Things just got a bit easier for private personal lines insurance carriers wanting to enter the flood insurance market.
Through its ISO subsidiary, data analytics firm Verisk has launched a new personal lines flood insurance program that is designed to make flood coverage widely available to homeowners anywhere in the contiguous United States. ISO says its personal lines flood program enables insurers to offer flood coverage that is “broader and more flexible” than that available through the government’s National Flood Insurance Program (NFIP), and offer options in a template similar to the familiar standard homeowners policy.
Citing research by broker Marsh, Verisk contends the private flood insurance market could potentially be worth $40 billion in new business to private insurers. The flood insurance market is currently dominated by the NFIP.
“The floods of recent years have highlighted the inadequacy or complete lack of coverage for many Americans, including those who didn’t think they were at risk for flooding,” said Neil Spector, president of ISO.
ISO began the state-by-state filing process for its new personal lines flood program in December 2017 and said this process will continue throughout 2018.
“This program presents a new opportunity for insurers to grow their homeowners book by providing robust flood risk protection to an underserved segment,” said Marc Treacy, managing director of flood at ISO, in announcing the product launch.
Treacy said the product allows insurers to offer “needed insurance to new customers and fresh coverage options for existing customers.”
The ISO product includes coverage for debris removal; reasonable repairs; property removal; sandbags, supplies, and labor; improvements, alterations, and additions; and loss assessment. In addition, it offers a choice of various single, flatdollar deductibles as well as optional coverages and endorsements including: loss of use; increased cost of compliance; ordinance or law; broadened coverage for dwelling and other structures; coverage for personal property located in below-ground areas; personal property replacement cost and others.
ISO said its rating manual for the new personal lines flood program revises traditional flood territories, dividing the country into 57 territories. “Through a combination of models developed by AIR Worldwide and extensive analysis of ISO and NFIP data, ISO has designed a comprehensive and actuarially sound rating structure encompassing every address in the lower 48 states,” said Treacy.
[ISO launched a commercial lines flood program last August. This program enables insurers to set their own limits of insurance and provide optional coverage for risks not typically covered by the NFIP including certain types of property damage to basements, business interruption, and costs to comply with building code changes. The coverage can be based on actual cash value or replacement cost value. The new program features actuarially sound loss costs based on models developed by Verisk’s AIR Worldwide business and from ISO data.]
A report by the American Academy of Actuaries said that better data analytics and new rating models have already encouraged more private reinsurers and insurers to offer flood coverage in the United States, something common in other parts of the world.
However some regulatory obstacles to fuller private market participation remain, including assuring that private flood policies and their terms and limit will be acceptable to government-backed mortgage lenders. Congress is again considering reauthorization of the NFIP, funding for which is currently set to expire on Jan. 1 along with funding for other government programs. The insurance industry has urged Congress to take steps to encourage more private carrier involvement in the market.
Flood insurance reforms have stalled in Congress, despite efforts by Jeb Hensarling, a Republican from Texas and chairman of the House Financial Services that has advanced a series of changes.
Matt Nielsen of the risk modeling firm RMS, writing recently on Insurance Journal, said he believes that if Congress does not enact reforms, the private flood market may flourish in certain states like Florida that have already addressed some of the obstacles, “but a country-wide move towards higher flood insurance penetration will stall.”
If, however, Congress does enact key reforms, Nielsen says the private market will have to start the process of building flood portfolios, ceding risks from the current NFIP market and test marketing new insurance policies in flood-prone areas. “They will also need to use analytics to identify the appropriate grow areas and expansion rate of their flood business,” he noted.
Standard & Poor’s has identified potential in the market for private insures but said even if Congress passes reform, it does not expect to see a surge in private insurers wading into the market; instead, it will take time.
The country’s second largest home insurer, Allstate, has said it might enter the market but only if Congress passes reforms.
“The flood insurance situation needs to be completely redone,”Allstate Chief Executive Officer Tom Wilson has said, adding that Congress must give insurers more authority to change coverages and “align things in ways that conform to the industry.”
Some private insurers have braved the flood market even without changes by Congress. Florida-based HCI Group has taken its Florida flood insurance experience and technology into other states including Arkansas, California, Maryland, North Carolina, New Jersey, Ohio, Pennsylvania, South Carolina and Texas.
Nancy Watkins, a principal consulting actuary for the actuarial consulting firm Milliman, told Insurance Journal‘s Andrea Wells that the availability of new data is making a difference.
“Insurance companies for many years did not have that information, and they didn’t have any good way of measuring how risky a house was for flood peril. With catastrophe models over the last few years, and with a lot of big data sources coming available that didn’t used to be available, that problem has largely been reduced.”
Private insurers have also traditionally been wary of trying to compete with the low premiums of NFIP. But NFIP premiums are no longer low in all cases.
“First of all, after the storms of 2005, Katrina especially, the NFIP built up a very big deficit and they started raising their premiums. That really made a big difference in terms of perception as to whether their premiums were too low or not,” Watkins said. “Once the premiums got higher, more in the range of what a private insurer might be interested in charging, there became real opportunity for private market insurers.”
There will always be a need for the NFIP, according to G. Michael Sloane, chief marketing officer of Wright Flood, one of the largest flood providers in the nation. Wright offers federal, excess and private flood insurance.
Sloane believes there’s no doubt that some of the accounts now with NFP could be moved out of the federal program, however be believes the real opportunity will come beyond the NFIP.
“What I think is going to happen and what is incumbent upon us as an industry and those that are offering a private flood alternative program is to grow that base outside of the NFIP, not just concentrate on what’s there already,” he told Insurance Journal. “Some 25 percent of all flood losses happen in non-required flood zones, or what we call preferred risks. And that’s just those that have insurance. There are literally thousands more [properties] that didn’t have any type of coverage or thought they had coverage or didn’t understand coverage. That’s where we really have to grow as an industry and I think competition and the private market can help stimulate that more.”
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