Study finds potential for private flood insurance companies
A recent report analyzed the potential for private insurance companies to offer flood insurance outside of the National Flood Insurance Program.
Currently, flood coverage is provided by insurers as a supplement to homeowners insurance policies through the NFIP, which is run by the Federal Emergency Management Agency. However, that program has suffered heavy losses recently and is in financial trouble.
While some believe that the NFIP offers coverage for less than private insurers would, analysis of flood risk by researchers at the Wharton School of the University of Pennsylvania found NFIP premiums in some areas were actually higher than what private companies might charge.
Researchers said that shows that private insurers may be able to offer lower rates in those areas and increase the number of homeowners with flood coverage.
"There are several practical barriers that would need to be addressed for private insurers to sell such coverage, but if done, this could significantly increase the number of residents with proper coverage, thus reducing the need for government disaster relief," said Erwann Michel-Kerjan, Risk Center managing director and study co-author.
Some of the NFIP's issues can be traced back to Hurricane Katrina in 2005. That storm alone generated almost $18 billion in insurance claims.
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