Many private insurers can look to fill the gap in flood insurance

Hundreds of thousands of homeowners have dropped flood insurance since the state revised federal guidelines late last year, but the door may be open for other private insurers to fill the growing gap.

Changes to the National Flood Insurance Program, which insures more than 4.5 million homes and businesses, are designed to make flood pricing more accurate based on the level of risk, and reduce coverage costs. Many homeowners have seen premiums drop, but others have been affected by large increases in premiums, with some policies being made up to six times the annual $700 premium, according to the First Street Foundation, a non-profit research organization that measures and explains climate risks.

According to some estimates, more than 400,000 US homeowners have just lost coverage as the Federal Emergency Management Agency and climate experts have warned that areas at risk of flooding have increased by 55% along the coast and 45% along the coast. of rivers and streams by the end of this century.

“Everyone lives in a flood zone.”
– Ashley Tozo, director of flood testing for the Insurance Office of America

“Everybody lives in a flood zone,” said Ashley Tozo, director of flood operations for the Insurance Bureau of America. “You hear people say they are not in a flood zone. But they are. It’s just a matter of whether FEMA has deemed it a high-risk area or a low-risk area.

Tozo said FEMA recently reported that about 40% of its claims came from property owners in low-risk areas.

Flood insurance has become a federal government initiative because private insurers have found the risks unpredictable and the claims high. However, taxpayers subsidized the state’s flood insurance as did investors in low-risk areas who paid roughly the same rates as those in high-risk areas. Hurricane Katrina and Hurricane Sandy nearly destroyed the state’s insurance policy. The changes that were released last October are supposed to bring more accurate documents to the software in order to test the price of the product and make it more affordable. It didn’t happen that way.

“They are changing the insurance policy of the National Flood Insurance Program,” Tozo said. “It’s going to cause a lot of shocks. It’s going to create a premium so that people at high risk pay more and people at low risk pay less.”

Tozo said, however, that if the subsidies end and premiums are reduced, it will invite private insurers to compete.

“Once we start to see that happening, where people are no longer receiving subsidies, you’ll be able to put insurance costs closer to NFIP terms and they can compete,” he said. “That’s where we’re going.”

In addition, Tozo said, insurers can begin to provide coverage for things that NFIP does not, such as moving expenses, food expenses, and other repairs that are not covered by the government. Private lenders and mortgage companies, which now require homeowners to buy from the NFIP, could expand their rules to allow private carriers.

“For a private insurance company to be interested in writing flood insurance, they, at least, have to break even,” he said. “So, if you’re trying to compete with FEMA, which is in debt, you’re not going to get a competitive price, because you’re going to be losing money. So if they can match the NFIP prices and the risk is right, the flood coverage is the same as any other risk.”

Doug Bailey is a journalist and freelance writer based outside of Boston. He can be reached at [email protected].

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