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Potential Changes in the Flood Insurance Program

Potential Changes in the Flood Insurance Program

The National Flood Insurance Program, or NFIP, was already in deep debt, to the tune of $24.6 billion, before Hurricanes Harvey, Irma, and Maria, and Tropical Storm Nate hit our shores. Further complicating matters, the Congressional Budget Office, or CBO, is projecting a budgetary shortfall of $1.4 billion. Let’s examine what’s causing the budgetary shortfall and what the future implications are for the flood insurance program. Budgetary Shortfall: The cause for the budgetary shortfall is due to the difference between how premiums are calculated for coastal counties versus inland counties affected by flooding from lakes, rivers, streams, and creeks. In short, the program doesn’t charge enough for flood insurance for properties in coastal counties to cover wave damage such as we experience in hurricane storm surge. Storm surge accounts for 37% of all flood insurance claims. When this is added to hurricane related flooding claims due to rain (16%), tropical storms (5%), and nor’easter coastal storms (2%) it far outweighs inland flooding claims which total 36% of all flood claims. Adding to the unbalanced rates, flood insurance policies in coastal counties account for 75% of all NFIP policies. Unless something changes, the NFIP’s coffers will run dry soon. Congress and the Trump administration are eyeing changes to the flood insurance program due to the budgetary challenges and outstanding debt the NFIP has. Here are a couple of ideas being considering. Deny Coverage: Mike Mulvaney, the director of White House Office of Management and Budget, believes flood insurance should be denied to homes built in flood plains after 2020. Coverage for existing homes in a 100-year flood plain would be continued, but no coverage would be available for new homes constructed in these areas. If this were to become law, homeowners will need to find private flood insurance which is usually more expensive than flood coverage from NFIP. President Trump has expressed similar statements where coverage would be denied for homes most at risk for flooding. As you can imagine, the National Association of Home Builders is opposed to this idea. Cut Off Coverage: Mulvaney’s plan also provides additional powers to cut off coverage from properties which flood repeatedly. No details have been provided as to how many times a property would have to flood before being cut off, however, when it occurs, the homeowner would be forced to find private flood insurance if it’s available. Raise Rates: None of the news reports have mentioned a rate increase. Most private carriers raise home insurance rates after major storms. Rates in north Texas for home insurance continues to climb due to the massive hail storms in 2016 and 2017. One easy way to slow the budgetary...

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What is Forced Place Insurance?

What is Forced Place Insurance?

In July of this year, news agencies announced Wells Fargo forced unwanted car insurance on 500,000 to over 800,000 of its car loan customers, most of whom had valid car insurance. The type of insurance used is referred to as forced place or lenders insurance. The results of this practice were devastating; 274,000 of Wells Fargo’s customers were forced into delinquency and 25,000 vehicles were wrongfully repossessed. Wells Fargo reaped millions in revenue and fees from this practice. Forced place insurance is written by the lender when a borrower has a lapse on their car, boat, RV, or home policy. It’s designed to protect the lender in the event of a loss and is usually written with enough coverage to pay off the loan. This policy isn’t a gift; the cost of a forced place insurance policy is rolled into the monthly payment the borrower makes. If the borrower refuses to pay the new amount, the asset is repossessed. Forced place insurance on a car means the policy provides much less in coverage than a standard car policy. It may or may not extend liability coverage to the car you hit if you’re at fault in the accident. There is no medical or personal injury protection coverage for you if you or a passenger are injured. There’s no rental car reimbursement or roadside assistance coverage. In the case of home, condo, flood and wind versions of force placed insurance: These policies protect the home up to the value of the loan. If there’s a total loss, the loan is paid off but the borrower is left holding the bag for everything else. There’s no coverage for contents or personal property. There’s no liability or medical coverage. There’s no coverage for loss of use. The purpose of lender placed insurance is to recoup the money they’ve loaned the borrower for the lost property.  The borrower may still be liable for medical charges, repairs to another person’s vehicle, demolition of a home, and debris removal. Forced place insurance is expensive too, costing anywhere from the same as a standard policy to twice as much. In a few instances, it may cost as much as 10 times the cost of a policy from a standard carrier. The good news is borrowers may replace forced place insurance with their own coverage simply by obtaining a policy from the company of their choice. I’ve replaced several forced placed insurance policies with real car and home insurance.  In all but one instance, the savings were huge.  In that case, the client wound up paying about $100 more a year, but they considered it a bargain once they understood how little...

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