But how can private insurers make money where the NFIP is losing billions?
Private companies can’t function at multi-billion dollar losses the way the NFIP can, so they are forced to work smarter, Yeates said. The development of sophisticated algorithms and analytics could allow them to understand flood risk better than the government and avoid huge losses, she said.
Yeates said consumers are hesitant about new companies as a rule, so the more data that insurance companies can offer to offset that uncertainty and model the future will lead to more acceptance of the new insurance model.
“The way that you can map topography to figure out where flood claims are, the science behind that has evolved so we’re able to do a better job of matching and understanding the elevation and understanding how rain runoff will affect insurers,” Yeates said.
Neptune has its own software to test the elevation and flood risk of every point in the United States. In contrast to the NFIP’s process of sending an adjuster to a property and asking questions, potential Neptune customers can get a quote by entering an address on the website. It also offers policies beyond the NFIP max of $250,000 and will cover things the NFIP won’t, such as pools, garages, basements or other external structures.
Neptune offers policies for people in all zones — even the most flood-prone — but Albert said even as private companies flood the market there is still a place for the NFIP as “an insurer of last resort.”
A report from the University of Pennsylvania’s Wharton Business School noted that some homes are at such a high, and increasing, risk of flood that premiums offered by private companies will be prohibitively high. Its likely the NFIP will remain in place for them, the report says.
The federal government’s own Government Accountability Office has noted that NFIP “likely will not generate sufficient revenues to repay the billions of dollars borrowed from the Department of the Treasury … to cover claims from the 2005 and 2012 hurricanes or potential claims related to future catastrophic losses. … Since the program offers rates that do not fully reflect the risk of flooding, NFIP’s overall rate-setting structure was not designed to be actuarially sound in the aggregate, nor was it intended to generate sufficient funds to fully cover all losses.”
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