Private Flood Expands After Changes to the National Flood Insurance Program

Flood insurance is something that homeowners in sunny Southern California and Santa Barbara often to not think about. Especially after years of drought and hot weather. However, flood is a real risk for homes, even if the home is not in a designated special flood hazard zone.

The Flood Risk for Southern California is Real:

Coastal homes near the ocean are subject to tidal and storm surges, and with steep hills and increasing and unpredictable storms, Santa Barbara’s creeks can grow into raging rivers, especially with an El Niño in the forecast. In the early 1990’s a strong El Niño caused flooding to many homes that had never seen flooding before. In 2017, the Montecito mudflows caused flooding to areas that were previously dry for a century or more. This Montecito event was covered under many home insurance policies, under rarely used legal concept called proximate cause of loss, because the flood followed a wildfire, which homeowners argued was the originally cause of loss, not the flood. Many of these homeowners did not carry flood insurance, which would have normally covered this liquid mudflow. This Montecito type mudflow event likely may not be covered by home insurers in the future, making flood insurance even more important to purchase. 

Big Changes to How Private Flood Insurance Is Sold:

Did you know, that historically flood insurance has been primarily sold through FEMA? The National Flood Insurance Program, governed by FEMA, has set the rules and rates for all flood insurance nationally. If a home falls into a Special Flood Hazard Area (Flood zone) as mapped by FEMA, the homeowner’s lender will require flood insurance to be placed on that property. For decades, the National Flood Insurance Program, distributed by home insurers, was the only game in town and the only way to purchase flood insurance. Between 2000 and 2010, the rates for the National Flood Insurance program became very high for homeowners, as FEMA incurred huge losses from major gulf and East Coast hurricanes, and they quickly ran out of money, having to go to congress for funding. This led to California flood insurance rates increasing dramtically.

Around 2016, FEMA made changed to their program, allowing private flood insurers to enter into the mix. Since 2016, several dozen private flood insurance companies have opened up to writing policies, which is a good thing for homeowners. These private flood insurers often offer lower rates, and increased policy limits over the FEMA program. 

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