Current rates for National Flood Insurance Program (NFIP) policyholders are about a third of the true risk cost in many parts of the country, according to a new study by the Property Casualty Insurers Association of America (PCI).
"We are releasing the findings of our new study on NFIP rates as a benchmarking tool to help lawmakers as they discuss the Flood Insurance Reform Act of 2011," said Robert Gordon, PCI's senior vice president of policy development and research.
As I reported earlier, the NFIP is plagued by a debt of more than $17 billion. Because of that Gordon stated that PCI is "pleased that the new bill in the House includes provisions to move the NFIP toward more adequate rates that will stabilize the program and reduce taxpayers' exposure to costly relief efforts."
In the report, PCI has calculated a rough approximation of the true market-risk cost of flood insurance, based on recent analyses by the Congressional Budget Office (CBO) and Government Accountability Office (GAO) of the NFIP's costs plus the additional amounts necessary if coverage were to be provided in the private sector (such as reinsurance, cost of capital, and taxes).
The report concludes that, overall, the federal government is providing flood insurance at roughly one-half the true risk cost for NFIP policies. In higher risk areas, the explicit subsidy is even greater, resulting in a true risk cost that is more than three times higher than NFIP rates.
"We support the current public-private partnership," Gordon said in the press release, "but moving forward, we need to provide the flood program with the ability to sustain itself financially and adequately protect its policyholders with sufficient capital."
The American Insurance Association (AIA) also weighed saying the Flood Insurance Reform Act of 2011 would provide much-needed improvements to the NFIP."AIA and its member companies commend the Committee for passing a meaningful long-term extension of the NFIP."
