With headlines about catastrophic and historic storms driving increased interest in flood insurance, the emerging private flood insurance market—an alternative to coverage through the National Flood Insurance Program (NFIP)—is increasingly attractive to homeowners. As Realtors® guide their clients through the home buying process, here is some basic information that your clients need to know about this new option:
by John Dickson
Q: What is private flood insurance and what does it cover?
A: Private flood insurance is a risk management tool backed by global capital markets that provides financial protection for buildings and personal property damaged by floods, helping families, communities and businesses to recover from these devastating events.
Q: What are the differences between a NFIP and private flood insurance policy?
A: There are two primary differences between a NFIP and private policy: regulatory authority and source of capital.
The biggest misconception with private flood insurance is that the NFIP is regulated and private isn’t. Private flood insurance is heavily regulated and falls under the jurisdiction of state insurance regulators—just like homeowners, hurricane and auto insurance. While these state-based insurance regulations are separate from the federal government that regulates the NFIP, the level of consumer protection and oversight is comparable.
The second difference is who’s bearing the risk of loss. With a NFIP policy, FEMA holds all program risk with U.S. taxpayers serving as the ultimate backstop. With private flood insurance, independent insurance companies bear the risk of loss. As a result, these companies cannot accept any risk in any location and must be more discerning with respect to underwriting, coverage and price. While private insurers cannot be all things to all people, this disciplined and thoughtful approach means these insurers can deliver a sustainable and valuable product to homeowners.
Q: How can a private policy work in tandem with a NFIP policy?
A: A private policy can act as either an alternative or a complement to a NFIP policy. Private policies equip agents with customizable options that can cater to individual homeowners’ needs, allowing insurance agents to craft solutions that ultimately protect more people from floods.
Private policies can also complement a NFIP policy. If you have a policy through the NFIP, you can purchase private insurance to increase the limits of your coverage. Private insurance is also available to expand coverage, such as adding protection for contents in a basement or the expense to clean out a swimming pool.
Q: Who qualifies for private flood insurance and how does it work?
A: The NFIP is essentially a one-size-fits-all policy available to almost everyone in all geographies. However, the reality is that homeowners aren’t all the same. Private insurance offers different programs with different benefits to different people depending on their needs, like those of high net worth homeowners or renters.
Q: What is/isn’t covered by a homeowner’s policy when it comes to a flood event?
A: Generally speaking, most homeowner’s policies exclude flood losses completely. A homeowner’s policy may cover water damage from broken pipes or sump pumps, but most exclude loss from inundation resulting from swollen rivers, storm surge, or intense rainfall.
The flood insurance industry is rapidly changing and there are new opportunities coming online every day. Every Realtor® should take time to understand these new options. In most situations, the home is your clients’ most valuable investment. Wherever it rains, it can flood, so take time to consider solutions that can protect their homes from catastrophe.
John Dickson is the President and CEO of Aon Edge, a provider of private flood insurance solutions for residential and commercial properties. www.nfsedgeinsurance.com
This article is provided for general informational purposes only and is not intended to provide individualized business, insurance or legal advice. You should discuss your individual circumstances thoroughly with your legal and other advisors before taking any action with regard to the subject matter of this article. Only the relevant insurance policy provides actual terms, coverages, amounts, conditions, and exclusions for an insured.