While the National Flood Insurance Program has been around for 50+ years, Private Flood Insurance has only been available for homes with Federally backed loans since the passage of the Biggert-Waters Flood Insurance Act of 2012. Read about the histories of both programs, their similarities and differences.
What’s The Difference? The National Flood Insurance Program (NFIP) and Private Flood Insurance
For decades, the NFIP, a federal flood insurance program enacted by law in 1968, was the only game in town for homeowners and businesses looking to insure against the perils of flooding. This was a landmark law because the Mississippi Floods of 1928 put many insurance companies out of business. Those companies that survived started excluding the peril of flood. For decades residential developments near water or in low-lying areas were limited because no one would insure them. Similarly, businesses were reluctant to build in these areas because commercial flood premiums were too costly.
While the NFIP has been successful and has led to the development of floodplain management controls that enabled development in higher risk areas, it does have limitations. Hurricanes and river flooding over the last fifty years have ravaged the program, leaving it billions of dollars in debt, with taxpayers bearing the burden of losses.
Enter the Biggert-Waters Flood Insurance Act of 2012, which encouraged insurance companies to get back in the game as risk bearing entities, transferring some risk away from taxpayers. This re-entry, with sophisticated flood assessment and risk management, has greatly benefited consumers.
How so? Private flood insurance policies often have higher/broader coverages than the NFIP, and in many cases, lower rates. For example, the NFIP has a $250,000 limit on building coverage per residence, while a private flood insurance policy can include a limit into the millions. Many private flood policies have broader coverage too, such as Catastrophic Ground Collapse coverage and Additional Living Expenses that are not covered by the NFIP.
Private Flood Insurance companies are more selective, knowing some homes are highly likely to flood. The good news for consumers is that competition often results in more options and competitive rates. The NFIP is also starting to leverage some of the same tools as the Private Flood Industry and will be launching Risk Rating 2.0 in 2021 to modernize its ratemaking process.
The Private Flood Insurance industry has ushered in a new era of innovation and competition that will benefit homeowners, taxpayers, and the real estate lending industries that support them. With Private Flood Insurance and the NFIP working to help mitigate the devastating peril of flood, we all win.
This article is provided for general informational purposes only and is not intended to provide individualized advice.