The Flood Insurance Guru Podcast Episode 16: Can My Flood Insurance Be Cancelled?

In today's episode, we'll talk about cancellations. Not the type you're seeing on the internet nowadays, but flood insurance policy cancellations. Why might your flood insurance policy be cancelled when it comes to the National Flood Insurance Program (NFIP) and private flood insurance market? What are your options when this happens and what can you do?

Cancellation Reasons

First, we'll have to cover a couple of things that can cause your federal flood insurance policy to be cancelled or your flood insurance coverages dropped immediately. Say, you set up a policy for a primary residence with the National Flood Insurance Program (NFIP) and the Federal Emergency Management Agency (FEMA), and the form wasn't signed, then the flood coverages for that property can be dropped from that $250,000 mark all the way to about $30,000. If you receive a letter from them saying that your coverages are being dropped, it's most likely that they're simply needing verification that this policy is for a primary residence.

When it comes to flood policy cancellations with the National Flood Insurance Program and FEMA, many times you'd get what's called "provisional rates" which is generally a conditional rate saying that they're providing that amount of flood insurance rate based on the information and facts that they have at the moment. There are going to be additional documents that federal flood insurance will require. These are required to be sent before the renewal or else they will non-renew the policy then cancel it. So, what are the two things that can cause federal flood insurance to non-renew? These documents specifically are photos and an elevation certificate.

Photos

We always say a picture paints a thousand words and in flood insurance, you can say that photos can cost you a thousand bucks. Now, you might be wondering why this is needed for your flood insurance policy. Now, let's say that your home's marked as having an above-grade crawlspace. Having photos of each side of the house shows the different elevations of your home and the type of foundation it has. So this can mean that you get to show through these photos that your home is actually a slab and not a crawlspace which shows what really is the lowest grade floor.

Elevation Certificate

Many times when it comes to this document — which you can get through a licensed surveyor or a professional engineer — FEMA needs a copy of this to make sure they have the correct flood insurance rate for you. Now, just like photos, elevation certificates not only show the different foundation types, but also the number of elevations that the property has. For example, the certificate may show that your home is four feet above the base-flood elevation which means that you may be removed from this flood zone thus lowering your flood insurance rate. This can also show that you're below the base-flood elevation by six feet, and your rate should be significantly higher than what was initially proposed.

Now, since it impacts your rate directly, the National Flood Insurance Program (NFIP) and FEMA usually will ask for these documents 60 days before the renewal. If you miss this period, your policy may be cancelled. If you were able to send them the documents within that period, your coverage should continue as usual.

What if you can't get these documents in time? Well, there's another option when it comes to insurance companies to secure your policy.

Private Flood Insurance

A short disclaimer, just like the NFIP and FEMA, private flood insurers can be very beneficial and has a lot of great perks with them however they also have few more things that may cause your policy to be cancelled. 

Now, unlike the NFIP and FEMA which generally takes on all risks and properties, private flood insurance can actually pick the risks they want. This means that private flood may avoid providing insurance on properties in the special flood hazard area. This is important to know if there've been multiple claims made for the property or they find out that there were claims made before you got the property that you didn't know about. This is why it's important to disclose these details since private insurers are most likely to lean into these when cancelling your policy. This is why there are a lot of non-renewals with private insurers every day.

Another reason why they may cancel is due to them maxing out on their risks in your area or community. This begins a chain that causes them to non-renew on the properties in that area. Now, you can avoid this happening to you once you make sure that your insurance policy is locked in by finalizing the application, it's been signed, and payment has been made. These generally prevent an insurance policy from being cancelled in the first place. It's important to note that this isn't just for private flood insurance, but will also be the case with the NFIP and FEMA policy especially if you cover those three steps within 30 days.

We can simply look back on what happened after Hurricane Harvey, a lot of private companies moved out of Texas. Even though there are no claims there, a lot of policies were being dropped since basically they're no longer accepting those risks. On the other hand, the good difference about private flood compared to NFIP and FEMA is that they won't ask you to produce an elevation certificate to determine the flood risk. This is generally because each private insurance company has different means of determining the flood risk of a property.

What To Do?

Now that we've covered the whys on policy cancellation, it's time we discuss what to do in the event this happens.

First, you want to make sure that you'll have the new policy active and in place before the previous policy expires. This is important since it directly impacts your mortgage. Even if it's just a couple of days, your mortgage company can actually force place their own coverage for $5000 to $10,000 a year. This can really be a pain when it comes to your wallet and overall mortgage.

Now, it's important to know about private flood insurance is that even though your policy's cancelled, you can still have more options when it comes to the private market. This option can easily eliminate your worry about waiting on your policy application since it usually takes 5 to 15 days to apply. It doesn't mean that because your private insurer cancels and moves out, all of the private companies will also move out of the area.

As you can see, your policy cancellation from one insurer doesn't mean disaster for you. You can still have options, but it's best you're also prepared when crap like this happens. So, if you have any questions on your flood insurance policy, if you want to move into private flood, how to get elevation certificates and when do you really need, or anything about flood, please feel free to reach out to us. Click on our links below to know more!