The U.S. Federal Emergency Management Agency’s (FEMA) National Flood Insurance Program (NFIP) is eager to continue working with the private sector to help close the country’s flood protection gap and has called on its reinsurance partners to encourage clients to explore flood risk.
“We want to continue to work with the private sector as we have over the course of the last five or six years, to help close the insurance gap,” said David Maurstad, Deputy Associate Administrator for Federal Insurance and Mitigation, Senior Executive of the NFIP, in a recent interview with AM Best.
A recent study found that roughly 4% of residential flood insurance was covered by the private sector and more than 95% was being provided by the NFIP.
The reality is that the NFIP only writes about one out of three properties that are in the Special Flood Hazard Area, and with 95% of properties in the U.S. not having flood insurance, there’s an opportunity for the private sector to play a greater role.
According to Maurstad, the NFIP is seeing some increased interest, notably in the excess and surplus lines market where there aren’t many admitted carriers writing residential flood insurance, and where none of the large property companies participate.
“So, there’s plenty of market out there. And, so, I’m certain that as soon as the risk appetite for private companies is such that they believe it’s in their best interest for themselves and their stockholders, that there’ll be more involvement in residential flood insurance coverage. But I think it’s a way down the road,” said Maurstad.
The flood insurance protection gap (disparity between economic and insured losses) in the U.S. is vast, and Maurstad explained that addressing the issue is a shared responsibility.
He noted that addressing the flood risk issue is a shared responsibility, and this includes its work with reinsurers.
FEMA has been procuring reinsurance for the NFIP for a number of years, after testing the market with a limited placement in 2016. At the most recent renewal, FEMA secured $1.064 billion of flood protection for a total premium of $171.9 million.
On its reinsurance partnerships, Maurstad said: “Not only is it beneficial for us, because we’re able to transfer that risk to the private sector, it’s also beneficial to the reinsurance companies and the private market, because they know far more about our program now after participating in the reinsurance program for five years.
“And, they can use that information and that knowledge to work with their customers, the property companies, to encourage more companies to take a look at the flood risk and see if they can determine a manner in which they can provide that protection. And, as I said before, help close the flood insurance gap.”
