Florida Making History With Alternative Flood Insurance

We’ve mentioned before that our state senator, representative and Insurance Commissioner have asked FEMA for transparency on the National Flood Insurance Program. Since this request for information, tides have been changing for private Florida flood insurance.  Recently a few local, private insurers have taken to task underwriting flood insurance in an effort to regulate rates, which have spiraled out of control for many Floridians. Let’s take a look back at how flood insurance became a four-letter-word and what our private insurance companies are doing to rectify the issue and make flood insurance palatable for homeowners on flood planes.

It’s well known that flood insurance is a separate coverage from homeowner’s insurance. It’s necessary for mortgage lenders as well as federally mandated for people who live in flood zones. This is because lenders want to make sure that the properties they finance are protected from any flood damage. Likewise, if you live in a high risk area, the government does not want you to suffer extensively if and when your home is damaged.

Before 1960 many private insurance companies offered flood insurance. At the time they were able to successfully underwrite and pay out claims caused from flood damage. After massive, ultimately expensive, flooding of the Mississippi River in the 1960s those private insurers pulled out of the game leaving the federal government to take care of citizens affected by flooding.

Since then the National Flood Insurance Program, or the NFIP, has bore the cost and weight of a majority of the flood insurance policies in the United States. Only a few private insurers have been brave enough to step into the market. And, those insurers have only been willing to cover properties under certain conditions and backed by huge surplus lines providers, like Lloyd’s of London. Change has been spotty at best, but for a state that holds 37 percent of all NFIP polices it’s a necessary one.

Up until recently, the cost of Federal Flood insurance was reasonable. However, recent changes to to the program have hiked prices for Floridians up to 20 times higher. Our policy makers have concluded that the only way to fix this problem is to open the market and let private insurers in. Hence the request for FEMA information.

Many policy holders may be wondering how exactly private insurers intend to break into the market. And how, if the rates are so inflated, they intend to properly adjust cost to cover any claims? The answer lies in the advancement of technology. Current flood mapping, risk data and computer monitoring have made it easier and more accurate for insurers to predict the likelihood of flood damage. With this new, more accurate information private insurers believe they will be able to properly determine the levels of insurance they can provide. As in any free market system, there will eventually be many options for homeowners to choose from, rates will become competitive and fall within a range that is comfortable for homeowners of varied incomes.

There is certainly an untapped market for private insurers breaking into the flood insurance game. With Federal insurance raising to near impossible-to-afford rates, many homeowners, who are not bound by mortgage or federal mandate, are going without. The consequences for going without flood insurance are costly to say the least.

Allowing private insurers to enter the market will allow homeowners to choose policies that fit their needs as opposed to taking what they can get with the current federally offered on-size-fits all policies. Sen. Jeff Brandes brought in legislation last year to allow these private insurance to tailor flood policies for individual policies. It will allow insurance companies to make policies for homeowners that will be affordable and subject to their needs.  In other great news for flood insurance reform, a bill is in congress that will clarify that private insurers can provide the federally mandated insurance for flood-prone areas.

It’s exciting to see that so many legislators and private insurance companies are on board for reforming flood insurance for Floridians. As our industry takes a historic step in helping our clients by providing a coverage desperately needed and, legally necessary, affordable and individualized as their home insurance policies. As these bills become laws and insurance underwriters come on board, we will be sure to keep you informed of your new flood insurance options.