Last night FEMA surprised the industry and Congress by notifying insurers that they would not be able to sell or renew flood insurance policies under the National Flood Insurance Program (NFIP) during the partial government shutdown. 

Here are some talking points to share:

  • NFIP cannot sell flood insurance policies unless FEMA reverses its policy decision or the government shut down ends.
  • Existing NFIP policies will remain in effect until their expiration date (i.e., the renewal date plus a 30-day grace period), and claims will continue to be paid as long as FEMA has the funds on hand.
  • Renewal policies are generally issued as long as the application is received prior to a lapse and the premium is received within the 30-day grace period. Other renewals must wait for reauthorization.
  • Property buyers can assume existing/renewal policies during a lapse. “Assignment of policies” (page 3 here) allows insurers to substitute the buyer’s name for the seller’s without having to reissue the policy.
  • Private flood insurance backed by a source other than NFIP (e.g., Lloyd’s of London) are not affected. Click here and here for some options. Please be sure to have your clients read the fine print.
  • The federal requirement to purchase flood insurance is suspended, which means it is up to lenders to decide whether to make loans in special flood hazard areas while NFIP insurance is not available.

The National Association of Realtors is working overtime to address this with FEMA. Hopefully, FEMA will sort in the coming days. They will only overturn their decision if they are presented with evidence that markets will be adversely impacted.