer be offered and will not be updated in the future. Lenders should consult their respective regulatory agency for information regarding compliance with the mandatory (flood insurance) purchase requirements.”

 

By Helen Turner