OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best believes pending legislation that would encourage more private insurers to write flood insurance would be a positive development for the current flood insurance marketplace and a benefit for consumers that would have additional coverage options, according to a new A.M. Best special report. The Flood Insurance Market Parity and Modernization Act, H.R. 2901, passed recently in the U.S. House of Representatives and is now headed to the U.S. Senate for approval.
The Best Special Report, titled, “The Flood Insurance Market Parity and Modernization Act—What Does Its Potential Passage Mean for the Future of Flood Insurance in the U.S.?,” states that there are benefits to be gained from a legitimate expansion of the current flood insurance market, allowing private insurers to freely underwrite and price flood risks in accordance with their underwriting standards. The report notes that a clarification that private flood insurance is to be treated the same as federal flood insurance for homeowners of properties located in a flood zone that have federally backed mortgages would help clear existing hurdles and allow private insurance to be a more viable option for property owners and renters that need or desire flood insurance.
The National Flood Insurance Program (NFIP) is a federal program, administered by the Federal Emergency Management Agency, was designed to make flood insurance available and help reduce costs of taxpayer-funded disaster relief efforts by using premiums collected from flood-prone homeowners to pay out on any losses incurred.
Over the past 25 years, the number of NFIP policies in force has more than doubled to more than 5.3 million. This demonstrates the increasing need and interest in protecting U.S. properties from the risk of flooding as more information has become available about the susceptibility of certain communities to flood from revised flood maps and other territorial reassessments. In line with the increase in policies in force, the total dollar amount of assets protected through the NFIP has increased by more than six times from 1990 to 2014. Demographic shifts, volatility in weather patterns, and a rising sea-level brought about by climate change appear to have only exacerbated the flood problem.
It has been expressed that the increasing number of flood events and resulting damage make it clear that the current solution centered around a federally subsidized plan to provide insurance for those in need is insufficient. The NFIP was not designed to accommodate major catastrophes; however, federal taxpayers are shouldering the substantial burden of the program’s deficit, largely attributable to losses from Hurricanes Katrina, Rita and Wilma in 2005, and Superstorm Sandy in 2012.
A.M. Best also believes that opening up the flood insurance market to include more private insurance involvement would be a big step in the right direction to be able to track profitability results for this line of business, which would lead to a greater understanding of exposure, losses, rate adequacy and other meaningful comparative data.
To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=249607.
A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2016 by A.M. Best Rating Services, Inc. ALL RIGHTS RESERVED.