OLDWICK, NJ–(BUSINESS WIRE)–
Although the final damage tally from Hurricane Ian may take years to fully develop, at least an early industry estimate puts flood-related losses on par with Superstorm Sandy in 2012, making potentially one of the largest floods to occur as part of the National Flood. Assurance Plan (NFIP), according to a AM Best report.
New Best Special Reportentitled “NFIP Adrift but Private Flood Insurance Gains Traction”, indicates that only 30% of Florida residents have insurance through the NFIP, up from 41% when Hurricane Irma hit the Sunshine State in 2017. However, private carriers have increased their total flood insurance premiums by more than 40% to exceed the $1 billion score in 2021; even though, at the end of the year, it was still only one-third the size of the federal flood insurance market.
This change preceded Hurricane Ian, a catastrophic event that FEMA estimates will result in more than $3.5 billion flood losses for the NFIP. It also tracked the implementation of a new pricing system for NFIP coverage, which aims to make the federally funded backstop more financially stable by charging more adequate premiums for each individual risk.
“Risk Rating 2.0, as it is called, would also make private flood insurers more competitive in their pricing and could potentially shift related exposure to the private sector,” said Christopher Graham, Senior Industry Analyst, AM Best. “In one respect, Hurricane Katrina really exposed the inadequacy of NFIP flood insurance rates.”
Following this event in 2005, the NFIP had to borrow almost $17 billion to pay for losses related to an extremely difficult hurricane season, which included hurricanes Rita and Wilma. Total NFIP debt reached $36.5 billion in 2018, before Congress canceled one $16 billion party, resulting in its current level of $20.5 billion. This level of debt, combined with increasing coastal exposure, has underscored the need for a solution that will encourage more carriers to purchase private flood insurance.
Given its more than 1,300 miles of coastline, Florida is unsurprisingly the largest market for flood premiums, both private and federal combined, with more than a quarter of all WE flood coverage written there. However, the report notes that California ranks in the top six states for flood insurance premium, which is more due to the size of the state than the risk of flood losses.
California also serves as an example of what might happen when NFIP rates match the true price of actuarial risk. Since the risk of flood loss is lower, there is much less risk of storm surge in California than in any of Atlantic or Gulf States – the true hazard rate is already closer to the NFIP price and therefore private insurers are much more active. Private flood insurance accounts for approximately 40% of all flood insurance in California; in Floridaprivate flood insurance represents only 15% of the total flood insurance premium.
“Fewer areas in California are in a flood zone compared to Floridaso that private insurers can assume that California has more profit potential for buying flood cover than Florida properties,” Graham said.
To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=325977.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Based at United Statesthe company does business in more than 100 countries with regional offices in London, amsterdam, dubai, hong kong, Singapore and Mexico City. For more information, visit www.ambest.com.
Copyright © 2022 by AM Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.
src=”https://cts.businesswire.com/ct/CT?id=bwnewssty=20221114005717r1sid=acqr8distro=nxlang=en” style=”width:0;height:0″ />
Show source version on businesswire.com: https://www.businesswire.com/news/home/20221114005717/en/
Christopher Graham
Senior Industry Analyst, Industry
Research and Analytics
+1 908 439 2200 ext. 5743
[email protected]
Christopher Sharkey
Manager, Public Relations
+1 908 439 2200 ext. 5159
[email protected]
David Blades
Associate Director,
Industry Research and analytical
+1 908 439 2200 ext. 5422
[email protected]
Al Slavin
Communications Specialist
+1 908 439 2200 ext. 5098
[email protected]
Source: AM Best
