The National Flood Insurance Program returned to the private reinsurance market for 2018, paying $235 million for $1.458 billion coverage from a single flood event.
The coverage limit is 40 percent more than what the NFIP purchased last year ($1.042 billion), and the premium is 56 percent higher than the $150 million NFIP paid last year. The 2017 treaty was the first significant foray for the government insurer into the private sector, and the government recovered the entire $1.042 billion from Hurricane Harvey’s floods.
The structure is a bit different this year. Last year reinsurers covered 26 percent of $4 billion in losses after NFIP retained $4 billion losses. Reinsurers will pay 18.6 percent of the first $2 billion of losses excess of $4 billion and will pay 54.3 percent of the $2 billion excess $6 billion.
Both last year and this, the NFIP gets no protection for the first $4 billion of any flood event – the $4 billion acts similar to a deductible on an insurance policy. After that, the worse the flood gets, the more NFIP recovers, and this year the maximum is $1.458 billion.
- A $5 billion flood would result in a recovery of $186 million – $5 billion minus $4 billion is $1 billion and 18.6 percent of that is $186 million.
- A $7.5 billion flood would result in a recovery of $1.1865 billion:
- For the first $6 billion, the recovery would be $372 million, being 18.6 percent of $2 billion (after the $4 billion “deductible.”)
- For the $1.5 billion in losses above $6 billion, the recovery would be $814.5 million, being 54.3 percent of $1.5 billion.
Harvey was the third worst flood in NFIP’s 50 years, behind Hurricane Katrina in 2005 ($16.3 billion) and Superstorm Sandy in 2012 ($8.7 billion). Harvey has generated 91,514 claims through January 5, according to messaging from FEMA, and 90.9 percent of them have closed. The average payment has been $108,825.
The I.I.I. has more information on floods and flood insurance here.