Flood insurance as an industry has been expanding quite rapidly over the recent years – and the need for alternative forms of flood insurance has also grown. You may be only recently aware of being able to acquire a Lloyds of London flood insurance policy through a friend or neighbor.
What exactly is a Lloyds of London flood insurance policy? Well, it’s important to realize that there are actually many companies and associations, commonly known as syndicates, that comprise Lloyds of London. Lloyds is not just one company, so there are several different types of private flood insurance products available, depending on the location and type of building you are looking to insure.
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What’s the difference between an NFIP and Lloyds of London flood Insurance Policy?
Many people have questions about private flood insurance upon learning about it. Although private flood insurers are considered surplus lines insurance, you will see the language of the private policy is such that it will have to meet six distinct requirements to be sufficient in place of an NFIP policy:
Generally, a Lloyds of London flood insurance policy will contain all the same (and oftentimes better) options for coverage. For example, the maximum dwelling coverage allowed under FEMA / NFIP flood insurance policy is $250,000 for the dwelling, and $100,000 for the personal property of the insured (for residential properties) Some of the private companies have policies that will write much higher limits of coverage if desired. Another benefit of a Lloyds of London flood insurance policy is that they oftentimes will help with contents coverage in basements or below grade areas of a home – while the NFIP is limited in this regard.
If you’d like to see how a Lloyds of London Flood insurance policy contains the required language, take the below exerpt from a policy as an example.
PRIVATE PLACEMENT FLOOD INSURANCE ENDORSEMENT
It is understood and agreed that, where required, this insurance shall be fully compliant with Federal Law, with regards Private Placement Insurance, applicable to the National Flood Insurance Program (NFIP).
Listed below are the six (6) NFIP vs. Catastrophic Insurance Plan (aka CIP), criteria that conforms to the mandatory flood insurance purchase requirements of the 1994 Reform Act.
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1. Licensure: NFIP: The insurer must be licensed, admitted, or otherwise approved to do business in the jurisdiction where the Building is located by the insurance regulator of that jurisdiction, except as indicated in B. below.
CIP: Coverage for all Catastrophic Insurance Plan policies is provided by Certain Underwriters at Lloyd’s, London. Lloyd’s is a Surplus Lines Carrier. Surplus Lines Carriers are financially stable companies that are regulated by the State Department of Insurance. Surplus Lines Carriers submit financial information, articles of incorporation, list of officers & pay taxes to the state department of insurance in order to conduct business in this state. Each state insurance department maintains a list of approved Surplus Lines insurance companies approved to do business in your state. Certain Underwriters at Lloyds, London is a recognized surplus lines insurer in the United States.
2. Surplus Lines Recognition (Non-Residential Commercial): NFIP: In the case of Non-Residential commercial property insurance issued under a policy of difference in conditions, multiple peril, all risk, or other blanket coverage, the insurer should be recognized, or not disapproved, as a surplus lines insurer by the insurance regulator of the jurisdiction where the Building is located.
CIP: This is a Flood Policy.
3. Requirement if 45-Day Cancellation/Non-Renewal Notice: NFIP: The private flood insurance policy should include a requirement for the insurer to give 45 days’ written notice of cancellation or non-renewal to the insured with respect to the flood insurance coverage. The policy should also state that, to be effective, such notice must be mailed to both the insured and the lender or Federal agency lender, and must include information about the availability of flood insurance coverage under the NFIP. The policy should be as restrictive in its cancellation provisions as the SFIP.
CIP: The form provided under the Catastrophic Insurance Plan does have a 45- day cancellation clause, please see below. “We reserve the right to cancel this Policy at any time as provided by its terms, but in such case notice must be given simultaneously to the mortgagee (or Trustee) named herein. If we decide to cancel or not renew this policy, coverage hereunder for the peril of Flood only will continue in effect for the benefit of the mortgagee but only for 45 days from the date that cancellation or non-rene wa l is sent to the M o rtg a g ee.”
4. Breadth of Policy Coverage: NFIP: The policy must guarantee that the flood insurance coverage, considering deductibles, exclusions, and conditions offered by the insurer, is at least as broad as the coverage under the SFIP.
CIP: Definitions of Flood provided under the Residential and Non-Residential Policy terms and conditions are broader than those provided by the NFIP standard flood insurance policy. The Residential and Non-Residential Policy also provides options for higher limits than those under the NFIP. The Residential and Non-Residential Policy has specifically incorporated a “Private Placement Flood Insurance Endorsement” which states…. “It is understood and agreed that, where required, this insurance shall be fully compliant with Federal Law, as regards Private Placement Insurance, applicable to the National Flood Insurance Program.”
5. Strength of Mortgage Interest Clause: NFIP: Lenders must ensure that a mortgage interest clause similar to that contained in the
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General Condition of the SFIP is contained in this policy.
CIP: “We reserve the right to cancel this Policy at any time as provided by its terms, but in such case notice must be given simultaneously to the mortgagee (or Trustee) named herein. If we decide to cancel or not renew this policy, coverage hereunder for the peril of Flood only will continue in effect for the benefit of the mortgagee but only 45 days from the date that cancellation or non-renew a l is sent to the M o rt ga g ee. ”
6. Legal Recourse: NFIP: The policy must contain a provision that the insured must file suit within 1 year after the date of written denial of all or part of the claim.
CIP: The policy complies with the NFIP statement mentioned above.