Growing Private Flood Market Will Test Claim Professionals

A nudge into the market by carriers offering private flood insurance is becoming more of a shove, which might bring new opportunities for claims adjusters and maybe create a more efficient claims process along the way.

An executive for Munich Re told Claims Journal last week that the number of property owners who choose to add its white label flood risk endorsement to their insurance policies has doubled in the past year.

What’s more, the chief executive officer of Poulton Associates — a managing general agent that sells private alternatives to the National Flood Insurance Program — said his firm will soon launch a new program that will allow insurance agents to quote the cost for additional flood coverage for every policy in their book of business.

These developments come after a documented increase in the premiums collected for private flood insurance, which the National Association of Insurance Commissioners started tracking as a separate data point in 2016. NAIC data shows that insurers reported direct written premium of $644 million in 2018, up from $376 million in 2016.

Those figures don’t include flood insurance that is written as a surplus line, which the Wholesale Specialty & Insurance Association estimated to be $398 million in 2017, according to a report by Carrier Management.

The approximately $1 billion in written premium for private flood insurance compares to $2.85 billion in direct premium for federal flood insurance reported to NAIC in 2018.

Florida removed one hurdle for private flood insurance by adopting rules that create a process for carriers to certify that their coverage is equivalent to policies sold in the federal program, which satisfies lender requirements. New federal rules that took effect on July 1 will remove another hurdle nationwide by requiring lenders to accept private flood insurance deemed equivalent to insurance sold under the federal program.

Data from Florida, which accounts for 35% the federal flood insurance policies in the U.S., shows that sales of private flood insurance have been rising quickly. The number of personal residential private flood insurance policies in force increased 42% in just six months, to 62,933 polices on March 31 from 44,252 on Sept. 1, 2018, according to the state Office of Insurance Regulation.

Poulton Associates CEO Craig Poulton said public awareness has been raised by events such as Hurricane Harvey, where an estimated 70% of losses were not covered by insurance, and a 2016 flood in Louisiana that wasn’t associated with any named storm. But he said more importantly, insurance brokers are recognizing that flood insurance isn’t necessarily a stand-alone product and are starting to understand that there is demand for the coverage.

“I think it’s just a momentum thing,” Poulton said. “There’s this domino effect. The product is available and it will help you sell policies. The early adopters start preaching that and pretty soon the guy across the street learns that he better do the same thing.”

That momentum prompted Poulton’s company to work with an insurtech partner to design a software program that provides flood insurance quotes for entire books of business. Poulton said in testing, his company and its tech partner were able to quote flood insurance for a book of business with more than 100,000 personal lines policies. The program hooks up through an application program interface (API) with IVANS, a proprietary system used to exchange information between insurance carriers and agents.

Poulton declined to identify the partner because his company is not yet ready to make a formal announcement, but he said he expected to launch the product within the next two weeks.

Similarly, Munich Re formed a partnership in a push to expand the sale of inland flood protection as a policy endorsement to multi-peril homeowner’s insurance policies in low- to moderate-risk areas where coverage isn’t required by mortgage lenders. Late last month, the American Association of Insurance Services — an advisory organization for member carriers — announced that it was teaming up with Munich Re to increase coverage rates for flood risk.

Raghuveer Vinukollu, a strategic products team leader for Munich Reinsurance America, said his company is providing policy forms and treaties to the association. Munich Re offers inland flood protection as a white label product to carriers, meaning that Munich Re underwrites the risk and sells the coverage under the retail carrier’s brand name.

“The intent of our product is really outside of the special flood hazard area,” Vinukollu said. “it’s available for the low- to moderate-risk areas. We offer a low-limit policy that is endorsed in the homeowner’s policy.”

Vinukollu said the product has been a “huge success.”

“We’ve increased the take-up rate 100% in the past year,” he said.

As of now, the industry has had little experience with private flood claims. In a white paper published in April, Milliman actuary John Rollins said the private flood market’s claims-handling abilities are largely untested.

“Most insurers believe that private sector incentives to work seamlessly with one agent and one claims adjuster (if the flood coverage is an endorsement) will benefit policyholders, and eliminate incentives to push losses onto the NFIP,” he said.

Rollins said the “granular data” used by flood insurers to underwrite flood risk may benefit the claims process, especially when resources are stretched after a disaster. But still, Milliman is unable to make any broad comparison about the relative claims experience for private flood to traditional homeowner’s or federal flood coverage.

Poulton said there is one obvious difference. Claims against National Flood Insurance Program policies may be adjusted only by certified adjusters who must have a minimum of four years adjusting experience, among other minimum qualifications. Claims against private flood insurance policies don’t come with that requirement.

Poulton said that may come as a surprise to some claims professionals.

“A lot of these claim folks, they probably think the only place you can buy flood insurance is the NFIP,” he said. “They might be startled to see that, and they will realize that that’s not that case.”

Poulton said adjusters going out on their first flood claims need to keep the policy language in mind. Property owners who purchase private flood insurance are usually asked to disclose whether the property had ever suffered flood damage before. Poulton said the first piece of business for an adjuster responding to one of those claims is to find out if the homeowner was telling the truth.

The Federal Emergency Management Agency has taken steps to improve the availability of adjusters for claims against federal food program insurers after its experience with Hurricane Florence and Harvey in 2017, said Melissa Brittain, chief executive officer of AdjusterPro, a training company, in an August blog post. She said FEMA has added more companies to its Flood Mentorship program, which allows adjusters who work for qualified independent adjusting firms to adjust flood claims even without personal FEMA certification.

A more streamlined claims process has been part of the selling point for insurers who’ve been pushing regulators to remove obstacles to more competition.

Lisa Miller, a former Florida deputy insurance commissioner who now runs a government relations consulting firm, said this to the National Association of Insurance Commissioners’ Catastrophe Working Group: “This simple idea is designed not only to allow for consumer protections, but to simplify claims handling and perhaps rectify the wind vs flood debate, with one deductible and one adjuster for the property and flood insurance claim,” Miller said.