Private flood insurance coverage accounts for greater than 40% of California’s total flood market – a considerably larger share than in different states, in line with a current Best’s Commentary, “Historic California Flooding Highlights Need for Robust Private Flood Market.”
In the commentary, AM Best mentioned that the National Flood Insurance Program (NFIP) has lengthy been insufficient.
“However, the NFIP’s newly implemented Risk Rating 2.0 increased the potential for more private insurers to provide flood insurance options outside the federal program, and according to the commentary, this seems to have taken hold in California,” AM Best mentioned. “Of the states with at least $100 million of direct written premiums in flood insurance, California has the largest share of premium written by the private market, at 41%, compared with 24% nationally.”
However, solely 2% of California residents have bought flood insurance coverage, and California’s NFIP insurance policies signify solely 44% of the NFIP’s whole insurance policies regardless of the state boasting roughly 12% of the nationwide inhabitants. These numbers point out that the majority flood losses suffered by companies and householders within the state received’t be lined by insurance coverage, AM Best mentioned.
NFIP insufficient
“Homes in California protected by the NFIP may still be underinsured, given that NFIP insurance is limited to $250,000 per residence – well below California’s median home value of nearly $685,000, the second-highest in the country,” mentioned Christopher Graham, senior trade analyst at AM Best. “Many homes covered by the NFIP would benefit from an excess policy above the NFIP coverage limit, so opportunities abound for private flood insurers willing to take the risk.”
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While personal flood insurance coverage has traditionally been worthwhile for California’s prime 5 flood writers, the injury from the present storms could also be sufficient to erase a number of years of fine outcomes, AM Best mentioned.
However, the ranking company additionally identified that the state insurance coverage regulator just lately directed that mudslides – that are sometimes lined by flood insurance coverage – are to be lined below householders or different property coverage as a hearth loss if the hill from which the mudslide emanated was beforehand weakened by fireplace.
While the entire financial loss could be unaffected, the directive might shift a few of that loss from flood insurance policies to different property insurance policies, AM Best mentioned.
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