In September, the National Flood Insurance Program (NFIP) will come under Congressional review where the program will require a reauthorization bill to continue.
The NFIP has many critics of its system from the insurance industry and its sizeable debt combined with technological advancements that have shown the NFIP’s pricing system as flawed, pressure is mounting for a restructure.
One such critic is Craig Poulton, CEO of Poulton Associates and founder of the privately underwritten Natural Catastrophe Insurance Program (NCIP).
The pro-private flood insurer goes to Washington to make his case for a market more open to private competition.
Poulton explained the data crunching the (private) NCIP involves examining the elevation of a home from a geospatial perspective, hitting 25 different data sources.
“We can’t have an individual rate per home, you get a much more granular rate specific to your home from us than you ever would from the (public) NFIP,” Poulton said.
“Sometimes our rate is higher than the NFIP and sometimes it’s lower than the NFIP, we’re still trying to zero in on what exactly the right rates are for the characteristics.”
The process of finding the precise and accurate pricing for each flood risk or mitigation effort is hampered, Poulton said, by the NFIP.
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“If we had only had the cooperation of the NFIP, we would be much larger and people would be paying millions and millions of dollars less in insurance.”
Poulton cited a 2015 study by The National Academies Press that found the (public) NFIP rarely charges Americans’ the right rate and when they do, it’s by accident.
The study,
Tying Flood Insurance to Flood Risk for Low-Lying Structures in the Floodplain done in conjunction with the NFIP, said policyholders were either charged higher or lower than they should be.
That’s because, Poulton argued, the (public) NFIP has broad pricing categories Poulton refers to as “buckets” determined by flood zones and elevation certificates.
“The amount of money paid out by the NFIP in claims for people who buy NFIP flood insurance and are not in a flood zone is not much different than the people who buy in a flood zone,” Poulton said, citing the study.
FEMA outlines the flood zones and is supposed to serve as a guide for where flood risk is and isn’t a factor.
“The flood zone itself is not the best way of determining of where flood risk is, it’s a very imperfect mechanism, it’s a very imperfect mechanism,” Poulton said.
“Now you look at our method, and it’s not perfect either. But we don’t care if you’re in a flood zone or not. If you want to buy flood insurance we don’t take a broad brush and paint you with it. We take a small brush and we look at your home.”
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