by Lisa Miller
A new Federal Emergency Management Agency report is shocking: 69% of Virginia homes in high risk flood zones do not have flood insurance. Another report reveals 17% of Virginia properties should be listed in high risk zones – but are not. Congress’s continued failure to reform an increasingly expensive National Flood Insurance Program (NFIP), coupled with last year’s record-setting floods and now Hurricanes Michael and Florence, has created an urgent need to improve the availability and affordability of flood insurance. The Virginia General Assembly and legislatures in other states can help address this dangerous situation by encouraging a larger private flood insurance market.
There is only one private insurance company writing primary flood insurance in Virginia, defined as up to $250,000 in coverage. Although 106,000 Virginians have NFIP coverage, FEMA’s report, “An Affordability Framework for the National Flood Insurance Program,” found that only residents with higher incomes are buying it, leaving an ever-growing majority of others unprotected. While FEMA studies the situation, the private market is moving ahead and delivering more affordable flood insurance where it can.
New catastrophe models are allowing insurance companies to better understand risk and thus accurately price flood premiums – down to the individual property – providing greater consumer choice and alternatives to the federal NFIP. When state government encourages it, a vibrant, competitive environment emerges as it has in Florida where, in just 3 years, almost 30 companies are offering better coverage at a cheaper price. In Miami-Dade County, ground zero for Hurricane Andrew in 1992, one private insurer’s average premium is $677 compared to the NFIP’s $980 average.
Catastrophe models, model law. The use of catastrophe models in setting rates isn’t new. But it’s usually used together with claims data, something the NFIP hasn’t been willing to share, citing privacy concerns. Also, greater consistency is needed among individual state insurance departments on how catastrophe models may be used in submitting rates.
The National Conference of Insurance Legislators (NCOIL) has begun reviewing a simple two-page proposed draft law, based on Florida’s, whose concept is, “If you build it, they will come.” The draft law permits companies, as an example, to test market rates in order to promote competition and choice, with the regulator approving policy language if a state requires a review (some do not) to ensure policies meet or exceed NFIP coverage.
The model law also ensures that insurance agents educate consumers about the dangers of going without coverage, and that insurance commissioners certify that policies are adequate to meet mortgage banking requirements. The safeguards in this simple model law will reduce our reliance on federal flood insurance.
Some in the insurance industry are concerned that this proposed regulation is overreaching or unnecessary. It is nonetheless designed to provide suggestions to regulators and those regulated on how to work together to launch and grow a successful market. What isn’t in dispute is private flood coverage’s cost savings, improved benefits, and greater consumer choice.
Start the conversation. NFIP premiums are rising an average of 8% this year but in some areas by 18%,the maximum annual increase allowed under law. So it just makes sense for state legislators and regulators to begin the conversation to fast-track the growth of a private market, which has the added benefit of spreading the risk to private insurers and away from U.S. taxpayers.
Too many Virginians are unprotected from the hazards of flood waters. There’s an urgent need to improve the availability and affordability of flood insurance so more homeowners are able to buy protection for their property and families. While Congressional paralysis stymies needed NFIP reforms, we must work toward model private flood insurance legislation to let Washington know “we got this.”
Lisa Miller is a former Florida Deputy Insurance Commissioner who served as an advisor on passage of Florida’s key laws encouraging a vibrant private flood insurance market. She is CEO of Lisa Miller & Associates, a Tallahassee, Florida-based consulting firm. @LisaMillerAssoc