NFIP revamp on the cards

The US House of Representatives passed the National Flood Insurance Programme (NFIP) reform bill last week, in a bid for the Senate to revamp the offering.

Hurricane Harvey shone a spotlight on the NFIP with the majority of the $4bn insured flood losses falling on the NFIP – adding to the $25bn debt the Programme was carrying.

RMS senior director of global government and regulatory affairs Matt Nielson stated that the Programme had been overwhelmed by the current level of both flood and uptake, saying: “The National Flood Insurance Program (NFIP) has since become the largest insurer of flood in the United States.”

He said: “The program, however, was never designed to handle large catastrophes; its rating schemes only collected enough premium to cover an ‘average’ loss year. The NFIP may now face upwards of $40bn in debt after the devastating flooding seen in Hurricanes Harvey, Irma, and Maria in 2017.”

According to Nielson, one of the main issues the NFIP reform bill tackles would be the easing of acceptance of private flood policies by government-back mortgage lenders.

He added: “There has been hesitancy from mortgage lenders to accept private flood policies due to a requirement that a flood policy on a house with a federally backed mortgage must be an NFIP or NFIP-equivalent policy. The ambiguity has been in the interpretation of what “NFIP-equivalent” really means? Does it mean the same limits? The same deductibles? Florida recognized this issue early on and passed flood legislation in 2014 that specifically designated a new policy type as being “NFIP equivalent” by definition.”

Nielson continued: “This flexibility will allow homeowners who want to purchase a private flood insurance policy the confidence that their mortgage lender will accept their alternate, and in many cases, tailored insurance policy.”