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This May Make the Private Flood Insurance Market a True Alternative

By June 16, 2016June 9th, 2020Flood

On April 28, 2016 the US House of Representatives passed The Flood Insurance Market Parity & Modernization Act (HR 2901). In the age of typical stalemates in the House, this bill passed with a remarkable 419 to 0 vote.

The Flood Insurance Market Parity & Modernization Act requires private flood insurance carriers to be treated the same as the National Flood Insurance Program (NFIP) for homeowners with federally backed mortgages that are required to purchase flood insurance. As long as the flood coverage meets the guidelines provided, the Act states that the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Corporation (Freddie Mac) must accept private flood coverage as satisfaction of the flood insurance requirements.

The Act defines an acceptable policy as one that is issued by a private carrier that is licensed, admitted or other otherwise approved to engage in business in the state in which a property is located. Policies issued by non-admitted insurers would also qualify (i.e. Lloyd’s).

Another important aspect of this Act is its effect on continuous coverage. Many insureds in Pinellas County are receiving a subsidized rate on their premiums as long as there is continuous coverage. However, if an insured decided to move to the private market (typically due to price) and at a later date decided to move back to the National Flood Insurance Program (NFIP) (either due to now a higher price, non-renewal, cancellation, bankruptcy of the current insurer, etc.) they would have to pay the full risk rate, which could potentially be thousands of dollars higher than the subsidized rate. But If the Act is passed, the NFIP must consider any period during which a property was continuously covered by private flood insurance to be continuous coverage.

Finally, the bill states that the amount of flood insurance that will be required should be the lesser of the following: project cost of the building or mobile home (less estimated land costs), the outstanding balance on the loan, or the max limit of Federal flood insurance coverage made available with respect to the particular type of property ($250k for most residential properties). This part of the Act is where tension may arise in the Senate. Many insurance advocates stress the need for insuring to replacement cost (or value). They state that if this part of the Act is passed many homeowners will try to insure only for the mortgage value. However, if there were to be a flood loss to their property only the mortgage company would be paid, and their home where a lot of their personal equity is would be swept away (no pun intended).

As of June 2016, the Act is sitting in the Senate Committee on Banking, Housing, and Urban Affairs. We expect the bill to gain steam in the Senate Committees and make its way to the Senate floor shortly. The one thing that may speed the process up is the expiration of the National Flood Insurance Program which is set to expire in September 30, 2017.

If you or anyone you know has any questions about flood insurance or a private market carrier, please contact your agent or reach out to Brian Ford at 

If you would like to read the full act please see the following link: Flood Market Parity & Modernization Act