Louisiana homeowners’ insurers are largely expected to escape a significant loss burden from the deluge that has flooded large areas of the state in recent weeks, according to underwriting sources. Flood cover is typically not included in homeowners’ policies, with owners of properties in high-risk areas instead left to buy protection from the National Flood Insurance Program (NFIP), or standalone private products where available.
But according to modeling firm AIR Worldwide, the vast area affected by the floods meant that the modeled probability of the event corresponded to a 1,000-year return period, with an estimated 60,000 homes damaged across 20 state parishes.
While up to 75 percent of properties are considered a total loss in one of the worst-hit areas of Livingston, the number of coverable claims received by carriers across the state remains relatively small. The extent of flooding outside of Louisiana’s high-risk zones means that many of the properties affected will not have bought cover.
“The penetration of flood insurance in some of those areas is very low, so you will have a lot of retained losses, certainly on the homeowners’ side,” said an underwriting executive.
With residential flood cover usually onlyavailable through the NFIP, the Federal Emergency Management Agency (FEMA) has estimated that 42 percent of homes in Louisiana’s high-risk flood zones have cover in place for the peril.
In low and moderate-risk zones, however, that drops to just 12.5 percent. Across the Baton Rouge area, no more than 15 percent of homes have flood insurance, while Lafayette, also hard-hit, has a take-up rate of 14 percent.
According to Enda McDonnell, co-CEO of Louisiana carrier Access Home Insurance, the flooding will predominantly be an expense event for his company. That is because many affected homeowners will lodge uncovered claims with insurers that will need to be assessed first in order to get the letter of denial they need to then apply for federal aid from FEMA.
Another senior executive at a Louisiana homeowners’ carrier told The Insurance Insider that his company has been able to determine coverage for only around 10 percent of the claims calls it has fielded. With no flood cover included, payouts instead will be for damage from falling trees or minimal wind damage to properties that has led to water losses.
“But of the other 90 percent, very few will have had flood coverage [from other sources] so they’re just going to be uncovered losses,” he continued.
The executive added that owners of properties outside of the flood plain would not have been recommended to buy flood cover by their insurance agents, even at a minimal cost.
One area of exposure for insurers might be where they have significant portfolios of mobile home business on their books.
A number of mobile home carriers in the state allow flood to be endorsed to their property policies. Indeed, Louisiana carrier, Maison listed parent 1347 Property Insurance Holdings said that it expected to incur losses from claims related to damage from the storms that caused the flooding. It explained that the event had impacted its manufactured and mobile home policies, with some wind damage claims also expected on its homeowners’ book. The company said that losses were not expected to exceed its $5M cat reinsurance attachment point, but that it may have recoveries under its per-risk program.
By David Bull, Insurance Insider, August 30, 2016.