October 13, 2016

Private Flood Insurance

For decades FEMA Flood Insurance, through the US Department of Homeland Security, was the only form of Flood Insurance.   Over the years rates have continually gone up.  They have gone up for congressional reasons, mapping reasons, and for underwriting reasons.  However, why flood insurance has been getting more expensive is almost not important.  What is important to know is that now there is a new option.  This option is known as Private Flood Insurance.  To be more clear I would suggest calling it Standalone Private Flood Insurance.   Of special note here is that Private Flood Insurance could also refer to a few insurance companies that write FEMA based insurance policies as additions to their homeowners policies.  There are just a handful of these companies.  However in general, the term Private Flood Insurance has come to mean Private Standalone Flood Insurance.

Private Flood Insurance:

Flood Insurance not issued through FEMA is what we now call Private Flood Insurance.  Or as I have stated above more accurately Private Standalone Flood Insurance.    Just to be clear the term Standalone refers to the policy not being written in connection to your home insurance.  It is a completely separate policy.  It is insurance issued through private insurance companies.  For the most part, homeowners insurance is also almost exclusively private home insurance.   There is one difference though.  As of this blog date, all the Standalone Private Flood Insurance written in California (that I am aware of) are sold through various Non Admitted carriers.  I will explain later on what a ‘non admitted carrier is.’

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How FEMA Flood Insurance Works:

FEMA or NFIP Flood Insurance is written essentially through the government.  Through the Department of Homeland Security the rules and regulations of the program are created.  Occasionally Congress gets involved.  Currently the limit on Federal Flood Insurance for a single family dwelling is $250K in Building Property and $100K in Personal Property.  There are a variety of deductible options.  The greatest factors that are used in the computation of flood insurance are usually:  Claims History, Flood Zone, and Foundation.  To a slightly lessor extent the year the home was built or significantly renovated is also very important.  Other important factors are the garage and the height difference between home and garage. There are numerous other factors and underwriting criteria though.

“…likely to need an Elevation Certificate”

If your home is in a High Flood Hazard Zone, than you are likely to need an Elevation Certificate.  An elevation certificate is a document, from a surveyor or engineer.  That document will list the exact elevation of the structure of the home.  This document will allow underwriters to accurately rate your policy.  There are some situations where you may not need an elevation certificate.

What is a Non Admitted Insurance Company?

A Non Admitted Insurance company  is not ruled and regulated by the jurisdiction in which it is being sold in.  In this case it is Flood Insurance that does not fall under the California Department of Insurance.  In general Non Admitted Insurance is only for instances where standard insurance carriers will not write the insurance risk.   Non Admitted insurance is often written by Lloyds of London or Lexington Insurance.   There are some important differences between Non Admitted Carriers and Standard Carriers.

What are the drawbacks to a Private Flood Insurance Policy?

There are numerous drawbacks to standalone private flood insurance that are written by non admitted carriers.  The following is a partial list:

Loss of Grandfathering privileges once outside the NFIP Flood Program.

Not Backed up or Guaranteed  by the Federal Government.

Non Admitted carriers do not participate in the state guarantee fund.

Inability to contact the California Department of Insurance in case of dispute.

Additional non admitted fees charged.

Differences in Coverage Form.  Meaning the coverages may not be the exact same.   This is the really the one of the more salient issues.  A non admitted flood policy can and may differ from the Federal Flood Policy.  You will want to ask when you procure a private market flood policy what the differences are.

Your home mortgage company ‘may’ not take private flood insurance.

A Service of Suit Clause?   Although this may not necessarily be the case, you will want to see if this pertains to your proposed policy.

*again this is a partial list.

What are the Benefits of Standalone Private Flood Insurance?

Private Flood Insurance is more complicated than NFIP Flood Insurance for many reasons.  One of which is that the policy forms can and may vary from NFIP form.   Clients should be aware of this and ask What is the difference?

In general though the Private Flood Insurers are not currently requiring Elevation Certificates.

Their pricing can be competitive for clients Not in the current Grandfathering or Newly Mapped Flood Programs and for homes located in Special Flood Hazard areas.

A new feature recently released allows some clients to lock in their rate for multiple years.

How are Federal Flood and Standalone Private Flood Insurance the Same?

In many ways they are very similar.  They both seek to cover homes from the peril of flood.  They both require full payment at inception.  They both require you inform them of a claim.  Both generally only pay  Actual Cash Value of personal property.   Both general cap coverage for many policies at $250K.  There are many more similarities.

One thing is for certain, in order to make the decision you likely will need to see two different insurance quotes for similar products.  And many insurance agents either can’t do this or won’t do it.

Just Call…

How do I know if my mortgage company will take private non admitted flood insurance?

Call them.  Ask them.  See what they say.   Increasingly they have been taking it.  I have professional experience with the various banks.  It often times requires an insurance agent with some experience to assist.

How Does FEMA feel about Private Flood Insurance?

According to FEMA, they maintain a “neutral position on private flood insurance.”   The edict issued in 2008 by Edward L Connor, still stands today.  It states that “FEMA recognizes the necessity for an increasingly viable private flood insurance market to coexist with the National Flood Insurance Program.”  As well that “FEMA has no relationship or experience with any of the private flood insurance companies.”  It also states that “private flood insurance companies are regulated by State Departments of Insurance.”  That last statement would not necessarily pertain to what are known as Alien Insurance companies such as Lloyds of London.

How do I buy Private Flood Insurance?

Simple really.  If you are located in California, call us.  Email us.   We can get you a Standalone Private Flood Quote pretty quickly.  You may not even need an elevation certificate.

Should you buy Private Flood Insurance?

That of course is the $64 million dollar question.   Private Flood Insurance is probably not best for people in the low hazard zones (such as X.)   It may be a better choice for folks in high hazard zones that do not have an elevation certificate or whose elevation certificate has not really assisted in lowering their insurance bill.

About Marindependent Insurance Services LLC:

Marindependent is a Marin County based insurance agency and brokerage.  We sell with a client based focus.  We aim to inform our clients to assist them in making the best risk management decisions.  Non Standard Home. Affluent.  Home.  Auto.  Term Life.  Umbrella.  Small Business.  Earthquake.  Flood.

Other Underwriting Criteria and Exclusions:

This article just deals with the basics of Private Flood Insurance.  There are numerous other rules and regulations regarding all types of flood insurance.  Not all coverages are discussed here.  Not all exclusions are mentioned.  Speak with a licensed agent.  For more information and details read All About Flood Insurance.  For specific questions contact Marindependent.

Disclosures:

Reading about insurance online is not a substitute for speaking with a licensed insurance agent.  Agents are licensed by the state(s) in which they do business in.  In all circumstances speak with a licensed insurance agent when considering insurance.   Marindependent Insurance Services LLC is regulated by the California Department of Insurance,  California License 0K10734.  415-294-5454.  Please read our full list of disclosures.  #floodinsurance