Covid has been devastating across the world. Many businesses are out of business as a result of the pandemic hitting.
During a normal disaster many business owners might have been able to stay open. However because of lack of loss of use on business insurance policies many were forced to close.
The majority of these policies do exclude pandemics.
The courts in the United States and around the world are starting to fill with cases to dispute this coverage being denied.
A recent decision by a United Kingdom court could take a bad situation and turn it into an even more devastating situation.
So what does this mean?
It means insurance companies could have to pay endless claims on coverages that were not listed on the insurance policy.
These are some of the worlds largest insurance companies that will have to pay out these claims. Whats also important to understand is the reinsurers will have to cover these claims.
This means this could shake up the e and s or surplus insurance market.
So how does this impact flood insurance?
Let's look at the role they play with the National Flood Insurance Program. According to FEMA the reinsurance program helps manage the future exposure of the National Flood Insurance Program on future flood risks.
Can you imagine if the U.S. government took all of this risk on their own. You can imagine events like hurricane Harvey could have bankrupt the country.
Now let's look at reinsurance on the private flood insurance side. Reinsurers are basically the back bone of almost every private flood insurance company. They decide what capacity they will take on regarding risks across the world.
When ever an insurance carrier loses a reinsurer they have to non renew certain risks and stop doing business in some areas. Being in the insurance industry for more than 12 years we have seen this happen multiple times.
These reinsurers have to have certain reserves to cover flood losses. So what if these Covid claims eat up a large portion of that reserve fund?
Well a few things could happen we could see flood insurance rates skyrocket, or we could even see flood insurance options dry up across the United States.
You could also see where some of these private flood insurance companies no longer meet the requirement of private flood insurance.
This means banks may not accept policies from these companies.
You combine that with coming off the busiest hurricane season in U.S. history and we could be on course for a major shake up in the flood insurance industry.
Even if the reserves do stay high enough the reinsurers are going to have to find a way to make up these losses.
After interest rates being as low as they have for as long as they have many insurance companies are already hurting on their investments.
So we could still start to see risk being declined and rates going up especially along the Gulf coast.
We will continue to monitor how this situation across the pond plays out and how it could impact the United States flood market.
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Remember we have an educational background in flood mitigation which means we are here to help you understand your flood insurance, flood risk, and mitigating your property long term.