Lawmakers Not Addressing Costliest Part of Flood Program, Actuary Says

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By Brandon Ross

Lawmakers’ proposals to reauthorize the National Flood Insurance Program largely don’t address how to fund the costliest part of the program: payouts from big disasters like Hurricane Katrina and Superstorm Sandy, an actuary told Bloomberg BNA.

“A key issue facing the NFIP is how future mega-events like Katrina and Sandy will be funded, in addition to how the current accumulated debt can be retired,” Rade Musulin, vice president of casualty issues for the American Academy of Actuaries, told Bloomberg BNA in an email ahead of a June 26 congressional briefing held by the academy’s Flood Insurance Work Group.

“Such events are infrequent yet generate losses many times the annual premium income of the program. At what point some contribution from taxpayers is appropriate to fund a mega-event is a public policy question, not an actuarial issue,” Musulin said in the email. Musulin is chairperson of the work group, though he was unable to attend this particular briefing.

The House Financial Services Committee recently approved a package of seven bills to reauthorize the NFIP. Although the bills mostly fail to tackle the issue of payouts after big storms, according to Musulin, he said they show a thoughtful effort to improve the program for both policyholders and taxpayers.

The NFIP’s debt has spiked after major disasters, and the program now owes the Treasury $24.6 billion, with no way to repay it under the current income structure.

“The expectation that all losses from past and future mega-events will be repaid out of the NFIP’s cash flow under reasonable future loss scenarios is not realistic,” Musulin said.

Senate Legislation Forthcoming

Sens. Mike Crapo (R-Idaho) and Sherrod Brown (D-Ohio), the chairman and ranking member of the Senate Banking Committee, are negotiating their own bill to reauthorize the NFIP, a committee aide told Bloomberg BNA June 22. The program expires Sept. 30.

Once policymakers decide who should be responsible for paying what parts of the NFIP’s costs, including mega-events, then actuaries can calculate rates that “reflect the cost of expected claims, expenses, and mega-event funding,” Musulin said.

Actuaries help underwriters and the government determine appropriate risk-based prices for insurance policies.

At the briefing, Nancy Watkins, a member of the academy’s Flood Insurance Work Group and a principal and consulting actuary with the firm Milliman Inc., told congressional staffers that the NFIP was largely able to cover its losses for decades until Katrina hit in 2005.

Stuart B. Mathewson, a member of the work group and academy board member, told staffers that more frequent mega-events are expected as polar glaciers continue to melt and sea levels rise.

To contact the reporter on this story: Brandon Ross in Washington at bRoss@bna.com

To contact the editor responsible for this story: Paul Hendrie at pHendrie@bna.com

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