A catastrophe policy group is calling for major reforms to the National Flood Insurance Program (NFIP), which is billions of dollars in debt and is up for reauthorization in September.
Private sector participation, a complete shift toward risk-based rates, and more accurate mapping were among several recommendations from Smartsafer.org in a report meant for Congress.
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The NFIP incurred $23 billion in debt to the US Treasury following Hurricanes Katrina and Sandy, the Federal Emergency Management Agency (FEMA) said in its website. The destruction wrought by both hurricanes generated claims of approximately $24.6 billion. There is a 50% chance within a 10-year period the NFIP will once again experience Hurricane Sandy-sized losses,” FEMA added.
“[The NFIP] has numerous problems as currently constructed – it was not designed to accommodate major catastrophic events; it fails to adequately deter new development in areas vulnerable to flooding… and it does not do enough to encourage states, communities, and individuals to reduce their vulnerability to floods,” the coalition said.
Expanded private sector participation
The move to a system where the NFIP and the private sector write flood insurance will provide consumer choice and ensure competition and innovation, the coalition said. This can also maximize the number of properties covered by flood insurance.
The NFIP could turn more attention to most at-risk properties as more move to the private sectors.
“It is critical that mitigation and resiliency be elevated as part of NFIP’s mission, as well as through disaster assistance reforms,” Smartsafer.org said.
It added that Congress can ensure a level playing field by clarifying that private flood insurance counts for purposes of mandatory insurance – no property owner should be forced to purchase from NFIP or any particular insurer.
“Consumers should have a choice and should be able to choose policies that meet their needs and are not-one-size-fits-all, like NFIP,” it explained. “This means private companies must be able to innovate and offer different coverages, limits, and deductibles.”
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Move toward risk-based rates
Flood insurance should accurately reflect risk, the coalition said. It observed that the NFIP is already moving towards this, but should complete the transition through reauthorization.
“Rate increases should be capped on an annual basis, as they were in 2012, to some percentage of current premiums to make the increases predictable,” it said.
Outlining that low-income policy holders may be affected by this shift, the coalition said FEMA should establish a support program for those who cannot afford the risk-based rates.
“The support would be time-limited support available for a minimum of 10 years, with extensions available for families who would be displaced or otherwise face a hardship,” it suggested. “Mitigation support would be available for the life of the loan made for mitigation activities.”
2016: Record year for floods
The US experienced its highest number of floods in 2016 than any year on record since tracking began in 1980, global reinsurance firm Munich Re said. There were 19 floods across the nation, up from 15 in 2015.
“The US experienced more floods in 2016 than any other year on record. But our federal flood insurance policy continues to put lives, property, and taxpayer dollars in harm’s way by failing to adapt to extreme weather. Just last month, the NFIP’s debt grew by another $1 billion, meaning the program is over $25 billion in debt to US taxpayers,” Smartsafer.org said.
Last month, FEMA announced that it secured more than $1bn in reinsurance for the NFIP effective January 1, 2017 to January 1, 2018 from a group of 25 reinsurers.
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