The Potential for Flood Insurance Privatization in the U.S.
Could carriers keep their heads above water?
The National Flood Insurance Program (NFIP), which generates $3.3 billion in premiums, is exploring the possibility of sharing more of its exposure with primary insurers, reinsurers and alternative market investors. Still, it is up to private market players to determine the prospects for writing such coverage profitably, including how to overcome the challenges that have left the NFIP heavily in debt.
The NFIP has been the primary source of flood coverage for U.S. home- and business-owners for more than half-a-century. Debate has been ongoing in Washington for years regarding how lawmakers might put the NFIP program on a sounder financial foundation and keep it that way over the long term. Part of the solution may be sharing more flood exposure with the private market, but there is no guarantee that primary carriers or reinsurers will be eager or even willing to take on such risks, given the challenges that have undermined the NFIP's financial stability.
Although flood insurance theoretically presents a tremendous growth opportunity for private carriers, convincing them to get back into the flood insurance business in a big way will likely require concrete actions on the part of federal and state lawmakers to create an environment in which carriers are given enough flexibility to underwrite and price for a reasonable return on the risks they are being asked to assume.
This report will examine how private markets might play a bigger role in underwriting flood insurance risks, while assessing the possible obstacles ahead.
- Status report: Where do NFIP reforms and privatization efforts stand now?
- Challenges in managing and financing flood risk
- Options and prospects for greater privatization of the exposure
- Where do carriers go from here with flood insurance?
For more information, download the PDF.