Changes to the National Flood Insurance Program
There could be major changes coming to the National Flood Insurance Program (NFIP) if legislation that was introduced this week by members of the House of Representatives manages to achieve congressional approval and is signed into law by the White House.
Kathleen Rice, a Democrat and Republican Dan Donovan sponsored the legislation, which is titled the Flood Insurance Transparency and Accountability Act of 2015. The main goal of the legislation is to reform the National Flood Insurance Program, which was accused earlier in the year of underpaying homeowners after Super Storm Sandy.
The legislation requires increased transparency regarding the claims process used by the Federal Emergency Management Agency (FEMA). It also closes loopholes that have been used to deny coverage and claims.
The new bill would require that copies of the first and final engineering report used in the claims process would be sent directly to the policyholder. Critics claim that these reports were altered or downplayed the damage from Super Storm Sandy, which resulted in lower payout amounts or denied claims.
The new law also requires FEMA to conduct annual reviews of all insurance companies and any other private entities that participate in the National Flood Insurance Program. The hope is to ensure that contractors are complying with all policies and procedures.
One of the big changes is that claims can no longer be denied due to the earth movement exclusion. Basically, claims related to earth movement caused by flooding were being denied. The earth movement exclusion is a loophole that was used by insurance companies to avoid paying out on a claim.
In addition, the claims process itself will be amended, extending the statue of limitations for filing a claim to two years after the flood event. Currently, different time periods are used for different policyholders so there is no uniformity to the claims process.
New forms and clearer rules will also be introduced in the legislation. In a win for homeowners, a flood insurance advocate would be appointed so policyholders engaged in a claim denial appeal will have a point of contact within the Flood Insurance Program.
The bill also requires that the secretary of homeland security report to Congress on exactly how the department intends to prevent fraudulent contractors from participating in the National Flood Insurance Program going forward. FEMA has been given one year to issue a report on how it plans to reform the NFIP.
The legislation is a result of more than 2000 homeowners in New Jersey and New York filing lawsuits that accused the NFP of underpaying claims related to Super Storm Sandy. In one case, a federal judge concluded that engineers had falsified documents, which resulted in claim denials. This led FEMA to review over 142,000 claims that were the result of Super Storm Sandy.
In a recent state, Rice said,
“Too many legitimate claims were denied or underpaid because of fraudulent engineering reports, and too many people were left feeling cheated by a program that they trusted to be there when they needed it most.”
Flood Policy Basics
Here is a quick rundown of the basics of a flood insurance policy.
While flood insurance is sold through traditional agents, it is backed by the federal government, which also sets prices for policies.
A standard homeowners policy doesn’t cover damage that is caused by flooding. While it will cover water damage that results from a burst pipe, washing machine leaks, or rain damage due to collapse or missing roof, it does not cover flooding. In order to be protected, a homeowner must purchase a separate flood policy.
The cost of a flood policy will vary depending on where your home is located. Homes in high-risk areas will obviously pay more for flood protection then homes located in moderate to low-risk floodplains. According to the National Food Insurance Program the average cost of a flood policy is currently $700 a year. Cost can go up dramatically in the home is located in a high-risk area or oceanfront.
It is important to remember that there are restrictions on flood policies as well. A typical flood policy will cover up to $250,000 in damage to your house and contents. It is possible to purchase additional coverage in the private market but it tends to be fairly expensive. Deductible options range from $1000 all the way up to $10,000.
Flood policies also do not cover damage to basements. It will cover the cost of a damaged heating or air conditioning system even if it is located in the basement but all other basement damage will not be covered.
Remember, while flood policies are sold by regular insurance agents, pricing is set by the federal government so there is no need to shop for a policy on price, you should look for a home and flood insurance company with great customer service that has a track record of paying claims quickly.