South Carolina approves flood insurance law to boost private market

The state of South Carolina aims to promote new flood insurance coverage options through the enactment of the South Carolina Private Flood Insurance Act.

South Carolina Governor Henry McMaster signed the legislation, passed on September 23 by state lawmakers on September 28. The SC Private Flood Insurance Act, which comes into force on November 28, 2020, will provide insurers “with the ability to test products on the market and thus give consumers more options for flood insurance coverage”, from according to the legislation.

“We are encouraged to pass this important legislation as we try to strengthen competition in the flood insurance market,” said Ray Farmer, director of the South Carolina Department of Insurance (SCDOI). “Currently, our consumers have very few options for purchasing flood insurance. While we are pleased with the National Flood Insurance Program (NFIP) to provide coverage, we realize that NFIP coverage may not work for all homeowners. This is a chance to increase availability, which we believe will lead to competitive prices and more options to meet the specific needs of consumers. “

The main provisions of the act include:

• Recognize the various forms of private flood insurance available today – those that meet NFIP standards.
• Discretionary acceptance policies, and any other type of coverage that covers flood losses.
• Simplify regulatory oversight of forms and rates for private flood insurance coverage; allowing additional subscription flexibility to encourage operators to offer coverage wherever and whenever they meet their subscription criteria.
• Require 45 days’ notice before a private flood insurance policy is canceled or not renewed to allow consumers time to purchase alternative coverage.

The law states that private flood insurance policies must be a standard flood insurance policy covering only losses arising from the flood hazard, at least equivalent to that provided for in a standard NFIP flood insurance policy, including deductibles, exclusions. and other terms and conditions offered by an insurer.

Policy forms must also include:

• Information on the availability of flood insurance under the NFIP;
• A mortgage interest clause substantially similar to the clause contained in a standard flood insurance policy under the NFIP;
• A clause that requires an insured to file a lawsuit no later than one year after the date of written denial of all or part of a claim under the policy;
• And cancellation clauses that are as restrictive as the clauses contained in a standard flood insurance policy under the NFIP.

Non-standard flood insurance can also provide coverage designed to complement a flood policy obtained from NFIP or an insurer that issues standard flood insurance.

Farmer said the new law provides the insurance industry with some flexibility for a “small but important coverage line”.

SCDOI said it will publish additional guidance to the industry on flood insurance writing under the new law on its P&C page. Admitted insurers who sign personal private flood lines under the new law must file with the director all fees and supplementary fee information, all changes and amendments made by him no later than 90 days after the effective date.

Surplus line brokers may place a policy or endorsement providing flood insurance coverage to an eligible surplus line insurer “without making a diligent effort to seek such coverage from one or more admitted insurers” under Carolina law. South, says the legislation.

Director Farmer took on the mission to educate South Carolina residents about the need for flood insurance after the devastation of the floods and catastrophic losses from several storms in recent years, including Hurricane Joaquin 2015, Hurricane Matthew 2016 and Hurricane Florence 2018, which combined have cost the state billions in uninsured flood damage.

Speaking on a panel at the 2018 trade insurance association, Farmer said that only 200,000 South Carolina residents, who live mainly on the coast, had flood insurance. Much of the damage caused by flooding from major storms has occurred inland, Farmer said then, noting that it is a misconception that people who do not live in high-risk areas do not need flood insurance. Most consumers also incorrectly believe that they are covered by flood damage through a regular homeowner’s policy.

“Better work is needed to communicate that home insurance does not cover floods,” Farmer said on the panel.

State interest in developing private flood insurance markets has increased significantly since 2016, according to the Insurance Journal’s Private Flood Insurance Market report, which stated that 124 operators reported direct private flood premiums issued in 2018 compared to just 46 in 2016.

Direct underwriting premiums for private flood insurance grew from almost $ 358 million to just over $ 681 million in the same period. The Insurance Journal report found that South Carolina’s private flood market was served by 42 operators in 2018, with Factory Mutual Insurance Co. holding 29% of the market share with $ 4 million in premiums written. Flood home insurance accounted for an estimated 54% of written coverage in 2018.