Flood Insurance in the Standard Market Part 1

We’re all insurance people here, right? OK, so let’s play a word association game. I’ll give you a word and you think about the first word that comes to mind. Ready?

Flood.

It’ll be interesting to see what you thought of first. When I think of flood, the first word that comes to mind is hassle. In my professional (and personal) experience, I think flood is a hassle. Personally, I’ve had to buy flood insurance through NFIP and found out quickly that I spent a relatively large amount of money for a relatively restricted policy.

Professionally, I’ve underwritten for flood in a limited sense and even in the early 2000’s, underwriting for flood wasn’t all that complicated. The company I was working for provided flood coverage for commercial risks as a part of the standard property coverage that we offered. We provided a specific amount of coverage for a flat rate, unless the risk was located in a hazard flood zone. Then the rate went up.

Why is this coming up today? If you haven’t done much reading on this topic, you should probably catch this Insurance Journal article about flood insurance proposals that Congress is considering. Once you’ve read that, read this blog from Craig Andrews, a friend of Insurance Journal’s Academy of Insurance. When I read Craig’s blog, I had to think through my position on flood insurance, besides thinking that it’s a hassle.

I came down generally agreeing with Craig so I thought this is a good time to offer my thoughts. As I’ve drafted this post, it appears that there’s enough here to provide us with multiple posts. This week, I’ll deal with two reasons that I believe that the standard market can take up flood as a covered peril. Next week, I’ll deal with two reasons that I believe that the standard market should take up flood as a covered peril.

There is plenty of data available to rate for the peril of flood. As I mentioned, I worked as an underwriter and my company provided flood coverage for risks outside of a hazard flood zone at a flat rate. We hazard rated any risk that was located in a hazard flood zone. Companies, like Florida’s Citizens Property Insurance Corporation, are already rating homeowners’ policies using a by-peril rating structure.

There are private companies already writing flood coverage as a stand-alone policy. NFIP should have over 40 years of data on floods, premiums, losses, etc. That must be made available to any company looking to write flood coverage so that they can develop their own base rates and loss costs. We live in an age of big data. There are data points that can tell us how many flood occurrences have happened in the last X years. We know how many houses have been damaged by flood in the last X years. We know how much those damages have cost.

There are plenty of carriers already writing coverage for flood. A quick search today led me to a website ranking the top 10 flood insurance companies. That means that there must be more than ten carriers. There is a story this week on Insurance Journal that tells us of a Florida based company that is working with regulators to expand their flood offering to nine other states. That particular company writes flood both as an endorsement to their homeowners’ policy and as a separate policy.

That tells me that flood can be written as a part of a property policy without much trouble. We know that ISO has a filed Flood coverage endorsement for commercial policies. That means it’s available to ISO subscribing company and even those companies that are not subscribers should be able to develop policy language that will provide exactly the flood coverage that they want to provide. Whether the coverage is provided by endorsement or by refiling a policy form to include the coverage, it is also a simple matter to file an exclusionary endorsement for those carriers that still want the option not to provide coverage. Let’s face it, just because a carrier can cover a peril, doesn’t mean that they always want to cover a peril.

If there are carriers writing flood, that means that there are underwriting rules and guidelines out there. That means that a company that wants to write flood only needs to come to terms with their own underwriting guidelines and rules. Let’s be honest with each other, if one person is smart enough to sit down and think through the underwriting process for flood, someone else can. Even a group can sit down with the problem and work on it. Since underwriting rules and guidelines should never be static, they will be reviewed, revised, and refiled on a regular basis. If nothing else, you may even be able to review another company’s filing if it’s available on a regulator’s website.

UPDATE: Here are some great past Academy Journal articles. They detail some misunderstandings related to flood coverage and how ISO and AAIS both have policy forms that can provide flood coverage. Flood, Flood, or Flood: What is Really Meant When a ‘Flood’ Loss is Reported – Part I, Part II, Part III and Part IV. Thanks, Chris.

That’s enough to chew on for today. What do you think? Do you think that flood belongs in a federal program? Do you think that flood is uninsurable? Let us know.