The future of flood insurance hangs in the balance. Congress is on the brink of re-authorizing the National Flood Insurance Program (NFIP), which will outline legislation that will affect the majority of flood insurance policies in the US.
Floods will never be an easy peril to insure, but new catastrophe modelling tools and data collection methods are making flood risk analysis more comprehensive and effective. The private flood insurance sector has pounced on this and is starting to add capacity and competition to the market – something FEMA will surely address in the NFIP re-authorization.
“At this time, one can only guess what the NFIP re-authorization will include, but it is likely that the legislation will include provisions to remove perceived barriers to sale of private flood coverage and may include incentives for increased private sales,” said Leonard Shabman, resident scholar at Resources for the Future.
“For the next several years, the NFIP will continue to provide most primary flood coverage even if there is some increase in coverage offered by the private sector,” he added. “Other federal roles such as flood risk mapping, mitigation grants and emergency relief, that directly or indirectly affect both the NFIP and private coverage, will continue. New federal roles in assuring premium affordability and risk sharing with the private sector are likely to develop.
“NFIP was originally meant to work as a private-public risk sharing partnership, with the federal treasury acting as re-insurer. Once total claims reached a pre-specified level the NFIP would no longer be responsible for borrowing money to honor claims. This strategy kept premiums reasonable so that people would be willing and able to pay for flood coverage.”
That partnership ended in 1978 for “reasons that may not be relevant today,” according to Shabman, who said FEMA and the private sector should “work together to explore new forms of partnership.”
“Acknowledging this original role for the federal treasury, as a backstop to NFIP (and private policies), is one way to help keep insurance affordable and keep the program from incurring debts it will not be able to repay. Provisions in some of the pending legislation, in effect, are reinstituting this federal role,” said Shabman.