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Differences in NFIP bills seen complicating congressional approval

Flood insurance

NEW YORK — Legislative and regulatory uncertainty are blunting some of the momentum in developing a private market for flood insurance, experts say.

Passage of a bill in June to reauthorize the National Flood Insurance Program by the U.S. House of Representatives’ Financial Services Committee created “some positive momentum,” but this was then “complicated” by legislation proposed in the U.S. Senate, which differed in some details, said Brooke Stringer, financial policy and legislative advisor for the National Association of Insurance Commissioners in Washington, speaking at the NAIC summer meeting in New York City on Saturday.

The committee unanimously approved a five-year reauthorization for the NFIP, but senators from coastal states including New Jersey and Louisiana introduced a separate bill that differs on key points such as capping annual rate increases at 9% - currently, they are capped at 25%, Ms. Stringer said.

The Senate bill “complicated some of the momentum we saw in the House,” Ms. Stringer said, adding that with Congress on break and not back until September, “we could be heading for another temporary extension” as the current bill expires Sept. 30.

Regulatory uncertainty and a lack of consistency can be barriers to private market flood insurance, said Nancy Watkins, principal and consulting actuary for consultants Milliman Inc in San Francisco.

Many states do not have laws specific to private flood insurance, leaving questions for insurers or other potential stakeholders such as modelers, Ms. Watkins said.

Catastrophe model treatment varies widely among states despite the fact that most flood insurance pricing involves modeling, Ms. Watkins said. Some states do not allow the use of catastrophe models in establishing rates while others allow such models for certain lines of business, perils or purposes, Ms. Watkins said. Florida is the only state with a government body specifically tasked with the scientific and technical review of hurricane models, with flood added in 2017, she said.

“It’s really hard to do a good job on this without some sort of catastrophe model,” Ms. Watkins said.

”As a result, you’re going to have insurance companies which stay out of the states where the model uncertainty is very high, leading to fewer options for consumers,” she said.

Floods are now expected to cost U.S. households $20 billion each year, with only 16% of these losses insured by the NFIP, according to the Congressional Budget Office, and only 15% of U.S. homeowners had a flood insurance policy in 2018, according to the Insurance Information Institute, Ms. Watkins said.

Milliman estimates the potential private residential flood market to represent between $34 billion and $48 billion of direct written premiums, Ms. Watkins said.

She advocates for a private market alongside a public market. “I don’t think one or the other is the right way to go. They can co-exist.”

“We really believe in a private flood market,” Ms. Watkins said. “We think it can thrive.”



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