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Regulators pushing to grow private flood insurance in 2020

Insurance regulators in 2020 plan to implement reforms they hope will open up the private flood market.

Encouraging growth in the private flood market will be a top priority for the National Association of Insurance Commissioners under the leadership of Ray Farmer. Farmer, who will become the NAIC's president next year, also serves as the director of the South Carolina Department of Insurance.

"We're looking to do anything that we can to attract the private market," he said in an interview.

As part of these efforts, the NAIC has put together a bill in its legislative package for 2020 that would allow insurers to utilize a "use and file" approach when setting rates exclusively for private flood coverage. Farmer said there will still be opportunities for regulators to review the filings and ensure companies have reasonable rates that are not excessive, inadequate or unfairly discriminatory.

"Common sense will tell what we normally approve in a form and a rate," he said. "This gives them a little more flexibility to come and experiment, and we're looking forward to that."

Farmer also noted that South Carolina is one of the few states where residents can maintain a "catastrophe savings account" where they could set aside up to $10,000, exempt from state taxes, to pay for repairs or other costs that insurance would not cover.

"We can do that countrywide," Farmer said, though he did point out that such a change would have to be implemented state by state.

Eric Cioppa, superintendent of the Maine Bureau of Insurance, echoed Farmer's comments and said in an interview that he expects to see more entries into the private flood market, particularly if regulators can better determine the role of the National Flood Insurance Program. Currently, the Federal Emergency Management Agency handles the NFIP, which is responsible for the bulk of flood policies issued in the U.S.

FEMA is developing Risk Rating 2.0, which plans to use updated data to craft flood insurance rates that may be more fair to property owners. The organization plans to roll out the implementation of the new methodology on Oct. 1, 2021.


The idea of continuing to subsidize the flood insurance market is "a challenging one" both for budget reasons and because it does not encourage private insurers to get involved, said Washington Insurance Commissioner Mike Kreidler.

"I think if you want to stimulate a private market, you've got to stop the subsidies," Kreidler said in an interview. "A big part of that is certainly going to be [changing] land use and building code standards."

Kreidler also said insurers should not provide coverage to rebuild in areas with a history of flooding.

Howard Mills, an independent senior adviser at the Deloitte Center for Regulatory Strategies, said a federal government rule change that was finalized earlier this year should contribute to increased opportunities for insurers to jump into what has potential to be a "very vast market." The rule requires mortgage lenders to accept private flood policies that are comparable to the NFIP.

"So many people, including myself, have been calling for years for more private penetration," Mills said. "Now, with this rule change, it's possible."

Mills also said insurers can take advantage of advanced risk modeling capabilities, which makes them more likely to offer private flood coverage.

A recent report published by Deloitte shows that insurers have already been increasing their presence in the flood insurance industry. Direct premiums written by private insurers shot up 70% between 2016 and 2018, and 15 states saw their private flood premiums more than double over the same period.

Maine's Cioppa said he thinks that private flood coverage will grow in surplus lines and then eventually move to the admitted market.

"Who knows? Maybe eventually you'll see an all-perils policy," he added.