After the National Flood Insurance Program’s (NFIP) short-term extension, the next steps will be reforming the program. In a report by Christa Nadler, EVP of Risk Placement Services, she dives into what problems the NFIP has faced, and what the future of the program looks like.
According to Nadler, open-market flood coverage is becoming more and more vital, and “data is king.” With additional sources of data available, more carriers than the NFIP alone are looking at providing insurance.
“In many instances, private flood actually offers broader coverage than the NFIP,” said Nadler.
"The NFIP also limits coverage to $500,000 in building coverage and $500,000 in contents coverage for commercial occupancies," Nadler adds. "Outside of small businesses, $500,000 in coverage is virtually nothing. In the private flood space, insureds can secure limits in excess of $100M, if necessary."
Part of the next steps for the NFIP involves private sector reinsurance. As part of the next steps for NFIP, the Federal Emergency Management Agency announced earlier this month that it has transferred an additional $1.33 billion of the NFIP’s financial risk to the private reinsurance market in its 2020 reinsurance placement for the program.
Reinsurance is a financial risk management tool used by private insurance companies and public entities to protect themselves from large financial losses. This annual reinsurance agreement from FEMA is in effect from January 1, 2020, to January 1, 2021, with 27 private insurance companies.
The newest reinsurance covers portions of NFIP losses above $4 billion from a single flood event. The Agency paid a total premium of $205 million for the coverage.
The agreement is structured to cover:
- 10.25 percent of losses between $4 billion and $6 billion,
- 34.68 percent of losses between $6 billion and $8 billion, and
- 21.80 percent of losses between $8 billion and $10 billion.
Combing the $500 million allocated in August 2018 and the $300 million from April 2019, FEMA has transferred $2.13 billion of the NFIP’s flood risk for the 2020 hurricane season to the private sector.