Tag Archives: private flood insurance

Over 90% of homes in New Jersey and New York could see cheaper premiums with private flood insurance

Milliman has announced the results of a new, independent analysis showing what a private flood insurance market could look like in New Jersey and New York. The study, which was conducted in collaboration with Risk Management Solutions, Inc. (RMS), modeled premiums for most single-family homes across the two states. It also analyzed the potential effect a private market could have on take-up rates—that is, the percentage of consumers eligible for flood insurance who then purchase it.

The report includes additional context for the findings in light of the changing rating structure of the National Flood Insurance Program (NFIP). The study also explores the potential ramifications of “cherry-picking”—the concern that private insurers might target only attractive risks, leaving the NFIP underfunded.

Key findings from the study include:

• Across each state, approximately 94% of homes in New Jersey and 96% in New York could see cheaper premiums with private insurance than with the current NFIP structure.

• In New Jersey’s high-risk zones (NFIP’s Special Flood Hazard Areas), 85% of homes could see premium rates cheaper than the NFIP, while in New York, 72% of homes could see premium reductions.

• Over 360,000 homes could be newly insured for flood if just 10% of homeowners outside high-risk zones purchased cheaper policies in a private market.

• Of the vast majority of homes located outside high-risk zones, approximately 94% (New Jersey) and 95% (New York) could see private insurance premiums as low as $250 annually.

“Hurricanes Harvey and Irma just last year, and Sandy before them, demonstrated the devastating financial effects flood can have on those who are not sufficiently insured,” says Nancy Watkins, a principal and consulting actuary at Milliman and coauthor of the market feasibility study. “As the NFIP begins to modernize its rating structure, Milliman’s study sheds light on how a private market could work in conjunction with the federal program to reduce premiums for many consumers, provide more choices, and increase coverage across New Jersey and New York.”

“As demonstrated in this study, an established private flood market brings with it many benefits, including the opportunity to close the insurance protection gap in the United States,” says Holly Widen, RMS Product Manager, Americas Climate Models. “There are ample opportunities for private insurers to offer competitive coverage in the market, but a strong understanding of the underlying flood risk is critical to maintaining their profitability.”

The study reflects the market of single-family homes in those states, not only those who are currently purchasing flood insurance from the NFIP, and the modeled NFIP premiums do not include the effects of grandfathering. The estimated private insurance premiums were developed using RMS catastrophe model results and reasonable assumptions selected by Milliman. To view the complete report including additional findings and critical assumptions,visit www.milliman.com/NJNYfloodinsurance.

Flood warning: Working to provide better coverage

Flood is one of the most devastating catastrophic perils, in which a single event can create tens of billions of dollars of loss. It is also one of the least insured perils, affecting people in every part of the United States. Advanced risk models now provide granularity, assessing flood risk at local levels. Such technological development presents insurers the opportunity to offer affordable, risk-based coverage within a private insurance market. Milliman colleagues Nancy Watkins, Matt Chamberlain, Andrei Stoica, and Garrett Bradford offer perspective in this video.

To learn more about Milliman’s flood expertise, click here.

Infographic: What a private flood insurance market could look like in Florida

In the aftermath of Hurricanes Harvey and Irma there’s been increased public attention to both government-sponsored flood insurance (the National Flood Insurance Program, offered through FEMA) and the potential rise of a private flood insurance market. In Florida, a recent analysis by the Associated Press found that of the state’s 38 coastal counties, only 42% of homes are covered by flood insurance. The same analysis found that of the roughly 2.5 million homes in Special Flood Hazard Areas, Florida’s overall flood insurance rate for hazard-zone homes is just 41%.

Flood risk continues to be one of the most difficult perils to price for the homeowners industry. More than any other catastrophic peril, flood risk varies over short distances; critical factors that contribute to flood risk include elevation, relative elevation, distance to coast, and distance to river. This spring, Milliman, along with risk modeling firm KatRisk, sought to independently model the feasibility of a private flood insurance market in Florida, Texas, and Louisiana. The infographic below provides some of our findings for all single-family homes in the state of Florida: