Private insurers say NFIP shutdown flood peril impact minimal

Takeaways:

• Neptune proposes transferring new NFIP policies to private market
• Only severe repetitive risks are not getting private coverage
• NFIP shutdown affects flood mitigation efforts and resilience measures

Although the National Flood Insurance Program (NFIP) is shutdown along with the rest of the federal government, experts in private flood insurance say the program is no longer as essential.

A new report from Neptune Flood states that NFIP used to be needed to cover flood peril that private insurance could not. The report proposes a way to fix the program that would not require new legislation.

NFIP lapsed on September 30, the day before the federal government shutdown began. Since 2017, Congress has kept NFIP operational through short-term extensions. A House bill including a seven-week extension of NFIP funding has not passed.

Neptune Flood's report proposes continued renewals for existing NFIP policyholders, while stopping new NFIP policy writing – except for last-resort coverage for homeowners who can show documented rejections by private insurers.

The shutdown of NFIP halted flood mitigation efforts, but home sales requiring flood insurance should largely be unaffected, a flood insurance company official said.

"The private market today is significantly better positioned to respond than it was even just a couple years ago," said John Dickson, president of AonEdge, the flood insurance division of global risk mitigation company Aon. "If you think about the number of flood policies in place today, we're insuring more homes against flood today than we ever have. That growth is entirely due to the growth in the private marketplace. Over the last five years, the number of policies held by NFIP has declined."

Only about 3% of U.S. properties cannot get private insurance because of severe, repetitive flood risk, and therefore have to rely on the NFIP, according to Dickson. With NFIP shut down, those properties cannot be bought and sold if flood coverage is required for mortgages.

"Private industry is not equipped to write severe repetitive loss properties," Dickson said. "There are locations where, quite frankly, I'm not sure homes belong, given the flooding history in those locations. Transactions for those types of properties might be stuck. For the majority of properties, the majority of structures, the majority of geographies and communities in our country, there's a solution."

According to Neptune Flood's report, 95% of new NFIP policyholders are eligible for private market coverage. Their policies, anywhere between $550 million to $700 million collectively, can be transitioned to the private market over the next six years, with 60% paying less in premiums than with NFIP's coverage.

Insurers will feel the impact of NFIP's shutdown, however, in the need for decisions on development in floodplain areas and mitigation efforts, he observed. "There's a lot of really smart, great people working there. There's a concern about those individuals," Dickson said. "They're doing great things, and they're dedicated to helping people in times of great need. For lending, as the mechanism that drives growth in our communities, the private market is here to help."