Golden Bear Insuance Company

Private Flood Insurance in a Post-Katrina World

Flooding is incredibly common.

So common, that Golden Bear Insurance’s Vice President Michael Brown said flooding was the riskiest naturally occurring event to cover in terms of frequency, albeit not in severity.

That’s why the National Flood Insurance Program (NFIP) has covered geographically vulnerable properties at relatively subsidized rates since 1968.

The public insurer administered by FEMA appeared to have removed the market space for private flood insurance until the past decade. However, in the extreme disaster era of Hurricane Katrina and Hurricane Sandy, the NFIP’s payouts have far exceeded what it gets in premiums.

The $23 billion debt the NFIP owes the American taxpayer has cast uncertainty on the capability of FEMA’s insurance response to a future major catastrophe.

It’s also created room for independent, private flood insurance businesses like Golden Bear to start charging different rates using alternative risk calculations.

While the NFIP uses topographical zones to set rates, Golden Bear uses third party, high-resolution flood hazard mapping and evaluates the individual homes or businesses.

Working independently from government gives Golden Bear the freedom “to offer what we believe to be actuarially sound rates based on the real hazard,” Michael Brown said. “We’ll be in a better position in the long run to provide the coverage sustainably.”

Brown said the NFIP is charging its policyholders too little, considering the level of risk they’re taking on.

According to the non-partisan scientific organization Climate Central, there were 888 days of coastal flooding in the US between 1975 and 1985 compared with 3,299 days of coastal flooding between 2005 and 2015.

Climate Central says 67% of coastal flooding days are driven by human-made climate change.

Though Brown said he wasn’t qualified to comment on whether global warming was causing the increased flooding, he did say damage from Hurricanes Matthew, Sandy and Irene came more from rain rather than from wind and that large-scale claims are up.

“There’s nothing we can do to change the frequency of the losses. Floods are going to happen, it’s the most common natural disaster in America,” Brown said.  “In areas more prone to flooding…we see areas where newer homes have been built in an elevated fashion so the only thing at the ground-level is a garage and storage area.”

Some homes built in flood-prone areas are required to take out insurance by their mortgage lender.

It’s a requirement Brown believes could become more common.

“If we continue to develop coastal areas, here in central California, there’s a lot of the state that’s protected by flooding by levies, we’re developing more and more of that land and building homes there,” Brown said. “So I think there will be a continuing trend of homeowners that have to carry flood coverage to satisfy their mortgage.”

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