Market supporting US flood

The transfer of flood risk to the private markets in the US has made great progress but some simple changes to federal and state laws would trigger another big leap forward, according to Frank Nutter, president of the Reinsurance Association of America (RAA).

The US Federal Emergency Management Agency (FEMA) increased the size of its reinsurance placement covering the National Flood Insurance Program (NFIP) to $1.4 billion in January, from just over $1 billion in 2017.

It also completed its first catastrophe bond in July, a $500 million placement transferring flood risk into the capital markets. “It is all going in the right direction and the market has been very supportive of all these initiatives,” Nutter said.

The RAA is also targeting changes to accelerate this process.

At a federal level, it is seeking the long-term reauthorisation of the NFIP with amendments that would mean that mortgage lenders could accept flood insurance policies underwritten by private sector companies.

“It has not been clear that banks can accept private sector policies, so we want that clarified,” Nutter said. He noted that the NFIP has been reauthorised on a short-term basis several times—its next expiry date is November 30, 2018.

“In the legislation we want passed for the long term, this would be included,” he said. “We are confident that either we will achieve this or the banking regulator will move on it. It is a high priority for us.”

At a state level, the RAA wants other states to copy Florida, which has relaxed the administrative process and regulatory burden for insurers writing flood insurance in the state.

“This has created a much more vibrant market,” Nutter said. “The process is faster and more appealing to insurers. We are encouraging other states also to experiment with streamlining the process of review and approval.”

He noted that while niche or startup insurers are starting to write more flood business, many of the bigger players remain wary of the risk.

But he stressed that reinsurers are keen to enter this market.