James Barber, Business Solutions Sales Director at Milliman, presented to the Columbus Chapter of the CPCU on May 4th, 2021. He outlined three key issues when considering development of a private flood insurance program:
- What is the opportunity for insurers to get into private flood?
- What are the top reasons that insurers don’t offer private flood now?
- What is needed to get into private flood and what does the recipe look like for a successful business model?
What is the opportunity for insurers to get into private flood?
James defines the three areas for opportunity for entering the flood market as being financial, building customer relationships and capitalizing on product improvements.
Currently, the P&C market in North America is mostly flat compared to other financial lines. It is difficult to expand insurance premiums organically; however, the flood portion can potentially add significantly more revenue to your homeowners’ book of business.
Secondly, serving customers means having to look at it through the community perspective. Flood can be especially devastating in areas which are at greatest risk and the least prepared. Doing the right thing for the customer can ultimately lead to greater wallet share and increased retention.
The last reason why private insurers may consider entering the private flood market is because of an increased market appetite for a superior product. By eliminating the waiting period or avoiding an elevation certificate, private flood products can be easier for customers to buy than coverage currently available from the National Flood Insurance Program (NFIP). Private flood insurance can be a more valuable product when coverage extends above the $250,000 maximum limits available from the NFIP, and when terms are improved to cover replacement costs for dwelling and personal property or by providing a single deductible.
What are the top reasons that insurers don’t offer private flood now?
According to a poll conducted among the attendees, the top reasons why private insurers are reluctant to get into flood are flood model and data uncertainty; volatility of flood risk; reinsurance availability and price stability, and underwriting risk of severe repetitive loss properties. Discussion ensued on how these are being currently addressed and mitigated in new ways.
What is needed to get into private flood and what does the recipe look like for a successful business model?
There are three key elements needed to get into private flood - people, process and technology.
Technology is considered the “hard building block” behind a successful program and there are a lot of elements in getting this together:
- Modern pricing program
- Granular geographic flood risk data linked directly to underwriting and pricing
- Market baskets
- Tailored profitability and competitiveness estimates
- Ability to gain regulatory approval, if in admitted market
Having a clear process to make prompt headway without bumps is hard, and especially hard when developing private flood product, as this is a new offering for many. An example of a fast start flood services offering was discussed as a way for property insurers to quickly clarify your best options to enter the flood market in a way that best fits your business rather than falling into the option nearest at hand.
Lastly, people are key to a successful flood program. People matter more than the products. Does your internal and external team have the breadth of experience to understand the insurers, MGA/startups, reinsurers, national regulators and state regulators that effect your insurance chain? Do they have the depth and quality of experience to create an end to end solution design that fits you and overcomes the concerns / issues you have identified?
The key issues raised in Barber’s presentation should be food for thought to any private insurer looking to get into flood. There are strong arguments in favor of having private flood insurance programs to enhance your business model and address the flood protection gap that we all recognize goes beyond that covered by the existing National Flood Insurance Program.
To hear the full length of James Barber’s presentation and additional context behind the discussion, click on this link.