Tag Archives: NFIP

NFIP reinsurance protection a good thing

From January 1, 2017, FEMA – the Federal Emergency Management Agency – secured increased reinsurance protection to share a meaningful portion of the risk of large and unexpected flooding with private reinsurance markets.

This placement of reinsurance transferred $1.042 billion in risk above a $4 billion deductible to 25 reinsurance companies.

Under this agreement, the reinsurers can cover 26 percent of losses between $4 billion and $8 billion arising from a single flooding event.

As Artemis blog reports here, with flood losses from Hurricanes Harvey and Irma on the rise, estimates suggest that the NFIP reinsurance program will pay out in full with losses from Hurricane Harvey alone.

Per Artemis: “The NFIP reinsurance program is a per-occurrence arrangement, meaning it covers a single loss event.”

Also noted by Artemis at the very end of its blog post, the NFIP reinsurance layer does not have a reinstatement provision.

This means that the NFIP cannot also claim on the program for its losses from Hurricane Irma as a second and separate event.

Nevertheless, it’s a good thing that NFIP secured first event coverage. A reinsurance payment for Hurricane Harvey flood losses will be welcome.

Private market flood insurance is cheaper in many cases

Alongside the National Flood Insurance Program (NFIP), a thriving private flood insurance market would provide wider and in many cases cheaper coverage options, according to a new study.

Consulting firm Milliman, in partnership with risk modeler KatRisk, looked at three states – Florida, Texas, and Louisiana – which combined account for 56 percent of NFIP insurance policies in-force nationwide.

Its analysis compared modeled private flood insurance premiums to those of the NFIP.

Key findings:

  • Some 77 percent of single-family homes in Florida, 69 percent in Louisiana, and 92 percent in Texas could see cheaper premiums with private insurance than with the NFIP.
  • Of the homes modeled, 44 percent in Florida, 42 percent in Louisiana and 70 percent in Texas, could see premiums that are less than one-fifth that of the NFIP.
  • Conversely, private insurance would cost over twice the NFIP premiums for 14 percent of single-family homes in Florida, 21 percent in Louisiana and 5 percent in Texas.

prior post discussed how private carriers are dipping their toes in the flood insurance market.

GAO: How to Make Flood Insurance Attractive to Private Sector

Efforts to delay or repeal rate increases under the Biggert-Waters reforms to the National Flood Insurance Program (NFIP) would likely continue to increase the NFIP’s long-term burden on taxpayers.

They may also reinforce private insurers’ skepticism that they would ever be permitted to charge adequate rates and make their participation in the flood insurance market unlikely in the foreseeable future, according to a new Government Accountability Office (GAO) report.

In its analysis GAO notes that new technologies and a better understanding of flood risks may have increased private insurers’ willingness to offer flood coverage, but a key condition to their participation is the ability to charge rates that fully reflect the estimated risk of flooding.

GAO states:

As debates over the private sector’s role continue, one step to address the burden on low- and moderate-income policyholders could be taken immediately. As we have suggested previously, Congress could eliminate subsidized rates, charge full-risk rates to all policyholders, and appropriate funds for a direct means-based subsidy to eligible policyholders. The movement to full-risk rates would encourage private sector participation, and the explicit subsidy would address affordability concerns, raise awareness of the risks associated with living in harm’s way, and decrease costs to taxpayers, depending on the extent and amount of the subsidy.†

Even with increased private insurer participation in the flood insurance market, the GAO report foresees a continuing role for the federal government in the form of a residual market or NFIP reinsurer.

Insurance Journal has more on this story.

Check out this USA Today article on latest Congressional action to delay new flood insurance premiums.

Also check out I.I.I. facts and statistics on flood insurance.

I.I.I. on Flood Insurance: Time to Act is Now

With the June 1 start of the 2013 Atlantic hurricane season  just one month away the Insurance Information Institute (I.I.I.)  is urging  people to prepare for heightened flood risks that come with hurricanes and tropical storms.

The I.I.I. notes that the most recent two hurricane seasons have shown how devastating the consequences of seasonal flooding can be, with losses felt well beyond the high risk areas nearest the water:

While coastal states have an increased risk of flooding during hurricane season, it is important to note that flood risks extend far beyond those areas. Some of the most severe flooding has occurred when the remnants of a hurricane or tropical storm system traveled inland, such as Hurricane Irene two years ago, producing heavy rainfall hundreds of miles from the coast. For this reason, it is important to have coverage no matter where you live.†

Flood damage is excluded under standard homeowners and renters insurance policies. Residential flood insurance is available in the form of a separate policy primarily from the National Flood Insurance Program (NFIP).

A 2012 poll by the  I.I.I. found that 13 percent of American homeowners had a flood insurance policy, virtually unchanged from the 14 percent of homeowners in 2011, but well below the 17 percent who said they purchased flood insurance in May 2008.

Many homes that sustained flood damage from Superstorm Sandy did not have flood insurance, according to joint research by the Wharton Risk Center and Resources for the Future.

For example, along the entire New York coast, take up rates were lower than 30 percent in most ZIP codes. Take-up rates along the New Jersey coast were apparently higher than New York, particularly in Manhattan.

Check out I.I.I. information on flood insurance here.