Flood bill’s rate respite could derail private market

Decreased flood insurance rate hikes are on the congressional fast-track, but may stymie the emerging private market.

Construction & Engineering


Rising flood insurance rates under the National Flood Insurance Program could fuel demand for private insurance options, Fitch Ratings said this week. Already, a handful of private insurers are undertaking to write flood risk, backed by major reinsurers like Lloyd’s of London.
Yet all of that could change if House legislation altering provisions of the 2012 Biggert-Waters Act is approved—an outcome looking increasingly likely.
The Grimm-Waters bipartisan bill aims to prevent FEMA from raising the average rates for nine classifications of flood policies above 15%, and from raising rates on individual policies above 18% annually for nearly all properties. It would also ask FEMA to ensure most homeowners pay no more than 1% of the insurance coverage; for example, a homeowner would pay a $3,000 premium on a $300,000 policy.
The legislation is a counter-proposal to a Senate bill that would have delayed rate hikes for four years. The House passed Grimm-Waters 306-91 Tuesday, and has been marked for support by Senate Majority Leader Harry Reid.
Newburyport, Mass. producer Ed Howlett is hopeful the legislation will be approved and prove useful to his clients, who are groaning under the combined weight of Biggert-Waters and coastal map changes.
“Some of our insureds are really seeing significant increases,” said Howlett, who works at the coastal Chase & Lunt agency. “We’re hoping the legislation alleviates a lot of that pain, because it’s been very painful. It’s really causing folks to reevaluate their coastal properties.”
The Independent Insurance Agencies and Brokers of America (IIABA) is of the same mind, commenting that the legislation represents “a major win for independent insurance agents.”
The respite would likely quash private market interest in taking on flood risk, however. According to a Government Accountability Office report, all congressional efforts to modify or delay Biggert-Waters “may reinforce private insurers’ skepticism that they would ever be permitted to charge adequate rates and make their participation unlikely in the foreseeable future.”
If that’s the case, producers will be left with just one place to go to provide assistance to flood insurance policyholders. Regardless of how the legislation pans out, that could be a problem, said CEO Evan Hecht of the private carrier, The Flood Insurance Agency.
“The [proposed legislation] is squashing the appetite of the private market to come in and assist,” Hecht said. “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.”

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