Understanding the Nuances: Private Flood Insurance vs. NFIP from a Carrier and Adjuster Perspective

In areas prone to high flood risk, flood insurance isn’t just a smart idea — it’s essential. Between 2016 and 2022, the flood insurance market grew 24%. The National Flood Insurance Program (NFIP) has long been a dominant player, but private insurers are gaining. Data from the Insurance Information Institute shows the number of private insurance companies offering flood coverage jumped from 18 in 2016 to 77 by 2022. 

Coverage is similar, but from the perspectives of insurance carriers and adjusters, the nuances of NFIP vs. private flood insurance are many. Here are the key distinctions and insights you need to understand the difference.

What Is Private Flood Insurance vs. NFIP?

Flood insurance comes from two main sources: The National Flood Insurance Program (NFIP) and private flood insurance (PFI). NFIP was launched in 1968 and became part of the Federal Emergency Management Agency (FEMA) in 1979. 

Many private flood insurers left the market after experiencing devastating losses due to the 1927 Mississippi River flood. However, a combination of changing federal policies and advanced models to measure and underwrite insurance risk has drawn private insurers back to the market. 

Coverage and Access

Property owners get guaranteed flood coverage through the NFIP. It doesn’t turn away customers solely based on their property being too risky. However, it’s available only in communities that participate in the NFIP by following minimum floodplain management requirements. Policies are available for purchase at any time, but other than in a very few situations, coverage doesn’t kick in until 30 days after the premium is paid.

Private insurance companies typically offer a smoother application process for flood insurance and offer online quotes to customers. The waiting period is often shorter, with some policies going into effect after just 10 to 15 days. However, coverage with PFI insurance isn’t guaranteed, and it can be unpredictable for policyholders if the insurer doesn’t renew their policy.

Claim Adjustment and Settlement

Claim adjustment and settlement of private flood insurance vs. FEMA’s coverage depends on the ability to pay claims. NFIP is backed by the federal government, meaning that even if a large-scale flood causes many policyholders to file claims, the program cannot go bankrupt. 

But financial stability comes with tradeoffs. NFIP policies have coverage and payout limits, with policies paying the lesser amount of either the actual cash value or replacement cost value. An NFIP-certified claims adjuster is required, and even policies outsourced to private companies, known as Write your Own or WYO policies, must follow the NFIP claims process.

Private flood insurance companies can offer higher coverage limits and a more streamlined claims process, but may face financial challenges if numerous claims are filed in a short time following a large flood or serious storm surge during hurricane season. Private insurers often have a larger pool of adjusters available, resulting in faster assessments and quicker claims settlements.

Recourse for Policyholders

If a policyholder faces problems such as an adjuster not responding to their inquiries or feeling their claim was denied unfairly, their options to address the issues vary. When it comes to NFIP vs. private flood insurance, NFIP requires them to submit a flood insurance appeal to FEMA. If unresolved, they can file a lawsuit. The process can be lengthy and feel overwhelming for the average policyholder.

On the other hand, those with private flood insurance policies have a more direct approach. They can report concerns directly to their state’s insurance commissioner. These state insurance departments regulate and oversee private insurers and can impose penalties, which can result in a more expedient resolution for policyholders.

Action Steps for Carriers and Adjusters

Carriers and adjusters play a pivotal role in making sure policyholders get the right coverage and addressing problems efficiently and accurately. It requires an in-depth understanding of private flood insurance vs. NFIP and a readiness for any potential flooding event. This emergency kit checklist for adjusters can help you ensure that you’re as prepared as possible.

The team of adjusters at CNC brings a wealth of NFIP and private insurer experience to the table. We’re here to support carriers and adjusters, ensuring a seamless, efficient, and trustworthy claims process. Reach out today and discover how we can help with flood insurance claims.

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