FEMA: National Flood Insurance Program Expands Private Sector

Are you concerned about an exodus of insurance companies and higher premiums in Florida due to all the storm damage over the last few years? If you are, you should know that FEMA has taken steps to expand the reinsurance program and recently transferred $400 million into capital markets in order to offset future risks to the capital it uses to pay for flood damage. This type of financial move helps ensure the flood insurance program stays solvent so that you can file a claim and get the money you need to help repair or replace your home and personal belongings in the event of flood damage. However, it may not help lower your insurance premiums if you live in an existing or new flood zone.

How FEMA Has Expanded the National Flood Insurance Reinsurance Program

The National Flood Insurance Program (NFIP) is managed by FEMA. In order to reduce risk and offset future costs and liabilities, FEMA started purchasing reinsurance in 2017. Reinsurance is an insurance policy for insurers. It is designed to help offset costs from catastrophic claims that could force the insurance company to become insolvent. In this case, catastrophic losses from hurricanes and storms that cause widespread flooding could make the FEMA Flood Insurance Program insolvent.

FEMA’s Reinsurance

In order to hedge against the possibility of depleting the flood insurance fund due to catastrophic losses, in 2019 FEMA purchased reinsurance in the amount of $1.32 billion for any flooding that may occur in that calendar year.

More recently, in February 2020, FEMA purchased another $400 million in reinsurance. This reinsurance money was transferred to investors via the issuance of a catastrophic bond. The agreement states that FEMA will pay $50.28 million in insurance premiums for the first 12 months. The reinsurance is also designed to cover 3.33 percent of flood losses that range between six and nine billion for a single flood. The losses percentage increases to 30 percent if the flood damage is estimated to be between 9 and 10 billion dollars.

Understanding Changes to the Flood Insurance Program

FEMA’s flood insurance policy had changed. As a homeowner or property owner with a current NFIP policy, you’ve probably noticed that your premiums have increased, and if your home was recently mapped into a flood zone, you’ve probably noticed that getting flood insurance is pricey. These policy increases are due to the fact that increased storm activity is causing severe flooding that is more widespread than it was in the past years. In other words, we’re seeing more 100 year and 500-year floods than ever before.

Flood Insurance Policy Increases

It’s important to note that even with FEMA’s recent foray into reinsurance, flood insurance premiums are still increasing. Home and property owners saw increases in 2018 and increases in 2019 for preferred risk policies increased by eight percent on average.

If you’re in a newly mapped flood zone, you’ll also see premium increases. For the first year of the new policy, you’ll likely be charged the preferred risk rate. Then, those policies increase yearly, depending on several factors that are determined by FEMA. In 2019, home and property owners with newly mapped flood insurance policies saw an increase of roughly 15 percent.

Getting Flood Insurance with Fearnow, Serving Florida

If you live in Florida and need flood insurance, we can help. We offer two types of flood insurance policies. The first covers the structures on your property, like your physical house. The second protects your personal items stored inside the home and other outbuildings. If your home and/or personal property is worth more than $250,000, we also offer Excess Flood Insurance. It’s important to note that Excess Flood insurance isn’t part of the FEMA program. It is a policy that is offered by us at Fearnow Insurance.

In addition to flood insurance, we also offer homeowners, renters, boaters and car insurance policies so that you can be protected in the event of a covered incident. To inquire about flood insurance policies or another type of insurance, give us a call at 813-981-7862. We can help you find the right policies for all your insurance needs.