As lawmakers continue to look at bolstering private-sector opportunities for flood insurance, the National Flood Insurance Program is still directly administering hundreds of thousands of policies formerly handled by State Farm, according to Insurance News Net.
Approximately 90% of standard NFIP policies are sold and serviced by property/casualty insurance companies in their own names through the Write Your Own initiative. About 90 private insurers currently participate in the program, under which they receive compensation for writing and administering policies to property owners and renters but bear no actuarial risk. The NFIP retains responsibility for underwriting losses.
The >State Farm policies remain under administration of the NFIP's Direct Side Program, which has renewed 530,000 policies to date, according to the Federal Emergency Management Agency, which oversees the NFIP. FEMA is planning to provide information to policyholders about the option to have a policy written by a WYO-participating insurer, spokeswoman Mary Olsen said.
Details on Flood Damage Exclusion Under Homeowner's Policies
Flood damage exclusion Most people who live near a river or coastline know homeowners policies don't cover flood damage, and they buy flood insurance through the National Flood Insurance Program. But flooding can be a problem even if you don't live near water. Heavy rains can cause big problems as well, even without a river in the vicinity.
Flood insurance is sold by private insurance agents at set prices, depending on your proximity to a flood zone; a homeowner could pay more than $800 a year for $100,000 coverage if they're in a flood plain, or as little as $230 if they're in a low-risk area.
What does flood Insurance Provide?
The NFIP provides coverage for up to $250,000 for the structure of the home and $100,000 for personal possessions. Private flood insurance is available for those who need additional insurance protection, known as "excess coverage,” over and above the basic policy or for people whose communities do not participate in the NFIP. Some insurers have introduced special policies for high-value properties. These policies may cover homes in noncoastal areas and/or provide enhancements to traditional flood coverage. The comprehensive portion of an auto insurance policy includes flood damage.
Insurance Industry Advocating for Reform
The NFIP reform is moving too slowly for some in the insurance industry. FEMA should be acting to move the State Farm policies to private WYO companies as soon as possible, not renewing them under direct administration, said Ben McKay, senior vice president of federal government relations for the Property Casualty Insurers Association of America. FEMA needs to depopulate the program, not add to it, he said.
"It's probably the largest increase in any program in all of government in the past year," McKay said.
A provision in an NFIP reform bill now on the House floor would require FEMA to plan how it can limit the percentage of flood insurance policies it directly manages to not more than 10%. While that is about the level FEMA typically maintains, developments like the State Farm pullout make formal measures necessary, McKay said. State Farm could have acted differently and made the policies it administered available to other insurers, but it chose not to, he said.
When it withdrew, State Farm followed proper procedures, Supple said. Thousands of State Farm agents have enrolled with the NFIP direct program to write policies in order to provide an orderly transfer, he said. That was the option we chose," Supple said.
The 2010 State Farm withdrawal, announced during a hiatus in the program while lawmakers argued over its renewal, is an indication of a flood program full of problems, from mounting debt to a lack of operational actuarial standards, said Robert Hartwig, president of the Insurance Information Institute. "The State Farm decision a year ago was a statement about the market," he said.
The NFIP is now set to expire Sept. 30. HR 1309 would renew the program for five years, take steps to reflect actuarial costs, tie policy limits to inflation and expand opportunities for private insurers to participate. The bill also includes measures to improve the accuracy of flood maps and to set higher deductibles for rate-subsidized properties.
