Private flood insurance gets a boost

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The National Flood Insurance Program’s (NFIP) goal to double the amount of homes insured for flood by 2023 has been characterized as a "moonshot" goal that will require private flood insurance to supplement the coverage available from NFIP. The expansion of the private market recently got a boost when regulators issued new federal rules for private flood insurance, making private options more acceptable to lenders.

The National Flood Insurance Program’s (NFIP) goal to double the amount of homes insured for flood by 2023 is one that John Dickson characterizes as a “moonshot” goal. In Insurance Journal, he makes the case that reaching that ambitious goal will require private flood insurance to supplement the coverage available from NFIP, which has a complex underwriting process and “requires a higher level of experience and education typically associated with specialized agents, particularly for homes exposed to higher risk of flooding.”

The expansion of private flood insurance options and acceptability recently got a boost: Independent Agents reports that regulators have issued new federal rules for private flood insurance.

“The rule implements a portion of the Biggert-Waters Flood Insurance Reform Act that defines “private flood insurance.” The definition was intended to help stimulate growth in the private flood insurance market by mandating that private insurance policies which meet certain standards can satisfy federal flood insurance purchase requirements for homeowners in special flood hazard zones.”

IA notes that although the rule doesn’t solve all issues related to the acceptance of private flood insurance, it is a step forward. Notably, “the rule does not impact the acceptance of private flood insurance on Federal Housing Administration (FHA)-backed loans.”

Also see the coverage of this rule in the ABA Banking Journal: Agencies Issue Long-Awaited Final Rule on Private Flood Insurance Acceptance, which notes that the rule will be effective on July 1, 2019. The article states:

“As recommended by ABA, the final rule contains a “compliance aid” to facilitate lenders’ acceptance of such private policies. As strongly urged by ABA, the rule also permits lenders to accept private policies that do not meet the statutory criteria but in the judgment of the lender offer sufficient protection for a designated loan consistent with general safety and soundness principles. Finally, the final rule permits lenders to exercise discretion to accept certain plans providing flood coverage issued by “mutual aid societies” such as agreements by Amish communities to cover flood losses to members’ property.”

Meanwhile, consumer advocate Steve Pociask calls for a fix to the NFIP: It’s Time for Congress to Reform the Flood Insurance Program.

Since September 2017, lawmakers had passed nine short-term extensions to the National Flood Insurance Program (NFIP), which covers more than 5.1 million flood policies throughout the country and provides vital assistance to disaster-stricken communities. On December 21, 2018, they did it again, voting to keep the program afloat until May 31, 2019.

Kicking the can down the road may be politically expedient, but Congress can’t put off fundamental reform of the NFIP forever. The NFIP’s financial condition continues to deteriorate with no end in sight; it owes $20.5 billion to the U.S. Treasury and its operating expenses outstrip its revenues from premiums by about $1.4 billion annually — and that’s assuming that no major disasters like Hurricane Katrina or Superstorm Sandy strike.

He summarizes several pieces of legislation that would address some of the problems and put NFIP on firmer financial footing.

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About Renaissance Alliance

Renaissance Alliance is the premier alliance for independent property casualty agencies. Founded by agents for agents in 1999, we are a pioneer in agency groupings, offering far more than expanded markets and profit share. Distinct from agency aggregators, we provide state of the art technology solutions, a full-time staff of more than 90 industry experts and a proprietary agency growth acceleration process that delivers superlative results.

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