RMS Comments: What’s Next If Flood Insurance Reform Passes? If It Fails?

By Matt Nielsen | November 20, 2017

  • November 20, 2017 at 7:40 am
    PolarBeaRepeal says:
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    This is a well-written argument for shifting the NFIP risks to the private market, using lessons learned from the debt incurred to date on NFIP (about $40B, per current estimate projections including Harvey, Irma) and the market dynamics.

    One thing especially important is a subtle discussion of the importance of understanding the true meaning of ‘risk’ when constructing an insurance portfolio. Readers who still think ‘risk’ means ‘chance of an insured or uninsured loss’ would do well to read the 3rd paragraph thoroughly for clues. Nowhere in that paragraph does the author mention ‘chance of loss’ or any equivalent term(s).

    The importance of willing and knowledgeable multi-line insurers in the development of a private market for the flood insurance peril cannot be stressed too much.

    The current debt issue, described as a result of the failure in pricing NFIP coverage at average rate levels, is stressed as an important issue in developing a sustainable, demand-filling private market. Private insurers who understand the term ‘risk’ will do what the NFIP should have done from the beginning, rather than count on federal taxpayers not exposed to the flood peril to subsidize those who are, and who refuse to mitigate or eliminate the risk. In the long run, that attention to critical details of the risk by the private market will enable it to sustain a supply of coverage to meet the demand (which, hopefully should shrink over 5 or 6 decades of risk mitigation / avoidance).

    Will the US Senate fumble the ball by advancing a revised bill that makes ‘safer changes’ intended to preserve their political future? Or, will they make the necessa/r/ight changes for the benefit of taxpayers who need coverage, and for those who don’t and shouldn’t be forced to subsidize others who do?

    • November 20, 2017 at 7:45 am
      PolarBeaRepeal says:
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      Addendum: I am banging my paws together in a vain attempt to applaud the author of the article. But excessive fur is muffling the sound.

    • November 20, 2017 at 10:00 am
      Confused says:
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      Or maybe the author didn’t see the need to explain what Insurance 101 should have taught us all about the definition of ‘risk’ because we’re supposed to be professionals in the insurance industry and have a understanding of the most basic of terms that’s used in our field.

      In response to “The current debt issue, described as a result of the failure in pricing NFIP coverage at average rate levels,” I ask – if the NFIP charged rates commensurate with the extent of the risk they’re insuring to ensure they take in more premium than they pay out, would you be okay with it so long as the NFIP was not losing money (and having to take it out of Joe Taxpayer’s pocket) when they have to pay out claims?

      • November 20, 2017 at 10:07 am
        PolarBeaRepeal says:
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        Nope. You’re still missing the point. The author stressed a key aspect of risk that many here fail to understand. I’ll let tehm try to figure it out, with the clue I provided.

        I am not sure why you suggest excessive premiums, and that isn’t what I suggested. That is contrary to statutes that mandate fair, reasonable and adequate rates that are not unfairly discriminatory or excessive. Another Straw Man Argument.

        • November 20, 2017 at 10:58 am
          Confused says:
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          Had I wrote “YOU are suggesting ____ and here’s why it’s wrong” when you didn’t suggest ___, THAT’S a straw man argument.

          Asking a question if you’d support something if “x” was done is not a Straw Man Argument. That’s just called “asking a question.”

          Anywhoo, I did not suggest EXCESSIVE premiums. I suggested actuarially sound premiums to ensure the NFIP doesn’t run a deficit and has cash to pay claims.

          I asked that because it’s exactly what the private sector would have to do to stay solvent — charge enough in premium to cover their losses while having funds in the coffer to either (a) return excess to shareholders (or w/ the NFIP – to help pay back some of the deficit) or (b) hold profits to pay for future claims when the next disaster strikes.

        • November 20, 2017 at 1:03 pm
          Jestr says:
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          You do disservice to those who need to learn about risk. Quit playing games that’s why the insurance industry is mistrusted.

          • November 20, 2017 at 7:12 pm
            PolarBeaRepeal says:
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            Go ahead; explain what ‘risk’ is. Ready, steady, …. GO!

          • November 21, 2017 at 10:00 am
            Confused says:
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            Don’t go down that rabbit hole, Jestr. He’s already told me many times that the definitions of words I post from dictionaries aren’t right and even the colloquial definitions I posted aren’t accurate either. Basically, risk means whatever PolarBeaRepeal wants it to mean in the context of this conversation, and it could mean something different in another conversation.



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