Flood insurance coverage is something that all insurance agents and homeowners should know very well. Keep it close to the chest when it comes to fully understanding the extent of what you're writing on your policy.

In today's episode, we want to tackle flood insurance coverages; specifically how replacement costs can be different from the actual cash value (ACV) and the dangers of choosing one thing from another.

What's the Difference?

When it comes to writing your flood insurance policy, you should be able to know which is the best option between replacement costs and ACV. Most insurance carriers provide homeowners with the ability to either opt into replacement costs or ACV.

But what is the difference between the two?

Replacement cost — from the phrase itself which is very self-explanatory — is the amount given to the insured in order to fully restore and/or rebuild the property after being damaged.

Let's give an example, if you choose to get replacement cost for your flood insurance for a home that's worth $240,000, then you will be able to get this exact amount from your insurance provider. In the NFIP, coverages actually max out at $250,000 building coverage and there are no amount limits in the private flood insurance market.

On the other hand, actual cash value (ACV) is a different story. This time around we won't be talking about the exact amount needed to fully restore your insured building, but its exact value in actual money.

This is calculated by using the replacement cost value of the property subtracted by depreciation. This means that the overall depreciation of the value of your insured building will be the sole basis of how much you'll be getting.

This means that one way or the other, you won't be getting $240,000 on your insurance if you choose ACV. This is why choosing Actual Cash Value is dangerous for homeowners because you're getting less than what you really need.

How to Know Your Coverage

There are two ways to make sure that you won't get blindsided when your flood insurance claim pays out.

The first way to make sure that you don't get ACV in your insurance is by checking the policy. You want to make sure that you get to read your flood insurance policy very well before you proceed on purchasing it, and also make sure that you have replacement costs as your coverage option.

You can ask your insurance agent to help you with this and it's pretty easy for them to determine this. A great insurance agent will make sure that the policy you have is under replacement cost coverage.

Another thing you want to make sure of is that you're following the 80% rule. Both FEMA and private flood insurance have this type of rule. The rule states that you must ensure your property for at least 80% of its cost.

By following the 80% rule, you can have the assurance that you won't be getting a significantly lower amount of coverage when your policy starts to payout.

If you want to learn more about flood insurance coverages, how to manage your flood policy, or anything related to flood insurance, you can click below to access our Flood Learning Center where we answer your flood and insurance questions.

You can also click on this picture below to contact us and discuss 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.

 

 

Covid has been devastating across the world. Many businesses are out of business as a result of the pandemic hitting.

 

During a normal disaster many business owners might have been able to stay open. However because of lack of loss of use on business insurance policies many were forced to close.

The majority of these policies do exclude pandemics.

The courts in the United States and around the world are starting to fill with cases to dispute this coverage being denied.

A recent decision by a United Kingdom court could take a bad situation and turn it into an even more devastating situation.

According to Reuters Britains supreme court ruled many businesses should get coverage for Covid losses. So what does this mean?

So what does this mean?

It means insurance companies could have to pay endless claims on coverages that were not listed on the insurance policy.

These are some of the worlds largest insurance companies that will have to pay out these claims. Whats also important to understand is the reinsurers will have to cover these claims.

This means this could shake up the  e and s or surplus insurance market.

So how does this impact flood insurance?

Well reinsurers play a major role in the flood insurance market. They are a major player with the National Flood Insurance Program and private flood insurance.

Let's look at the role they play with the National Flood Insurance Program. According to FEMA the reinsurance program helps manage the future exposure of the National Flood Insurance Program on future flood risks.

Can you imagine if the U.S. government took all of this risk on their own. You can imagine events like hurricane Harvey could have bankrupt the country.

Now let's look at reinsurance on the private flood insurance side. Reinsurers are basically the back bone of almost every private flood insurance company. They decide what capacity they will take on regarding risks across the world.

When ever an insurance carrier loses a reinsurer they have to non renew certain risks and stop doing business in some areas. Being in the insurance industry for more than 12 years we have seen this happen multiple times.

These reinsurers have to have certain reserves to cover flood losses. So what if these Covid claims eat up a large portion of that reserve fund?

Well a few things could happen we could see flood insurance rates skyrocket, or we could even see flood insurance options dry up across the United States.

You could also see where some of these private flood insurance companies no longer meet the requirement of private flood insurance.

This means banks may not accept policies from these companies.

You combine that with coming off the busiest hurricane season in U.S. history and we could be on  course for a major shake up in the  flood insurance industry.

Even if the reserves do stay high enough the reinsurers are going to have to find a way to make up these losses.

After interest rates being as low as they have for as long as they have many insurance companies are already hurting on their investments.

So we could still start to see risk being declined and rates going up especially along the Gulf coast.

We will continue to monitor how this situation across the pond plays out and how it could impact the United States flood market.

If you want to look at your flood insurance options makes sure to click here.

If you want to learn more about flood education then make sure to check out our YouTube channel where we do daily flood education videos on flood insurance.

You can also check out our podcast.

Remember we have an educational background in flood mitigation which means we are here to help you understand your flood insurance, flood risk, and mitigating your property long term.