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The following is a call I got from two of the most fantastic FEMA representatives asking if Lloyds was pulling out of the Flood insurance markets. Spoiler Alert (they are here to stay sorry FEMA). | Lloyds of London Flood insurance | Private Flood insurance | Alternative to FEMA flood insurance. | Alternative to NFIP
Hi FLOOD NERD –
Robert I trust you are well, I was reading this article in the Insurance Journal about Lloyds of london pulling out of Kentucky and Illinois.
Can you help me understand what this means and how it will affect the opportunity for people to buy flood insurance from the private market specifically Lloyds of London flood insurance?
We thought if any one could answer this the FLOOD NERD can so we wanted to ask.
I have county commissioners panicking about this and could really use your knowledge and help.
Diana, FEMA
Hi Diana and Erin
Here is what I heard from Lloyds Syndicates about the Article.
Lloyds has always operated primarily as a reinsurer and an insurer of things that typically our other markets can’t or won’t cover most specifically the higher value or catastrophic markets.
The big teller in this article is the word “Admitted” basically that means that the “Admitted” carrier has jumped through all the local hoops (mainly making sure that the company can pay on the claims) to get this destination and it also means that they all pay into a pot just in case any company goes insolvent.
Your standard American companies (Progressive, State Farm, Farmers exc.) don’t have and/or aren’t willing to up the capital to take on the risk of insuring any risk 100% and that is why they re-insure and guess who is there to reinsure (you guessed it Lloyds).
The main reason that Lloyds jumped through the hoops to get the “Appointed” destination in specifically Kentucky and Illinois was because they were insuring the pedigreed horses (race horses) and I guess they thought that this might be a market they wanted to invest in.
Lloyds was paying into this pool (even though they will never go insolvent and didn’t need to reinsure since they would have the full capital Lloyd’s network behind them).
I guess they decided that it wasn’t worth all the headaches and administration pains (specifically with in Kentucky since their tax system can’t really be scaled and each City, county, parish has its own individual tax laws).
I joke that Lloyd’s is like a grumpy old english man (been around since 1686 – 334 year old).
That they no longer want to and really don’t need to play with the local bureaucracy and that is why they are pulling out of the “Appointed” destination.
As the article mentions they will still be involved in the re-insurance and the E&S insurance.
Surplus lines is how all Lloyds Flood insurance syndicates are operating and this market isn’t pulling out in fact I think it will grow.
And at some point I think that we will have a Syndicate decided to get the “Appointed” designation again for Flood insurance, however to get this it will need to be with each state. Currently most of our Lloyd’s Syndicates don’t write in Kentucky (which is sad really they could use some help on flood insurance).
And the main reason is because they can’t scale the tax code system for KY.
They would need to have a team that only worked on that one state and looked up all the local tax codes to make sure they are collecting the correct tax.
Most decided it is not worth it and thus the Ky property owners don’t have many options when it comes to flood insurance.
So the sum of all these sentences is that Lloyds flood Insurance is still around in flood insurance and will be for the distant future and will likely stay on the E&S insurance platform for the most part.
Hope that answers your question if you want to discuss further feel free to give me a call.
Your (grateful that I get to work with you) flood nerd Robert
What a great and thorough response. May I share this with staff and state coordinators. They are in panic mode!!
Diana
