NFIP revamp moving through the grinder

May 13th, 2008

Posted by: admin

The literature on the myriad problems with the National Flood Insurance Program (NFIP) is long and deep. One of the main problems is that the program is not insulated from politics and thus is prevented from acting like a real market by setting actuarially-sound rates on its customers. Other problems exist but the premium-setting problem is the most significant and no matter how Congress tinkers with the NFIP, if it doesn’t address the premium issue then the NFIP will continue to be a taxpayer money-sucking problem child.

A NFIP reauthorization has been moving through Congress and yesterday the Senate passed its version. Predictably they moved the current $18+ billion NFIP deficit to general revenues (i.e. the U.S. taxpayer), a move that has a long history in Congress. But some good was included in the bill and the House’s version does not have the $18+ billion shift. The Senate was able to pass an annual premium increase cap from 10% to 15%, which is more significant than it probably sounds. They also authorized $2B for updated floodplain mapping, which is also much more significant than it probably sounds, as currently premiums are not always based on physical reality. (We’ll see how much actually gets appropriated out of that $2B.)

(And hey all, sorry for the non-controversial post.)

One Response to “NFIP revamp moving through the grinder”

  1. lmbouwer Says:

    This is very interesting news.

    I have been working on a review of European flood insurance schemes, and it appears that actuarially-sound premium setting is very rare, if not absent in flood insurance. This will greatly inhibit incentives to reduce risk, or avoid development in flood risk areas.

    See some prelimnary results here:

    Improved flood plain mapping in the US seems a good start though.

    Sorry for providing a non-controverial response as well ;-)