Insurance and Disasters
Overview: Insuring Against Flood Damage
A Public and Private Sector Effort
Dr. Steven Weisbart, CLU, of the Insurance Information Institute talks about the importance of having flood insurance.
An estimated 90 percent of all natural disasters in the U.S. involve flooding. In high-risk areas, properties have a 26 percent chance of being damaged by flooding over the lifetime of a 30-year mortgage. As alarming, 25 to 30 percent of flood claims are paid on damage outside of officially designated flood hazard areas. Unfortunately, many property owners exposed to flood risk fail to purchase flood insurance. Flood losses include damage caused directly by floods, coastal storm surges, snow melt and dam failure, as well as erosion caused by heavy rains.
To help address the growing financial and social impact of flooding, Congress enacted the National Flood Insurance Program (NFIP) in 1968. In addition to managing floodplains and mapping flood areas, the NFIP underwrites flood insurance, with private insurers administering policies. This core public policy has been updated and reauthorized several times and remains in effect today.
Key Public Policy and Industry Issues
While our nation has a well-established federal program promoting flood mitigation and insurance coverage, many in the insurance industry, as well as policymakers, believe that action can be taken to improve the flood insurance system:
- Updating and Reauthorizing the National Flood Insurance Program (NFIP)—The NFIP has been periodically reauthorized and updated since its inception in 1968. In 2008 and 2009, Congress passed simple short-term extensions. Lawmakers are expected to consider broader updates to the program before reauthorizing it again.
- Combining Wind and Flood Insurance—Many flood events, such as coastal storm surges, accompany hurricanes. Some legislators have supported adding a wind coverage provision to the NFIP, though the Obama administration has expressed reservations about such a provision. Insurers oppose this measure.
- The “All-Perils” Proposal—The National Association of Insurance Commissioners (NAIC) has proposed the creation of an “all-perils” insurance policy, which would include coverage for flood damage. Under the NAIC plan, the federal government would act as a reinsurer—or backstop—paying losses over a certain high-dollar amount. This system could conceivably make private insurance disaster policies, including flood coverage, more accessible.
- III White Paper—Flood Insurance
A detailed discussion of flood insurance issues, including modernization and reauthorization of the National Flood Insurance Program (NFIP).