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Come on In, the Water’s Fine, Congress Tells Flood Insurers

The challenge for lawmakers hoping to entice the insurance industry to play a larger role in underwriting flood coverage as part of a reauthorization of the National Flood Insurance Program (NFIP) next year is how to make flood insurance profitable for insurers while keeping prices affordable.
Come on In, the Water’s Fine, Congress Tells Flood Insurers
July 13, 2016

The challenge for lawmakers hoping to entice the insurance industry to play a larger role in underwriting flood coverage as part of a reauthorization of the National Flood Insurance Program (NFIP) next year is how to make flood insurance profitable for insurers while keeping prices affordable. That’s the thrust of a July 5 briefing article for subscribers of Bloomberg BNA that traces the history of the NFIP from its inception to today.

“For many years, the program was largely self-funded, earning about as much in premiums as it paid out in claims,” the article notes. “But the NFIP is now at a financial crossroads, and global warming is making big storms more frequent and severe. Hurricanes Katrina, Rita and Wilma caused billions of dollars in flood damage in 2005 and plunged the NFIP about $19 billion into debt. Seven years later, Hurricane Sandy added another $7 billion in debt, and currently the program owes federal taxpayers about $23 billion.” Congress permits the NFIP to borrow from the Treasury when the NFIP runs out of money, and has had to raise the NFIP’s debt limit several times.

The House of Representatives passed the PIA-endorsed Flood Insurance Market Parity and Modernization Act (H.R. 2901), in a bipartisan vote on April 26. The bill ensures that private flood insurance can be used to satisfy the National Flood Insurance Program’s (NFIP’s) continuous coverage requirement, an essential aspect of ensuring policyholders are not penalized for moving from one policy to another.

“This legislation seeks to encourage the development of a private flood insurance market, with strong consumer protections being overseen by state insurance regulators,” said PIA National Vice President of Government Relations Jon Gentile. “We thank the bill’s sponsors Reps. Dennis Ross (R-FL) and Patrick Murphy (D-FL) for their leadership on this important issue.” A companion bill, S. 1679, introduced by Senator Dean Heller (R-NV), awaits action in the Senate.

The Bloomberg/BNA report notes that some insurance companies are beginning to consider a bigger role in underwriting flood coverage. “Advances in mapping technologies and catastrophe-modeling simulations give underwriters tools for assessing risk and making predictions that weren’t available when the NFIP was designed in the late 1960s.”

Despite these advances, many insurers remain wary and say policy makers will have to revise federal regulations they call anti-competitive, change public expectations about the cost of flood insurance when it isn’t federally subsidized and increase the number of policy owners. Any transition is likely to be gradual, the report concludes, noting that industry and government officials agree.