While Congress could vote this week on a bill to delay flood insurance hikes, many Floridians have opted out of the National Flood Insurance Program in favor of competitive rates now being offered on the private market.
A Gainesville-based agency called The Flood Insurance Agency has written 150 policies in Florida that are backed by a syndicate of insurance giant Lloyd’s of London, and CEO Evan Hecht says he has expanded his offering to a total of 15 states across the nation.
Last week, Tampa-based Homeowners Choice Property & Casualty Insurance Company signed its first flood policy for $9,693 a year for a Seminole couple whose government policy was set to total $57,000 this year.
Only 20 percent of flood policies nationwide are being subjected to rate changes called for in the 2012 Biggert-Waters Flood Insurance Reform Act, which seeks to remove artificially low rates on homes built before communities entered the program and drew up floodplain maps.
Florida and the Tampa Bay area in particular have a large volume of homes affected by the reforms, though only a small percentage of primary homeowners have seen their rates immediately increase, said Florida Office of Insurance Regulation deputy commissioner Richard Koon.
But the prospect of rates going up for more homeowners as the Federal Emergency Management Agency redraws flood maps and includes more policyholders may drive an increasing number of people toward the private market in the future, he said.
Here are some frequently asked questions about current private flood insurance options.
Q: The reason the federal government started offering flood insurance in the 1970s was that the private market refused to cover it. Why are private companies interested in selling flood insurance now?
A: Flood maps, risk data and computer modeling have made it easier in recent years for insurance companies to assess the actual likelihood of flood damage, but they couldn’t compete with the federal government’s so-called subsidized rates. For the small percentage of property owners being subjected to exorbitant rate increases, paying $5,000 a year now is seen as a good deal compared to $15,000 or more.
Q: What companies are offering private flood insurance?
A: The two main entrants in Florida so far are the Lloyd’s of London syndicate policies and Homeowners Choice, according to Koon.
Q: What’s the difference between these policies?
The Lloyd’s policies are part of the surplus lines market, which means their rates are not regulated by the state. They also aren’t financially guaranteed by the state, meaning claims won’t get paid if the company goes out of business. The Lloyd’s policy is issued independent of the homeowner’s policy.
Homeowners Choice is part of the so-called admitted market and is regulated and guaranteed by the state, but flood coverage is offered only as an endorsement to the company’s homeowner’s policy.
Several other companies have long offered excess flood coverage, above the federal program’s $250,000 policy limits, and a few provide limited primary coverage at $250,000 and below, Koon says.
Q: Is there any protection if a surplus lines company goes bankrupt?
A: Policyholders could be left with unpaid claims in this event, though surplus lines carriers are required to be licensed and maintain a minimum amount of capital. Consumers can get information about a company’s financial strength at the Florida Surplus Lines Service Office website.
The credit rating agency Standard & Poors has given Lloyd’s an A rating and the international company has been selling excess flood coverage for years. Lloyd’s has more capital than many insurers in the regulated market, Koon says.
Q: Are private insurers denying coverage to homes in high-risk flood zones?
A: All levels of flood risk are eligible for coverage, at a price, says St. Petersburg agent Jake Holehouse. The Lloyd’s premiums range from $1,379 for $100,000 in building coverage for a home in an A flood zone. That same coverage would cost $3,734 in V zones at risk for storm surge and could go as high as $12,805 for $250,000 of building and contents in these high-risk areas.
Q: What properties are excluded?
A: Homes that have had recent flood claims or excessive past claims totaling $250,000 may not be eligible. Commercial and larger multifamily properties were previously excluded, but will become eligible for the Lloyd’s coverage this week, Hecht said.
Q: Will my lender accept private flood coverage?
A: The Biggert-Waters Act mandates that lenders accept private policies as long as they provide the same coverage as the federal program. This provision is being reviewed by federal financial institutions but is expected to be enacted. Insurance agents haven’t reported lenders rejecting private policies in Florida.