Flood insurance is at the forefront of American minds at the moment as parts of Texas and Louisiana are submerged in murky flood waters in the wake of Hurricane Harvey.
Analytics from CoreLogic estimate that 70% of flood damage from Harvey is not covered by any insurance – an alarming trope the US Government hopes to address with its reauthorization of the National Flood Insurance Program (NFIP) by September 30.
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However, one expert thinks effective long-term reauthorization by September 30 is highly unlikely.
“In my opinion, it’s not likely that we will get an on-time, long-term reauthorization by September 30,” said Chris Heidrick, president of Trusted Flood Insurance. “There are very few congressional working days left between now and September 30, and the Senate has lots of additional priorities like passing a budget, extending the debt ceiling for the country and resolving healthcare.
“I expect we will get an on-time, short-term NFIP reauthorization that probably won’t include any reforms. It might just be a case of them extending the deadline from September 30 to December 31.”
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A short delay in long-term NFIP reauthorization wouldn’t be too problematic, according to Heidrick. In fact, he said the “uncertainty creates opportunities” – especially for those operating in the private flood market.
From 2008 to 2012, the country had 17 short-term reauthorizations and a couple of lapses in the program, causing trouble for loan closings and real-estate transactions. Back in 2008 there was only a very small private flood insurance market to pick up the pieces. Now the market is large enough and competitive enough to present a viable alternative while the reauthorization process drags on.
“The private market today is large enough that if a consumer were to find themselves in a spot where they couldn’t get their NFIP coverage in time for closing because the program had lapsed and their policy couldn’t be issued, it would be very easy to place that risk in the private market,” Heidrick told
Insurance Business.
Private flood insurers have the ability to offer better coverage options and their products are often easier to purchase, according to Heidrick. They’re not so “constrained by government processes and requirements” and have therefore made leaps of progress and are competing as more consumer-friendly alternatives to NFIP.
“Right now, the NFIP underwriting structures are incredibly complex,” commented Heidrick. “They rely on 1960s and 1970s processes based on binary rate maps that don’t do a very good job of distinguishing one risk from another.
“It’s a rough segmentation as opposed to the private markets, who are adopting the use of probabilistic modelling much faster, which can allow a much more refined risk segmentation that will result in a more accurate price for the risk.”
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