One important point to add to this – flood insurance has been a leading example of adverse selection (those that purchase coverage truly need it because their property has flooded in the past or their lender requires it). NFIP data shows that repetitive loss to the same properties (frequency) has been a primary driver of their poor loss experience. Coupled with the severity of flood events – there is no “small” flood loss – it remains to be proven if this can ever be a profitable line of business.
JW- Companies take 30% but pay agents at least 15% of that 30%. The way you have it outlined gives the impression that companies and agents take a combined 45%….not close to being true
I could say the same thing about agents that have never worked in product management of an insurance company who comment about underwriting guidelines, coverage forms, or pricing.
Jack…it’s a comment section, not a question section……answer your own questions first…no FEMA dosen’t dip into NFIP. Companies take 30% to handle agents take 15% to sell, and adjusters take 5% so only .50 cents on the dollar at best to pay for losses.
jw – are you sure about that? I thought the 15% agent commission came out of the 30% paid to the company who in turn pays the agent. That would leave 65% for loss and LAE. (which still is not enough because overall premium is too low)
The author is 100% correct. As flood coverage moves into the private arena, the laws that prevail will be STATE LAW (not Federal as it is now). Since Katrina, lawyers have been sharpening their teeth on flood carriers but have make little-to-no progress in getting large sums of money for their clients. If the private side simply adopts the Standard Flood Insurance Policy as it is written today, they are opening the floodgates (pardon the pun) for vast amounts of litigation as well as class actions. The NFIP has historically seen litigation in the 1-2% ranges for all claims, I would suspect that percentage will drastically increase once this type of litigation is opened in state and local courts.
I work for a carrier and two reinsurers have approached us about offering their flood coverage. However, their focus is on selling to folks not in areas conventionally considered “flood zones.” They will write in and out of the flood zones, but the rates in the flood zones are 3-4 times higher than NFIP. My only experience with “private flood insurers” is those two but if the others have similar pricing, their chance of writing this coverage profitably is much better than NFIP with their inadequate rates.
One important point to add to this – flood insurance has been a leading example of adverse selection (those that purchase coverage truly need it because their property has flooded in the past or their lender requires it). NFIP data shows that repetitive loss to the same properties (frequency) has been a primary driver of their poor loss experience. Coupled with the severity of flood events – there is no “small” flood loss – it remains to be proven if this can ever be a profitable line of business.
Brian,
Now that companies are starting to rate by peril it can be profitable.
Just remove the flood exclusion from property policies and apply the appropriate factor based on the risk at each location.
This also gets the government out of flood insurance business. I think most can agree that the less the government is involved, the better.
Just here to read the comments from people that have never sold nor bought a flood policy.
Jack- watch and see- by the way there is no “living expenses” in a FEMA flood policy.
JW- Companies take 30% but pay agents at least 15% of that 30%. The way you have it outlined gives the impression that companies and agents take a combined 45%….not close to being true
Jack,
I could say the same thing about agents that have never worked in product management of an insurance company who comment about underwriting guidelines, coverage forms, or pricing.
Jack…it’s a comment section, not a question section……answer your own questions first…no FEMA dosen’t dip into NFIP. Companies take 30% to handle agents take 15% to sell, and adjusters take 5% so only .50 cents on the dollar at best to pay for losses.
jw – are you sure about that? I thought the 15% agent commission came out of the 30% paid to the company who in turn pays the agent. That would leave 65% for loss and LAE. (which still is not enough because overall premium is too low)
The author is 100% correct. As flood coverage moves into the private arena, the laws that prevail will be STATE LAW (not Federal as it is now). Since Katrina, lawyers have been sharpening their teeth on flood carriers but have make little-to-no progress in getting large sums of money for their clients. If the private side simply adopts the Standard Flood Insurance Policy as it is written today, they are opening the floodgates (pardon the pun) for vast amounts of litigation as well as class actions. The NFIP has historically seen litigation in the 1-2% ranges for all claims, I would suspect that percentage will drastically increase once this type of litigation is opened in state and local courts.
I work for a carrier and two reinsurers have approached us about offering their flood coverage. However, their focus is on selling to folks not in areas conventionally considered “flood zones.” They will write in and out of the flood zones, but the rates in the flood zones are 3-4 times higher than NFIP. My only experience with “private flood insurers” is those two but if the others have similar pricing, their chance of writing this coverage profitably is much better than NFIP with their inadequate rates.