National Jul 19, 2016

GAO publishes NFIP study

The United States Government Accountability Office recently published a report which focuses on some of the challenges the private market faces in trying to enter the private flood insurance marketplace.

The GAO found that while lenders and regulators have taken some action to implement provisions on private flood insurance in the Biggert-Waters Flood Insurance Reform Act of 2012 there is still work to be done.

In 2013, the Federal Emergency Management Agency rescinded its guidelines on evaluating private flood insurance policies citing a lack of authority to rule on the acceptability of private insurance policies. However, proposed rules issued in order to implement the Biggert-Waters Act definition of private flood insurance have not yet been finalized. Without final regulations implementing the Biggert-Waters Act requirement to accept private flood insurance, there was uncertainty among lenders about which private policies would satisfy the mandatory purchase requirement.

In addition, the GAO found that a recent National Flood Insurance Program policy change could discourage consumers' use of private insurance. FEMA recently stopped allowing policyholders to obtain a refund of their unused NFIP premium if they obtained a non-NFIP policy.  Due to this change, consumers who wish to obtain private coverage would forfeit any unused portion of their premium if they switched after the NFIP policy's effective date. The GAO suggested that FEMA reconsider allowing policyholders who cancel their NFIP policy to be refunded, on a prorated basis, when obtaining a non-NFIP policy, a practice that is prevalent in the private market, and take any necessary steps to amend the NFIP standard policy to do so. FEMA agreed with the GAO recommendation and will begin notifying NFIP Write-Your-Own carriers of the change in April with an effective date of Oct. 1 2017.

The GAO also identified the discounted rates that the NFIP provides to many policyholders as a primary reason for low private sector participation in the flood insurance marketplace, as private carriers cannot compete with the artificially low rates.

A copy of the full report can be found here.