Alongside the National Flood Insurance Program (NFIP), a thriving private flood insurance market would provide wider and in many cases cheaper coverage options, according to a new study.
Consulting firm Milliman, in partnership with risk modeler KatRisk, looked at three states – Florida, Texas, and Louisiana – which combined account for 56 percent of NFIP insurance policies in-force nationwide.
Its analysis compared modeled private flood insurance premiums to those of the NFIP.
- Some 77 percent of single-family homes in Florida, 69 percent in Louisiana, and 92 percent in Texas could see cheaper premiums with private insurance than with the NFIP.
- Of the homes modeled, 44 percent in Florida, 42 percent in Louisiana and 70 percent in Texas, could see premiums that are less than one-fifth that of the NFIP.
- Conversely, private insurance would cost over twice the NFIP premiums for 14 percent of single-family homes in Florida, 21 percent in Louisiana and 5 percent in Texas.
A prior post discussed how private carriers are dipping their toes in the flood insurance market.
Efforts to delay or repeal rate increases under the Biggert-Waters reforms to the National Flood Insurance Program (NFIP) would likely continue to increase the NFIPÃ¢â‚¬â„¢s long-term burden on taxpayers.
They may also reinforce private insurersÃ¢â‚¬â„¢ skepticism that they would ever be permitted to charge adequate rates and make their participation in the flood insurance market unlikely in the foreseeable future, according to a new Government Accountability Office (GAO) report.
In its analysis GAO notes that new technologies and a better understanding of flood risks may have increased private insurersÃ¢â‚¬â„¢ willingness to offer flood coverage, but a key condition to their participation is the ability to charge rates that fully reflect the estimated risk of flooding.
As debates over the private sectorÃ¢â‚¬â„¢s role continue, one step to address the burden on low- and moderate-income policyholders could be taken immediately. As we have suggested previously, Congress could eliminate subsidized rates, charge full-risk rates to all policyholders, and appropriate funds for a direct means-based subsidy to eligible policyholders. The movement to full-risk rates would encourage private sector participation, and the explicit subsidy would address affordability concerns, raise awareness of the risks associated with living in harmÃ¢â‚¬â„¢s way, and decrease costs to taxpayers, depending on the extent and amount of the subsidy.Ã¢â‚¬
Even with increased private insurer participation in the flood insurance market, the GAO report foresees a continuing role for the federal government in the form of a residual market or NFIP reinsurer.
Insurance Journal has more on this story.
Check out this USA Today article on latest Congressional action to delay new flood insurance premiums.
Also check out I.I.I. facts and statistics on flood insurance.
With the June 1 start of the 2013 Atlantic hurricane seasonÃ‚ just one month away the Insurance Information Institute (I.I.I.)Ã‚ is urgingÃ‚ people to prepare for heightened flood risks that come with hurricanes and tropical storms.
The I.I.I. notes that the most recent two hurricane seasons have shown how devastating the consequences of seasonal flooding can be, with losses felt well beyond the high risk areas nearest the water:
While coastal states have an increased risk of flooding during hurricane season, it is important to note that flood risks extend far beyond those areas. Some of the most severe flooding has occurred when the remnants of a hurricane or tropical storm system traveled inland, such as Hurricane Irene two years ago, producing heavy rainfall hundreds of miles from the coast. For this reason, it is important to have coverage no matter where you live.Ã¢â‚¬
Flood damage is excluded under standard homeowners and renters insurance policies. Residential flood insurance is available in the form of a separate policy primarily from the National Flood Insurance Program (NFIP).
A 2012 poll by theÃ‚ I.I.I. found that 13 percent of American homeowners had a flood insurance policy, virtually unchanged from the 14 percent of homeowners in 2011, but well below the 17 percent who said they purchased flood insurance in May 2008.
Many homes that sustained flood damage from Superstorm Sandy did not have flood insurance, according to joint research by the Wharton Risk Center and Resources for the Future.
For example, along the entire New York coast, take up rates were lower than 30 percent in most ZIP codes. Take-up rates along the New Jersey coast were apparently higher than New York, particularly in Manhattan.
Check out I.I.I. information on flood insurance here.