Reauthorization Looms for
Big storms add
urgency to reforms
on transparency and
By Gregory DL Morris
The future of the NFIP will be decided in the wake of Harvey and Irma.
In November, the U. S. House of Representatives voted to revamp the National Flood Insurance Program (NFIP). While the Senate isn’t expected to pass its own revised version until sometime in 2018, the House version calls for greater private sector involvement in the writing of flood insurance and penalties for owners whose properties are the site of repeat flood claims.
By one estimate, one percent of properties are responsible for 30 percent of all
NFIP losses. Private insurers have long complained about a lack of transparency
in pricing and transferring risk under the Federal program, which was founded
some 50 years ago, because private sector insurers were unwilling to take on
Since the onslaught of Hurricanes Katrina and Rita in 2005, the program has
struggled with debt. Congress in October forgave $16 billion in NFIP debt in an
attempt to maintain the program in some state of viability.
According to Daniel Alpay, line underwriter, flood and household, Hiscox,
the current situation with the NFIP is not dissimilar to the issues faced by the
Terrorism Risk Insurance Act, another federally-backed insurance program.
“Both required reform, and both have experienced delays to reform with short-term extensions,” he said.
“We saw a few NFIP lapses and short-term extensions between 2008 and
2012, which led to mortgage market disruption and lenders demanding owners
buy flood coverage for homes in high-risk areas, before the NFIP was finally reauthorized.”
Alpay added, “It’s anyone’s guess as to what will happen, but I would say it’s
very possible that something similar [to what has happened before with NFIP]
could happen again if there is still polarization in Congress.”
ACCESS TO AFFORDABLE INSURANCE
“Either way, consumers need clarity and access to affordable flood coverage as
recent events have sadly highlighted,” he said. “There are too many consumers in
the U.S. at risk of flood who are either not being adequately insured or else not
being covered at all.”
Achieving bipartisan support is challenging, “but at the end of the day, U.S.
citizens need to have sufficient access to affordable flood insurance,” Alpay
“The NFIP has played an important part in offering flood coverage to
U.S. homeowners and businesses, but it is not sufficient on its own. It requires
reform; it is no longer the self-sufficient insurance program that it was set up to
be, given it is $25 billion plus in debt.”
Neal Conolly, now a director at ratings company Clearsurance, was the
president of Wright Flood, the largest underwriter in the NFIP, until last year.
He noted the October $16 billion loan forgiveness by Congress. That relief,
plus a $22 billion line of credit at the Treasury, means there is “no financial issue
continuing for NFIP.”
“Historically, the program was in
balance for most of its 40 years of
existence,” said Conolly.
“It was two storms, $17 billion
of insured losses from Katrina and
$7 billion from Sandy” that put the
program under water.
He added that preliminary figures
from Harvey will surpass Sandy with
$10 billion in insured losses. Irma will
be smaller at about $3 billion.
IT’S THE ECONOMY
As important as those losses are,
Conolly stressed a much larger one:
“There are provisions in the
reform proposals that direct
NFIP to release data. That
includes loss data.”
— Todd Kozikowski, co-founder and chief risk
• Reauthorization of the NFIP
might be delayed by Congress,
• Flood risk was once considered
uninsurable for private markets,
but that attitude is slowly
• Advances in technology make
underwriting risk more accurate
and more palatable to the private