12 September 2017 Insurance

NFIP reform could pave way for private market to participate

With the National Flood Insurance Program (NFIP) up for renewal, the US flood market could be ripe for the private market to step in—and there is strong interest in this, as Bill Churney, president of AIR Worldwide, told Monte Carlo Today.

The US Congress has extended the deadline to renew or repeal the NFIP from September 30 to December 8, 2017. Churney believes it is leaning towards more substantial reform, which could pave the way for greater private market participation.

“From every client we talk to, there is strong interest in that,” said Churney. “The capital is there. AIR has a full probabilistic inland flood model, so the analytical tools are there. The data is there. It is ripe for the private market to step in.

“You could argue that for some policyholders the NFIP product is too attractive, in that the rates are criticised because they’re not actuarially sound, and there are a lot of repeat losses with the NFIP, so there would be a need for better pricing of the risk.

“If there’s more insurance take-up then hopefully that risk would spread more effectively.”

Any time there is a major loss such as Harvey, Churney noted, when you’re dealing with upwards of $65 to $75 billion in damage, it’s going to shine a spotlight on the fact that the NFIP can’t afford that. That triggers an opportunity for the US government to act and the private market to fill the gap.

The matter of underinsurance of cat risk in the US is a big problem that people are becoming more aware of, he said. “No matter where you look in the US, coverage for flood insurance is extremely low.

“We often talk about the protection gap, and it’s often thought that it’s an issue for Asia.

“Well it’s a huge issue for the US; we would estimate that less than 50 percent of the cat risk in the US is insured,” he concluded.

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