The National Flood Insurance Program is in debt to the tune of $24 billion, and under Biggert-Waters Act we can expect many changes – including increasing premiums so they more accurately reflect individual risk profiles.
At present, private companies known as WYOs operate the NFIP by marketing flood policies and making payout decisions according to government rules. WYOs receive compensation as a percentage of premiums collected.
NFIP Commissions and Expense Reimbursements
The National Flood Insurance Program (NFIP) is a federally regulated, privately administered property and casualty insurance program administered privately. NFIP currently stands in debt by $24 billion due to payouts related to Hurricane Katrina payouts, prompting Congress to attempt to place it on more secure financial ground by raising premiums more accurately reflecting risk – though some in the industry claim raising premiums will damage consumers while agents will become less likely to sell NFIP policies if premium increases take effect.
NFIP pays brokers around 29% of premiums in commission and expense reimbursement, surpassing both private insurers selling health insurance on government exchanges, as well as more than double what the Department of Agriculture pays companies taking on crop insurance risks.
NFIP companies receive payments to cover administrative costs, marketing costs and any costs related to selling policies or adjusting claims; but the government has come under scrutiny over how these funds are being spent. On several occasions, the Government Accountability Office, or GAO has expressed concern with how much is being paid out by the NFIP to these companies and has suggested cutting these payments in order to save money.
GAO found that WYO insurance companies operating under NFIP were charging customers for coverage they weren’t providing – known as overcharging. According to NPR/Frontline program interviews with insurance adjusters after Katrina, many NFIP managements became tougher on flood claims; instructing adjusters not to pay for things previously covered such as certain damages that had previously been covered.
House bill the Biggert-Waters Flood Insurance Reform Act of 2012 would restrict how much of the 5 million policies administered directly by FEMA. The National Association of Professional Insurance Agents (PIA) opposes this proposal, believing that cutting WYOs out will harm consumers and limit choice. By forcing agents either to sell private flood coverage or leave altogether from selling through the NFIP altogether, they would lose contact with thousands of homeowners living in special flood hazard zones who rely on them for guidance through this complex process of getting flood coverage.
NFIP Direct
FEMA’s initiative for selling federally-backed flood insurance directly to consumers, known as NFIP Direct, in order to save money and make its program more sustainable has drawn criticism from industry bodies including National Association of Professional Insurance Agents who feel this move would harm both consumers and agents, and increase premium costs as WYO companies must pass along any additional expenses to homeowners.
NFIP Direct will not only reduce program costs but will also enhance consumer service and provide transparency by making policy data from NFIP available online for viewing by state and local governments, the public sector, private companies, WYO companies, WYO Direct contractors and more. Data will be available both structured and unstructured formats to accommodate various use cases.
NFIP should be self-supportive during an average loss year, meaning that premium revenue should cover losses. But in an extreme loss year like Hurricane Katrina’s aftermath, massive debt may accumulate quickly; as such, reinsurance is used by the program to mitigate risks.
As part of its Reinsurance Initiative, FEMA is striving to make the National Flood Insurance Program (NFIP) more transparent by publishing policy and claims data through OpenFEMA initiative – this dataset can be accessed by anyone and allows WYO companies to gauge how their competitors are faring and make adjustments as needed; similarly it helps agents pinpoint areas for growth within their businesses.
This dataset provides a comprehensive record for every NFIP policy and related information, such as policyholder names and addresses, property addresses, flood zones, premium amounts and coverage amounts. To reduce file size and enhance accessibility, the dataset is split up into segments for easy data visualization and querying purposes – the first segment contains headers and metadata while subsequent segments may be truncated and compressed for performance reasons.
Presently, more than 50 Write Your Own (WYO) flood insurance companies operate through independent agents to sell and service policies they sell and service themselves. They contract with private firms for operations support of various degrees; additionally they share reinsurance protection from large financial losses with the government.
NFIP Marketing
Insurance industry groups have battled hard to protect the National Flood Insurance Program’s Write Your Own (WYO) program as an effective way for private insurers to sell flood policies to Americans. Even though WYO incurs massive taxpayer losses each year, insurance providers that operate them have exploited its federally sponsored advantages to sell private market flood policies at discounted prices via agents required to participate in it.
Many of America’s largest property insurance companies have used their marketing and branding resources to influence political processes to support WYO and prevent changes to NFIP that would result in higher premiums for homeowners and business owners. Their efforts include local and state media campaigns, social media efforts and community outreach activities; Yes& has been at the forefront of these efforts producing creative materials tailored specifically for Florida, Texas and Louisiana regions as part of a national outreach campaign.
Yes& has not only been providing insurance marketing and communications services but has also collaborated with various stakeholders to educate policyholders on the National Flood Insurance Program (NFIP). Utilizing existing partnerships, Yes& has delivered news alerts about NFIP through various media including print publications, radio broadcasts, television programming and in-person events.
Since 2003, the National Flood Insurance Program (NFIP) has relied on public funding programs like Write Your Own (WYO) to offset its massive deficits, with WYO agents selling flood coverage backed by the NFIP to the estimated 10 million U.S. households located within special flood hazard areas.
Although the NFIP has managed to lower its deficit through reinsurance protection, it still faces many financial hurdles and must consider significant reforms of operations and policies to strengthen financial stability and ensure long-term sustainability.
One proposed change would eliminate the Write Your Own (WYO) insurance product and move all NFIP policies under direct administration by FEMA, effectively sidelining agents and potentially harming consumers. PIA strongly opposes this proposal which bypasses agents and could potentially harm consumers directly; its main concerns center around direct-to-consumer (D2C) models which misunderstand complex data points and policy requirements that make up Risk Rating 2.0 systems like those found within NFIP policies.
NFIP Legislation
PIA has come out strongly against a bill that would make it harder for private insurers to sell NFIP policies. They fear this measure could drive some out of business while negatively affecting consumers. At present, the NFIP is going through significant reform, including moving more policy administration operations in-house.
As part of their overhaul, the National Flood Insurance Plan is proposing changes to their rules, such as changing definitions of terms. This aims to increase clarity, reduce complexity, and increase comprehension for homeowner policyholders – such as confusing definitions such as “basement,” which refers only to structures below ground level; with their new definition they plan on more precisely outlining exactly what a basement is while making clear that only partial coverage is offered.
FEMA also wishes to amend its policy so as to emphasize that matters related to NFIP are exclusively governed by federal law, while also wanting to remove requirements that list all legal authorities that might conflict with it as these could limit future flexibility and could become unnecessary burdensome.
Many are unaware that the National Flood Insurance Program was originally implemented to offer flood coverage for American homeowners who could not find coverage through private insurers due to perceived risk. Over time however, the program became an enormous drain on taxpayers with billions in debt accrued as part of it. In 2012 however, Congress enacted Biggert-Waters Act, making NFIP more sustainable and financially sound over time.
Although these improvements have made some positive strides toward strengthening the NFIP, its future remains unclear. If Congress doesn’t reauthorize it prior to September 30th 2024 when its current authorization ends, then likely will have no choice but to close down and cease operation of this vital program.
Congress should quickly reach a deal to keep the National Flood Insurance Program (NFIP) alive; losing this insurance opportunity for Americans would be devastating in an age of climate-induced disasters.
