Moves are afoot once again to involve the private sector in the National Flood Insurance Program in the US—a move that would be a good thing for the market and an opportunity for insurers and reinsurers, says Frank Nutter.
In the US, the National Flood Insurance Program (NFIP) provides flood coverage to homeowners and businesses to the near exclusion of the private insurance market. The coverage limits of up to $250,000 do facilitate a market above that limit, but as a practical matter, the federal government is the principal insurer of flood risk.
That was not always the case. As conceived in 1968, the NFIP was built on fundamentally sound principles of encouraging hazard mitigation and promoting the use of insurance to reduce post-event disaster assistance. But because the programme maintains premium subsidies for many properties and lacks a credible catastrophe factor in the premiums, the NFIP compromises, rather than embraces, sound insurance principles and practices.
That may soon change. When the NFIP was reauthorised in 2012, it had a debt of nearly $19 billion to the US Treasury for claims exceeding its ability to pay; in 2012, Superstorm Sandy brought another wave of claims and the debt ballooned to $26 billion.
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National Flood Insurance Program, NFIP, flood insurance, FEMA