At the final public meeting of the Federal Emergency Management Agency (FEMA) Review Council yesterday, the group voted to send their final report and recommendations to the President, highlighting the importance that more private market participation is critical in US flood insurance.
The Council looked at numerous areas of reform for FEMA, as well as the idea of states and localities taking greater responsibility for disaster response, plus different ways to fund some of FEMA’s long-standing activities.
But one over-arching theme was the need for FEMA’s role in flood insurance through the National Flood Insurance Program (NFIP) to be reformed, with greater private insurance market participation.
Reforming the NFIP is seen as vital to ensure the sustainability of the provision of flood insurance in the United States, while also ensuring the availability of protection to those most at risk and in need.
Risk-based pricing is part of this, as a way to ensure cost-of-risk is recognised and to incentivise the private market to get more involved.
At the same time, the Council’s report recommends exploring the establishment of a take-out program for the NFIP, to shift flood insurance policies back to the private market in much the same was as we’ve seen with Florida Citizens.
In addition, a continued focus on modernising flood risk data is required, with new flood maps as well to better recognise the risk associated with policies in specific regions and to aid in risk pricing.
State-level engagement with insurance commissioners is also called for, while empowering communities as well with stronger land-use policies.
“These changes are expected to accelerate disaster recovery, reduce the federal government’s financial burden, send clear financial signals, and provide predictable financial outcomes for homeowners, ultimately leading to a more prepared nation,” the Council conclude.
There has been no mention of FEMA’s use of reinsurance, which stopped after the 2025 treaty year it appears.
Downsizing FEMA through private market participation in flood insurance is seen as the preferable route, for removing risk from taxpayers and passing it over to a functioning, private marketplace.
One other area of interest is the much-discussed “parametric” Reformed and Partnered Initiative for Disasters (RAPID).
While this has been covered by trade media as a parametric insurance arrangement, it is more a way to disburse government or state funding immediately after disasters, simply by using pre-decided parametric triggers as a way to qualify when funds start to flow.
That also now goes to the President as a recommendation, alongside numerous recommendations for reforming FEMA and its programs of work.
Equity analysts have been positive on flood insurance specialists in the wake of yesterday’s meeting, seeking opportunity for growth in the future if the plans to downsize the NFIP are progressed.
