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NAMIC Says Reform, But Don't Privatize, NFIP

The National Association of Mutual Insurance Companies (NAMIC) is urging the Obama administration to reform - but not privatize - ...
January 5, 2011

The National Association of Mutual Insurance Companies (NAMIC) is urging the Obama administration to reform - but not privatize  - the National Flood Insurance Program (NFIP).


"We believe that the best, most effective and viable option is maintaining the current NFIP framework while implementing reforms that address existing weaknesses," NAMIC's Washington office said in a comment letter sent to the Federal Emergency Management Agency, which runs the FEMA program. "The presence of a federal program is just as important today as it was 40 years ago. "The driving force behind the creation of the NFIP - no viable private market - remains the fundamental issue," NAMIC said.

NAMIC's comments rejecting privatization are in response to proposals made that the Obama administration should consider privatizing all or part of the program. That suggestion was made by the Reinsurance Association of America and the Association of Bermuda Insurers and Reinsurers. NAMIC said the problem with privatization is that in order to underwrite a risk like flood, an insurer would need to charge very high premiums and maintain significant capital reserves in case of massive flooding, when all of their policyholders would be making claims. "In actuality, the only people who would be able to afford coverage would likely be those that did not need it," NAMIC said in its comment letter.

FEMA plans to invite the ten CEOs of companies participating in the "write your own" (WYO) flood insurance program to a round-table discussion "of the actions needed for the private insurers to seriously consider bearing the risk for some or all of the flood peril," according to a letter from Edward Connor, acting assistant commissioner for mitigation. No decisions will be made at the January 26 meeting, he said.

A FEMA spokesperson said privatization is one option on the table, but has not been formally endorsed by FEMA. A spokesperson for the Property Casualty Insurers Association of America (PCI) expressed skepticism that privatization could work. The American Bankers Association issued comments favoring privatization that would "end the system's dependence on bank enforcement of NFIP coverage."

Click here to read NAMIC Says NFIP Needs Reform, Not Privatization (National Underwriter 12/30/10)
 
Click here to read Excerpts From NAMIC Letter to FEMA (Insurance Journal 12/30/10)

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