09 Apr Private Sector Flood Insurance
Unlike many other forms of insurance which are offered through any number of private insurance agencies, flood insurance has been offered and subsidized primarily through the federal government. Private coverage for flood insurance is typically purchased only for commercial properties or in cases when the $350,000 limit covered by the National Flood Insurance Program (NFIP) is exceeded by homeowners. While this has been the case for many years, some experts are of the opinion that this soon may change- that private agencies, armed with more detailed data, may be able to offer private flood insurance options to consumers. In fact, at least two agencies have begun offering either stand alone flood policies or riders to existing policies.
What is creating this new opportunity? In short, the decrease in subsidies that homeowners can receive from the federal government through the NFIP. This decrease in subsidies is causing rates for government-funded insurance policies to rise significantly (up to twenty-five percent) for some homeowners. The decrease in subsidies and corresponding increase in insurance rates stems from the passage of the Beggert-Waters Act of 2012, which sought these and other changes in order to stop and decrease the $24 billion in debt the NFIP incurred after a series of devastating natural disasters took place in under a decade. In response to these changes, consumers are now looking for other avenues to ensure that their assets are adequately protected in a manner that is also affordable.
Until recently, floods had been considered an uninsurable risk. Floods may have struck one area at the same time and place each year, but others would occur much more sporadically. Certain unprepared areas may have been devastated by a small flood, while others that were used to chronic flooding saw less damage from a larger flood. But now, experts state that with new data and tools they are more able to clearly spell out flood risks and create better flood models. As a result, more private insurance agencies will be able to properly develop and price policies for flood insurance.
Even with this potential change, the government’s role in flood insurance would not disappear completely if the private sector were to begin offering more flood insurance policies. Instead of being the primary insurer of homeowners, the government’s role would be relegated to that of supplementary policy offerer (basically a role reversal with the private sector), flood risk reducer, and a subsidy provider (thought to a much lesser extent than they are now.)
While the possibility exists that private sector flood insurance coverage will grow, experts agree that there are several issues that must be addressed, the most important being cost. The entire point of subsidies was to make insurance affordable and accessible to homeowners who are at risk for flooding. For buy-in from the industry and for long-term success, private insurance companies will need to show that they can create policies that simultaneously cover the risks that are associated with flooding and a offer a rate that sustains their business while still being affordable for ordinary homeowners.
All information is general in nature and is intended to provide guidance only. It is up to you to request specific coverage options, the agency and agent do not bear this responsibility. Always read the policy if there is a questions about coverage or a claim. If any information herein should conflict with your actual policy’s specific language, the policy language will be controlling.
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