The community lender’s role as a trusted advisor during the mortgage application process is truly an important one. In many cases the lender can rely upon their expertise, however, there are times when it is prudent to rely on a trusted partner of their own to provide sound advice to their borrowers. One of these cases is finding the most affordable option for flood insurance.
The second most costly cause of damage to real estate property is flood damage. According to figures provided by the Insurance Information Institute, the average cost of a flood insurance claim between 2013 and 2017 was $67,793. By comparison, the most costly cause of loss over the same period was fire and lighting at $68,322.The need to protect collateral from such a devastating loss like a flood is paramount especially in communities within or near a flood zone determined by FEMA.
Unfortunately, it is often the case that property is not protected. According to a study by McKinsey & Company focused on the devastating 2017 hurricane season 60% of Florida properties and 80% of Texas properties did not have a flood policy in force. As hurricane season approaches again and the threat of flood with it, it is imperative for homeowners and financial institutions to ensure that property is adequately protected from losses stemming from flood damage.
Historically, the only source that provided flood insurance was the National Flood Insurance Program (NFIP) which was formed in 1968. Over the decades NFIP tried to keep premiums low so many flood insurance policies were subsidized leading to artificially low prices and a high amount of debt caused by the program. When years of high flood losses came the NFIP struggled to remain above water itself. Prices then skyrocketed.
Previously this monopoly was necessary because it was difficult for insurance companies to predict the location and severity of floods. However, with the onset of new technologies, it has become more achievable to reliably underwrite a flood risk. This has led to changes in government regulations leading to greater competition in the marketplace and ultimately, fairly priced policies.
On July 1, 2019, a key mandate borne of the Biggert-Waters Flood Insurance Reform Act of 2012 came into effect. This mandate was that Financial Institutions accept Private Flood Insurance that is comparable to an NFIP policy and satisfies certain criteria. As a result of the monopoly being relaxed premiums have indeed seen a marked decrease. This creates the opportunity of savings for your borrowers - if they are aware of the option.
Borrowers rely heavily on their community lender to advise them on their available options. Let your borrowers know that they can purchase Flood Insurance privately instead of through the NFIP and the cost is often less. This duty of community lenders is only increased when you consider the number of Americans that are underinsured or uninsured for a flood loss.
Golden Eagle Insurance’s team of trusted insurance specialists are poised to continue this conversation with you. We have an easy to apply for Private Flood option for your borrowers to consider. Let’s talk about identifying the savings you would be able to provide to your borrowers through competitively priced flood policies. If you would like to have a conversation about Private Flood Insurance and how we can help provide more affordable solutions, click below to get in touch.