NFIP to Begin Taking Monthly Flood Insurance Payments
The National Flood Insurance Program will soon start to accept monthly payments for flood insurance premiums, ending 55 years of requiring full payment upon application or renewal.
The Federal Emergency Management Agency (FEMA), administrator of the NFIP, said the change was made to adhere to language within the Homeowner Flood Insurance Affordability Act, passed a decade ago. The federal statute amended earlier language regarding payments to allow for annual or monthly installments. NFIP has accepted full payment only since its inception in 1968.
In addition to following the statute, FEMA said allowing monthly payments will “reduce barriers to purchasing flood insurance.” The rule is set to become effective December 31.
“Providing an option for monthly installments will expand access to flood insurance to meet the evolving needs of the nation,” said FEMA in comments in the Federal Register. “The option to pay in installments may also increase policyholders’ budgetary flexibility by alleviating cash flow pressure, as they could use the deferred payment to address other monthly needs.”
As of April 30, there are about 4.7 million NFIP policies-in-force, including about 3.2 million residential dwelling and 1.1 million condominium policies.
In a separate FAQ document, FEMA said any NFIP policyholder not required to escrow premiums is eligible to pay in monthly installments, which will be offered to new buyers as well as those renewing with no additional payment fees. However, standard fees will apply and will need to be paid at the time of the first monthly premium payment.
The agency said about 45% of potentially eligible policyholders and mortgage holders already pay NFIP premiums, usually monthly, into an escrow account. Condo associations are not expected to utilize the installment plan because they already have cash reserves set aside for a yearly premium payment, FEMA said. This leaves nearly 1.8 million residential policyholders who do not have a mortgage or belong to a condo association, according to FEMA data.
FEMA said Write-Your-Own (WYO) insurance companies are required to offer the premium plan. The agency said WYO companies have had the ability to offer payment installments but none have chosen to do it. WYO companies are likely to incur additional costs to update or modify systems and infrastructure to handle monthly NFIP payments, FEMA acknowledged. Based on feedback from eight WYO companies, FEMA expects each to incur $200,000 in costs and hire two additional staff members for support and operation of installment-plan systems.