The state of South Carolina is aiming to foster new flood insurance coverage options through the enactment of the South Carolina Private Flood Insurance Act.
South Carolina Gov. Henry McMaster signed the legislation, passed Sept. 23 by state lawmakers, into law Sept. 28. The S.C. Private Flood Insurance Act which takes effect Nov. 28, 2020, will provide insurers “the ability to test products in the market and thus give consumers greater choice for flood insurance coverage,” according to the legislation.
“We are encouraged by the passing of this important legislation as we try to bolster 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 glad the National Flood Insurance Program (NFIP) exists to offer coverage, we realize that NFIP coverage may not work for every property owner. This is a chance to increase availability, which we believe will lead to competitive pricing and more options to meet consumers’ specifics need.”
The main provisions in the act include:
- Recognizing the various forms of private flood insurance available today – those meeting NFIP standards.
- Discretionary acceptance policies, and any other type of coverage that covers losses resulting from flood.
- Streamlining the regulatory oversight of forms and rates for private flood insurance coverage; allowing additional underwriting flexibility to incentivize carriers to offer coverage where and when it meets their underwriting criteria.
- Requiring 45 days’ notice before a private flood insurance policy is canceled or nonrenewed to allow consumers time to purchase alternative coverage.
The act states that private flood insurance policies must be a standard flood insurance policy covering only losses from the peril of flood at least equivalent to that provided under a standard flood insurance policy from the NFIP including deductibles, exclusions and other terms and conditions offered by an insurer.
Policy forms must also include:
- Information about 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 provision requiring an insured to file suit no later than one year after the date of a written denial of all or part of a claim under the policy;
- And cancellation provisions that are as restrictive as the provisions contained in a standard flood insurance policy under the NFIP.
Nonstandard flood insurance may also provide coverage designed to supplement a flood policy obtained from the NFIP or from an insurer issuing standard flood insurance.
Farmer said the new law provides the insurance industry with some flexibility for a “small, but important line of coverage.”
SCDOI said it will publish additional guidance for the industry on writing flood insurance under the new law on its P&C webpage. Admitted insurers writing personal lines private flood pursuant with the new law must file with the director all rates and supplementary rate information, all changes and amendments made by it no later than 90 days after effective date.
Surplus lines brokers may place a policy or endorsement providing flood insurance coverage to an eligible surplus lines insurer “without making a diligent effort to seek such coverage from one or more admitted insurers,” pursuant to South Carolina law, the legislation reads.
Director Farmer has made it his mission to educate South Carolina residents on the need for flood insurance in the aftermath of flood devastation and catastrophic losses from several storms in recent years, including 2015’s Hurricane Joaquin, 2016’s Hurricane Matthew and 2018’s Hurricane Florence, which combined have cost the state billions in uninsured flood damage.
Speaking on a 2018 insurance trade association panel, Farmer said just 200,000 South Carolinian residents, who mainly live on the coast, had flood insurance. Much of the flooding damage that has come from the bigger storms occurred inland, Farmer said then, noting it’s a misconception that people who don’t live in high-hazard zones don’t need flood insurance. Most consumers also incorrectly believe they are covered for flood damage through a regular homeowners policy.
“A better job is needed to communicate that homeowners insurance does not cover flood,” Farmer said on the panel.
State interest in the development of private flood insurance markets has increased significantly since 2016, according to Insurance Journal’s Private Flood Insurance Market report, which stated 124 carriers reported private flood direct premiums written in 2018 compared with just 46 in 2016.
Private flood insurance direct written premiums grew from nearly $358 million to just over $681 million in that same period. The Insurance Journal report found the South Carolina private flood market was served by 42 carriers in 2018, with Factory Mutual Insurance Co. carrying 29% of the market share with $4 million in premium written. Residential flood insurance represented an estimate 54% of the written coverage in 2018.
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