Many times after I’ve given someone a private flood insurance quote, they ask me why it’s so much lower in price than the insurance policy they currently have through the National Flood Insurance Program (NFIP). , which is part of the federal government and fema. People are sometimes a little surprised that it could cost them a lot less to get a flood insurance policy with similar (and often more extensive) coverage. The unfortunate truth, the question of why NFIP insurance is so expensive is because there are some fatal flaws within the NFIP program, which I’ll explain below.
why is nfip insurance so expensive? why is private flood insurance cheaper?
When the National Flood Insurance Program was introduced in 1968 after the passage of the National Flood Insurance Act of 1968, the program was never intended to be a long-term solution to the problem of those living in flood-prone areas. The program currently insures about 5 million homes, most of which are located in Texas and Florida, but there are homes in all 50 states covered by this type of federal insurance.
while the nfip was solvent since 2004 from the collection of flood insurance premiums, massive disasters such as hurricane katrina and hurricane sandy have put the nfip in the red and as of august 2017 the program NFIP currently stands at more than $25 billion in debt. This is in part because the NFIP can’t choose which properties it will cover, and many policyholders who have never been flooded are effectively subsidizing properties that have experienced repeated flooding, raising premiums each year. This has become one of the main criticisms of the program, as critics mention that the NFIP encourages construction and reconstruction in vulnerable areas.
if you haven’t seen it, you should definitely watch this clip from last week tonight with john oliver talking about the national flood insurance program and its failings.
So why is private flood insurance cheaper?
you’re probably thinking right, so how can a private flood insurance policy be more reasonably priced than nfip? The answer to this is that the private underwriting guidelines are different from the NFIP and really depend on the company underwriting the policy. not all risks are accepted for private flood insurance, and because private companies are more stringent in their underwriting, that allows us to narrow down the risk pool a bit and allows us to offer lower premiums to policyholders . Most people only buy flood insurance because their mortgage company requires them to do so when a home or structure is located within a 100-year flood zone (or zone), but in reality all homeowners must have at least some flood insurance to mitigate risk, because nearly a third of flood damage occurs in “low” risk areas. If you’re looking to buy a home in a floodplain, or if you currently have NFIP insurance and want to see if you can convert it to a private policy, fill out the form below and we’ll get back to you.