This is all well and good for post-firm properties. In the county I’m in there is a ton of prefirm properties that are 5 to 10 feet below base flood elevation. The “actuarial” rate makes the premium on these properties unaffordable, and that doesn’t work. There has to be a spread of risk and spread of premium in order to affordably insure these properties – until they are over 50% damaged in a flood. Until then, a -5 to -10 feet rating is going to to be uninsurable, even though many of these properties have been profitable for the NFIP.
That’s the point. The way that we’re writing flood (by and large) is what makes it so cost prohibitive. Does it not make sense that if the entire county is carrying flood as part of their homeowners’ policies, rates must go down in the aggregate and even for those who are in the highest risk category because the risk is spread among a larger risk pool? What about if we increase the risk pool to include all of the risks in the state? We’re advocating that we begin to offer flood as a covered and rated peril for more risks, making it more affordable for all risks.
I think it would be helpful to separate the issue of actuarially sound rates and affordability. The entity providing the cover (be it NFIP, Residual, Private) should charge actuarially sound rates.
Some other program can be considered to subsidize the cost, with availability based on public policy issues: property history, property owner wealth, property use, etc..
Thanks for the comment, OD. I believe that by increasing the risk pool, you create actuarially sound rates that are totally affordable. When you speak of property history and current use, those speak to the indicated rates. I don’t think that property owner wealth is an appropriate issue to consider. There was an article on IJ just yesterday about regulators Minnesota fining an insurer for rating auto coverage based on people who rent, rather than own, their homes. Let the market and the risk price itself.
I don’t think public policy would find sufficient need for tax payers subsidizing high net worth individuals or vacation homes.
If a property wasn’t in a high hazard zone at time of construction, but was made to be in one by virtue of surrounding development, I think subsidies would have more merit than for property built in a known flood zone.
You advocate for risk pool expansion to mean low exposure property owners subsidizing high risk property owners.
Since building in a high or moderate hazard zone is a choice, I think this is problematic.
Excellent article, Patrick! Great points and sound reasoning!
Thank you, sir!
This is all well and good for post-firm properties. In the county I’m in there is a ton of prefirm properties that are 5 to 10 feet below base flood elevation. The “actuarial” rate makes the premium on these properties unaffordable, and that doesn’t work. There has to be a spread of risk and spread of premium in order to affordably insure these properties – until they are over 50% damaged in a flood. Until then, a -5 to -10 feet rating is going to to be uninsurable, even though many of these properties have been profitable for the NFIP.
That’s the point. The way that we’re writing flood (by and large) is what makes it so cost prohibitive. Does it not make sense that if the entire county is carrying flood as part of their homeowners’ policies, rates must go down in the aggregate and even for those who are in the highest risk category because the risk is spread among a larger risk pool? What about if we increase the risk pool to include all of the risks in the state? We’re advocating that we begin to offer flood as a covered and rated peril for more risks, making it more affordable for all risks.
I think it would be helpful to separate the issue of actuarially sound rates and affordability. The entity providing the cover (be it NFIP, Residual, Private) should charge actuarially sound rates.
Some other program can be considered to subsidize the cost, with availability based on public policy issues: property history, property owner wealth, property use, etc..
Thanks for the comment, OD. I believe that by increasing the risk pool, you create actuarially sound rates that are totally affordable. When you speak of property history and current use, those speak to the indicated rates. I don’t think that property owner wealth is an appropriate issue to consider. There was an article on IJ just yesterday about regulators Minnesota fining an insurer for rating auto coverage based on people who rent, rather than own, their homes. Let the market and the risk price itself.
I don’t think public policy would find sufficient need for tax payers subsidizing high net worth individuals or vacation homes.
If a property wasn’t in a high hazard zone at time of construction, but was made to be in one by virtue of surrounding development, I think subsidies would have more merit than for property built in a known flood zone.
You advocate for risk pool expansion to mean low exposure property owners subsidizing high risk property owners.
Since building in a high or moderate hazard zone is a choice, I think this is problematic.