Private flood insurance would reduce premiums for 69 percent of single-family homes in Louisiana, with 42 percent of homeowners paying less than one-fifth the price of policies purchased through the National Flood Insurance Program, according to a new study.
In low- to moderate-risk areas, that would mean premiums of about $80 a year vs. $400 in the federal program.
The report by global consultants Milliman Inc. and risk-modeling firm KatRisk also found that for 21 percent of Louisiana homes private flood insurance would cost at least twice as much as NFIP coverage. Even if private flood insurance takes hold, Milliman expects there will be some property owners who would need some type of government support to afford flood coverage.
The National Flood Insurance Program expires Sept. 30. Both houses of Congress are considering proposals designed to strengthen the program, reduce costs, encourage private insurers to offer coverage and keep premiums affordable.
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“We’ve been working on flood a couple of years now …. People kept asking us questions — ‘Is the NFIP overpriced or not? Is there even a market in Louisiana? Will I just lose money by going into Louisiana?’” said Nancy Watkins, a consultant at Milliman and author of the market feasibility studies. “And we thought, well that’s an interesting question, and I can see how if you’re an insurance company you’d want to know the answer to that question before spending a lot of money creating a flood program.”
Milliman began the study after fielding questions from insurance companies and the companies they work with, the National Association of Realtors, and a few reporters, Watkins said. The company picked the fastest, easiest and most comprehensive method to answer the questions and to show insurance companies what the market looks like for private flood insurance.
Milliman assessed the feasibility of private flood insurance in Louisiana, Florida and Texas, which account for 56 percent of the National Flood Insurance Program's policies.
The study includes all single-family homes in Louisiana, Texas and Florida, not just those that buy flood insurance through the NFIP. In addition, the NFIP premiums used in the study do not include the effects of grandfathering. The estimated private insurance premiums were developed using reasonable assumptions selected by Milliman.
Still, even in the V and A zones — considered the most likely to flood — private insurance would reduce premiums for "a surprisingly large percentage of homes," the study found. In Louisiana, 85 percent of homes in the VE zone would see lower premiums. The percentage of homes that would see lower premiums with private flood insurance varied in the A zones. In the higher-risk AE zone, 57 percent of homes would see lower flood insurance costs. In the A zone, where banks also require flood insurance for mortgaged homes, 95 percent of Louisiana homes would see lower premiums.
SmarterSafer.org, a broad coalition representing taxpayer advocates, environmental groups, insurers and housing groups, cited the study in urging Louisiana Sens. Bill Cassidy and John Kennedy to support a bill designed to spur more private flood insurance. The Flood Insurance Market Parity and Modernization Act passed the House Financial Services Committee in June. Private insurance would provide an alternative for the 410,000 Louisiana homeowners with flood insurance.
“The study really shows that if the private market comes in and is functioning that many of your readers, and many people in Louisiana, could actually see cheaper flood insurance rates,” said spokeswoman Jenn Fogel-Bublick. “And we know how big a deal it is for people to afford flood insurance.”
The lower premiums for coverage are not dependent on an increase in the number of people buying flood coverage, Watkins said. The savings from private flood insurance are what Milliman estimates is a reasonable effect of having a private flood market in addition to the NFIP.
What if you could buy flood coverage from a private insurance company, pay less money and ge…
“The point is most people don’t have flood insurance, but that doesn’t mean that they don’t have flood risk,” Watkins said.
Just ask people in the Baton Rouge area, where August’s flood affected more than 55,000 homes and cost more than $8 billion in damages, she added.
A thriving private insurance market would provide wider and in many cases less-expensive options that could protect more consumers, Watkins said. The private market could also make people more aware of the need for flood insurance and spread the risk beyond the NFIP.