The heavy rains that fell across Texas in the late spring and early summer forced the evacuations of hundreds, straining the already heavily indebted National Flood Insurance Program and exposing coverage gaps as more than half of those affected did not carry current flood policies.
It’s a powerful argument for a private alternative – and a call many companies say they’re willing to answer, 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.”
Certainly more interest in the private flood market is already beginning to trickle in – particularly in the South, where interest in insurance coverage is beginning to pick up after years of low hurricane activity. Just last month,
Assurant Inc. announced it will begin offering its primary flood insurance product to Texas homeowners, following its debut in Florida, and A.M. Best noted that passage of the Flood Insurance Market Parity and Modernization Act could encourage the market to grow further.
Yet although interest in exploring the private flood market has risen among insurance carriers, a report earlier this month from Standard & Poor’s Financial Services suggests it may not be as high as agents and others in the industry would wish.
S&P points to the continued failure of NFIP to charge actuarially sound rates, a lack of accurate flood maps and outdated modeling techniques as stumbling blocks to the development of a robust market.
“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.
Hine admits that there is still a great deal of work to be done in terms of updating flood maps, improving rating tools and testing products, but there is “no doubt in [his] mind, based on the history of the E&S industry, that those things will be developed.”
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