Since FEMA began implementing the Homeowners Flood Insurance Affordability Act of 2014 (HFIAA) last April, “it’s been making an impact—and not a positive one,” says Bruce Bender, specialist in outreach and risk communication services and a national consultant for FEMA’s FloodSmart marketing campaign and Risk MAP effort.
According to Cassie Masone, vice president, flood operations at Selective Insurance Company of America, the flood insurance market continues to feel the effects of HFIAA a year later—and “insureds continue to struggle to understand its individual impact,” she says. “While HFIAA effectively repealed certain rate increases called for under Biggert-Waters, homeowners in certain zones are still subject to rating increases and policy surcharges. Without information and the benefit of assistance from companies and their agent partners, insureds subject to these increases could potentially restart the moderating trend of canceling flood policies.”
HFIAA’s new annual surcharge—$25 for all primary residents and $250 for flood insurance policyholders on all other buildings, including secondary homes, businesses, condos and more—is already contributing significantly to what Bender calls a “downward slope in policy count” ever since Biggert-Waters directed implementation of major rate changes in October 2013.
“What I hear from WYO companies and vendors is that the surcharge is having the biggest impact on Preferred Risk Policies [PRPs],” Bender says. “These PRPs are for areas where they’re not required to have flood insurance, and suddenly the renewal is going from like $390 to $630 when they didn’t do anything.”
Over the last year, “we’ve seen some pretty significant attrition in non-primary residents where they’re not going to deal with that $250 surcharge,” agrees Keith Brown, president & CEO of Aon National Flood Services. “The vast majority are not required to carry flood insurance, so they’ve just decided that the average premium may have been close to $400 before and another $250 on top of that is reason to get out of the NFIP program.”
And the implementations are “not anywhere near done,” points out Cynthia DiVincenti, vice president, government affairs and business quality at Aon National Flood Services. “There are more pieces FEMA will have to implement, some of them around the affordability issues. We anticipate the changes to continue probably for another year at least, and then of course we’re looking at reauthorization in 2017 and not knowing what additional changes may come up then.”
What does that mean for you? First, your clients will likely be on the lookout for new ways to save on NFIP coverage. “The lessons that we learned from HFIAA are that we, as a WYO company, need to work closely with our agent partners to educate our clients not only on the specific impact of the law, but also about the benefits of the NFIP product and the protections that flood coverage provides,” Masone says.
Remapping in particular opens up an opportunity for agents—check out FEMA’s “Changes Since Last Map” tool for communities that provide it to find out what’s been added to the flood plain and what’s been taken out.
“It would be a great way to reach out to customers and clients saying, ‘Here’s how you’re being affected.’ But also, what a great prospecting tool and opportunity it can be,” Bender points out. “Proactive agents could get ahead of other agents in the area by saying, ‘Hey, did you know that maps have changed? I can help you with a low-cost option,’ such as the Newly Mapped procedure.”
In what Masone refers to as a “price-sensitive” insurance market, staying on top of map changes in your area can help you “be ready to offer those cost-saving options,” Bender says.
But perhaps more important, “all of this is driving greater interest in private flood insurance,” Bender says, noting that several WYO companies and vendors have already announced private flood programs to supplement the NFIP. “Congress is talking about privatization and how to make it easier for the companies to create a private program.”
“It’s created a pretty burgeoning private primary flood market,” Brown agrees. “It’s still a very small portion overall—it’s not anywhere close to the NFIP volumes—but agents will be touching these policies, they’ll be getting calls from policyholders and there are other options out there now that they should take a look at. Commercial private marketplaces are really coming out with a bunch of new products, and it’s great for agents and insureds because it gives them more choices.”
Although HFIAA’s efforts to slow Biggert-Waters’ rate increases may have in turn slowed private flood expansion, “I think you’re going to continue to see that interest grow, especially as the prices continue to go up in certain areas,” Bender says.
“In areas that are not only dealing with premium increases but large surcharges, specifically that $250 non-primary residence surcharge—that buys a lot of coverage in the private market,” Brown adds.
So while many NFIP policyholders are jumping ship, Brown says new private market options make it an “exciting time” to be involved in flood insurance. “I would encourage agents to be very positive about flood,” he says. “Only about 5% of households have flood insurance, but they’re certainly far more likely to have a flood than a fire. It’s still a vastly undersold product set when you look at the risk that needs to be covered.”
In other words, as Bender puts it: “Don’t give up on the flood program.”
Jacquelyn Connelly is IA senior editor.
