New insight on NFIP & private market growth
Recently announced changes in the federal flood insurance program were a topic of interest at last weekend’s spring meeting of the National Association of Insurance Commissioners (NAIC) in Orlando. Commissioners discussed ways encourage the growth of a private flood insurance market, following results of a new NAIC survey and as new details of the revamped federal program are revealed in the press.
Louisiana Insurance Commissioner Jim Donelon said Congress’ upcoming reauthorization of the National Flood Insurance Program (NFIP) needs to include the “continuous coverage” provision, which allows homeowners who leave the NFIP for private insurance to return to the NFIP without losing their grandfathered discounts should their private insurance become too expensive or be discontinued.
Without that provision, Donelon said consumers won’t have the confidence to venture into the private flood insurance marketplace and take-up rates will suffer accordingly. He revealed that some drafts of NFIP reauthorization bills include the continuous coverage provision or “bounceback” as he refers to it, while others do not.
NAIC staff also released the results of a recent data survey on the growth of the private flood insurance marketplace over the last few years. The number of companies offering the line grew to 120 in 2018, up from about 90 in 2017 and 50 in 2016. Direct earned premium in 2018 was $606 million, up from $551 million in 2017. Florida, of course, accounts for a bulk of that increase, due to key legislation (SB 542 and SB 1094) in 2014 and 2015 that saw Florida’s private market growth from just a few, mostly surplus lines, to the nearly 30 admitted carriers we have today offering primary flood coverage.
Regardless of any long-term reauthorization by Congress, the NFIP’s newly announced Risk Rating 2.0 program also holds great opportunity for the private market to serve as a viable alternative and complement to federal flood policies. Although NFIP hasn’t released details of its new rating plan, except to say that it will more closely match true risk to rate, it’s generally believed that premiums will be based on how close a home is to a body of water and how much it would cost to replace.
One of our long-time readers passed along this recent New York Newsday story that provides some interesting tidbits and quotes on the potential changes in NFIP’s new rating plan, set to take effect in fall 2020:
- “…Owners of homes closer to the water and more expensive to rebuild should brace for a spike in their premiums. Owners of homes farther inland and less expensive to replace should expect to see their rates drop.
- “For example, a home on the water’s crest in South Merrick is going to have a higher rate than a home in Bay Shore four miles inland. And a $5 million home will have a higher rate than one that would cost $900,000 or $2 million to replace….”
- “… For Mitchell Pally of the Long Island Builders Institute, the worry is that higher flood insurance premiums will cause coastal property values to decline and hurt the resale market.
- “This will have cascading effects for Long Islanders,” said Pally, the institute’s chief executive. “This is not the best way to solve the problem and is not in the best interest of the water-bearing communities on Long Island.”
- “(R Street Foundation’s R.J.) Lehmann, though, argues that Long Islanders aren’t going to see across-the-board rate hikes because they pay more for flood insurance than they get back in claims.
- “As evidence, Lehmann points to CBO numbers that show Nassau and Suffolk counties are two of only 59 counties nationwide with a surplus of more than $2 million in the current program. By contrast, dozens of counties in southeastern states including Florida, Louisiana, Alabama and Mississippi have program shortfalls in excess of $10 million, according to the CBO.
- “The bottom line is that most people on Long Island should see reductions,” Lehmann said. “This is not a sound-the-alarm moment.”
- “Susan Kramer is forking over $3,600 a year for her flood insurance coverage. She has seen her premium climb from $1,500 since Sandy, when 5 feet of water rushed into her home on Long Beach’s Fulton Street.
- “A dog walker, Kramer doesn’t think it’s fair that Long Islanders overall pay higher rates than policyholders in other parts of the country, particularly down South where storms seem more common and damaging.
- “”We are subsidizing other parts of the country,” Kramer said.”The system is sick and should be privatized…”
The reference above to the CBO or Congressional Budget Office, refers to an interesting report it published in 2017, “The National Flood Insurance Program: Financial Soundness and Affordability.” If you look on page 14, there are two maps, where brown-colored counties pay more in premium than receive in claim payment and a blue-colored map of counties that receive more in claim payment than they pay in premium.
We appreciate our readers’ input and will continue to follow this matter closely and pass along updates!
LMA Newsletter of 4-15-19