If you own, manage, or represent, residential or commercial property in a SFHA (Special Flood Hazard Area, which is a FEMA-designated high-risk flood zone) and subject to mandatory flood insurance, now is an appropriate time to reevaluate your flood risk. In the article, Flood Insurance on the Cusp of Tremendous Change, John Dickson, writing for PropertyCasualty360.com, describes the sea of confusion that burdens both policyholders, their agents and brokers. While Dickson’s article focuses on emerging opportunities for insurance professionals, it sheds an all too important light on the pricing inequities of flood insurance and, more importantly, why the price paid for coverage may not reflect the true flood risk of an individual property. Here’s an excerpt:
An agent generally writes a flood policy because the property is located within a designated “Special Flood Hazard Area” (SFHA) and the mortgage company requires coverage. Of the 90 million residential structures in the United States, approximately 10% are located in a SFHA (Federal Emergency Management Agency, www.fema.gov, 2015).
“This allows agents to easily identify the properties where flood insurance is required; but offers little understanding of flood risk to the remainder of their policyholders,” said Keith Brown, president of Aon National Flood Services, Inc.
Only 2% of the flood insurance policies in force are in non-mandatory, non-SFHA areas, and yet they represent 24% of the losses paid by the NFIP (FEMA, 2015). This under-penetrated, under-served insurance market regularly suffers significant losses.
The NFIP [National Flood Insurance Program] was created more than 45 years ago to provide a source of sustainable flood insurance for residential and non-residential properties. Since inception, the program has undergone tremendous change to respond to catastrophic floods, technology enhancements and shifting population centers.
These new laws also impose surcharges based upon the occupancy of each property and require policyholders to pay reserve fund assessments, in addition to mandating the NFIP to implement premium rate increases.
Here are two important takeaways for property owners who are required to maintain flood insurance, especially those required to maintain flood insurance and have not filed any claims:
- Determining a property’s true flood risk requires more than identifying its location on a flood map. Neglecting factors such as elevation, flood source, current and historical Flood Insurance Rate Map (FIRM) data, and floodproofing, to name a few, will result in coverage and rates that do match the true level of risk. In other words, you may be paying too much or too little to protect the real estate investment.
- You should be troubled by the fact that nearly a quarter of flood losses and NFIP claim payments occur in non-SFHAs. In other words, not only are you subsidizing properties that are truly at risk of flooding, but also carrying the weight of a government program on the brink of insolvency. AFSI will work with you, your agent or broker to evaluate your flood risk and to ensure that your exposure is substantiated by a comprehensive study.
For a better understanding of NFIP changes, factors that determine flood risk and your structure’s exposure to flooding, contact AFSI. We welcome an opportunity to deliver to you, your insurance and risk management representatives, an independent and complimentary review of properties in high-risk flood zones. You will learn whether the price you pay for coverage is justified, and better yet, whether a true assessment of the flood risk results in significant savings and increased property value.
Have you reevaluated your flood risk lately? Feel free to post comments or questions.