A diminutive private flood insurance market could be one of the reasons behind the startlingly low number of Louisiana businesses who will have recourse after this weekend’s catastrophic flooding.
State Insurance Commissioner Jim Donelon estimated Monday that despite the high number of small business owners in the affected area, just 30% have insured their operations against flood damage. Even fewer individuals have done the same.
“I’m willing to bet about one-fourth of those affected will be insured and three-fourths wont,” Donelon told the
Baton Rouge Business Report. “Unfortunately, there is nothing they can do about it at this point.”
The low coverage rates come despite a seasonal reminder from Donelon’s office last week that business and property owners should get covered. Policies through the National Flood Insurance Program cost, on average, about $60 a month – a good investment in flood- and hurricane-prone Louisiana.
Yet the number of insured properties has actually decreased in the state in recent years, from 500,000 post-Katrina and Rita to fewer than 450,000 now.
“I tell folks the best insurance buy a Louisiana property owner can make is the significantly subsidized flood insurance program,” Donelon said. “But…people invariably roll the dice.”
Part of that reason may still be cost, despite the subsidized rates from the NFIP, but the lack of private market options also makes coverage a difficult sell, insurance professionals say. Without multiple choices to present to clients, policies go unsold and home and business owners go uninsured.
And the continued subsidization of NFIP rates, a lack of accurate flood maps and outdated modeling techniques are preventing the market from developing further, a July Standard & Poor’s report found.
“At this point, we don’t expect a wave of private insurers to sweep into this market but rather a trickle as insurers would enter cautiously before they become more comfortable with the risks involved,” S&P concluded.
Yet many companies have expressed interested in the private flood insurance – provided Congress lays the necessary groundwork.
“I think flood is an opportunity that may be arising if [certain legislation] is passed, allowing the surplus lines industry to play an active role,” said Gil Hine, president of McClelland and Hine, a managing general agency based in San Antonio.
The company does not yet offer flood insurance, but Hine’s role as president of NAPSLO has kept him involved in the issue and aware of what must be done to ensure the success of a private market. Job number one is continuing to petition Congress for the passage of the Flood Insurance Market Parity and Modernization Act, he said.
Already approved by the House of Representatives, the bill would amend the Flood Disaster Protection Act of 1973 to make technical changes to requirements for flood insurance, explicitly endorsing private flood insurance issued by non-admitted insurers in addition to those licensed and admitted by state regulatory bodies.
“Certainly this legislation will help, and I think as that happens and as financial institutions become willing and able to accept surplus lines policies, you’ll see activity start to build in that sector,” Hine said. “Once [companies] have the scale and premium volume they need to make it a viable option for then, you’ll see more activity in surplus lines moving into the flood space.”
Related stories:
Louisiana flooding: Shockingly few have insurance in “major disaster”
New Louisiana flood maps promise lower rates for many
