President Obama Friday signed legislation rolling back the unaffordable rate increase imposed by the 2012 law that sought to achieve actuarial rates on National Flood Insurance Program premiums.

But now the fun of implementing a law that is virtually certain to have unintended consequences will begin. The next step is to determine how and when FEMA is going to implement it.

In the middle are the Write-Your-Own insurance companies, two-thirds of which are members of the Property Casualty Insurers Association of America (PCI). Don Griffin, a vice president at PCI and chair of the WYO Flood Insurance Coalition, notes that renewals have already gone out for people whose policies expire through late May and into early June. He says people whose policies started expiring last Oct. 1 through at least mid-June will be due refunds, which will be handled through FEMA.

But how FEMA deals with people whose policies expire after that date will depend on how rapidly FEMA issues bulletins or interim rules for the changes imposed by the new law, Griffin says.

FEMA did not respond immediately to requests for comment.

Griffin believes the first benefit will be for homeowners in the process of selling their properties. If these are properties with pre-FIRM policies—buildings constructed before the effective date of the first Flood Insurance Rate Map (FIRM) for a community—then the new owner will be able to assume the existing policy with subsidized rates on the property, rather than the "rate shock" under the 2012 law. Griffin says, though, that while the new owner will be allowed to retain the subsidized rate, the new law puts the homeowner on a glide path toward full rates, which are limited to a maximum increase of 18% annually.

Griffin also says WYO companies will have to get directions from FEMA on rewriting the software for sending out new bills. "It will take time for FEMA to work with the companies to make those changes, and FEMA, under the law, will then have to give the WYO companies six months to get them implemented," he says.

For example, Griffin said the changes required by the 2012 law were supposed to be completed in three months, but it took a year and three months. And, Griffin said, despite criticism by consumer groups of administrative costs provided WYO companies by FEMA, the program is not a big money-maker for WYO companies. "What the industry is paid to administer this program is based on the average costs to administer other property lines of business," Griffin said.

He noted that, "If this was a really money-making line of business, there would be a lot more than 85 companies willing to do it." Currently, there are only a few companies for which this is their sole line of business, primarily, Wright Flood, formerly Fidelity National, which is the largest single writer of flood insurance. Assurant for example, the second largest writer of flood business also writes a significant number of other products.

Griffin also said that two very large homeowners insurance underwriters, State Farm and Travelers, "have exited the business over the last several years after they determined that the reputational risk and cost of doing it was too great. The costs to participate in this program for multi-line writers must be evaluated, as for many, it is an accommodation line of business," he said.

Advertising and personal auto

The battle for market share in the auto-insurance business is heating up amongst the top players, according to a new study by SNL.

The report said Geico reduced growth in advertising spending in 2012, but that it, Allstate and State Farm have increased advertising spending "dramatically" since 2009.

The report says Geico has been the leading advertiser amongst property and casualty insurers for at least five years through 2013 and remains the only company that spends more than $1 billion annually on advertising. It recorded $1.18 billion in ad spend in 2013, up from $1.12 billion in 2012, the report says.

The report also says Allstate has recently taken "direct aim" at Geico through its new Esurance subsidiary, which sells insurance directly to consumers through online and phone service.

The report says Allstate increased advertising spending 7% in 2013 after an 11% increase in 2012.

It adds that Geico, Allstate and State Farm spent $1.78 billion on advertising as a group in 2009, which had increased to $2.87 billion in 2013. The greatest increase was in 2010 and 2011, according to SNL.

SNL says Geico spent in excess of 6% of its premium on advertising in each year. Meanwhile, Allstate has grown this percentage from 1.77% to 3.48%, while State Farm started just above 1% in 2009 and has leveled off in the past few years to around 1.6%, the report said.

The report says Geico has grown its market share "at a high rate" for more than 20 years, and that since 1996, after Berkshire Hathaway acquired the shares of Geico it didn't already own, it has grown from the seventh-largest U.S. personal auto insurer to the second-largest U.S. personal lines auto insurer, with over $18.6 billion in premiums in 2013.

The report says Geico has been able to maintain a competitive underwriting margin while growing premiums, with SNL noting that between 2009 and 2013, Geico maintained a much lower expense ratio than its competitors even as it spent a higher percentage of its premium on advertising.

Special Reports /

The Washington Report: Flood Bill Signed as WYO Cos. Wonder What's Next

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