The flood insurance market in America could be on the verge of great change. Congress is expected to announce the reauthorization of the National Flood Insurance Program (NFIP) on September 30 and the insurance industry lies in wait to see what alterations are made.
Several bills have been proposed to Congress, with different senators weighing in on different needs. However, one thing Congress is likely to do is strengthen the private flood insurance market by creating clarity in the law, particularly around lending, so that private policies are equal to public policies, according to Joshua Price, president and CEO, Massive Cert.
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“In the past, there have been a lot of proposals each time NFIP reauthorization comes around,” Price told Insurance Business. “We have seen everything from outlandish ideas to very practical proposals from lawmakers, but what always makes it through Congress is something very pared back and vanilla. That’s been one of the problems with NFIP to date – no bold steps have been taken.
“I think this time around it’s going to be a little bit different. Everyone recognizes that there are more frequent and severe storms, which are causing more devastation across the US. On top of that, flood insurance is becoming more unaffordable so steps need to be taken to address affordability.”
The upcoming reauthorization of NFIP is likely to present significant growth opportunities for private flood insurance carriers. The private market is still very much in its infancy but new companies are starting to emerge, providing bespoke products that are different to the classic NFIP models.
“Initially, the private carriers tended to mirror the NFIP policy but maybe discount it by 10% in certain areas in order to get a foothold in the market,” said Price. “But now private carriers are getting more sophisticated. Companies are creating their own flood hazard models, risk profiles and location-based risk indices in order to understand comprehensive flood risk in an individual location. There are lots of new flood products that are letting private carriers compete in a more sophisticated manner while still meeting Federal regulations.”
The Federal Emergency Management Agency (FEMA) is looking at the private market for ways to reform NFIP. In the past, FEMA has generally reviewed wide areas and mapped out large flood plain boundaries that categorized areas as inside or outside of a flood zone. Through new initiatives like Risk Rating 2.0, FEMA is trying to update the way it rates risk to mirror the more unique analyses that private carriers are carrying out.
“It’s a very interesting time in flood insurance. For 30 or 40 years, all brokers had to do was sell federal flood insurance – the same policy, same rate, same procedure, same frustration,” Price commented. “But now there are dozens of products out there with different rates and coverages. Brokers have to keep on top of this and be aware of what’s being offered in these new products.
“Insurance brokers have to be painfully aware of what’s happening because everything is moving very fast. The whole industry is changing in a very big way for the first time in a very long time.”
Joshua Price will be discussing what’s next for flood insurance at the Future of Flood Summit being held in Miami, Florida, on November 16. Click here for more details and to register.
