RIMS calls for further extension of NFIP and long-term solution

RIMS wants to see a further extension of the US National Flood Insurance Program (NFIP) and hopes that its government will find a solution to ensure the facility is sustainable over the long term, the association told Commercial Risk Europe yesterday. The NFIP, that provides US small and mid-sized commercial businesses and homeowners with flood cover, is likely to run out of funds before the end of the month, according to the US Office of Management and Budget. Last week, US president Donald Trump asked Congress for $36.5bn in emergency funding, $16bn of which is for the NFIP to help pay claims incurred by the recent US hurricanes. This followed an extension of the NFIP in September until 8 Dec of this year, which would to give Congress more time to consider its reform. Even prior to the recent hurricanes that caused widespread flooding, the NFIP had run into trouble and was $24.6bn in debt to the US Treasury, mostly due to losses from Hurricane Katrina and Superstorm Sandy. It now looks set to run out of cash and hit the federal borrowing limit. The NFIP can borrow up to $30.4bn to pay losses and support underwriting, but Harvey and Irma will easily exhaust this facility. RMS estimates that NFIP’s combined losses from Harvey and Irma will be between $9.5bn and $15.5bn. The NFIP can call on reinsurance for Harvey losses. It purchased reinsurance for the first time last year, obtaining $1bn of aggregate cover in January from a panel of reinsurers including Munich Re and Swiss Re. The NFIP is expected to exhaust that cover. As a result, many now expect the NFIP to be reformed when it comes up for reauthorisation later this year, with a bigger role for the private insurance market in transferring flood risk. RIMS CEO Mary Roth told CRE at the Ferma Forum yesterday that the association would like the NFIP to be extended beyond 8 December, and the risk management community to be involved in discussion about its long-term future. Nowell Seaman, RIMS president, said the status of the NFIP will be “front and centre” at the association’s Legislative Summit in Washington DC on Thursday. He said a lot of companies in the US rely on the NFIP as an insurance mechanism. Therefore, its continuity is important for RIMS members and organisations with operations in the US, he said. RIMS said it wants its government to find ways to ensure the NFIP remains in place. “We believe there is an important need for it as a component of risk transfer. We certainly haven’t seen a decrease in the need for it. But one of the important questions is how to make it sustainable. So we are encouraging government to continue to pursue ways to continue the NFIP and make it sustainable. We would like them to find a way and keep us in the dialogue,” Mr Seaman Commercial Risk Europe. “The risk management community can provide important input into the process. We just want to ensure there is a will from government,” he added. Ms Roth said the private insurance market will likely have to play a bigger role in transferring flood risk going forward, to ensure the NFIP is sustainable. “What that involvement looks like, we don’t yet know,” she said. To date, private insurers have not had much appetite for flood risk in the US and find it hard to compete with the NFIP, which subsidises premiums and does not actuarially price its cover. But improvements in flood risk modelling, coupled with reform of the NFIP, could change that position. While large firms can usually buy flood insurance in the open market, albeit often with very large retentions, the average household, mid-sized commercial businesses and even very large local commercial companies, have trouble protecting themselves in this way. This is why the NFIP is important. Failure to reauthorise the facility would bring problems not just to these insureds, but also larger businesses that rely on them in their supply chain, said Mr Seaman. “Although many of our members are the very large corporations, they rely on many of those smaller businesses within their supply chain. So I think the NFIP is an important issue for large companies and its non-authorisation is potentially a systemic issue,” he added.

RIMS calls for further extension of NFIP and long-term solution

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