For insurance professionals circling the waters of the flood insurance market in the US, there’s a lot to learn about the relationship between FEMA’s National Flood Insurance Program (NFIP) and the private market, the solutions offered by both, as well as the advantages and disadvantages they bring to brokers and their clients. Unraveling the intricacies of the NFIP while finding out how the private market can build a more viable long-term flood product will be the focus of the Lunch & Learn session sponsored by Gridiron Insurance Underwriters and led by its president, David DeMott, during the Flood Risk Summit in Miami on November 29.
How to rate flood risk, information on flood zones and the topographical features that determine the premiums for flood insurance, and context for the historical approaches to flood insurance and what will need to change to see the private market take a greater share, will be some of the specific topics that DeMott will dive into during the not-to-miss presentation.
“We’re on the front lines. We underwrite this business daily on a granular basis, so a lot of my session will be blocking and tackling on underwriting flood business, and working with and against the NFIP on a wide array of risks,” he told Insurance Business, adding that there will be significant focus on the rating or limit model.
“One of the big challenges the NFIP has now is they only rate against a small limit of insurance. Say you had a $10 million building and they were doing a $500,000 limit of insurance – they only rate against that $500,000 and everybody else in the industry would rate the entire building, be it with a smaller rate and then put out a smaller sub-limit of insurance. When we look at all the data, that’s actually one of the things that really hurts the NFIP for a lot of actuarial reasons.”
Through its experience in the flood insurance market, Gridiron has also identified a crucial message that insurance professionals should be communicating to clients.
“One of our approaches from a firm perspective is to encourage folks to insure to value on the flood front. One of the big problems with the flood challenge is you may have people with a million-dollar home on the water, but yet they only buy $250,000 limit of flood from the NFIP,” explained DeMott. “It is chronic underinsurance in and throughout the entire flood sector.”
If someone has a house worth $500,000, would you insure it for $100,000 for wind and fire, he added, and if you had a $50,000 Cadillac, would you insure it for $5,000?
“Why in flood do we insure $10 million buildings for $250,000?” said DeMott. “Until you tackle that systemic underinsurance and rating problem, I think it’s going to be fundamentally difficult for the NFIP to be viable long-term.
“And if we’re going to talk about flood as the most commonly occurring catastrophe across the globe, why are we not, as a society, encouraging a greater take-up for proper coverage and/or product in that marketplace?” he added.
Take a deeper dive into this issue at the Lunch & Learn session, brought to you by Gridiron, during the Flood Risk Summit on November 29 in Miami.