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Aug 15

Lloyds of London subsidiary pulls out of Tampa Bay flood insurance marketplace, but that’s OK

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A subsidiary of one of the world’s largest private insurance companies, The Flood Insurance Agency, will no longer be writing flood insurance policies in several Tampa Bay area counties including Pinellas.

That’s OK though, according to a local insurance guru.

“One division of Lloyds of London doesn’t dictate the entire market,” Jake Holehouse of Holehouse Insurance said.

That means there are still plenty of Lloyds of London-backed private flood insurance options for homeowners looking for affordable coverage.

Holehouse attributes a fairly open market to legislation introduced by State Senator Jeff Brandes that created a framework for private companies to start writing flood insurance policies in Florida. Prior to the bill’s passage, it could take more than a year for a private company to get through the regulatory process to be approved as a flood insurance provider. Under the Brandes bill, that process is more manageable to private insurers.

“When you have one of the largest insurers in the world having written hundreds, if not thousands, of policies it shows you what a demand there is for private market interests,” Brandes said.

Brandes introduced the bill amid concerns about rising flood insurance costs within the National Flood Insurace Program under the 2012 Biggert Waters Act.

Under that bill, rates were set to rise 18% per year for homeowners and up to 25% per year on second homes. The effects could have crippled the housing market in flood-prone areas.

Congress mitigated the effects earlier this year by postponing for four years mandatory rate hikes aimed at making the NFIP solvent. During that time, the Federal Emergency Management Agency is supposed to come up with a plan to make premiums more affordable.

By expanding the Florida flood insurance market to private insurers, the effects of Biggert Waters were further mitigated.

Jay Neal is the president and CEO of the Florida Association for Insurance Reform, or FAIR. He agrees homeowners are no worse off now that The Flood Insurance Agency has pulled out of writing policies in Hillsborough, Pinellas, Sarasota, Manatee and Pasco counties.

Losing that option could even be a good thing. Lloyds of London is what Neal calls a surplus company.

“Unfortunately what that often means is you’re just not getting great coverage,” Neal said.

For example, a homeowner filing a claim could be subjected to reduced coverage and high deductibles which could make the policy nearly moot.

Instead, Neal thinks the NFIP still needs reform. One of the key ways the program can be improved is by spreading risk. Florida has been a donor state, meaning ratepayers pay for policies without filing many claims.

However the downside of that could be higher deductibles. Regardless, Neal expects the flood insurance issue in Florida is on its way to better times.