Congress, SL Market Must Respond to NFIP

The Surplus Lines Stamping Office of Texas (SLTX), in partnership with Insurance Licensing Services of America (ILSA), have produced a podcast on the state of the insurance industry in Texas in the wake of Hurricane Harvey. The podcast is available on the SLTX website.

After the destruction caused by Hurricanes Harvey, Irma, and Maria, the United States Congress is taking steps to address the National Flood Insurance Program (NFIP) and its ability to pay out claims. To address immediate concerns, the US House of Representatives passed a bill on Thursday, October 12, 2017, that included a provision to absolve the NFIP of $16 billion in debt. In a letter to Congress on October 4, 2017, Office of Management and Budget Director Mick Mulvaney listed several proposed NFIP measures that would provide a more long-term solution to the program, which include a proposed reform to remove barriers between the NFIP and private flood insurance market. US Representative Pete Olson (R-TX), who represents Sugar Land, said that he is open to changes to the NFIP, as long as they do not impact the insurance claims that his constituents are filing in the wake of Harvey.

Lloyd’s of London, a major global competitor in the surplus lines insurance industry, has paid $738 million in claims and advance payments through the Lloyd’s market in response to Harvey, Irma, and Maria. However, Lloyd’s expects total losses to reach more than $4.5 billion. In response, S&P Global Ratings has revised its outlook on Lloyd’s from stable to negative, due to further expected losses and uncertainties in the market. A.M. Best, which provides financial ratings for insurance companies, has announced that it does not expect any ratings to change due to Hurricanes Maria or Irma.

Closer to home, the Texas Windstorm Insurance Association (TWIA) announced that it expects total losses from Harvey to come in at around $1.13 billion. In August of this year, TWIA submitted a request to the Texas Department of Insurance (TDI) to increase its maximum limits of liability and hail policies. The proposed changes would have raised limits on dwellings 0.9% to $1.79 million; contents of apartments, condominiums, or townhouses 1.7% to $380,000; and commercial structures 1.1% to $4.47 million. After a public hearing was held in September, Texas Commissioner of Insurance Kent Sullivan denied TWIA’s request on October 16, 2017, citing an analysis by TDI showing that current rates are above the Boeckh index, which measures insurable value adequacy for residential buildings in the US.

With the NFIP set to expire on December 8, 2017, and in light of recent studies that show hurricane losses could increase by more than 70% by the year 2100, it is important for Congress to take action to relieve pressure in the industry. The surplus lines market is likely a viable candidate to assume premium shed by the NFIP, but additional severe weather events may mean that the market is impacted more than originally projected. Nevertheless, as additional crises affect the US, the surplus lines market must prove its worth and show why it functions as a safety valve in such an essential industry.