NFIP could need emergency funds to cope with flood losses

The National Flood Insurance Program (NFIP) run by FEMA could require emergency additional funding in the aftermath of flood losses in Texas as the high losses complicate its already perilous financial position.

According to the Insurance Council of Texas, only about 20 percent of homeowners have flood insurance, almost all of which is through The National Flood Insurance Program (NFIP) run by FEMA. The NFIP is already nearly $25 billion in debt. Harvey may well push the NFIP up against its borrowing limit of $30 billion and prompt action by lawmakers to reform the programme, which is due to be reauthorized at the end of September, according to AIR Worldwide.

S&P Global Ratings also confirmed that with Texas accounting for about 12 percent of NFIP's policies in force, Harvey is a significant event that will push the NFIP further into the red.

It noted that the program is about $25 billion in debt, and its ability to fund Harvey-related losses comes from its ability to borrow from the Treasury (current borrowing capacity of about $5.8 billion) and a reinsurance programme it took out earlier this year, under which it transferred about $1 billion of its flood risk.

“With the Insurance Information Institute estimating flood losses reaching about $15 billion (NFIP's losses from Hurricanes Sandy and Katrina were $8.3 billion and $16.3 billion, respectively), NFIP would need Congressional approval to cover any shortfall with additional borrowing from the Treasury. This could further provide an impetus to involve private capital to a greater extent for the upcoming reauthorization,” S&P said.

SmarterSafer, a lobby group looking to transform the NFIP, said that the record levels of rainfall have also exposed a broad public policy challenge regarding federal recovery programmes that are in desperate need of reform.

“For years, the National Flood Insurance Program (NFIP) has been in dire fiscal straits, which is evident by the program’s nearly $25 billion debt to taxpayers. The programme administers flood coverage to more than 593,000 Texans and 5.2 million property owners across the country, but does little to encourage homeowners without flood insurance to purchase coverage through the private sector or the NFIP, which allows homeowners to fully rebuild and recover after a major storm strikes. The program also does not do enough to encourage states, communities, and individuals to reduce their vulnerability to current and future flood risk,” it said.

“With the NFIP set to expire at the end of next month, Congress must advance a meaningful reform agenda that improves the NFIP so that it better protects lives, property and taxpayer dollars.”

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