US private flood insurance mostly cheaper than NFIP, study claims

A majority of single-family homes could see cheaper premiums with private insurance than with the National Flood Insurance Program (NFIP), according to a Milliman study based on the US states of Florida, Texas and Louisiana.

Based on the estimates, this would hold for 77 percent of all single-family homes in Florida, 69 percent in Louisiana, and 92 percent in Texas, according to actuarial services provider Milliman.

The NFIP is up for reauthorization in September and is currently $24 billion in debt.

Proposed legislation contains language that would ease regulations on flood insurers in order to encourage the growth of a private market.

Milliman collaborated with risk-modelling firm KatRisk to develop tools to assess the feasibility of offering private flood insurance in the US and conducted a market feasibility study which combined accounts for 56 percent of NFIP insurance policies in-force nationwide.

According to the study, of the homes modelled, 44 percent in Florida could see premiums that are less than one-fifth that of the NFIP with private flood insurance, while the same holds true for 42 percent of homes in Louisiana and 70 percent of homes in Texas.

At the same time, private insurance would cost over twice the NFIP premiums for 14 percent of single-family homes in Florida, 21 percent in Louisiana and 5 percent in Texas.

Across flood zones, if private insurance were widely available in the highest-risk areas, a surprisingly large percentage of homes could see premiums below those of the NFIP, according to Milliman.

The NFIP was established in 1968 to help offer flood insurance to homeowners, renters, and business owners and is the primary underwriter of flood insurance policies in the US.

The NFIP is part of Federal Emergency Management Agency (FEMA) and has relied on the US Treasury to fund deficits when losses have exceeded the programme’s claims.

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