Insurance Info
Flood Insurance Mandate
The Federal Flood Disaster Protection Act of 1973 mandates that federally regulated lenders cannot make, increase, extend, or renew a loan for a structure unless it is insured against flood damage when any portion of it is located in a special flood hazard area. This Federal requirement for insurance applies to federally regulated lenders, not directly to property owners. A regulated lender simply passes this obligation onto its client. Consequently, an owner of a structure in a special flood hazard area who does not have a federally regulated loan is not required to have flood insurance.
Lender's Determination of Insurance Requirement
A data analytic company, such as CoreLogic, reviews flood insurance rate maps and then makes the determination for its lender clients as to whether a structure is shown in or out of a special flood hazard area. Some companies will interpret the maps more conservatively by extending the flood boundary by an extra 25-feet or so.
It is a lender's prerogative, per the mortgage agreement or deed of trust, to require flood insurance whether the property owner agrees with the determination or not.
Of course, if a structure for which a lender demands flood insurance is shown far outside of a special flood hazard area, an owner's recourse is to refinance with another lender who interprets the map less conservatively. Alternatively, an Out-As-Shown LOMA can be sought directly from FEMA. It is unusual for a lender to require flood insurance when FEMA has issued a LOMA for the structure.
Obtaining Insurance
Flood insurance can be purchased either through FEMA's National Flood Insurance Program or the private market. The vast majority of flood insurance policies are issued through the NFIP. However, private market policies are becoming more popular as companies identify areas where the risk determined by FEMA may be overestimated. In these areas the private market is undercutting the NFIP.
If you are informed by you lender that you must obtain flood insurance, begin investigating your options right away. If you do not obtain flood insurance in a timely manner, your lender will do so on your behalf. In doing so, the lender will not choose the most economical approach for you, but you will be obligated to pay the expense. Lenders often obtain month-to-month private policies without any surveyor obtained data, rather than annual policies that normally have a lower monthly cost. If you obtain insurance through the NFIP and then later prove it was not required by acquiring a LOMA, you will be eligible to receive a full refund for your effective policy, as long as you did not file a claim during the policy period.
National Flood Insurance Program
NFIP policies are offered and serviced by the agencies of most major insurance companies, such as AAA, Allstate, Farmers, Liberty Mutual, Nationwide, Progressive, State Farm, The Hartford (AARP), Travelers, USAA, etcetera. Be aware, however, that not every agent affiliated with a particular company will offer NFIP insurance. So if you prefer to maintain various insurance policies under one company, it may be necessary to seek a different agent. Also, not every company offers NFIP insurance unconditionally. Some will only write policies for existing clients in good standing.
No matter which agent/company offers to provide NFIP insurance for a property, the cost should be the same for the same policy coverage. NFIP policy prices are fixed by FEMA. Consequently, there shouldn't be any benefit to shopping around for NFIP quotes, except that it is not uncommon for insurance raters to err in determining policy cost—either in favor of or to the detriment of their clients. Legitimate costs savings may be possible through insurers who provide overall discounts for bundling multiple policies.
NFIP Insurance Cost
The cost of an NFIP flood insurance policy is guided by FEMA's Flood Insurance Manual using data recorded on a current Elevation Certificate form.
Discounts are available to properties that are located in communities that participate in FEMA's Community Rating System (CRS). Communities in Alameda County that participate in the CRS program include:
Unincorporated County areas, such as San Lorenzo, Castro Valley, Ashland, Cherryland, etc. (up to 15% discount)
City of Fremont (15% discount)
City of Pleasanton (up to 10% discount)
City of San Leandro (up to 10% discount)
. . . all other communities
Private Flood Insurance
A potentially less expensive alternative to FEMA's NFIP insurance is flood insurance offered by the private sector. But before allowing any existing NFIP policy to lapse, ensure that any private insurance you do consider is acceptable to your lender.
Also, consider that any grandfathered NFIP discount currently applied to your property might be lost forever by not continuously maintaining an NFIP policy. There is no guarantee that a privately offered policy will be available for renewal in the future, especially after filing a claim.
Companies currently offering private sector flood insurance policies for properties in California include:
Natural Catastrophe Insurance Program (Poulton Associates, LLC)
Private Market Flood / The Flood Insurance Agency (Lexington Insurance / AIG)
Superior Flood Incorporated (cover holder of Lloyd's of London)
Typ/Tap (underwriter: Homeowners Choice Property & Casualty Insurance Co.)
