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Insurers may trickle into flood insurance market on NFIP reforms

Posted On: Jun. 14, 2016 12:00 AM CST

Insurers may trickle into flood insurance market on NFIP reforms

Reforms to the National Flood Insurance Program could encourage private insurers to enter the market, according to a new report by Standard & Poor's Corp.

“As the NFIP is set to expire Sept. 30, 2017, there has been interest from policymakers and private insurers alike in the future form of flood insurance,” according to the report, “Privatizing U.S. Flood Insurance: A Trickle-Down Effect, Or Opening Floodgates?”

“Taking clues from ongoing reforms, we believe the future flood insurance market may end up looking very different from the current one,” said the report, which was released Monday.

But private insurers wishing to enter the market now dominated by the debt-ridden NFIP would have to overcome considerable difficulties, according to S&P. These include challenges with modeling the flood peril and producing flood maps for a large country like the United States.

S&P said it believes that excess and surplus lines insurers, along with reinsurance partners, “may be willing to offer limited capacity to assume flood risk that fits within their risk/return parameters.”

S&P said excess and surplus lines may be the first ones to enter the market because “they can work with flexible terms, conditions, and prices.”

“At this point, we don't expect a wave of private insurers to sweep into this market but rather a trickle as insurers would enter cautiously before they become more comfortable with the risks involved,” said S&P.