Insurers still want in on private flood market despite Harvey

August 29, 2017 Brandon Ross

This analysis was first available to Bloomberg Government subscribers

Private insurers still want to dive into the flood insurance market despite the ongoing historic flooding from Hurricane Harvey, insurance groups told Bloomberg BNA.

Harvey, which struck the Texan coast as a Category 4 hurricane last week, could cost $20 billion to $40 billion in combined insured and uninsured losses and be more damaging than 2012’s Hurricane Sandy, according to one insurance group. Researchers and insurers expect more frequent and more severe storms as a result of climate change.

But recent modeling advancements have allowed private insurers to see the profit potential in offering flood coverage, which was historically too risky with older models. Insurance groups have heavily lobbied lawmakers to lift barriers to private insurers in the next reauthorization of the National Flood Insurance Program, which is set to expire Sept. 30.

Early industry impressions of Harvey-related losses suggest insurers haven’t lost their appetite to offer flood coverage, as Harvey-like flooding events are accounted for in the newer catastrophe models.

“I don’t think [Harvey] changes the dynamic for insurers,” Robert Gordon, senior vice president of policy research international for the Property Casualty Insurers Association of America, told Bloomberg BNA Aug. 28. “Insurers are becoming increasingly comfortable with the modeling.”

Private insurers can offer a wider range of coverage than the NFIP, for example with business interruption coverage for commercial properties, Gordon said.

The Federal Emergency Management Agency (FEMA), which runs the program, owes the Treasury and taxpayers $25 billion for the program’s debt. It is unlikely that the program will ever be able to repay that debt under its current structure, Roy Wright, FEMA’s deputy associate administrator of mitigation who heads the program, told lawmakers earlier this year.

FEMA told Bloomberg BNA that it couldn’t speculate as to the insured losses from Harvey. “[W]e have approximately 444,000 NFIP policies in potentially impacted counties in Texas, and over 490,000 policies in Louisiana,” a FEMA spokesperson said.

Time Running Out

The House Financial Services Committee approved an NFIP reauthorization package in June, while the Senate Banking Committee has yet to mark up their bill to re-up the program. In both cases, Congress will have less than a month to finalize the proposals and then negotiate differences between the House and Senate bills, in addition to reauthorizing many other federal programs before Sept. 30. Lawmakers return Sept. 5.

Lawmakers could pass a short-term extension of the NFIP to buy time for negotiating a more comprehensive, multiyear overhaul of the program. While most stakeholders had been calling for a long-term extension, a short-term one looks increasingly likely.

“Although Harvey will bring an added sense of urgency to the NFIP debate, the Hurricane is not likely to lessen the chances that the program will be reauthorized on a short-term basis, which would be an absolute failure on the part of Congress. The Sept. 30 deadline was no secret,” Jimi Grande, senior vice president of government affairs for the National Association of Mutual Insurance Companies, told Bloomberg BNA in an Aug. 28 email.

“Making policy decisions in the immediate aftermath of a catastrophe rarely works out as hoped,” Grande said.

Short-Term Extension

A short-term extension is better than letting the program lapse, some say.

“The first priority is not allowing a lapse,” Tom Santos, vice president of federal affairs for the American Insurance Association, told Bloomberg BNA Aug. 28.

When the NFIP is lapsed, new NFIP policies, which have a 30-day waiting period before they go into effect, can’t be purchased and existing policies can’t be renewed; lenders subsequently stop making mortgage loans on properties that are in mandatory flood insurance zones; and people sometimes walk away or are delayed from closing deals to buy homes, Santos said.

The Trump administration recently called for the flood program to be included in a continuing resolution to fund the government at current spending levels through sometime in December if Congress can’t figure out a compromise on the NFIP by Sept. 30. If lawmakers did include the NFIP in the CR, it would essentially serve as a short-term extension anyway.

Solid estimates of the dollar amount of insured losses from Harvey are likely at least days away because heavy rainfall from the storm is still ongoing, complicating the damage projections, Santos said.

Indeed, Texas’s upper coast and Southeast Louisiana could see an additional 15 to 25 inches of rain from Harvey, the National Hurricane Center projects.

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