In a recent post for Property Casualty 360, Sam Friedman and Aditya Udai Signh summarize findings from a Deloitte Financial Services report on the challenges and opportunities of flood insurance privatization. While there are some advantages for private insurers to get back into the U.S. flood insurance business, given the rollback on flood insurance reform, challenges remain significant such as:
Subsidized flood premiums for some 20% of NFIP(National Flood Insurance Program)-insured properties, which not only might have compromised the program’s solvency, but also may have exacerbated the exposure by facilitating construction in flood hazard zones.
Repetitive loss properties, which accounted for one-in-four NFIP claims paid between 1978 and 2011.
The relatively low take-up rate for flood insurance, even among homeowners with federally-backed mortgages who are mandated by law to buy the coverage.
The likelihood of federal disaster assistance for victims of flooding, which may have prompted many property owners to pass on buying insurance and take their chances on getting a government grant or loan if a worst-case scenario comes to pass.
At AmeriFlood Solutions, we believe that the recently enacted Homeowner Flood Insurance Affordability Act signed into law last month dealt a huge blow not only to addressing the debt-ridden NFIP, but also, to privatization momentum. In the meantime, property owners and policyholders alike must be diligent about flood risk to improve the value of real estate assets, make educated insurance decisions and to choose the level of flood insurance coverage commensurate with the actual risk.