H.I.R.E., the crafty acronym for a jobs bill that was shaping up for vote in late February, was killed by Senate leaders before reaching the floor in hopes of garnering more support with a scaled-back version down the road.
But buried deep in that proposal was a provision that has become all-too-familiar for property insurers, brokers and owners in recent months: reauthorization of the National Flood Insurance Program…again.
The NFIP was set to expire Feb. 28, and was extended for a month. Sources predict another extension after it has already been extended four other times since the original expiration date last September. Regardless, further extensions will do nothing to improve the problems that have pervaded the embattled NFIP. The truth is that a slew of coverage and rating issues coupled with a huge deficit—more than $20 billion since 2005—has kept the NFIP’s future uncertain for the last few years. If it were indeed sent to the firing squad, the “never saw it coming” position would be tough to defend.
From his office in Miami, far from the debate, Norman Heinrich, executive vice president of voluntary and excess products for WNC Insurance Services, recalls his years of experience with Mother Nature’s most pervasive peril. “The risk of flooding, the exposures, hasn’t changed much in 25 years,” he says.
Very few in this industry understand flood risk like Heinrich, a veteran underwriter and flood expert who has overseen the creation of flood programs for some of the industry’s largest players. Recently, almost as if in preparation of the NFIP’s demise, Heinrich helped spearhead WNC’s Commercial Flood Insurance Program as an alternative to the NFIP.
The Miami-based WNC Insurance Services is an MGA, MGU and program administrator for various products that serve commercial and personal insureds. The program administrator moniker best describes the company’s role in distributing the Commercial Flood Insurance Program, a surplus lines product for voluntary coverage backed by Lloyds.
“In some states we write directly with retailers. In others, we place through wholesalers. In some areas we might use both,” he says.
Distribution decisions depend on two factors: state law and relationships.
“Retailers and wholesalers that have been good to us over the years are the ones we will distribute through,” Heinrich says. “We don’t want to water this product down with overexposure to the market.”
WNC began accepting applications and offering quotes for the program in January. “Most calls have been coming in from where you would expect, places like Florida, California, Texas, New York and the Carolinas; areas traditionally heavy in flood risk,” he says. “However, we are open in all states.”
Heinrich says the program does not intend to establish a major presence in Gulf Coast states until lingering litigation issues there are resolved. “We can write there on a select basis,” he explains.
The program is a substitute for, not excess over, the NFIP. Commercial insureds can purchase a single policy that mirrors the coverage of the NFIP policy with a few notable exceptions. Higher limits are available for building and contents, up to $5 million and $1 million respectively, well beyond the $500,000 ceiling of the NFIP. The ability to schedule locations, a replacement cost valuation for building and contents as well as multiple deductible options, ranging from $5,000 to $100,000, further separate this program from the historically inflexible government counterpart. Perhaps most notable is the program’s inclusion of business income coverage, an option that has never existed through the NFIP.
“We attach a standard business income policy to accounts we write in the program, rated for the peril of flood, up to $100,000 in coverage,” Heinrich says. “There’s very little competition in the marketplace on a single policy format. This program writes the risk from dollar one.”
Risks with needs exceeding those limits can obtain excess coverage from WNC over the primary. WNC offers excess policies with limits up to $15 million, allowing insureds access to up to $20 million, all in one place.
The program’s target market is non-coastal risks. However, Heinrich says retailers with coastal woes shouldn’t write his team off. “If we don’t like the exposure, if we think the PML (probable maximum loss) looks bad, we’ll leave the primary in the NFIP and we’ll write the excess. We may still do the business income,” he says.
The NFIP’s frequent brushes with expiration coupled with its stringent underwriting guidelines and inflexible coverage options have long been the source of night sweats for insureds, brokers and lenders. Heinrich and WNC decided to take action; stepping away from the overcrowded stable of excess-only flood products and creating a primary alternative. He summarizes their efforts with a simple thought: “We thought these risks needed a competitive alternative.”
We may soon find out just how right he is.