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  #221  
Old 10-09-2017, 09:52 PM
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  #222  
Old 10-10-2017, 10:49 PM
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Originally Posted by twig93 View Post
Assume I'm saying "too high" and "too low" relative to the actuarial present value of future claims plus a reasonable margin for overhead & profit. All to the best of someone's ability to estimate / predict.

I had been assuming that as a homeowner in a low-risk area that my NFIP premium was "too high" *and* the NFIP premium for someone in a high risk area was simultaneously "too low".

I think we all agree that the subsidy results in premium that is "too low" for the high risk homes.

But I think Whiskey might be saying that it's not necessarily "too high" for the low risk folks. Whiskey, is that correct? (Or anyone else who cares to comment.) Does that make the current NFIP premium "just right" or maybe even "too low" for folks in low risk areas?

Thanks!
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Originally Posted by Maphisto's Sidekick View Post
I'm not convinced there is an intentional/conscious subsidization going on, but it's been a while since I worked with personal or non-excess property.

I think it is nearly certain that a lack of refinement in NFIP pricing leads to some Zone X folks paying more than they would with a more "modern" pricing model and actuarially fair pricing.

I also think it is highly likely that even in Class X, adverse selection complicates an assessment of relative price adequacy.
To add to Maphisto's comments, note that the starting point for the premiums are the actuarially sound rates . . . based on the current pricing points of the NFIP.

So, to the extent that risks that would otherwise be differentiated aren't, there is (actuarial) subsidization of the rates. But those buying a policy in a low-rated zone aren't (directly) subsidizing the rates for those in the high-rated zone (pre-gov't-subsidies).

All tax-payers are subsidizing the rates for those with risks in the high-rated zone.


This is one of the primary "barriers" for the private market to be "more interested" in the coverage . . . an antiquated and unsophisticated "rating map" that will at least address the (actuarial) subsidies in the low-risk areas.
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  #223  
Old 10-11-2017, 10:37 AM
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  #224  
Old 10-12-2017, 09:16 AM
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There is also the provision that if you participate in the write your own program you cannot sell private flood insurance. I would call that a barrier.
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  #225  
Old 10-12-2017, 11:24 AM
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There is also the provision that if you participate in the write your own program you cannot sell private flood insurance. I would call that a barrier.
Wait, what?

If you write flood insurance you can't sell flood insurance?

What is the "write your own program"?

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  #226  
Old 10-12-2017, 11:39 AM
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Originally Posted by twig93 View Post
Wait, what?

If you write flood insurance you can't sell flood insurance?

What is the "write your own program"?

It is effectively a 100% reinsurance program for direct writers. So a company like Allstate or State Farm can sell a flood policy with company-specific branding, but the underlying exposure is covered by the NFIP.

Note that WYO programs often give the selling company a commission (something like 30% of premiums) to help cover the costs of administration and handling.
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  #227  
Old 10-12-2017, 11:44 AM
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Originally Posted by twig93 View Post
Wait, what?

If you write flood insurance you can't sell flood insurance?

What is the "write your own program"?

So what VA said...WYO is a 100% reinsured product. If I sell the WYO product for individuals primarily in the high risk areas, I cannot then create my own program of flood insurance with my own rates and forms and sell to others. So the government basically stifles the market of private flood cover in lower risk areas through this requirement.
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  #228  
Old 10-12-2017, 12:03 PM
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Originally Posted by Basso View Post
So what VA said...WYO is a 100% reinsured product. If I sell the WYO product for individuals primarily in the high risk areas, I cannot then create my own program of flood insurance with my own rates and forms and sell to others. So the government basically stifles the market of private flood cover in lower risk areas through this requirement.
Thanks Basso & VA, that makes sense and definitely is a barrier to competition given that the NFIP has a subsidy and private insurers can't compete with the subsidized coverage in high risk areas.
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