Could private competition save the NFIP?

Could private competition save the NFIP?

Could private competition save the NFIP? Private insurance competition could throw a lifeline to the floundering National Flood Insurance Program, according to Steve Ellis, vice president of Taxpayers for Common Sense.

The NFIP provides flood coverage to more than five million homeowners across the country – but the program has been slammed by a record-breaking surge in floods, hurricanes and other severe weather over the last few years.

“As a result, the program has accumulated a nearly $25 billion ‘I.O.U.’ to U.S. taxpayers,” Ellis wrote for The Hill.

According to Ellis, one way to keep the NFIP from “drown(ing) in debt” is to open the market to private insurers.

Related: Check out Flood Risk 2017 – Florida – a master class

“Permitting the private sector to help NFIP write more sensible flood insurance policies would allow consumers to shop among many competing policies, making coverage more affordable,” Ellis wrote. “One study from the Risk Center at the Wharton School found that introducing private insurance to the program would reduce rates for many policyholders, and increase coverage limits for others.”

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Allowing private insurers into the space would also reduce consumers’ dependence on the NFIP, Ellis maintained. That would allow the program “to transition to a residual provider for those properties that the private market is unable to insure cost-effectively,” he wrote. Eventually, Ellis said, the NFIP would return to its “original function” as an “insurer of last resort.”

Citing the latest National Climate Assessment, Ellis said that major storms would be likely to continue to hit the US in the years to come.

“But lawmakers are running out of time to tackle these NFIP reforms before the program expires,” he said. “If Congress fails this time around, flood victims may find that federal relief has dried up.”

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  • Anthony Ambrose 2/10/2017 8:25:07 AM
    I wonder if the Wharton School conducted their research with any property underwriters? Wasn't the NFIP formed as a result of private insurers refusing to take on certain catastrophic risks?
    Post a reply
  • Anti-Exchequer 2/13/2017 1:27:04 PM
    The false notion that private insurers did not want to insure flood risk has been perpetuated by by special interests for so long that it has become almost universally believed. The truth is that from about 1969 to January of 1978 the National Flood Insurers Association operated in partnership with the Federal Insurance Administration to run the National Flood Insurance Program. In fact the program was operated by the National Flood Insurers Association. Private insurers were assuming approximately 25% of all flood risk at that time and the National Flood Insurance Program was viewed as a bridge which would allow the private market to eventually assume 100% of US flood risk.

    After suing the federal government to stay in the program, the secretary of the Department of Housing and Urban Development forced the private insurers out of the insuring of flood risk. Doesn't sound much like what you've been told does it? The truth is the private market went out kicking and screaming and the bureaucrats took over. But hey the bureaucrats have done a great job haven't they. After all, were only $24 billion in the red, wildlife habitat has been destroyed by the hundreds of square miles. The subsidies go beyond the taxpayer, hundreds of thousands of flood insurance buyers are subsidizing hundreds of thousands of flood insurance buyers because the NFIP never charges the right rate. What a mess!
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  • Sensible Solutions 6/30/2017 9:12:34 AM
    Ant-Exchequer - the NFIP is much more than an insurance provider. Communities voluntarily enter the NFIP which, as a condition of enrolling, requires them to establish minimum local floodplain management ordinances - who can build where and how - in their community. Example minimums include 1-foot of freeboard above the floodplain for all new construction. And, when a structure is over 50% destroyed, rebuilding to this minimum standard.

    Through the Community Rating System, the NFIP offers insurance premium discounts to citizens that live in communities that go beyond the minimum requirements and have higher flood risk reduction standards.

    Insurance premiums pay for maintaining and updating the Nation's flood maps. Grant dollars and buyouts for repetitive loss properties are also provided. FEMA's mission is to save lives and reduce suffering from floods. An insurance firm's mission is to make money. We need to consider both.

    The $24B debt is largely due to the "grandfathered" low rates for existing homes newly found to be at flood risk. That was a decision made by Congress so insurance premiums would be affordable to homeowners. A purely private market would not have been so sensitive to the family budget.

    Flood damage is the #1 costliest hazard in our Nation. The NFIP was initially established following Hurricane Agnes that hit DC. At that time, there was a realization that human-kind was not going to be able to eliminate flooding and therefore, individuals and businesses who choose to live in the floodplain should pay into an insurance pool that could be used to help them recover. Of course over 20% of floods happen outside the floodplain and many of those folks are not covered.

    That said, I agree that there should be a role for the private sector. FEMA is working on a public-private solution that will hopefully bring more market competition and insurance options into the mix. Check out the Federal Insurance and Mitigation Administrator Roy Wright's testimony before Congress about NFIP reauthorization.
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