Insurance Commissioner Teresa Miller Tuesday urged federal regulators to amend their proposed regulations governing federally-backed loans for homes in Special Flood Hazard Areas (SFHAs) to direct mortgage lenders to also accept residential flood policies written by what are called surplus lines insurers.
This would help homeowners have more options and potentially reap substantial savings, while protecting their homes.
Commissioner Miller sent a letter to federal financial regulators who have proposed regulations governing which private market flood insurance policies lenders making federally-backed mortgage loans must accept.
Homes in SFHAs with federally backed mortgages are required to have flood coverage, which is not included in standard homeowners' insurance policies.
"I have been working for a year to make private residential flood insurance more available to Pennsylvania homeowners, as I have found in many cases this coverage is comparable to that of the federal government's National Flood Insurance Program (NFIP), but available at substantial savings to homeowners," Commissioner Miller said. "One of the roadblocks to making these savings available to more Pennsylvanians is that because private flood insurance is a relatively new product, some lenders are reluctant to accept it, and thus are forcing homeowners to get NFIP policies, and potentially pay much more for coverage than needed."
Commissioner Miller said in her letter to federal financial regulators the main problem with the proposed regulations is they do not specifically say that personal lines residential flood policies offered by surplus lines insurers can be accepted by lenders for purposes of satisfying the mandatory purchase requirement for homes in SFHAs.
She notes this could seriously harm consumers' opportunities to get flood insurance at the best prices, as nearly all residential flood policies sold by the private market in Pennsylvania now are through surplus lines carriers.
Surplus lines insurance companies are licensed outside of Pennsylvania, in other states or countries, and typically provide types of insurance that licensed companies have found too risky or too new to offer. Surplus lines coverage is sold by producers who must be licensed in Pennsylvania and adhere to Pennsylvania laws.
Commissioner Miller also noted the Insurance Department's Consumer Services Bureau has no consumer complaints regarding surplus lines insurers.
"In Pennsylvania, a number of communities have been re-mapped in the SFHAs by the Federal Emergency Management Agency over the past several years, resulting in many homeowners receiving letters from their mortgage lenders stating they now must have flood insurance," Commissioner Miller said. "Adding to the surprise of getting this notice comes the sticker shock homeowners have experienced in some areas when looking at NFIP policies."
Commissioner Miller cited one case where a homeowner would have had to pay $2,700 a year for an NFIP policy, but was able to get private coverage for $718, and another instance where NFIP coverage would have cost $2,000 annually, but the homeowner found private coverage for just $400 every two years.
Commissioner Miller also specifically asks federal regulators to amend their proposed regulations to require private flood coverage only be as broad as an NFIP policy for the specific property securing the loan.
This is important to allow private insurers to tailor coverage to a homeowner's specific needs, and provide more options at better prices.
For example, the NFIP provides coverage for certain property, such as a furnace or water heater, in a basement, but if a home does not have a basement, private flood coverage should be able to reflect this, and potentially offer the policy at a lower price.
"Many homeowners re-mapped into SFHAs have rarely or never experienced flooding, but are now required to have flood insurance. I want these consumers to have the opportunity to consider private market plans, offered through both Pennsylvania licensed and surplus lines insurers, and possibly reap significant savings," Commissioner Miller said.
She also noted Pennsylvania is seeing more homes outside of SFHAs hit with damaging flooding. Homeowners outside of SFHAs may want to consider purchasing flood coverage, and may be able to find coverage in the private market.
A copy of Commissioner Miller’s letter is available online.For more information, visit the Insurance Department’s Flood Insurance webpage.