Regulator: NFIP Borrowing Authority May Need to Be Raised to $30B

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.”

Comments

Resource Center

View All »

Complimentary Case Study: Helping achieve your financial goals By:...

Find out how a Special Investigation Union used TLOxp to save the company money and...

Do Your Clients Hold The Right CDL License?

Learn about the various classes of CDL Licenses and the industries that are impacted by...

Integrated Content & Communications: A Key Business Issue For Insurers

Insurers are renewing their focus on top line growth, and many are learning that growth...

High Risk Insurance Coverage in the E&S Market

Experts discuss market conditions, trends and projected growth in a rapidly changing niche.

Top E-Signature Security Requirements

This white paper covers the most important security features to look for when evaluating e-signatures...

EPLI Programs Crafted Just For Your Clients

Bring us your restaurant clients, associations and other groups and we’ll help you win more...

Is It Time To Step Up And Own An Agency?

Download this eBook for insight on how to determine if owning an agency is right...

Claims - The Good The Bad And The Ugly

Fraudulent claims cost the industry and the public thousands of dollars in losses. This article...

Leveraging BI for Improved Claims Performance and Results

If claims organizations do not avail themselves of the latest business intelligence (BI) tools, they...

Top 10 Legal Requirements for E-Signatures in Insurance

Want to make sure you’ve covered all your bases when adopting e-signatures? Learn how to...

PropertyCasualty360 Daily eNews

Get P&C insurance news to stay ahead of the competition in one concise format - FREE. Sign Up Now!

Advertisement. Closing in 15 seconds.