WASHINGTON //BestWire// - The Federal Emergency Management Agency has revised its regulations to allow National Flood Insurance Program policyholders the option to pay their annual premiums in monthly installments.
The change was done to satisfy a statutory requirement, and FEMA anticipates it will "result in greater retention of policyholders and incentivize greater participation in the NFIP," according to the text document announcing the change.
The NFIP was created through the enactment of the National Flood Insurance Act of 1968, and it enables property owners in participating communities that adopt and enforce floodplain management regulations to purchase insurance as a protection against flood losses.
Previously, participants had to pay their premiums in full at the time of application, which FEMA said reduces administrative costs to the program, and because of the seasonal nature of flooding, ensures the receipt of premium and exposure to risk would align, FEMA said.
In 2012, Congress passed the Biggert-Waters Flood Insurance Reform Act, which required FEMA to allow policyholders to pay their premiums all at once or in more frequent installments, and in 2014, the Homeowner Flood Insurance Affordability Act amended the wording further by replacing the term "more frequent installments" with "monthly," FEMA said. This change made by FEMA was done to fall in line with that ruling, FEMA said.
"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," FEMA said.
The agency also noted not all consumers can afford to pay their premiums all at once, meaning they either have to finance their debt or forego getting flood insurance at all. The installment plan helps alleviate that pressure, FEMA said.
"Finally, the ability to pay in installments may result in more policyholders retaining their flood insurance protection. Under the NFIP's current annual premium payment requirement, a policyholder who pays annually typically only interacts with their flood insurance coverage at the time of initial purchase or renewal," FEMA said.
Only dealing with the program once a year may lead policyholders to believe their risk is low or that they can pay for their own repairs, but "policyholders who make more frequent flood insurance payments will have an ongoing reminder that they are protected against flood, and may be more aware of flood alerts, news about flooding, and more accurately perceive their risk. At the time of renewal, the ability to pay in installments may support a decision to retain flood insurance."
On Sept. 26, President Joe Biden signed legislation that extends the NFIP until Dec. 20. At that time, Congress will again have to reauthorize the program (BestWire, Oct. 2, 2024).
(By Anthony Bellano, associate editor, Best's Review: anthony.bellano@ambest.com)