The flood insurance market is ripe for renewed private participation, what with the federal program deep in debt and homeowners spoiling for more options.
Louisiana is one area that largely stands to benefit if Congress makes private participation attractive as it reauthorizes the National Flood Insurance Program (NFIP) after it expires in September this year, it has been suggested.
Louisiana is a major beneficiary of the NFIP, accounting for nearly half of the almost 60,000 claims filed and $2.4 billion of the $3.7 billion in payouts made last year.
“If a private market emerges, I anticipate that 400,000 of those 500,000 (policyholders in Louisiana) will get better coverage at cheaper rates than offered by the National Flood Insurance Program,” Insurance Commissioner Jim Donelon told
The Advocate. “The other 100,000, mostly in coastal areas, will not.”
Donelon explained that private participation would allow the federal government to shed low risk properties from its pool, which account for 25% of the NFIP’s annual losses.
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However, the presence of low risk properties helps spread flood risk and keeps the overall cost of coverage at manageable levels. Therefore, taking them from the risk pool could set off higher rates in the state’s coastal parishes, the report explained.
US congressman Garret Graves is also in favor of allowing private firms to participate in flood insurance to increase competition and lower the cost of coverage. Still, he believes their entry into the market should be managed.
“If you just flat out allow private insurers to come in and cherry pick the market, you’re going to have the high-risk pool largely comprised of folks in south Louisiana,” Graves observed.
The Advocate author Ted Griggs, surmised: “One way to avoid that is requiring private insurers to take on a certain percentage of higher-risk properties. Another possibility is to let private insurers come in with no conditions, but require the federal government to subsidize premiums in the areas where federal government activities have increased the likelihood of flooding.”
Meanwhile, Joe Pigg, senior vice president of mortgage financing at the American Bankers Association, stated that the industry group thinks the entry of private insurers in the flood market will not lead to its pure privatization.
“We think the NFIP will be the default (coverage) as it has been, but private policies will be available to drive competition and lead to better prices,” Pigg emphasized.
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