The report says private flood insurance growth has stagnated, but others disagree

The head of one of the largest private flood insurance writers questioned an AM Best report that said private flood companies are failing to make significant inroads in America’s troubled flood market.

“From 2020 to 2022, private insurers recorded an increasing share of the total flood market, but this growth stagnated in 2023,” argued the AM Best report, released on Monday.

Market share for private flood writers has stagnated in the face of greater opportunities, the financial rating firm noted.

“…Private flood insurers, who have predominantly underwritten cover for commercial policyholders, have shown some willingness to accept flood risk, but uptake to date has been minimal.”

The growth of the private flood market is becoming more important as parts of the country, particularly Florida and other southeastern states, experience more frequent hurricanes, the National Flood Insurance Program faces rising debt levels , and some in Washington are crowing about eliminating NFIP. altogether, the report stated.

“However, without the NFIP, there would be a large void in the flood insurance market that private flood insurers do not seem eager to fill at this time,” said the report, written by Best analysts Christopher Graham, David Blades and Sridhar Manyem. .

But Trevor Burgess, CEO of Neptune Flood, a general insurer that underwrites four carriers, disputed the Best report’s claims.

“The conclusions reached do not reflect our experience as an industry leader,” Burgess said Monday in an email.

He noted that Neptune, based in St. Petersburg, Florida has seen huge growth in recent years, from about 50,000 flood policies at the end of 2020 to over 250,000 policies today. AM Best’s report appears to be based in part on a data call by the National Association of Insurance Commissioners that was subject to confusion, he said.

The NAIC data call only asked for information on admitted private flood carriers, but most private floods come from excess and surplus lines, including coverage written through Neptune, Burgess said. The NAIC data call also asked insurers to exclude NFIP policies, but “we can tell that some carriers” responded with NFIP policy information, he said.

Officials at Wright Flood, another major underwriter of private U.S. flood policies, declined to comment on Best’s report as the company braced for the impact of Hurricane Milton in Florida.

A spokesman for AM Best said late Monday that the rating firm’s data on private flood insurance comes primarily from insurers’ annual returns filed with the NAIC, not from an NAIC supplemental data call it may have been referring to Burgess. The data is believed to be accurate, AM Best noted.

Best’s report offers another look at the current state of flood insurance as thousands of homes and businesses in Florida, North Carolina and Tennessee struggle to recover from Hurricane Helene, which hit the region late last month with catastrophic rainfall. Most property owners had not purchased flood insurance before the storm.

The number of NFIP policies has actually declined over the past two years, in part because of higher premiums from Risk Assessment 2.0, a new federal approach designed to price risk more accurately, the report says. Despite a statutory glide path that limits NFIP premium increases to no more than 18 percent per year, “initial price increases were too large for some policyholders to bear,” Best’s report said.

However, as NFIP premiums increase, this should make private flood carriers’ rates more competitive. But it is uncertain whether private insurers have an appetite for additional flood risks, even as the risks accelerate.

Helene and now Hurricane Milton, which is expected to hit Florida’s west coast Wednesday night, could exacerbate the NFIP’s $21 billion debt, the report said. Historically, the federal flood program has been effective in covering losses from river flooding, but has seen large losses from coastal storm surge and flash flooding, Best’s report noted.

Last month, the NFIP was temporarily reauthorized by Congress until Dec. 20, likely creating another debate about the wisdom of keeping the program. The Heritage Foundation’s 2025 Project called for an end to the federal flood program if Donald Trump takes the presidency in January. It’s a plan many in the insurance industry have opposed.

“Full reauthorization of NFIP would provide Congress with an opportunity to improve the program by minimizing its complexity while strengthening its financial framework…” Best’s report said. “In either case, the private market would have to take on more risk, which it may not be willing to do without significant price increases.”

The report noted that the percentage of flood insurance premiums written by private insurers increased significantly from 2016 to 2022, when the private share peaked at 32 percent. In 2023, the percentage dropped slightly.

The lack of market development by private flood lines, if accurate, comes despite flood lines being quite profitable, the report said. The combined ratio for private flood insurers fell from a painful 199.4 in 2017 to a remarkably healthy 32.3 in 2023. That compares with a combined ratio of 90.2 for the federal flood program in 2023, it shows in the report.

The largest private flood carriers for commercial coverage, as determined by direct premiums written, are Zurich US, Berkshire Hathaway, Assurant and Liberty Mutual, the report said.

Some in Florida’s insurance industry have suggested that private flood insurance hasn’t grown as much as it could have, in part because many insurance agents aren’t doing it. The commissions paid by the NFIP can be significant, while some private flood writers pay lower commissions.

Neptune officials said last month that the company pays “competitive commissions and agents appreciate the speed and ease of use of our system, which allows them to greatly increase their hourly earnings over NFIP.”

Most private flood insurers also offer much higher policy limits, which means higher premiums and relatively higher dollar amounts for commissions.

An idea in Congress could improve the take-up rate of flood insurance — federal and private. U.S. Sen. Rick Scott, R-Fla., has introduced a bill that would allow a federal income tax break for homeowners insurance premiums. If the measure becomes law, it could ease the pain of property insurance bills, freeing up some policyholders to buy more flood insurance.

Top photo: Anne Schneider, right, hugs her friend Eddy Sampson as she surveys the damage left by Hurricane Helene in Marshall, North Carolina. (AP Photo/Jeff Roberson)

TOPICS
Flood