FEMA Concedes Need for More Private-Sector Involvement in Flood Insurance

FEMA Concedes Need for More Private-Sector Involvement in Flood Insurance

Matthew Glans

Matthew Glans (mglans@heartland.org) joined the staff of The Heartland Institute in November 2007... (read full bio)

The federal government may be coming around to the idea that the private insurance market must be allowed to become more involved in providing flood insurance.

In a June 9 hearing of the U.S. Banking, Housing, and Urban Affairs Committee, Federal Emergency Management Agency administrator Craig Fugate discussed with Senators the need for increased involvement from private insurers in providing flood insurance along our nations coasts and rivers. This signifies a change from current policy, which has the federal government under the National Flood Insurance Program covering much of the nation’s flood risk.

The National Flood Insurance Program, which FEMA administers, is set to expire September 30 unless Congress reauthorizes it. The program is $18 billion in debt.

Maria Recio, a reporter for McClatchy Newspapers, covered the hearing and wrote:

“Fugate said that under the program’s current federal structure ‘it is unlikely we can reduce the $18 billion debt.’”

‘Better Shared With Private Sector’
Fugate told the committee’s Senate members he believes the federal government should stay involved, especially for low-income households, but also believes the system should become “more actuarially based.”

“I’m not opposed to the private sector buying the least risky policies,” Fugate told the committee. “We have got to have the private sector more engaged in the program.”
 
Fear for Real Estate Market
Other legislators agreed private insurers should play a part in covering higher-risk flood areas. Others cautioned against a delay in renewing the flood insurance program, including Sen. Roger Wicker (R-MS) and Banking Committee Chairman Tim Johnson (D-SD). Wicker argued delaying reauthorization of the NFIP could hurt an already stalled real estate market.

“Another program lapse is entirely avoidable, and we should not allow that to happen,” Wicker said. Recio noted Wicker “made a strong push for his legislation, the Consumer Option for an Alternative System to Allocate Losses, to use increased data collected by NOAA during the claims process, which he argued is part of the solution to the wind versus water dispute problem that has rocked the Coast since Katrina.”

In May the Property Casualty Insurers Association of America issued a report, “True Market-Risk Rate for Flood Insurance,” which stated, “We conclude that the federal government is providing overall flood insurance at one-half the true-risk cost; specifically, in higher- risk areas, it is providing flood insurance at one-third the true-risk cost. This comports with the General Accountability Office’s (GAO) analysis which found that requiring the NFIP to build a capital surplus fund would involve a doubling or tripling of current rates.”

Matthew Glans (mglans@heartland.org) is a legislative specialist in financial services for The Heartland Institute.

Internet Info

“True Market-Risk Rates for Flood Insurance,” Property Casualty Insurers Association of America: http://www.firepolicy-news.org/article/30007

Matthew Glans

Matthew Glans (mglans@heartland.org) joined the staff of The Heartland Institute in November 2007... (read full bio)