NFIP Drops Their Non-Compete Clause


The National Flood Insurance Program Has Dropped Its Non-Compete Provisions

By: Adam M. Matheny

Under a new ruling by FEMA, changes are being made to provisions that did not allow private insurers who offer National Flood Insurance Policies to provide their own products and at the same time stopped buyers from being able to cancel their NFIP policies if they find a less expensive alternative. Experts believe this will help to expand private sector interest in this type of coverage.

The Write Your Own Program

Under the Write Your Own Program administered by FEMA, private insurers are paid to write and take care of policies covered by the NFIP. In fact, over 86% of all NFIP policies on the market are being handled by private insurers. However, very few who offer NFIP policies offer their own products, due to the restrictions laid out in the program’s rules. This has led to fewer private insurers being willing to take part in the program according to a report issued by the Congressional Research Service.

To avoid changes that would have to work their way slowly through the legislative process, FEMA found a workaround that would allow private insurers to both manage NFIP policies and offer their own products. The solution, the insurer must keep both types of business separate from each other. Thus, a non-compete clause is introduced without having to make any significant changes to the rules. While it might take a while for this change to take full effect, it frees up private capital to look for more creative and affordable solutions.

You Can Now Change Providers At Any Time

Prior to these new changes in the rules, the only time a person was permitted to make the switch was when their policy came up for renewal. Starting on Monday, October 1st, 2018, under code 26 buyer will be able to cancel their NFIP policy when they can prove they have purchased duplicate coverage elsewhere.

In doing this, it is thought that the private sector would become more involved in the flood insurance market and in doing so offer the buying public more options while assuming more of the risk from the NFIP.

In removing the non-compete rules, it also opens up the market to the distinct opportunity for reduced premium costs. However, it is essential that buyers take the time to compare both policies side by side to ensure they are not losing coverage. Consider things like limits and ratings of the insurers. Remember that just because something is less expensive, this doesn’t mean it’s going to be better.

Other Changes To Come

In January of 2019, changes will be made that eliminate subsidies currently in place for properties built before December 31st, 1974 or those which had undergone substantial improvements. FEMA is set to increase rates on several different types of property such as those with repetitive claims or those with significant cumulative damage claims. The goal is to raise rates by 25% each year until the property owners are paying full rates like everyone else.

The End Goal

The end goal of FEMA’s efforts seems to be expanding the role of private insurers in the flood insurance market, while at the same time reducing the role of the NFIP. It is not to be seen as FEMA giving up, but instead, it should be seen as a way to brings some sense and affordability to a market that needs some serious help from a government who is not likely to be of much help until the new year at the very earliest.

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