Government Faces ‘Enormous’ Debt if Flood Program Isn’t Changed: Actuaries

By Brandon Ross

Congress should take drastic steps to avoid or mitigate the damage posed by rising sea levels and increased storm activity or prepare for “enormous” losses to the National Flood Insurance Program, the American Academy of Actuaries said in a report.

“The NFIP has a large inventory of coastal policies that are highly exposed to ocean storm surge,” according to the new study. “Congress routinely considers the financial solidity of social insurance programs such as Social Security and Medicare over multi-decadal time horizons; a similar view would be prudent regarding the NFIP.”

The nation’s flood insurance program’s current authorization expires Sept. 30 and the NFIP was $24.6 billion in debt as of January 2017. Lawmakers are examining ways to cut the program’s debt-to-income ratio and are also trying to encourage the private sector to underwrite substantially more flood insurance. The report explains that insurers may finally be ready to do so because of new advances in flood-risk modeling and newly available government data. The report asks Congress to reassess the entire mission of the NFIP amidst heightening threats to its solvency and the greater private market interest in offering flood coverage.

Changes to NFIP

To encourage the private sector, Congress should facilitate a number of changes for the Federal Emergency Management Agency’s NFIP, the report says. As lawmakers try to make the NFIP solvent, they should rethink the government’s approach to and role in dealing with flooding, rising tides and more damaging storms, the actuaries say. Actuaries run the numbers on various risks to tell insurers what rates to charge to cover damage estimates and turn a profit.

“Increased flooding due to higher sea levels can only increase the amount of loss from storms absent expensive investment in coastal defenses,” the report says. “In the face of rising sea levels and increased losses, it will be impossible to maintain current premiums, coverage, and eligibility without severe limits on building, strong mitigation requirements, or exposure to enormous program losses and additional U.S. debt.”

The actuaries contemplate if FEMA should increase building code requirements that determine foundation heights of structures and other mitigation factors as qualifiers for a community being eligible for NFIP coverage.

“Questions have been raised about whether [the current] elevation standards will be adequate to protect building stock throughout the design life of the buildings if sea levels rise,” the report says.

The uptick in interest from the private sector involves reinsurers having better data and technologies to assess risk in underwriting flood insurance, which allows them to offer more coverage to private insurers.

“Changes in the law have led to some conflicting mandates, particularly between reducing Treasury’s exposure to the need for lending to cover program deficits while encouraging widespread participation by keeping premiums affordable and offering subsidies to certain classes of policyholders,” the study said.

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