Why private flood insurance is a positive for FHA-secured mortgages | Opinion
estimates that nearly 1.4 million Texas homes have a 26% chance of being severely affected by flooding over the next 30 years. Most of these properties are outside of NFIP’s mandatory coverage zones, so homeowners mistakenly believe their risk is low. Recent history belies this confidence. The Dallas-Fort Worth floods of August 2022 caused as much as $6 billion in damage, and the state has suffered more than $200 billion in aggregate losses from natural disasters over the past five years alone.
State capitols are likewise at the forefront of reform. In December, Florida legislators met in a special session to address the health of the property and casualty insurance markets in the wake of Hurricane Ian. Through a broad package of reforms, legislators made it clear that private markets are essential to distribute risk appropriately and protect taxpayers and ratepayers from footing the bill for unexpected losses.
Thanks to these nascent reform efforts, we may be moving closer to a more sustainable relationship between public and private insurance. The private insurance market has shown it can absorb even unexpected losses from catastrophe events through careful underwriting on the front end and the purchase of private reinsurance on the back end. Public insurers, by contrast, have tended to offer “one size fits all” policies that lack the underwriting sophistication of leading private insurers.
Actions by the FHA and Florida suggest the possibility of a new era in American property insurance — one in which public insurers work more closely with their private counterparts, recognizing the inherent limits of publicly funded coverage and encouraging policy migration to private companies. It is incumbent on legislators and regulators to recognize the value of the private market and protect American taxpayers from footing the bill for the next earthquake, wildfire or hurricane.
Mac Armstrong is the chairman and CEO of Palomar Holdings, a specialty insurance company with expertise in catastrophe insurance. He wrote this column for The Dallas Morning News.
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