Changes to federal flood insurance may open door for private-sector insurers 

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Louisiana Insurance Commissioner Jim Donelon. (File photo)

Changes to the National Flood Insurance Program could encourage more private-sector insurance companies to offer flood policies in Louisiana, state Commissioner of Insurance Jim Donelon says. 

He says a 2017 report indicates almost 70% of Louisiana homeowners could find cheaper rates in the private sector than from the NFIP. However, that same report shows 21% would pay more than twice as much for private insurance, and that would include about 100,000 properties in the state. 

“There is no question that some form of a residual market will have to be kept in place,” Donelon says. 

During this year’s regular session, lawmakers approved Act 77, which eliminates the need for flood insurers to get prior approval for the rates they charge, the commissioner says. He says the shift mirrors changes Florida made a few years ago that helped attract new companies to write flood insurance policies there.

Donelon says South Carolina made the same change as Louisiana this year. He says both states hope to see a significant increase in the number of private alternatives to the NFIP. 

Private insurance companies will want to pick up the best risks, notes Jeff Albright, CEO of the Independent Insurance Agents & Brokers of Louisiana. That raises concerns for the NFIP, which will be left with the properties with the greatest risk of flooding, he says. 

“The insurance companies will pick off all the good stuff and the NFIP will get the worst stuff, which is going to drive up the rates,” Albright says. “People in flood-prone areas are going to have higher and higher and higher premiums.” 

FEMA says its new rating system is meant to more accurately measure risk. Part of the problem with that is the federal government is changing the rules on people after they purchased properties, Albright argues. 

Donelon says FEMA indicates 3% of Louisiana properties will see an increase of more than 20% under the new rating system for the NFIP. Louisiana’s coast, unlike other regions, isn’t mainly populated by rich retirees, he adds. 

Donelon says he fears the impact of the change could be as significant as the 2012 Biggert-Waters Act, which he says was “ruinous to our state’s economy.”

“It rendered tens of thousands of properties worthless overnight because of the draconian rate increases,” Donelon says.