We moved out of the legacy program of the Federal Emergency Management Agency (FEMA) and are now officially going to adopt the Risk Rating 2.0 program for the federal flood insurance.
Other than the changes coming to the overall rating structure of flood policies with the National Flood Insurance Program (NFIP), we're also going to see some changes to cancellation reasons.
Today, we want to focus on Category #1 of FEMA Cancellation Reasons: No insurable interests.
Category #1: No Insurable Interest
First, we want to address the following conditions wherein this new category falls. In the previous version of the NFIP, "No Insurable Interest" actually falls under three separate reason codes. These reason codes are #01, #02, and #07. Let's do a quick review directly lifted from FEMA's handbook on cancellation rules.
First, let's cover the conditions wherein this cancellation reason can be considered under Reason Code #01.
The conditions mostly cover the idea that the property can't be insured either due to it failing to meet the standards of the NFIP and FEMA to be eligible for flood insurance coverage. These conditions are either (1) the building/property is at a total loss due to damages and it's basically unsavable, (2) when the developer or builder has requested to cancel the policy mid-term due to the homeowner moving into another property, and (3) maybe even due to a failure of the property transfer or the closing of a deal on the house's purchase.
In Reason Code #02, the conditions are either (1) the property has been transferred to another owner, (2) the contents are completely removed or moved from another place due to the previous condition, and (3) the contents were destroyed by a peril like floods, earthquake, or a fire.
Lastly for Reason Code #07, will consider either (1) an insurer issues a policy and the anticipated transfer of the property does not take place, or (2) the insured does not acquire an insurable interest in the property.
Based on these two items, this is mostly regarding homeowners who applied for flood insurance with FEMA and the NFIP before they purchase a property. Think of it this way, you bought a flood policy first to make sure that the property gets flood insurance coverage, but you haven't really bought the house or the transfer hasn't been completed yet.
The cancellation reason will take place once this property wasn't transferred to the buyer, therefore, nullifying the proposed flood insurance policy on that property.
In the new Risk Rating 2.0 update, this "No Insurable Interest" reason actually falls on Reason Codes #01, #02, and #07 when it comes to the legacy program of the federal flood insurance. However, the new update moves these three reasons into one Category that caters to any and all conditions where the property simply isn't there anymore to be insured by a flood policy.
In Risk Rating 2.0, this becomes Category #1 and is actually easier since if you can notice, there were multiple repetitions within the legacy program's Reason Code #01, #02, and #07. This avoids any confusion since we're talking about conditions which is a great move on FEMA and NFIP's part.
So if your house closing didn't push through, the property was completely destroyed, and/or builder requests for cancellation, this already gets covered in FEMA Cancellation Rule: Category #1. No need to go back into the three codes because this category already covers your concern and it's easier for both homeowners and insurance agents to help your policy get nullified and eventually canceled altogether.
These changes can be confusing, so if you need help understanding how flood insurance work and how your FEMA policy can be canceled, where to buy flood insurance, understanding your risk of flooding, or anything related to floods, click below to access our Flood Learning Center.
You can also click my picture below to call us for your flood insurance concerns.
Remember, we have an educational background in flood mitigation which lets us help you understand your flood insurance, how it can be managed, flood risks, and mitigating your property to preserve its value long-term.