The changes are effective October 1st, 2018 and offer a handful of new provisions, the most significant of which brings a greater freedom for flood insurance customers to choose their own flood insurance provider and cancel coverage with NFIP mid-year if certain conditions are met. Approved mid-year cancellations will receive a partial refund for that year.[i]
Prior to the changes, many consumers were frustrated by limited options when choosing flood insurance providers. Cancellation of an NFIP policy in favor of coverage through another flood insurance provider was difficult, effectively limiting the market choices and making the NFIP larger than all other flood insurance providers combined when measured by flood premiums earned. Nationwide, NFIP flood insurance represents about 85% of all flood insurance premiums.[ii]
Changes to the National Flood Insurance Program to benefit consumers are focused on a newly-accepted reason for cancellation which allows flood insurance customers to cancel their coverage mid-year if they meet certain requirements.
How to Get a Refund from FEMA after Switching to Private Flood Insurance—NFIP Cancellation Code 26
To be eligible for mid-year refunds, it’s important for NFIP customers to understand the requirements attached to the program’s changes. This new provision specifically addresses duplicate coverage, meaning that customers who purchase flood insurance for the same insured property though a private flood insurance provider can request a refund for the unused portion of their NFIP policy. An NFIP policy with 6 months remaining on the policy term may be eligible for nearly a 50% refund of the prepaid premium.
Reason Code 26 requirements overview
- New coverage though another insurer must be purchased for the same property. To be eligible for a partial refund, customers must buy flood insurance coverage through a private flood insurance provider. Cancellation requests that aren’t accompanied by proof of coverage will not be accepted.
- Eligible refunds are Pro-rata. The NFIP will provide refunds for eligible cancellation requests based on the unused portion of the policy. For example, a prepaid policy canceled with 6 months remaining on the policy will be eligible for a refund of 50% of the premiums paid as well as a Pro-rata refund for many of the fees charged to the policy.
- Cancellation date is based on the date the cancellation request is received by NFIP. If you purchase private flood insurance, it’s important to submit your cancellation request immediately to avoid a reduced refund amount. A 2-month delay could reduce a refund by as much as a third on an NFIP policy with 6-months remaining on the policy term.
- Cancellation requests must be received within the current NFIP policy year. Refund requests cannot be backdated. It’s essential for customers who purchase flood insurance through a private provider to submit a cancellation request with NFIP before their NFIP policy expires.
- Documentation is required. To process refunds for cancellation requests, the NFIP requires a copy of the declaration policy for the private insurance policy you purchase. Additionally, if you have a mortgage or home loan, the NFIP requires documentation indicating the non-NFIP policy is accepted as a replacement by your lender.
The new rules provided by the NFIP provide New York homeowners with greater flexibility to secure coverage with private insurers of their own choosing, potentially providing significant savings or more expansive coverage than the tight constraints of an NFIP policy.
Nationally, Private flood insurance has been growing in popularity in recent years, with 2017 seeing a 50% increase in flood insurance business through private insurers when compared to the prior year. Limitations placed by the NFIP have prevented some growth in the private market, however, leading to a majority of flood insurance business being written though the FEMA program.
This new change, which allows NFIP customers to cancel coverage mid-year – assuming all the requirements are met – provides an opportunity for New York homeowners to secure a flood policy that meets their needs and may be more affordable. In a recent study, it was estimated that as many as 92% of homeowners in some flood-prone states could secure more affordable coverage though private insurance than through NFIP flood insurance.[iii]