For many producers, the National Flood Insurance Program (NFIP) has been the only name of the flood insurance game. Since 1968, agents registered with NFIP to sell flood insurance policies, and with largely just one player in the industry, rates were generally fixed.
However, the Biggert-Waters Act of 2012 and its resulting rate increases has led a handful of private insurers to begin testing the market’s waters. Gainesville, Florida-based The Flood Insurance Agency (TFIA) has been going great guns since its launch in November, operating in 15 states and backed by underwriters at Lloyd’s of London.
“It’s been one continuous, takeoff launch. It’s like a rocket ship,” said TFIA CEO Evan Hecht
. “We’re going to keep the [NFIP] program healthy by offering increased competition.”
Hecht told
Insurance Business in January that he “expect[s] and hope[s]” TFIA will have competition within the private flood market, allowing agents and clients more affordable solutions to their insurance needs.
It seems Hecht has gotten his wish. According to a
Wall Street Journal report, at least five insurers are currently selling flood coverage to homeowners, with one major reinsurer—
Berkshire Hathaway—backing some of those policies.
And one more group is about to join the fray. Flood Zone Correction Inc., a risk management specialist that independently evaluates the flood risk of commercial property, is partnering with Lloyd’s of London to establish itself as a managing general agent [MGA] in the flood market.
“We’re going to be the MGA for some syndicates at Lloyd’s,” Flood Zone Correction Inc. President Dan Freudenthal told
Insurance Business. “We have coastal and civil engineers on staff, so we’re able to use a very unique underwriting methodology that doesn’t necessary depend on a FEMA flood map.”
Freudenthal said the expansion is “probably the most exciting thing” the company has ever done, and expects the MGA service to provide independent agents struggling to source risk with a good alternative.
One of Flood Zone Correction Inc.’s unique offerings is how the policy will respond to a loss. Instead of paying out actual cash value coverage, the policy will offer total replacement coverage, Freudenthal said.
He expects the program to “roll out in March” for commercial property owners, following with a homeowners’ product roughly six months from the launch date.
All of this private market appetite is music to Validus Group Chief Executive Edward Noonan’s ears.
“The US flood-insurance program shouldn’t exist anymore. The private sector can provide all the capacity required,” Noonan told the
Wall Street Journal. “There’s just nothing unique about flood that requires a government program today.
However, the report cautions that legislative action seeking to delay or amend NFIP rate hikes may quash the emerging market. Richard Koon, a deputy insurance commissioner in Florida, admitted that insurers are “concerned about getting in the space without knowing what Congress will do.”
Hecht echoed that sentiment.
“The [proposed legislation] is squashing the appetite of the private market to come in and assist,” he told
Insurance Business. “I think that would be unfortunate because my belief is that the private market will not allow people to pay more than they should pay.”
