Flooding is America's worst natural disaster and as the highest "endangered" state in the country, Florida is the epicenter for all flood insurance.
Since 1968, when purchasing flood insurance, agents and homeowners have pretty much one option: FEMA's national flood insurance program. As of 2018, the NFIP had more than 5 million policies in effect nationwide, with nearly 1.75 million policies from Florida. With technological advancements and the increased availability of reliable data, private insurers have entered the flooding market, offering consumers alternatives to the historic FEMA program.
The emerging private flood market offers many notable benefits to consumers across the country, but there are also some concerns associated with it. Private flood insurance differs from the NFIP in three different ways: risk assessment, pricing, and coverage. The process of evaluating flood risks is perhaps the most impactful difference to consider.
The NFIP rating model mainly takes into account the FEMA flood zone and the height of the property. A "flood zone" is a geographic area that is assessed to reflect the severity and / or a specific type of exposure to flooding. Flood Hazard Areas identified on the FEMA Flood Insurance Rate Card are identified as a Special Flood Hazard Area (SFHA). An SFHA is defined as the area that will be inundated by the flood with a 1% chance of being matched or exceeded in a given year. SFHAs are labeled A, AO, AH, A1-A30, AE, A99, AR, AR / AE, AR / AO, AR / A1-A30, AR / A, V, VE and V1-V30. Temperate and minimal flood risk areas are indicated by B, C or X (Fema. Gov).
Although there are numerous flood zone categories, "inundation zones" are common in nature and can encompass entire neighborhoods or parts of a city. On the contrary, private flood providers use "single risk modeling" to evaluate the specific and unique flood risk for each property individually. Private flood providers believe this approach is much more effective as it can more accurately assess critical exposures such as storm surge, river flooding and flooding.
Unlike the NFIP, rates in the retail market strive to be actuarially sound, with each program using its own approach and strategy. This creates a real market that benefits both consumers and agents. Private flood programs reward properties that perform favorably in their models with competitive premiums, with their rates for these properties specifically lower than the NFIP. This allows Florida homeowners to save money and also creates sales opportunities for Florida insurance agents.
The same approach goes in the opposite direction, resulting in higher private premiums than the NFIP on properties that perform poorly in their models. The concern is: What long-term effect will this have on the already struggling performance of the NFIP? With a more comprehensive risk assessment and targeted pricing, private flood providers are essentially reaping all the good risks from the NFIP and leaving behind the properties that are more prone to flooding.
In response to significant NFIP debt and growing concerns about cherry picking in the private market, the NFIP is introducing "Risk Rating 2.0", which will take a more comprehensive rating approach using enhanced technologies that are common throughout the private sector. to be. Risk Rating 2.0 is currently scheduled for release in October 2021.
Improvements in flood coverage and policy making is the last major category of comment, and perhaps the most impactful of all. Historically, insurance professionals have been forced to accept the NFIP's coverage limitations when providing flood insurance to their clients. With intelligent reviews and competitive prices, the retail market also brings higher coverage limits and valuable coverage recommendations.
While the NFIP has maximum limits of $ 250,000 for building and $ 100,000 for housing policy content, the private market offers limits of more than $ 10 million for building and $ 1 million for content plus additional approvals such as different structure, additional living expenses, contents of the basement, pool repair and refilling. The goal of insurance professionals and advocacy groups is to better protect Americans from the nation's worst natural disaster.
With advancements in technology, a growing flood market, and affordable smart pricing, we may finally have the resources to close the coverage gap.
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