NFIP: The test before the flood

30-11-2016

NFIP: The test before the flood

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The US National Flood Insurance Program (NFIP) has tested the transfer of flood risk to the private reinsurance sector, paving the way for a large-scale privatisation of US flood risk. While the potential business for reinsurers is significant, it is likely to be a long and complex process.

The NFIP was established in 1968 to help offer flood insurance to homeowners, renters, and business owners and is the primary underwriter of flood insurance policies in the United States.

“For most of the 20th century U.S. flood has been considered by many insurers and reinsurers to be ‘uninsurable’,” says Pete Thomas, chief risk officer at Willis Re.

“The NFIP was a congressional response to a private market failure that was in part driven by the state of science and technology at the time and in part by insurer concerns about adverse risk selection and the belief that regulators would not permit them the necessary underwriting and rating flexibility to achieve a reasonable expectation of profit,” Thomas says.


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