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What’s Next for the NFIP?


What’s Next for the National Flood Insurance Program?

By: Adam M. Matheny

Sea Levels Will Rise

Plagued by short term extensions, it’s clear that the National Flood Insurance Program (NFIP) will require a serious reform. Risk Replacement Services EVP Christa Nadler explores the problems the program has faced and its future.

As open market coverage becomes increasingly critical and data more and more central to solutions, the industry must acknowledge that private insurers may actually offer broader coverage than the NFIP, which has fairly restrictive limits, especially outside of policies designed for small businesses. Private insurers can offer, and do offer, much higher coverage limits.

One of the most important changes for the NFIP is embracing private sector reinsurance—a step already being discussed by FEMA (Federal Emergency Management Agency). Reinsurance is a tool designed to manage financial risk; it is used by both private companies and public entities to mitigate large losses.

The newest plan will cover NFIP losses that exceed four billion dollars for a single flood event; for this coverage, the NFIP pays a premium slightly more than 200 million dollars. This new reinsurance coverage is structured to cover about ten percent of losses between four and six billion dollars, nearly 35 percent of losses between six and eight billion dollars, and slightly over twenty percent of losses between eight and ten billion dollars.

FEMA has transferred over two billion dollars to private sector to cover the NFIP’s flood risk for the upcoming year’s hurricane season.

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