Better Flood Insurance is home to the Flood Nerds. We are a flood insurance agency ONLY.
Unlike other insurance agents that are generalists, we don’t write auto or home policies – we only write flood insurance.
Flood insurance is a complex product and keeping up with the private and government markets is a full-time job if you do it right.
You’ll never catch a Flood Nerd writing an auto policy. If you do, they are an imposter…not a genuine Flood Nerd.
Flood Nerds shop all the options available in your state. We help you understand the difference between the NFIP and private flood insurance options. Better Flood Insurance is the only national flood insurance company that shops all viable options. That means we compare NFIP to private flood insurance options and always get THE BEST deal on flood insurance.
Here’s what you should know about the difference between the NFIP and private flood insurance.
What is the National Flood Insurance Program?
If you want to understand the difference between NFIP and private flood insurance, you’ve got to first understand the National Flood Insurance Program (NFIP or FEMA insurance).
The NFIP is administered through the Federal Emergency Management Agency (FEMA). Sometimes you will hear people call it the government option. That’s because for 50 years after the program was established in 1969 they held a complete monopoly on the market. The government option was the ONLY option. Because it was the federal government, they took a one-size-fits-all approach to insurance. It was like buying insurance through the DMV. Ugh!
For decades the NFIP has overcharged 50% of its policyholders and undercharged the other 50%. They were so ineffective they racked up $42 billion in taxpayer-funded losses.
Even Congress could see this was a problem.
So, in their infinite wisdom (ha!) Congress decided to enact the Write Your Own program in 1983. This allowed private insurance companies to sell NFIP policies at NFIP rates and somehow this was going to make things better. WHAT the FUDGE???
Flood insurance through State Farm, Allstate, Farmer’s, and other major insurance companies is just the NFIP policy sporting a spiffy new private insurance company logo. For a while, everyone pretended this was private flood insurance, but it wasn’t. It was just the wolf of the NFIP in the sheep’s clothing of a private insurance company logo.
Finally, in 2012 Congress had to act to shore up the sinking NFIP ship. And they finally realized a real private market solution was the best option for flood insurance. In the United States, the REAL private flood insurance market was open for business.
What is Real Private Flood Insurance?
While those NFIP resellers pretended to sell private flood insurance, a true market for private flood insurance opened.
These private insurers use modern technology and data to more accurately assess the actual risk of flooding. Since insurance is all about transferring risk, this more accurate data leads to more accurate premiums. So, for most people, the premiums drop.
The NFIP will write insurance for a property that floods every year or two. The private flood insurance market knows this is crazy. They mostly insure properties that haven’t flooded in 5 years.
There are currently over 40 private companies that provide flood insurance coverage in the US. Many of these are part of the Lloyds of London syndicate.
Real private flood insurance can save most buyers money. But you’ve got to understand the market and know the difference between a flood insurance reseller and real private flood insurance.
That’s where the Flood Nerds at Better Flood Insurance come in. We geek out on the ins and outs of flood insurance. Because we know the intimate details of flood insurance pricing, we can shop all the private options and then compare the price to what you can get through the NFIP.
NFIP and Private Flood Define Flood Differently
The NFIP and some private flood insurance companies define “flood” differently.
The NFIP definition says that the water must inundate 2 or more properties or 2 or more acres. This is a real problem if your home is the only one flooded or all your neighbor’s homes drain down to yours. They are high and dry and you are flooded and out of luck with the NFIP.
On the other hand, some private flood insurance policies use a more straightforward definition of flooding. You get coverage that clearly defines what must happen to activate a claim and leaves little or no space between the homeowner’s policy exclusion and the stand-alone flood insurance policy.
NFIP and Private Flood Insurance Provide Different Coverage
The coverage you get from the NFIP and the coverage you get from private flood insurance aren’t the same either.
To begin with, the NFIP only insures up to $250,000. Private flood insurance covers the amount of insurance you need. So, you can get $500,000 in coverage for a home through the private market but not through the NFIP. This is very important if your home is worth more than $250,000 or you have a mortgage higher than that amount.
Next, private flood insurance is like your homeowner’s insurance when it comes to the contents. Private flood lets you insure at replacement cost. The NFIP only offers depreciated costs.
And speaking of depreciation, when it comes to a second home or a commercial policy the NFIP only pays depreciated costs for repairs on these properties – not the contents – the structure itself! Yikes! That means most times, NFIP policies for second homes or commercial properties cost way more for way less coverage.
Some private flood companies will offer coverage for personal contents in the basement. The NFIP does not offer this coverage.
NFIP and the Private Market Figure Rates Differently
The private flood insurance market is fueled by innovative technology that combines ultra-accurate topography maps and complex algorithms to determine the actual risk of flooding. Private flood insurance companies use eye-in-the-sky satellite images, historic data, computer simulations, and other geeky things to more accurately assess flooding risks. That’s how they can save you money – they know the real cost of the risk. Now, let’s compare that to how the NFIP goes about how to figure insurance rates.
To start with, the NFIP relies on the Army Corps of Engineers, paper flood zone maps that can be 40 or 50 years old, private surveyors and engineers, and political pressure to determine the risk of flooding. Instead of high-tech, they use low-tech Flood Hazard Determination Certificates and Elevation Certificates.
These maps use letters like A, AE, V, and VE to indicate you are in a high-risk area. If your property is located on one of these zone maps then your lender likely will require you to purchase a flood insurance policy in order to get a loan for your home or commercial property. If your property is in a flood zone X map, then it is considered low-risk and you aren’t required to buy insurance. But too often, in a flood, these X maps experience flooding too.
How to Read a FEMA Flood Map
Here’s a sample of a flood map of an area in Wisconsin.
Any property in the light blue is in Zone A, a high-risk zone. The striped areas are the Zone AE areas and these are really high-risk! If your structure is in the high-risk area your lender will likely require you to have flood insurance. FEMA provides an online flood map lookup by address.
The tan area is flood zone X which is a low-risk area. The lender is not likely to require flood insurance in that zone. That doesn’t mean it won’t flood. Many floods occur in low-risk areas, flood insurance is a good idea for these areas, it just isn’t mandatory.
Flood Zone Determination
To know for sure what zone the property is in, the lender gets a Flood Zone Determination (FZD). It looks like this.
NFIP Uses Elevation Certificates Too
The NFIP also looks at Elevation Certificates to determine the risk of flooding. But they will only look at an Elevation Certificate if you provide them one. How do you get an Elevation Certificate? Well you must:
Pay a land surveyor about $600 or more to survey your property and fill out the certificate
Ask the previous property owner if they have an Elevation Certificate.
The Elevation Certificate provides information about the topography of the property and the buildings on the property. It includes information such as:
Where HVAC/furnace and other equipment is located
Lowest area where outside soil touches the structure (lowest adjacent grade – LAG)
Highest place where outside soil touches the building (highest adjacent grade – HAG)
The best Elevation Certificates contain photos of the building and have photos of the inside too. Some Elevation Certificates can be 3 – 5 or more pages long. Flood Nerds love reading them!
Private insurance doesn’t rely on these certificates, but they do come in handy. So if you have one, always share it with your Flood Nerd!
An Elevation Certificate looks like this and provides the elevation of different areas around the property.