Private Insurance Competition Could Provide a Lifeline to the National Flood Insurance Program

Private Insurance Competition Could Provide a Lifeline to the National Flood Insurance Program

Infrastructure,  | Quick Take
Feb 9, 2017  | By  | 4 min read | Print Article

Originally published on October 27, 2017 in The Hill

Nineteen major floods soaked the country last year— the most in a single year since records began in 1980.

With rains wreaking havoc on communities across the nation, Congress has no time to waste fixing the outdated National Flood Insurance Program (NFIP) before it expires in September.

The NFIP, which provides flood coverage to more than 5.2 million homeowners in 22,000 communities across the country, has been slammed with wave after wave of massive payouts for record-breaking floods, hurricanes and severe weather.  As a result, the program has accumulated a nearly $25 billion “I.O.U.” to U.S. taxpayers. With the NFIP up for reauthorization this year, lawmakers need to make reforming NFIP a priority before it drowns in debt.

One of the best lifeboats in sight is a plan to open the flood insurance market to private insurers and give consumers a real choice in flood insurance policies.

Permitting the private sector to help NFIP write more sensible flood insurance policies would allow consumers to shop among many competing policies, making coverage more affordable.  One study from the Risk Center at the Wharton School found that introducing private insurance to the program would reduce rates for many policyholders, and increase coverage limits for others.

Private insurance options would also reduce consumer dependence on the NFIP and allow the program to transition to a residual provider for those properties that the private market is unable to insure cost-effectively. Over time, the NFIP would return to its original function as the insurer-of-last-resort, focusing mitigation efforts on the most at-risk communities.

Last year, the House of Representatives took an important first-step toward reforming NFIP with unanimous passage of the Flood Insurance Market Parity and Modernization Act 419-0. This bipartisan bill would have allowed states to regulate private flood insurers to bolster the development of a private flood insurance marketplace. Unfortunately, the Senate failed to take up the issue before it adjourned.

In addition to bringing more private insurers into the flood insurance market, the SmarterSafer coalition recently released a comprehensive proposal outlining how Congress can make additional reforms to cement the NFIP’s long-term success.

One of the recommendations is to ensure that cutting-edge technology and the most accurate risk assessment tools are used to update flood maps. In turn, the burden of determining flood risk is lifted off of individual homeowners. More accurate mapping will enable the NFIP and private insurers to offer rates based on more accurate calculations of a property’s risk of flooding.

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Risk-based rates should be paired with better incentives to mitigate the risk of storm damage. For example, the NFIP should provide financial assistance to lower-income policyholders to better prepare for future storms. Focusing on environmentally friendly mitigation efforts at the community level will go a long way toward ensuring that homeowners can avoid the worst impacts of the next major storm and reduce taxpayer impacts. Taking proactive measures not only prevents damage and saves money, it can save lives.

The country was hit hard by flooding last year. Unfortunately, major storms likely will continue to hammer the U.S. in the years ahead, according to the latest National Climate Assessment. But lawmakers are running out of time to tackle these NFIP reforms before the program expires. If Congress fails this time around, flood victims may find that federal relief has dried up.

Ellis is vice president of Taxpayers for Common Sense and a member of the SmarterSafer coalition. For more information, visit

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