Interview with Florida Commissioner Altmaier: Private Flood Market and NFIP’s 2.0
Florida has 90,000 private flood insurance policies in force now — a 300% increase since passing legislation to encourage private insurers to offer the coverage in 2014, according to Florida Insurance Commissioner David Altmaier.
Noting there are five million properties in the state that still have no private or government flood coverage at all, Altmaier acknowledges there is still a “long way to go.”
In an interview with Insurance Journal Southeast Editor Amy O’Connor, Altmaier discussed how Florida’s private flood market has grown and why he thinks changes to the National Flood Insurance Program (NFIP) could be a boon to private market development.
The following are edited excerpts from that interview:
Florida’s private flood market has grown exponentially since the state passed legislation back in 2014. Other states in the Southeast are now working on private flood markets. Please talk about how Florida’s private flood market has grown since the state passed the bill in 2014.
Altmaier: Sure. Well, the easiest barometer that we use to assess the growth of our flood insurance market is just simply policies enforced. And as of June first of 2020, we’ve got almost 90,000 flood insurance policies insured by the private market, which is almost a 300% increase since our legislation was originally passed. So we’re thrilled by that growth, we’re thrilled by the interest that’s been shown by the private market, but we’ve got over five million properties in this state that don’t have any kind of flood insurance at all, either private or with the NFIP. So we still have a long way to go. And so it’s a subject that we continue to work on very hard to see what we can do to close the flood insurance gap in our state. And hopefully since it’s such a significant issue nationwide, Florida can be viewed as a trendsetter and other states can look at what we’ve done and find some use in implementing such policies in their own states.
How many companies are currently offering private flood in the state?
Thirty-five insurers.
What have been some of the challenges of … building a private flood market in Florida?
Well, so a couple of different things. I think once insurance carriers were able to get comfortable with their ability to assess the risk in terms of what could their ultimate losses be and how do they rate for those … some of the other challenges that remained after that were more logistical in nature.
For example, you had the issue that in a lot of cases if you had a mortgage, there were some challenges with banks recognizing private flood insurance when you were in a special hazard flood zone. So we were able to work through that a little bit on the state level, and then some federal rulemaking took place to kind of pave the way for that as well. And then of course, a similar issue was with respect to continuous coverage. And a lot of NFIP policies are subsidized.
I think that agents were rightfully concerned that if they move the policyholder they’ll receive subsidies from the NFIP into the private market, and then that consumer ultimately decided to go back. If they weren’t recognized as having continuous coverage, they’d be at risk for losing those subsidies. And so I think being able to do some work on that was helpful in gaining some interest in the private space, as well. But I really think one of the biggest developments that occurred was that carriers began to get more comfortable with their ability to assess that risk both from a modeling standpoint and a pricing standpoint. And that really was what generated some interest and some growth in that space.
How would you say that the private flood rates compare to what NFIP offers in Florida?
Well, I think it really kind of depends on where the risk is located. And one of the things that we’ve noticed is that because the NFIP maps are a little dated, carriers have been able to recognize some efficiencies with respect to, say for example, a home that might be further from the coast, but still in the same kind of coastal sort of mapping area for the NFIP purposes, carriers have been able to identify those homes and offer them lower rates. But if you’re in a high-risk flood zone and you receive some substantial subsidies from the NFIP, in those cases, the private market rates are a little bit less competitive.
And so we really kind of view Citizens as a really good example of the way that the private market could ultimately work with respect to the flood insurance. And there was a period of time there as we were trying to depopulate Citizens where a lot of the risks … in Citizens had historically been viewed as uninsurable because it was such high risk, but as carriers began to diversify their books of business, geographically, both within the state and country-wide, a lot of that risk that was viewed as uninsurable suddenly became attractive. And so we think the same kind of thing can happen with some of the higher risk homes that are insured by the NFIP as the private market gets more traction.
How is OIR still working to attract carriers into the Florida flood market?
I think it’s happening a little bit more organically, but I also think that some of the challenges that we have had in the property market over the past several years has kind of stymied a little bit the interest on the private side. Not necessarily because they don’t want to write flood insurance anymore, but we have had a few catastrophes, we have had some challenges with roofing claims and some other things. And so I think a lot of folks that are interested in writing flood insurance are anxious to see some resolution on some of those interests or on some of those issues before wading back into it.
And then of course, one other complicating factor that’s a little bit out of our control is just the re-authorization of the NFIP has been done kind of … in short-term re-authorizations over the past several years. And I think carriers would really like to know what’s going to be the long-term role of the NFIP as they start to consider whether or not to engage in the flood insurance space.
I think those are a few of the factors. Some, like with some of the legislation that we’ve recently enacted this past legislative session, can hopefully start to stabilize things on the property side so that people start to consider going back into the flood space.
But then of course, we’ve been advocating to our congressional delegation of the importance of long-term re-authorization of the NFIP so private carriers can kind of know what the landscape’s going to look like over the next several years.
How will Risk Rating 2.0 impact the NFIP’s coverage in Florida and the state’s private market?
It’s a little early to tell for certain, but I think the goal of risk rating 2.0 is to bring rates more in line with what they ought to be. And I think that that could ultimately result in consumers having more options for flood insurance because private carriers can be more competitive with the NFIP rates in those cases. And so I think that brings a lot of consumer benefit.
I think, initial numbers, and again, don’t hold me to this because they’re initial and so we don’t really know how it’ll hold out towards the end, but I think … somewhere around 64% to 68% would see an increase between zero and $10 per month on their NFIP flood insurance policy.
So for a lot of people, not really a substantial impact with respect to their insurance rates and it could potentially bring a lot of positive benefits with respect to building a private flood insurance market.
Alabama, North Carolina and South Carolina have been establishing private flood markets and working with their state legislatures to make that easier for insurance companies to offer. Has Florida had any role in assisting with those other states?
I think we’ve had sort of some informal discussions. I’m not sure we’ve necessarily had a formal role in how those discussions have gone.
But through a variety of different ways, either through our NAIC meetings or through our Southeastern zone meetings or through the variety of conferences that we all attend, we’ve been able to share our experiences with what we’ve done in Florida. We’ve had some direct conversations with insurance commissioners in the Southeast and around the country with respect to some of the things that we’ve done.
They’ve had some questions for us that we’ve been able to answer. So we’ve certainly had the opportunity to share our experiences with other states, but certainly every jurisdiction is a little bit different. And so what might work here in Florida, it may need to be tweaked a little bit to work effectively in other states.
We’ve been very happy to provide other perspectives from our standpoint of what we’ve been able to make work here in Florida.
Do you think that the Florida model was something that helped other states get their own process started?
I think so. I think once people realized that there was an interest on the private side to write flood insurance if they had a framework that let them do that, I think that really caused a lot of states to take note of that and to start to implement some of their own policies and procedures for the same thing.