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Knowledge Center Items Beyond the NFIP: Rewriting the Future of Flood Insurance

Beyond the NFIP: Rewriting the Future of Flood Insurance

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The House recently granted yet another short-term extension to the National Flood Insurance Program (NFIP). But a long-term extension has yet to gain traction among legislators, according to Insurance Business, as disputes continue over how to reform the troubled flood insurance program—and this has serious implications for property owners.

With the program on shaky ground, open-market flood coverage is becoming more and more vital. As Property Casualty 360° points out, many insurers that have previously shied away from the market are coming around thanks to technological advancements that allow better risk analysis. Data is king in the insurance industry, and as more data and modeling around flood becomes available, additional carriers are looking at providing flood cover in the open market.   

In many instances, private flood actually offers broader coverage than the NFIP. Within the commercial space, the NFIP does not provide coverage for loss of income, which can be a significant exposure, especially for occupancies that could sustain large revenue losses after a flooding event. Business income cover is available in the private market, generally with a waiting period of 14 to 30 days. 

The NFIP also limits coverage to $500,000 in building coverage and $500,000 in contents coverage for commercial occupancies. Outside of small businesses, $500,000 in coverage is virtually nothing. In the private flood space, insureds can secure limits in excess of $100M, if necessary. 

One of the recent trends in flood insurance has been eliminating the administrative hassle associated with the NFIP.  The NFIP requires that each separate building have its own flood policy.  For an insured like a school district or a municipality that has hundreds—or even thousands—of buildings, this can be burdensome. In the private space, there are markets that are willing to provide coverage across all of these buildings on one single policy. They can also provide a per occurrence deductible, where the NFIP currently requires a separate deductible for each building. 

That said, the NFIP remains a vital part of the insurance marketplace as carriers try to limit their exposures in certain areas and securing flood coverage in these areas becomes difficult. One such area is Chesterfield, Missouri. In Chesterfield, a vast majority of carriers would tell you that they are “full” on capacity and cannot entertain additional risks in this area. Without the NFIP, insureds located in Chesterfield could be in a situation where they cannot secure any flood coverage at all. 

We will continue to see shifts in the private flood space as carriers react to the changes in the NFIP and the questions around its future. For now, it’s important that insurance agents, brokers and insureds all take a serious look at their flood exposures and ensure that they are properly protected against this very costly exposure.  

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