Flood reform still presents opportunities for Bermuda

While the slowing of flood reform in the US has been an unwelcome development for the private market, FEMA research into growing private market participation and the continued direction of travel are cause for cautious optimism.

That is the view of Brad Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers (ABIR), who tells Bermuda:Re that while the initial rate of change envisaged under Biggert-Waters has diminished, there is “still a move to risk-based pricing, just at a slower rate”.

Rather than a four to five year phase in of risk-based pricing, political pressure has stretched the time horizon and introduced specific rate caps for specific years, explains Kading.

Despite the slowing of reform however, “there is evidence that private insurers are writing more flood risk in the US and the gradual phase in of the FEMA price increases have given private insurers an opportunity to underwrite and show to clients that they can charge a premium that is less than the National Flood Insurance Program premium”.

The deceleration has also not derailed the Federal Emergency Management Agency’s (FEMA) study into how to deliver sustainable flood coverage, said Kading. The report is expected to be completed in the next year-and-a-half and will deliver future guidance on rate-setting and private participation.

Part of the study will explore how to bring greater private insurance and reinsurance capacity to bear, with FEMA intending to make available its data on flood coverage. That information will be key to unlocking further private interest in the US flood market, says Kading, with private carriers keen to examine the information at FEMA’s disposal.

The data will help the private market better understand risk exposures and the potential take-outs that currently reside within federal flood programmes. Fortunately, despite political opposition to a speedier move to risk-based pricing, there is continued support for FEMA’s work on private participation and depopulation, says Kading.

“A key FEMA official recently stated that their long-term goal is to position the program as a residual market, with a program design that encourages risk to be placed in the private sector. Those risks that will be left will generally be those that are considered to be uninsurable by the private sector.”

As yet it is unclear exactly what data FEMA will be willing to share with the market, but nevertheless “reinsurance markets are interested,” says Kading. “It’s a matter of waiting until FEMA is ready to figure out what it wants to go to market with, but with FEMA moving ahead with its research, I would regard it as positive.”