Milliman: Florida, Louisiana and Texas Would Benefit from Private Flood Insurance

July 24, 2017

The National Flood Insurance Program (NFIP) expires on Sept. 30 and Congress is currently considering legislation to reauthorize and reform the government-backed program through which the majority of U.S. property owners that carry flood insurance access that coverage.

Legislative proposals being considered include provisions to encourage the growth of a private flood insurance market and a new study asserts that the majority of homeowners in Florida, Louisiana and Texas would find premiums in the private market lower than those of the NFIP.

Combined, Florida, Louisiana and Texas account for 56 percent of the NFIP policies in force nationwide, according to a market feasibility study conducted by the actuarial consulting company, Milliman, and KatRisk, a risk modeling firm.

In a briefing paper titled, “Could private flood insurance be cheaper than the NFIP,” Milliman Principal and Consulting Actuary Nancy Watkins said 92 percent of single-family homes in Texas could save money on private flood insurance premiums versus NFIP coverage. In Louisiana, private market insurance would be cheaper for 69 percent of single-family homes and in Florida, it would be less expensive for 77 percent of single-family homes.

The Milliman/KatRisk study included all single-family homes, not only those currently being insured through the NFIP, and compared modeled private flood insurance premiums to those of the NFIP.

Of the homes modeled for the study, 70 percent of homes in Texas could see premiums that are less than one-fifth that of the NFIP; the same would be true for 44 percent in Florida and 42 percent of homes in Louisiana, the briefing paper suggests.

Watkins noted that a “number of critical assumptions were used to arrive at the numbers” cited. “Milliman developed proprietary market baskets representing 10% of single-family homes in each state based on parcel data and other third-party source,” Watkins wrote.

Losses were derived from KatRisk catastrophe models that include inland flood and storm surge risk but exclude non-modeled risk. The study assumed a $250,000 maximum flood limit and a 35 percent target loss ratio.

“The findings reflect one set of reasonable assumptions for all single-family homes across the three states, but the use of different data sources, catastrophe models, and target expense assumptions would produce different results,” Watkins wrote.

The Insurance Information Institute estimates that only 12 percent of homeowners nationwide carry flood insurance.

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