
Recent developments
- NFIP reauthorization: Congress must periodically renew the NFIP’s statutory authority to operate. Congress must reauthorize the NFIP by no later than November 30, 2018. In the unlikely event the NFIP’s authorization lapses, claims would still be paid but the NFIP would stop selling and renewing policies (more details here.)
- Hurricane Harvey: Hurricane Harvey made landfall in Texas as a Category 4 storm on August 25, 2017 and then turned into the single biggest rain event in U.S. history. Harvey’s floodwaters have caused multiple deaths and billions of dollars in property damage in Texas. Harvey made a second landfall in Louisiana on August 30th. As of January 24, 2018, $7.9 billion in closed claims have been paid out to Texas and Louisiana flood insurance policyholders, according to FEMA.
- NFIP Reinsurance: In September 2016, the NFIP began a reinsurance program to put it in a better position to manage losses incurred from major events by transferring exposure to reinsurers. In January 2017, FEMA expanded its September 2016 placement and transferred $1.04 billion of the NFIP’s financial risk to 25 reinsurers in a program to be in force through January 1, 2018. The NFIP recovered the entire $1.04 billion from Hurricane Harvey’s floods. The NFIP returned to the private reinsurance market for 2018, paying $235 million for $1.46 billion coverage from a single flood event.
- NFIP policies and premiums: The number of policies in force has been declining from the high point of 5.7 million in 2009 to 5.1 million in 2016. The 2016 level is about the same as in 2005, the year of Hurricanes Katrina and Rita. NFIP earned premiums fell 3.0 percent to $3.33 billion in 2016 from $3.44 billion in 2015. In 2016, 59,332 claims were paid, compared with 25,798 claims in 2015 and 213,515 in 2005. The cost of claims was $3.70 billion in 2016, compared with $1.03 billion in 2015 and $17.8 billion in 2005.
- Private flood insurance: Flood insurance had long been considered an untouchable risk by private insurers because they did not have a reliable way of measuring flood risk. In recent years insurers have become increasingly comfortable with using sophisticated models to underwrite insurance risk, and modeling firms are getting better at predicting flood risk. In 2017 private insurers reported their flood insurance premiums separately for the first time. FM Global had 54 percent of the market share (based on 2016 year-end premiums). And the top three companies held almost 81 percent of the market share. Direct premiums written for all companies totaled $376 million.
- Low flood insurance take-up rates: A 2016 Insurance Information Institute survey found that 12 percent of American homeowners had a flood insurance policy, down from 14 percent in 2015. A McKinsey & Co. analysis of take up rates for flood insurance in areas most affected by the three Category 4 hurricanes that recently made landfall in the United States — Harvey, Irma and Maria — found that as many as 80 percent of Texas, 60 percent of Florida and 99 percent of Puerto Rico homeowners lacked flood insurance. Some of the reasons cited for lack of coverage is that it is too expensive, that homeowners are not aware they don’t have it; and that people underestimate the risk of flooding.