It’s time to redesign the structure of the NFIP. This ought to be more of a reinsurance backstop, like TRIA, rather than a direct insurance program targeting bad risks. Start by focusing on the consumer side. The NAIC could work in concert, much as it did with surplus lines changes, to push through state laws requiring flood to be a covered cause of loss under all policies insuring 1-to-4 family dwellings. This enables all insureds to benefit from coverage (that their tax dollars are currently paying for even if they don’t have NFIP policies themselves) and creates a larger pool of premium dollars to fund both good and bad risks (the whole idea behind insurance when it’s working properly). Let the NFIP serve as a backstop only for major cat events that result in more than $XXX amount of flood damage, like TRIA.
How would this solve the problem of adverse selection? Are you saying you would also prevent carriers from using flood maps to select risk? I think any reform must carefully consider potential unintended consequences especially one such as increased incentive/opportunities for developers to build in areas that regularly flood.
You circumvent adverse selection by having flood be a standard feature of the homeowner’s policy, the same as coverage for fire. Policy rates would have to include an element for flood, but properties in all zones would be contributing to the premium pool overall. Insurers avoid writing flood now mainly because they can, and because of the adverse selection problem with stand-alone policies. But if they’re able to charge premium over a much larger portfolio of risks, there’s more to work with. Consider the number of homes in the U.S. that have mortgages on them. If all of those homes are required to have homeowners policies, which lenders do require, and all those policies have flood coverage, which currently is only required for high-risk properties, there’s an incredible spread of risk to work with. This would be a much better way to address the problem. And for the low-risk property owner who isn’t currently required to buy flood insurance, but whose tax dollars end up going toward the NFIP deficits anyway, this revised approach would give them direct insurance protection that they’re not getting now.
It’s time to redesign the structure of the NFIP. This ought to be more of a reinsurance backstop, like TRIA, rather than a direct insurance program targeting bad risks. Start by focusing on the consumer side. The NAIC could work in concert, much as it did with surplus lines changes, to push through state laws requiring flood to be a covered cause of loss under all policies insuring 1-to-4 family dwellings. This enables all insureds to benefit from coverage (that their tax dollars are currently paying for even if they don’t have NFIP policies themselves) and creates a larger pool of premium dollars to fund both good and bad risks (the whole idea behind insurance when it’s working properly). Let the NFIP serve as a backstop only for major cat events that result in more than $XXX amount of flood damage, like TRIA.
How would this solve the problem of adverse selection? Are you saying you would also prevent carriers from using flood maps to select risk? I think any reform must carefully consider potential unintended consequences especially one such as increased incentive/opportunities for developers to build in areas that regularly flood.
You circumvent adverse selection by having flood be a standard feature of the homeowner’s policy, the same as coverage for fire. Policy rates would have to include an element for flood, but properties in all zones would be contributing to the premium pool overall. Insurers avoid writing flood now mainly because they can, and because of the adverse selection problem with stand-alone policies. But if they’re able to charge premium over a much larger portfolio of risks, there’s more to work with. Consider the number of homes in the U.S. that have mortgages on them. If all of those homes are required to have homeowners policies, which lenders do require, and all those policies have flood coverage, which currently is only required for high-risk properties, there’s an incredible spread of risk to work with. This would be a much better way to address the problem. And for the low-risk property owner who isn’t currently required to buy flood insurance, but whose tax dollars end up going toward the NFIP deficits anyway, this revised approach would give them direct insurance protection that they’re not getting now.
Too top-heavy. Too bureaucratic. Currently Homeland Security on top, FEMA in the middle, and NFIP on the bottom. Needs its own organization.
And these are the same yahoos who are hell bent on running our medical insurance.