Florida Homeowners Fleeing National Flood Insurance Program (NFIP)
Soaring rates for flood insurance polices that are backed by the National Flood Insurance Program (NFIP) has prompted some homeowners who live in high-risk flood zones to bail out of the flood insurance program. Before you dump your coverage, its important to remember that only homeowners who don’t have a mortgage or whose lender does not require flood insurance are able to forgo flood insurance protection.
According to government statistics, the Sunshine State ranks number one when it comes to states with the most flood insurance policies. This should come as no surprise thanks to our long history of hurricanes and thousands of miles of shoreline. In fact, Florida has triple the number of flood policies of the number two state, Texas.
Roughly 300,000 Florida policyholders have abandoned flood insurance coverage this fall, which is a whopping 13 percent drop compared to a national drop of 8 percent or about 400,000 policies. The policy drop is even steeper in some cities. Palm Beach saw a jaw dropping 20 percent decline while Royal Palm Beach went down 27 percent.
The policy drops are mostly due to steep rate hikes, according to a focus group done by the Federal Emergency Management Agency (FEMA). The rate increases have been especially hard on second homes, which is a big part of Florida’s population.
Losses suffered by the NFIP due to Hurricane Katrina and Superstorm Sandy, about $23 billion in damages, prompted congress to up premiums to help bring the National Flood Insurance Program out of debt, and bring premiums more in line with the actual cost of insuring high flood risk property.
The Biggert-Waters Act of 2012 sailed through congress with bipartisan support, but produced some unintended consequences, namely rate increases that hit 1,000 percent for some homes in Florida and other coastal areas. The dramatic increases hit the real estate market hard as homes in coastal areas become impossible to sell.
A rewrite of the law in 2014 capped annual rate increases at 18 percent but also imposed new surcharges that went into affect this spring. The cap at 18 percent does not apply to second homes.
Fewer Policyholders Could be a Problem
Since the government underwrites the National Flood Insurance Program, fewer policyholders might be good news for taxpayers as it means fewer people will have to be paid out after a disaster, but it also means that fewer people are paying into the program, which will be a problem over the long haul.
The Florida insurance commissioner Kevin McCarty has requested that federal officials with the NFIP release their data on policy rates which would help private insurers better compete in markets such as Florida that are dominated by the NFIP.
While the NFIP is considering the request, not data has been released yet. While private insurers do operate in Florida, only a few thousand policies have been written so far.
A Quick Refresher on Flood Insurance
Flood insurance is necessary because a standard homeowners policy does not cover water damage that is the result of flooding. If you hope to recover damages after a flood, a flood policy is an absolute necessity. Depending on where your house is located, your lender may require flood insurance.
There are restrictions on flood policies that homeowners should be aware of before signing up. A standard flood insurance policy will cover up to $250,000 in damage to your home and contents. Deductibles range from $1,000 all the way up to $10,000. Additional flood insurance is available in the private market but it tends to be expensive.
Most flood policies are backed by the National Flood Insurance Program, which is run by the federal government. The NFIP sets policy prices but the policies themselves are sold through traditional insurance agents. Because prices are set by the NFIP there is no need to shop on price, look for an insurance agent you like and an insurer that is well ranked for customer service and quick claim processing.
It is also important to remember that flood insurance does not cover damage to basements. It will however pay for damage to your heating and cooling systems if they are located in your basement.
Remember, it’s not just high-risk properties that should consider flood insurance. According to FEMA data, roughly 20% of all flood insurance claims come from low to moderate flood risk zones.
We can help you find the perfect flood policy for your needs. Simply fill out our quick and easy form in our national insurance partners will send flood insurance quotes directly to your inbox.