MANATEE -- Florida homeowners are starting to find cheaper flood insurance rates from private insurers, allowing them to avoid astronomical increases levied by the National Flood Insurance Program.
Lloyd's of London, a private insurance market program, is reducing rates, offering homeowners an option to avoid hefty insurance bills. At the same time Florida lawmakers are paving the way to create a regulated industry for private flood insurance.
John Laurie, senior vice president and agency executive for BB&T Insurance Services in Bradenton, said Lloyd's is able to offer the lower rates because it spreads out the risk.
"They have expanded into more states. Lloyd's is in about 19 states writing private flood insurance, getting an uptake in acceptance of private flood insurance," said Laurie, whose agency offers the Lloyd's policies. "They used to be just in Florida."
For $144,000 worth of coverage plus $25,000 for contents, a home on Siesta Key built before 1960 below flood elevation was quoted at $7,611 for the new NFIP rate; $1,455 if the homeowner takes a grandfathered rate, according to BB&T Insurance. With Lloyd's, it's $1,284 per year.
While President Barack Obama signed the Homeowner Flood Insurance Affordability Act into law in March, the federal rates are months away from being rolled back.
Cheaper rates for primary homeowners won't be granted for another eight months as the federal agency works through the changes, Laurie said, because FEMA has not calculated the new rates. The law also gives insurance companies another eight months to implement the new rates.
That would push refunds for affected policyholders about a year away, he added, leading impatient homeowners to look elsewhere for savings.
Lloyd's and private flood insurance might not be for everyone despite the more affordable costs. In some
cases, consumers still might not have the choice.
Lloyd's will not write polices for condominiums, properties with repetitive losses of more than $250,000, mobile homes and properties that had unrepaired flood damage.
Also, Lloyd's is more like a stock exchange than an actual private insurer, said R.J. Lehmann, senior fellow at the R Street Institute in Washington, a nonprofit think tank that supports free markets.
"The more competitive the market, obviously the better it will be for consumers to buy private flood insurance," Lehmann said. The advantage with Lloyd's is that it has the wherewithal to guarantee its obligations, he said.
The competitive rates would be better for the secondary homeowners, Lehmann said, as those homeowners immediately pay the higher rates and will not see a rollback.
Also, not all lenders will let homeowners switch to either Lloyd's or a private carrier because of mortgage compliance requirements, Laurie said.
"It specifies that any properties they write a mortgage for in a federally designated flood zone, it has to be insured by NFIP," Laurie said.
Other mortgages that have flexibility might state they don't want to deal with policies that underwrites on a capital level. Lloyd's has an A level, 15-rated policy, which is a top-rated policy that carries the largest amount of capital to back up the policies, Laurie said, providing an advantage to private insurers that might not have the wherewithal and rating to support the risk.
Not all homeowners will see an advantage with Lloyd's or private insurers. Another Siesta Key home for $250,000 in coverage built in 2007, meeting flood requirements in Zone A, would pay $632 a year through the national program while Lloyd's would charge $2,632, according to BBT.
"We caution about the risks of switching out of a federal program," Laurie said. "If you lose the grandfathering and forfeit that, the lender may not accept a private alternative."
While Lloyd's is trying to take advantage of high rates now, a regulated private flood insurance bill passed the Florida House of Representatives on a third reading Monday. House Bill 542 creates regulatory language for private flood insurance underwriters while preventing Citizens Property Insurance Corp., from writing flood insurance. The bill also received Senate approval in March, and now awaits the governor's signature.
A small market already existed for private flood insurance because the federal program capped coverage at $250,000 for a single family home, Lehmann said.
"I think you're starting to see some primary insurers see this as an optional coverage and start in the high-end market and gradually move down a bit," Lehmann said. "Your State Farms, Nationwides and Allstates are not going to jump into this. It's the smaller companies that are interested, and interested in doing something that sets them apart."
The concern with the private insurance industry start-ups in Florida is that many of the companies would likely only be in Florida, concentrating its risk here and not in other states or areas that have a lower flood risk to balance out the policies, Lehmann said.
"What a regulator has to look at is if they have appropriate diversification," Lehmann said. The insurer could decided to write policies in different states, write different types of insurance or buy reinsurance to help break up the risk, he said.
Reselling parts of the policy would likely become commonplace.
"They're only keeping a small portion of the risk," Lehmann said. "They'll keep 5 or 10 percent on their books."
Charles Schelle, Herald business reporter, can be reached at 941-745-7095. Follow him on Twitter @ImYourChuck.