The National Flood Insurance Program (NFIP) is administered by the Federal Emergency Management Agency (FEMA). The implementation of Risk Rating 2.0 is attempting to put the NFIP on equal footing. It has been losing billions the last couple of decades.
Risk Rating 2.0 is supposed to make the properties insured by the NFIP actuarily sound. It’s very controversial, and — truthfully — it is not working very well.
That’s opened the door for private insurers to pick up new business. That market has grown 24% between 2016 and 2022. The Insurance Information Institute — AKA the Triple I — says during that time period, the private market’s 77 insurers saw business grow to $4.09 billion from $3.29 billion.
As of the end of 2022, those insurers accounted for 32.1% of all flood insurance business.
“It is reasonable to expect that, as the cost of participating in the government-run flood insurance program rises for some, private insurers will recognize the market opportunity and respond by applying cutting-edge data and analytics capabilities, more refined pricing techniques, and new products, such as parametric insurance, to seize those opportunities,” the Triple I said.
The Triple I says the benefits of increasing competition between the NFIP and the private insurers could end up lowering flood insurance costs for those needing flood insurance.
That said, more education is needed to educate homeowners and businesses about flood insurance. A survey by the Triple I and Munich Re found 64% of homeowners and renters thinking their property is not at risk for flooding.
Another 14% aren’t sure one way or the other.
“Public education and awareness building around flood risk are essential to advance the goal of reducing flood risk, as is collective action among stakeholder groups — from banks and insurers to community leaders, real estate professionals, and policymakers,” the Triple I concluded. “Reducing the threat of costly flood claims will ensure that affordable insurance protection is available to all who need it.”
Source link: Insurance Business America — https://bit.ly/3snMqNS