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Pitfalls of Private Flood

By March 1, 2016June 9th, 2020Flood

Private market flood insurance refers to insurance coverage provided by non-governmental, for-profit companies. Carriers like Lloyd’s of London, Lexington, and Homeowners Choice have recently entered into the ever-evolving flood market and are offering alternatives to the National Flood Insurance Program (NFIP). These carriers are offering competitive solutions with broad coverages for many consumers, but there are some private flood pitfalls that need to be mentioned before you decide to move your policy from the NFIP to the private market.

Loss of Subsidized Rate

  • Policies that were written before the flood maps were put into place are receiving a subsidized rate. If an insured moves to the private market and at a later date needs to or desires to return to the NFIP they will have to pay the full risk rate, which could be thousands of dollars higher than the subsidized rate.

Loss of Grandfathering

  • When flood map changes occur, the NFIP offers a lower-cost flood insurance rating option known as grandfathering. If you decide to move to the private flood market, you will lose your grandfathered rates.

Lender May Not Accept

  • Lenders who are offering loans on properties may be uncomfortable with policy language, and therefore might reject private flood policies.

Policy Language May Not Be the Same

  • The coverage, terms, and conditions of a private flood insurance policy may not be as broad as the NFIP policy.

Possibility of Non-Renewal

  • The insurance carrier may issue a non-renewal as a result of losses, which may result in a return to the NFIP at non-subsidized or non-grandfathered rates after a 30 day wait.

Minimum Earned Premiums

  • In the event of cancellation some of these policies have minimum earned premiums (typically 25%), unlike NFIP policies.

Insurance to Value Issues

  • Most private market policies have an insurance to value requirement. Due to this requirement and the limits available, you may have to purchase more coverage under the private market to avoid an insurance to value issue if there were to be a claim.

No Guaranty Fund for Non-Admitted Policies

  • If the private flood insurance policy is written by a non-admitted (surplus lines) insurer there is no guaranty fund to protect the insured in the event of insurer insolvency

Just like any major decision, you should examine the costs as well as the possible repercussions before deciding to leave the NFIP to insure in the private market. Our agents are well versed in the various Flood options, and can help you make an informed decision. If you have questions, please contact your agent directly or email Brian Ford at