Government shutdown helps private flood insurance companies: NPR

MIAMI — Among those feeling the pain of the government shutdown are residents of coastal areas and other places where they need flood insurance.

The government-backed National Flood Insurance Program stopped writing new policies on Oct. 1 and cannot resume until it is reauthorized by Congress. This could force buyers to postpone or cancel home sales.

Andy Kasten, an insurance broker in Fort Lauderdale, says the shutdown is already having an impact in Florida, the nation’s largest flood insurance market. Many people living on Florida’s coasts are in high flood risk areas where mortgage lenders require flood coverage.

Days before closing on a home sale this month, Kasten says one of his clients discovered he would need flood insurance. Unfortunately, due to the shutdown, the $700 annual flood insurance policy he hoped to purchase from the government program was no longer available.

“We just had to write out a private flood insurance policy, and it ended up costing him $1,200 and change. So because we had to wait, he had to get the more expensive policy,” Kasten says.

Private flood insurance has only been widely available since 2019, but now represents a growing share of the residential and commercial market. For the industry, the government shutdown is an opportunity. John Dickson, CEO of private insurance company Aon Edge, said: “We have seen an incredible increase in interest and activity, a large number of quotes coming in that we have never seen before.

The private flood market has grown rapidly in recent years, in part because it can offer coverage above the $250,000 limit available under the National Flood Insurance Program. For people with homes or businesses in areas at high risk of flooding, government insurance policies are generally less expensive than those from private insurers. But in areas without a high flood risk, private companies often offer lower rates.

Trevor Burgess is the CEO of Neptune, one of the largest private flood insurance companies. On October 1, the day of the government shutdown, Neptune went public and began selling shares on the New York Stock Exchange.

In an interview on CNBC, he said that by using artificial intelligence, his company can analyze the risk of individual properties. “Your home can be specifically underwritten for its risks,” he said. “So we tell consumers the truth. If we say it’s $200 a year, the risk is pretty low. If we say it’s $12,000, the risk is pretty high. And if we say no, you should move.”

In contrast, the government flood program rarely refuses to offer coverage, although insurance policies are sometimes very expensive.

Neptune just released a study proposing moving more customers from the government program to private insurance. This would allow customers currently on the National Flood Insurance Program to keep their policies. But for new customers, the federal program would become the “insurer of last resort,” offering coverage only to those who are unable to purchase a policy in the private market.

Amy Bach of the consumer group United Policyholders says private companies play a valuable role in the marketplace. But she worries about the extent to which they will be responsible to consumers, especially after a major disaster.

As an example, she cites Hurricane Sandy. Months after the 2012 storm, complaints from policyholders and pressure from elected officials forced the National Flood Insurance Program to reopen many claims. “That’s what you get with a government-backed program,” she says. “You get the liability. And that’s not always the case in the private sector, unless you sue.”

Another problem with the growth of private insurers, Bach says, is that they “cherry-pick” the least risky homes and businesses in an area. That leaves the government program with the highest costs and creates additional problems for a program that for years operated in the red. “I think this will only make a difficult situation worse,” she said.

After Florida, Louisiana is the state with the most homes and businesses receiving federal flood program coverage. Louisiana Insurance Commissioner Tim Temple says the NFIP provides reasonably priced insurance policies to people who work in the state’s fishing, oil and gas, and other coastal industries. He says: “It is imperative that we have a functional and affordable national flood insurance program. And I don’t think private industry can step in and be the answer to all these people.

Temple says the National Flood Insurance Program not only needs to be reauthorized, but also overhauled so that, over the long term, it keeps flood insurance affordable.