Flooding caused by Hurricane Matthew has caused $1.5 billion in damage in North Carolina alone, and accounts for a significant portion of the storm’s nearly $9 billion in estimated damages – but a significant plurality of property owners will be left without any recourse through insurance payments.
Even in high-risk flood zones where homes are required to have flood insurance, the compliance rate is dismal. Just 53% of properties were covered by flood insurance in 2015, according to the National Flood Insurance Program. It was 57% in Florida, 72% in South Carolina and 81% in Louisiana – the areas most affected by storms like Matthew.
That’s a problem that could be solved over the long-term if Congress would take legislative action necessary to support a private flood insurance market in the US, industry figures have said.
The Flood Insurance Market Parity and Modernization Act, passed by the House and awaiting consideration in the Senate, would make technical changes to explicitly endorse private flood insurance issued by non-admitted insurers. Without that guarantee, many otherwise interested carriers won’t consider entering the flood market, let alone high-risk areas where hurricanes and storm surge are a way of life.
“We would love to start rating high-risk areas,” said Craig Poulton, principal at Poulton Associates, which administers the Natural Catastrophe Insurance Program – the largest private alternative to NFIP. “We’ve got our rating models done and ready, but as the law stands now, lending regulators could rip the rug out from under us, so why would we step on the rug?”
Other insurers are doing the same, Poulton told Insurance Business America,
waiting to see whether Congress acts on the flood bill before they enter the fray.
Ideally, the bill would support the creation of a robust private marketplace using its own modeling practices to more accurately price risk, and eventually segment the market – much as they did in auto insurance decades ago when teenage drivers were nearly impossible to insure.
The NFIP, then, would function as an insurer of last resort, taking on only the riskiest properties other carriers would not touch.
Though some have suggested private insurers do not want to enter the market due to artificially suppressed flood rates imposed by the government, Poulton says this assumption is false.
“We’ve been competing against NFIP for 12 years and the assumption that rates are always lower than they should be is wrong,” he said. “Very often, rates are higher than the risk deserves. As a private market, that’s what we have to determine and correct.”
The Flood Insurance Market Parity and Modernization Act was passed without opposition in the House of Representatives in April, but has stalled in the Senate Committee on Banking, Housing and Urban Affairs. Industry lobbyists say the election has sidetracked much of the discussion on flood insurance, with many senators competing in tough races.
The NFIP is also up for reauthorization next year, which has caused some lawmakers to consider deferring the issue until 2017.
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