NFIP Hopes to Stem Flood Coverage Losses

While flooding is the most common natural hazard in the U.S., the number of policies covered by the National Flood Insurance Program only grows by about 1% a year, according to the Federal Emergency Management Agency.

That means for the roughly 500,000 new policies the NFIP brings in each year, about the same number are lost. Which has the NFIP asking: why are so many flood insurance policies not being renewed?

FEMA hopes to improve that record and achieve a 5% annual growth rate.

There are legitimate reasons for a payoff, the NFIP concedes. Mapping changes, paid-off mortgages, and properties selling for cash mean that there is no requirement for insurance to be required.

But the NFIP believes it can achieve its growth targets by reducing the rate of attrition in the NFIP program, and that will entail making the NFIP's own equivalent of forced-placed coverage more attractive to major mortgage servicers.

The NFIP, in a recent article in its newsletter, notes that forced placement of private-carrier flood insurance on non-compliant properties by mortgage servicers may be eating into the NFIP's business. The NFIP "conservatively estimates" that 100,000 to 200,000 properties are insured by private, non-NFIP lender-placed policies.

The NFIP believes that by enhancing its "Mortgage Portfolio Protection Program," it can encourage lenders to use this mechanism to keep coverage in place of homeowners who fail to renew their policies instead of private lender-placed services.

Currently, a gap in coverage occurs if a policy is not renewed and the NFIP's MPPP is used to force-place coverage. The Federal Emergency Management Agency plans to extend its grace period for extending coverage when a lapse occurs in order to eliminate this gap.

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