Private Flood Insurance a Focus for Pennsylvania Insurance Department in 2017

By | December 8, 2016

The Pennsylvania Insurance Department has a plan to continue furthering its initiatives within the private flood insurance market in 2017.

This comes after the North Central part of the state of Pennsylvania saw flooding in many areas outside of identified flood hazard zones this fall following a series of storms, with the U.S. Department of Transportation issuing $1 million in Emergency Relief funds from the Federal Highway Administration to repair flood-damaged roads and bridges.

“Typical homeowners’ insurance doesn’t cover flood damage,” said Ronald Ruman, director of communications at the Pennsylvania Insurance Department. “We recently saw very bad flooding in the North Central part of our state, and those folks were not in flood hazard areas. In fact, those folks had probably never had to deal with flooding before, so we want to let them know that even if you’re not in a flood hazard area, flood insurance is something you may want to consider and you can probably get a deal through the private market.”

The efforts planned for next year serve as a continuation of the Department’s initiatives this year following changes made to the National Flood Insurance Program (NFIP) and the remapping done by the Federal Emergency Management Agency (FEMA).

We want to continue our efforts to encourage the acceptance of private flood insurance by mortgage lenders. That’s something that is certainly going to be important going forward.
Pennsylvania Insurance Commissioner Teresa Miller

“Commissioner Teresa Miller was concerned following the changes made to the NFIP that many people in Pennsylvania were seeing premiums rise quite a bit,” Ruman said.

With the remapping done by FEMA, there are a lot of additional properties included in special flood hazard areas than there were before, Ruman said. This means that if they have a federally backed mortgage, which many do, they are now being required to purchase flood insurance.

“In many cases, we heard from communities around Pennsylvania that a lot of these folks have never or rarely experienced flooding and had been in their homes for 20 years or more,” he said. “Now, all of a sudden, they have to get this insurance under NFIP, which is proving to be pretty expensive.”

Ruman says private insurance was first seen entering the residential flood market following the phase out of subsidies for higher risk properties under federal law since the passage of the Biggert-Waters Act in 2012, with activity increasing following FEMA’s remapping. Most of the current activity is seen taking place in the surplus lines market, as that industry is used to taking on riskier propositions, he said.

Surplus lines insurance is written by companies which are not licensed by the Pennsylvania Insurance Department, but sold by producers who are licensed in Pennsylvania and must adhere to Pennsylvania laws. Currently, the largest surplus lines carrier selling flood insurance in Pennsylvania is Lloyd’s of London, according to a Pennsylvania Insurance Department press release.

“We were hearing from communities across the state that swaths of these communities were being remapped into flood hazard areas,” he said. “So in the past few years, we’ve seen private flood insurance’s entry into the residential market. Before that, there wasn’t really any incentive for it. It’s a pretty new phenomenon.”

Earlier this year, Commissioner Miller asked Pennsylvania Insurance Department staff to look at ways to help homeowners in these flooding instances and found that in many cases, comparable plans were being offered through the private market that were much less expensive than those offered through NFIP, Ruman said.

“One particular surplus lines agent indicated that he has sold 50% more policies in Pennsylvania this year since the Commissioner began this outreach,” he added.

Commissioner Miller also pointed to one example while speaking at the Pennsylvania Housing Alliance’s annual Homes Within Reach conference in Harrisburg last month of a homeowner who was paying $2,000 a year for an NFIP policy and received private coverage for $400 a year. She outlined another example where a homeowner reported paying $2,700 annually through NFIP and was able to find comparable private coverage for $718 a year. She added that she believes these savings could be the difference between whether a family can or cannot afford to keep its home.

With this in mind, the Department is planning to continue spreading the word about private flood insurance as well as tackling some of the issues seen with it in 2017, Ruman said.

“One of the issues we’ve seen is the fact that because this is a new effort, there are a lot of mortgage lenders that are not accepting some of the private insurance,” he said. “Commissioner Miller is working very hard to change that and get more mortgage lenders to accept private flood insurance when it is comparable to NFIP.”

Indeed, in January of this year, Commissioner Miller testified on behalf of the National Association of Insurance Commissioners (NAIC) before the House Subcommittee on Housing and Insurance in support of House of Representatives Bill 2901 (HR 2901), or the Flood Insurance Market Parity and Modernization Act. The bill would require lenders to accept qualified private flood insurance for federally-backed mortgages.

“Unfortunately, here and in other parts of the country, we’re seeing flooding occurring outside of flood hazard areas, so we want to continue our efforts to encourage the acceptance of private flood insurance by mortgage lenders. That’s something that is certainly going to be important going forward,” Ruman said.

While speaking at the conference, Commissioner Miller also warned homeowners in high risk areas, however, that frequent flooding will likely not be insured through the private market and those homeowners may need to stay with the NFIP.

“We hope people will continue to look at this as an option,” Ruman said. “We know it’s not going to be for everyone and that the private market isn’t going to insure the highest risk properties, but we think many folks who maybe already had coverage, or through remapping are required to get coverage, can find a good policy and a better deal through the private market.”

About Elizabeth Blosfield

Elizabeth Blosfield is the East region editor for Insurance Journal. She can be reached at More from Elizabeth Blosfield

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