Severe floods and NFIP changes spur interest in commercial flood marketReprints
Severe floods in the United States and overseas coupled with changes to the U.S. National Flood Insurance Program are stirring heightened interest in the commercial flood insurance market.
Established agents, brokers and underwriters are being joined by newcomers that see opportunities in offering flood coverage.
A key factor in the increased interest was flood-related devastation wrought by Superstorm Sandy in 2012, when many buyers found that standard property insurance does not cover flood damage.
Reforms in the subsequent Biggert-Waters Flood Insurance Act of 2012, including phasing in risk-based NFIP premiums, led to widespread sticker shock among buyers as well. Although some of the reforms were partially undone by the Homeowner Flood Insurance Affordability Act of 2014, concern about the pricing and viability of NFIP remains, leading buyers to seek private-market alternatives, experts say.
“I definitely think that the instability of the National Flood Insurance Program, and the rates fluctuating up and down, has caused people to look more at the private sector,” said Kasey Vaughn, vice president and managing director at wholesale broker and underwriting manager Burns & Wilcox Ltd. in Morehead City, North Carolina. “We've been having agents ask more questions about the private sector, which we never had before.”
Burns & Wilcox provides excess and surplus commercial flood coverage with limits of $7.5 million, but could expand that to about $20 million by layering insurers, Ms. Vaughn said.
“The market is being affected by the government,” said Dave Finnis, executive vice president and national property practice leader at Willis North America Inc. in Atlanta. “For residential and commercial customers who had been depending on NFIP, there certainly is a heightened awareness.”
For those whose rates increased due to the Biggert-Waters Act, the shock was even greater.
Buyers who purchased higher-cost flood coverage before Biggert-Waters was partially repealed “understood the pain that is out there when NFIP was not available to them, so there is definitely a heightened awareness,” Mr. Finnis said.
The state of flux has attracted at least one new player as Gainesville, Florida-based The Flood Insurance Agency began writing private-market flood insurance in November.
The insurance, which mirrors the terms and conditions of coverage under the NFIP, is written by the Lloyd's of London market, although the Florida agency would not disclose which syndicates, citing competitive reasons.
The agency already sells commercial flood coverage in 19 states and “soon” plans to expand to 30 states, including New York, CEO Evan Hecht said.
Mr. Hecht said he expected Biggert-Waters would roil the market.
“I could read what the chaos was going to be before it happened,” Mr. Hecht said. That prompted him to travel to London to build a private commercial flood program.
“It took six months to put the London program together,” he said.
The coverage launched late last year, and the response has been strong, Mr. Hecht said.
“Since then, our phone has never stopped ringing,” he said. The policy was originally aimed at buyers who lost their subsidies under Biggert-Waters. Even though those subsidies were restored by the Homeowner Flood Insurance Affordability Act, interest remains high in the agency's flood coverage, Mr. Hecht said.
The agency has signed 750 independent agents to market the commercial flood coverage and plans to expand even more.
“We want to make the product available nationwide,” said Mr. Hecht, who said it is aimed at middle-market customers and offers a maximum insured value of $5 million.
At the other end of the spectrum, insurer FM Global writes flood insurance as part of its all-risk property coverage with a flood sublimit up to $250 million, said Gary Love, Johnston, Rhode Island-based vice president and staff operations underwriting manager. FM Global does not write stand-alone commercial flood cover, Mr. Love said.
Similarly, most commercial property insurance programs include flood coverage as part of the master program, said Willis' Mr. Finnis. Limits can reach as high as $500 million for high-hazard floods for the largest programs, he said.
Aon P.L.C. has beefed up its commercial flood offerings in response to the changing marketplace.
“Beginning at the end of last year, we became much more robust,” said Al Tobin, managing principal for Aon Risk Solutions' property practice in New York. The broker now provides an option for buyers at renewal to purchase additional flood cover based on existing coverage.
“If you have a $5 million flood zone A sublimit,” a zone considered at high-risk of flooding, “generally speaking that client, if it desires, can get a quote for an additional $5 million,” Mr. Tobin said.