Flood Insurance

At-risk Homeowners Are Overpaying For Flood Insurance With The NFIP

The private flood insurance market could save homeowners up to 65% for homes with low elevation and coverage levels.

For nearly 50 years, the government's National Flood Insurance Program (NFIP) has been the primary source of flood insurance for homeowners at risk of flood damage, one of the most costly perils not covered by home insurance policies. But the reach of private flood insurance companies, at almost 5% of the residential flood insurance market, is expanding, and is estimated to have grown 88% from 2016 to 2017. Not only that, it is offering homeowners the opportunity to save money with cheaper rates, especially in high-risk flood zones. We've identified private flood insurance policies ranging from 18% to 65% cheaper than NFIP premiums for homeowners living in areas at high-risk for flooding, also known as Special Flood Hazard Areas (SFHA), dependent on the property's profile.

Homeowners With High Flood Risks Are Being Overcharged by the NFIP

Homeowners in high-risk flood zones are often getting charged more to cover flood damage with the NFIP than they would with a private flood insurance policy. This is especially true if they live in poorly elevated homes or have bought modest levels of flood insurance coverage.

Private Flood Insurance Offers Major Savings Based on Home Elevation...

Elevation Matters

...and Based on Policy Coverage Limits

Coverage Levels Matter

Private Flood Insurance is Substantially Cheaper for Houses With Low Elevation

Residents in a high-risk flood zone, denoted by an A or Z on the flood insurance rate map and representing approximately 15 million people nationwide, including over five million in Florida and Texas, can find substantial savings if they have a poorly elevated home. In our research, we found discounts ranging from 30% to 65% for homeowners who buy private flood insurance instead of a policy from the NFIP, and discounts will be even greater at lower elevations.

Low Elevation Discount

The lower the elevation of a home relative to its location's Base Flood Elevation (BFE), the elevation that floodwater is anticipated to have a 1% chance of rising to in a given year, the more susceptible it is to flood risks. The NFIP will charge higher rates based on a low elevation, while private flood insurance agencies won't necessarily consider it a factor, resulting in substantially cheaper policies. For example, measured against a leading private flood insurer, The Flood Insurance Agency (TFIA), and a fast growing digital private flood insurer, TypTap, a home in high-risk flood zone A measured at one foot below BFE has premiums 30% to 45% lower for private flood insurance policies versus the NFIP.

Private Flood Insurance is much cheaper for poorly elevated homes in "A" zones

ElevationNFIP rateTFIA rateTypTap rate
Lowest floor is at BFE$2,183$3,145 (+44%)$2,555 (+17%)
Lowest floor is one foot below BFE$4,531$3,145 (-31%)$2,555 (-44%)
Rates are for a single family primary residence with $250,000 in dwelling coverage, $100,000 in personal property coverage and a $2,000 deductible in zone A

This trend even holds true in the highest-risk flood zones: the "V" zones. Homes in this zone are not only subject to flooding risks but also the additional hazard associated with storm waves. As a general rule, the NFIP provides competitively priced coverage at many elevation levels in zone V, but policies for homes with particularly low elevation can still be priced at discounts on the private market.

NFIP policies are competitive in zone V, but the lower the elevation of a home the more attractive private insurance policies become

ElevationNFIP rateTFIA rateTypTap rate
Lowest floor is at BFE$6,481$15,094 (+133%)$5,288 (-18%)
Lowest floor is one foot below BFE$7,736$15,094 (+95%)$5,288 (-32%)
Lowest floor is four feet below BFE$14,911$15,094 (+1%)$5,288 (-65%)
Rates are for a single family primary residence with $250,000 in dwelling coverage, $100,000 in personal property coverage and a $2,000 deductible in zone V

In our example, a quote for V zone coverage from TypTap was consistently cheaper than the NFIP, but prices for TFIA only became competitive if home elevations were more than four feet below BFE. At that elevation, TypTap was 65% cheaper than the NFIP. If a home's lowest floor is four feet or more below BFE, shoppers are definitely at a disadvantage in being insured by the government, as rates for NFIP policies only become more expensive the lower the elevation.

Private Flood Insurance Is Much Cheaper for Policies With Lower Coverage Levels

After elevation levels, policies with lower coverage levels are where the private market has the best price advantage.

Low Elevation Discount

Homeowners generally select coverage levels based on the cost to replace their home or personal property, so homeowners with lower value homes are paying more per dollar of coverage with the NFIP. This is particularly true of the high-risk flood zone A. The less flood coverage someone obtains in this zone, the more likely it is that a private flood insurance policy will be cheaper. We compared flood insurance quotes from the same providers at different levels of coverage in zone A and at lower coverage levels, the two private flood insurers offer quotes that are 18% and 38% cheaper.

Customers with lower coverage limits in zone A get better rates with private flood insurers

CoverageNFIP rateTFIA rateTypTap rate
$250,000 dwelling / $100,000 personal property$2,183$3,145 (+44%)$2,555 (+17%)
$100,000 dwelling / $40,000 personal property$1,740$1,434 (-18%)$1,070 (-38%)
Rates are for a single family primary residence with a $2,000 deductible and consistent elevations

The less coverage a homeowner gets for their home and personal property, the more likely they are to get substantially cheaper flood insurance from the private market.

These numbers do not apply equally across all high-risk flood zones, as the NFIP can have different calculation methods depending on the exact zone and home type. For example, in zone A, these calculations generally apply for flood zones labeled AE or A1 to A30. However, if a home is located in flood zone AO or AH, we found that NFIP prices were cheaper than their private flood insurance counterparts.

There is plenty of variance in rates in zone V too, with prices highly dependent on a multitude of home characteristics. These might include whether your property is considered an elevated building—meaning it is raised above ground by foundation walls, posts or other supports—the number of floors your home has and the ratio of insurance coverage to the replacement cost of your home.

Private Market Discounts Are Minimal In Low-Risk Flood Zones

The average cost of flood insurance in a low-risk flood zone—labeled B, C or X—is generally much lower, and homeowners can probably get a competitively priced policy through the NFIP as part of its preferred risk policy program. The only notably cheap private policy in our sample was from TypTap, which was approximately 20% cheaper than the NFIP alternative for lower coverage levels, so it's still worth getting a quote from private insurers in case they offer a particularly cheap quote, even in these zones.

NFIP preferred risk policies are competitive in low-risk flood zones, though discounts may be found at lower coverage levels

CoverageNFIP rateTFIA rateTypTap rate
$250,000 dwelling / $100,000 personal property$450$447 (-1%)$548 (+22%)
$100,000 dwelling / $40,000 personal property$349$347 (-1%)$275 (-21%)
Rates are for a single family primary residence in zone X with no basement or enclosure. Deductibles are $1,250 for dwelling coverage of $250,000 and $1,000 for dwelling coverage of $100,000, except in the case of TypTap, for which both quotes have a $1,000 deductible

However, if any of the following conditions apply to a building's history within any 10-year period, it won't be eligible for a preferred risk policy and NFIP rates may be substantially higher. In these cases, homeowners should investigate a private flood insurance policy, though they should be aware that private insurers may also charge higher rates based on these criteria.

Homeowners can likely get a cheaper rate from private flood insurance if any of these conditions apply…

  • Two flood insurance claim payments for separate losses, each more than $1,000
  • Three or more flood insurance claim payments for separate losses, regardless of amount
  • Two federal flood disaster relief payments (including loans and grants) for separate occurrences, each more than $1,000
  • Three federal flood disaster relief payments (including loans and grants) for separate occurrences, regardless of amount
  • One flood insurance claim payment and one federal flood disaster relief payment (including loans and grants), each for separate losses and each more than $1,000

Other Benefits of Private Flood Insurance

In addition to offering lower rates in certain scenarios, private flood insurance companies can also provide some coverage benefits that the NFIP can't.

Higher coverage limits: This is particularly important if the replacement value of a home or its contents is above NFIP limits. For single or multi-family dwellings, NFIP policies have a maximum coverage limit of $250,000 of your dwelling and $100,000 of home contents. TypTap and The Flood Insurance Agency both offer coverage up to $500,000 and $250,000 respectively, so homeowners looking for more complete coverage of the value of their property can find it in the private market.

Faster policy approval: Homeowners can generally acquire private flood insurance policies faster than an NFIP policy. The NFIP typically has a 30-day waiting period. Conversely, TFIA has a wait of 14 days from when payment is received and zero days if insurance is purchased as part of a loan closing. TypTap does not specify how long it would take to acquire a policy but contends it has no waiting period, unlike the NFIP.

Differing flood zone categorizations: Private flood insurers sometimes categorize flood zones differently than the NFIP. If an insurer has its own flood map and labels a home as a low-risk B, C or X zone rather than a SFHA, a homeowner may be entitled to a lower rate from the more generous classification.

The Downsides of the Private Flood Insurance Market

Private flood insurance can be a good deal for at-risk homeowners, but the market has its downsides, including its more limited geographic reach, the ability to forgo coverage for risky homes and the fact that these companies have been untested by a major crisis.

Private flood insurance is not available in all areas: All 50 states—and Guam, Puerto Rico and the Virgin Islands—participate in the NFIP, meaning that wherever someone lives they'll have access to a government-backed flood insurance policy. The same can't be said for private flood insurance companies, which have the discretion to choose where they will offer their product. The two providers from which we drew sample quotes have more geographic limits than the NFIP: TFIA offers policies in 36 states and TypTap, currently offers policies in only five states.

Private flood insurers may stop offering coverage in high-risk areas or for high-risk buildings: The NFIP may charge high rates for vulnerable homes in high-risk areas, but they must provide homeowners with a policy if requested. Private flood insurers have no such mandate. If they decide they no longer want to provide policies for homes below a certain elevation level in flood zone V, for example, or if they think they have too many policies concentrated in a certain zip code, homeowners might be out of luck. Flood insurance companies could also decide against renewing their customer's coverage when a policy term ends, meaning that homeowners could be left exposed to a pending storm if a policy expires at an unfortunate time.

Private flood insurance companies are financially untested: The NFIP is backed by the government, and in the event of a major natural disaster with extensive flooding damage, you'll almost certainly be reimbursed for flood damage if your claim is accepted. Private flood insurance companies, on the other hand, are unproven. A major flooding event is yet to test an area in which a private flood insurer has a high concentration of policies. Unlike the government, it's possible that after a major natural disaster a private flood insurance agency would face financial issues and be unable to pay your claim.

Methodology

All quotes are for a single-family primary residence with one floor and no basement or enclosure in Florida. NFIP rates are so-called post-FIRM rates, which are generally used for buildings that are newly constructed. Policies utilize replacement cost coverage for the dwelling but actual cash value for personal property. NFIP quotes do not incorporate the Community Rating System discount, which can be as low as 0% or as high as 30% of premiums (before various fees) and rewards communities for going beyond minimum floodplain management requirements, as these discounts can vary widely depending on the community.

Mark Fitzpatrick

Mark Fitzpatrick is a Research Analyst at ValuePenguin focused on the insurance industry. He previously worked in Country Risk Management at State Street Corporation.