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Senate urged to let FEMA use more reinsurance for NFIP flood risk

18th April 2017 - Author: Steve Evans

U.S. Senator for Nevada Dean Heller has called on his fellow Senators to consider legislation that would enable the Federal Emergency Management Agency (FEMA) to cede more of its risk to global reinsurers.

Flooded sign image via 89.3KPCCIn a letter to the Chair and a member of the Senate Banking, Housing and Urban Affairs Committee, Senator Heller called on legislators to take steps to make flood insurance coverage more available through private markets, to reform the National Flood Insurance Program (NFIP) and to enable the NFIP to shift more of its flood risk into private reinsurance markets.

The re-authorisation of the NFIP is under discussion currently and as a result “We have a unique opportunity to help more Americans have more access to affordable and sound flood insurance coverage and to put more NFIP financial risks on the private sector and not on U.S. taxpayers,” Senator Heller said.

Heller is one of the voices behind Senate bill 563, the Flood Insurance Market Parity and Modernization Act, which would bring the flood insurance market up to date, allow more private participation and ensure the NFIP is only holding the risk it needs to.

He also called for the current non-compete rules which prevent insurers selling flood insurance policies outside of the NFIP, if they also sell them within it, saying it would bring more flood insurance options to consumers.

But more interestingly, Senator Heller asked for the legislative to “encourage the NFIP program to secure more reinsurance.”

The NFIP purchased reinsurance coverage at the January 2017 renewals and as a result transfered $1.042 billion of risk from the National Flood Insurance Program (NFIP), to 25 reinsurance carriers for a 2017 reinsurance program.

However this is a tiny proportion of the risks held within the NFIP and the reinsurance purchase could be considerably larger, something lawmakers are now increasingly calling for.

Heller said that the reinsurance purchase was “a good start to putting the NFIP on better footing in the future and putting risk on the private market instead of potentially on U.S. taxpayers.”

However, he’d like to see much more and requested Senators to “consider legislation that would annually yield a portion of the NFIP’s risk to private reinsurers.”

With the private reinsurance and capital markets more than ready to assume flood risk from the NFIP, while rates-on-line are at or near lows and multi-year coverage increasingly available, the opportunity for FEMA to cede NFIP flood risk to reinsurers has likely never been better than it is right now.

FEMA does plan to return to the reinsurance market in January 2018 to increase its protection from private risk markets, with its key goal being to secure multi-year reinsurance protection at its renewal.

The use of reinsurance market capacity is expected to reduce the NFIP’s need to issue debt and lowering the exposure that taxpayers are essentially on the hook for today.

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