Feds shore up flood insurance program by working with private reinsurers

As parts of Florida and South Carolina brace for possible impact from Hurricane Matthew, there’s no doubt flood insurance will be a topic of renewed interest.

It seems like just yesterday we were collectively catching our breath as a nation after the terrible flooding in Louisiana. Any time there is flooding of that proportion, it stretches the National Flood Insurance Program (NFIP) thin.

But the feds have a plan to shore up flood insurance!

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Private reinsurers stepping in to reduce risk

According to Insurance Journal, the flood program—which is run by the Federal Emergency Management Agency (FEMA)—has arranged for $1 million in risk to be transferred to private reinsurers including Transatlantic Reinsurance Co., Swiss Re America Corp., and Munich Reinsurance America Inc.

The move will improve the NFIP’s claims paying ability and reduce the likelihood that the flood program will have to borrow from the U.S. Treasury to cover future claims.

In years past, FEMA relied almost exclusively on premiums paid in by homeowners plus money from the Treasury to pay out claims when there was flooding.

That led the NFIP to rack up a $23 billion IOU to the Treasury.

FEMA’s move to rely more heavily on private reinsurance and capital markets is the first in a multi-step process to put the NFIP on better financial footing.

What you need to know about flood insurance

If you’re like most homeowners, you probably wonder if you really need flood insurance.

In fact, only 14% of homeowners across the country say they have a flood insurance policy, according to a recent survey from the Insurance Information Institute (III).

That’s not good when you consider floods are the number one natural disaster in the United States, according to FloodSmart.gov.

Here’s a list of the most common excuses for not having flood insurance…

‘I don’t know how to get coverage’

You get flood coverage through the National Flood Insurance Program (NFIP) and also a few private insurers.

‘I can’t afford it’

Premiums will be higher if you live in a coastal community — no doubt about it. Yet the average federal flood insurance premium is somewhere around $650 to $750 annually, says the NFIP. That’s for a policy covering damage up to $250,000.

‘I’m already covered through my other insurance’

The reality is that damage from flooding is not covered under standard homeowners, renters or business insurance policies.

Now, what will protect you in the event of flooding is an auto insurance policy with comprehensive coverage, according to the III. But because comprehensive coverage is not mandatory, not everyone has it.

So here’s a word to the wise: If you do have a comp policy, double-check with your auto insurer to make sure damage from flooding is covered.

‘I don’t live in a flood plain’

Don’t fall into the trap of using this as a justification to not have flood insurance! The NFIP reports that some 20% of total flood claims paid are from properties outside flood high-risk areas.

‘Insurance is optional for me because I own my home outright’

Many people who own homes do so mortgage-debt free. So insurance is optional for them. Yet even if you live in a low-lying area that historically hasn’t flooded, it’s still a good idea to buy a flood policy.

Christa of our team had a terrible experience with flooding. She had to have her house rebuilt, basically from scratch, and she had it raised nine feet off the ground by putting the structure on pillars!

‘I’ll just wait until a big storm looms to get the coverage’

This is one case where if you snooze, you lose! Coverage typically doesn’t become effective until 30 days after the date you purchase the policy. If you wait for a Superstorm Sandy or a Hurricane Katrina to be on your doorstep, it’s already too late.

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