It may be necessary to raise the National Flood Insurance Program’s borrowing authority to as high as $30 billion to cover claims resulting from Superstorm Sandy, state insurance regulators fear.
However, Don Griffin, vice president, personal lines, for the Property Casualty Insurers Association of America and head of an industry coalition on the Federal Emergency Management Agency, cautions that initial estimates are rarely accurate.
Currently, the Obama administration plans to ask Congress to raise the National Flood Insurance Program’s borrowing authority to $25 billion, or $4.025 billion over its current borrowing authority. during the current lame-duck session, according to federal, state and industry officials.
But, a higher cap may be necessary, state insurance regulators concluded during a meeting held in Mobile, Ala. this weekend, according to Michael Chaney, Mississippi insurance commissioner and head of the Flood Insurance Working Group of the National Association of Insurance Commissioners.
Chaney says current estimates by risk modelers are that the storm could cause $55 billion in economic losses.
Chaney says modeling estimates predict Sandy will generate $12 to $15 billion in flood claims.
“That means there should be a $30 billion cap,” he says.
At the same time, Chaney acknowledges that “we are seeking more information to ensure that what we are advocating is correct.”
PCI’s Griffin, though, was more cautious. “Often, either before or after a significant storm, there are estimates of the financial impact on insurers,” he says.
“These estimates, while useful, are often later significantly revised,” he said.
Griffin adds, “PCI suggests that a more useful estimate comes from the actual data and claims being reported, as provided in this case by Ed Connor, deputy associate administrator at the NFIP.”
Another industry official, who asked not to be named because of the sensitivity of the issue, says he understands that the Office of Management and Budget is “still vetting the request [for an increase in the NFIP’s borrowing authority] on behalf of FEMA, and what [the office is] most concerned about is that they are asking for the right number.”
The industry official says, “It is understandably difficult to estimate what the total cost to NFIP will be as a result of Sandy because the claims process is really just getting started.”
The official says the industry position at the moment “is that FEMA and OMB need to be as accurate as they can possibly be on what the estimate is so that Congress has the best information available.”
He cautions, “I think that OMB needs to be given the time they need to assess the situation and put a number forward to the Congress for approval.”
However, industry officials also acknowledge that a politically tough decision to raise the cap will have to be made by Congress even as begins the process of raising taxes and cutting programs in order to bring the deficit under control.
“It's likely that Congress will once again have to raise the borrowing limit for the National Flood Insurance Program, perhaps going beyond $25 billion, to cover claims from Superstorm Sandy,” says Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies. “This should be a clear and convincing sign that we need to do more to prepare and harden our nation against the risk of natural disaster.”
He adds, “Policies promoting smarter land use, stronger building codes and allowing the NFIP to charge rates that match the risk all need to be implemented. As they take effect, the NFIP reforms passed by Congress and signed into law earlier this year will be a first step in addressing these concerns, but more can be done to protect our communities from the next major storm.”