With Floridians paying four times more in flood premiums than they receive in pay-outs from FEMA, the state is backing a push for increased private participation and freedom of form for Florida flood coverage.
That is the word from Florida insurance commissioner, Kevin McCarty, who tells Bermuda:Re that far from being agnostic about public-private participation, he believes that “augmenting the existing programme with private sector participation will prove a bonus for Florida consumers.”
His words follow his recent call for Floridians to buy more flood coverage.
“Already we have seen companies come forward to receive licenses and others have added lines to write business that has largely been a government programme until now,” says McCarty.
McCarty envisages opportunities for both domestic carriers and Bermuda reinsurers, with “domestic insurers keen to discuss additional reinsurance coverage for flood”.
Much of this coverage will constitute an endorsement on existing homeowner policies, but McCarty also sees flood policies being extended as allied lines or on a stand-alone basis.
“We want to allow companies to write flood coverage in a variety of ways. We envisage limiting the review of rates and supporting broad policy form in order to encourage the private market.”
“Florida purchases a lot of flood coverage out of the federal programme—in fact about 38 percent of the premium in the programme is bought by Floridians.” But while flood coverage is important for a state facing considerable storm surge risk, so too is the pricing, data granularity and sustainability and the federal flood programme, said McCarty.
The federal flood programme has suffered a number of deficits in recent years and with Floridians contributing four times more than they are getting out of the programme, it is apparent that reform is necessary, says McCarty.
A leading concern relates to the accuracy of rates on federal programmes, an issue McCarty believes the private market can help resolve. “At present one of the charges levelled against the Federal Emergency Management Agency is the lack of transparency around its data and ratings. Greater private market participation can help to change that, improving the accuracy and granularity of flood data.”
Reforms enacted by Biggert-Waters will encourage greater private participation in flood, but recent brakes applied by Capitol Hill have “contained anticipated rate increases, and put them on a much gentler glide path” says McCarty, slowing the pace of reform.
While this development will inhibit some of the anticipated private growth envisaged under the original Biggert-Waters bill, there is “still room for the private market to play” argues McCarty—and the capacity for private participation will undoubtedly increase as the market moves towards rate adequate pricing.
Turning to the depopulation of Citizens, McCarty says that it is going “extremely well”, with the state taking the number below the one million mark.
He says that step-down provisions for high value homes worth more than $700,000, a clearing house catching policies on the front end, and a successful wind-only take-out by Weston, have all helped to reduce the number of policies held by Citizens.
McCarty says that the state intends to add additional carriers to the clearing house, with the state enjoying “robust competition” for such take-outs, while a competitive reinsurance market is offering considerable risk transfer opportunities.
Citizens’ recent announced $1.5 billion Everglades Re cat bond and ramping up of its reinsurance spend provides some indication of the risk transfer opportunities open to the state.
FLOIR, Florida, flood reform, insurance, Bermuda, FEMA