FEMA moves to bypass congress with private insurance

Decision could transfer risk away from the embattled flood insurance program, potentially lowering costs for all

FEMA moves to bypass congress with private insurance

Catastrophe & Flood

By Lyle Adriano

To offset potential future losses and reduce the amount of risk carried by the program, the Federal Emergency Management Agency (FEMA) has revealed that it is making several amendments to the way the National Flood Insurance Program (NFIP) works.

The NFIP is roughly $30 billion in debt and continues to pay out claims related to the destructive hurricane season last year. FEMA has taken on almost $1.5 billion in reinsurance from over two dozen companies to help pay for some of the claims.

On top of taking out reinsurance coverage, FEMA is introducing changes to the way the NFIP operates – changes that have already drawn mixed reactions from insurers and legislators.

The first change FEMA revealed is that it is rescinding its non-compete rule for the NFIP. This means insurers that sell NFIP-backed policies through the NFIP’s “Write Your Own” program can now sell their own flood insurance coverage. The other change is that the cut the NFIP pays “Write Your Own” insurer participants will be slightly decreased; this tweak could possibly lead to lower premiums for policyholders or allow more money to go to the NFIP to pay more claims.

FEMA’s NFIP overhaul circumvents Congress as legislators continue to debate how to best rescue the national flood program from financial deficit.

NFIP chief executive Roy Wright told POLITICO that opening the flood insurance market to private competition would benefit taxpayers.

“We need more people selling these products,” he commented.

The insurance industry praised FEMA’s decision to allow “Write Your Own” companies to sell their own policies and add reinsurance coverage, but some industry representatives are worried that reducing the compensation for insurers that sell NFIP policies means less incentives for them and fewer sales made.

“The flooding events in 2016 and 2017 clearly show that too few property owners purchase flood coverage,” American Insurance Association vice-president for federal affairs Tom Santos told The Advocate. “Thus, we ought to be looking for ways to expand consumer options by preserving and expanding the private sector’s ability to offer flood insurance coverage -- both NFIP coverage and private coverage.”


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