Already in Debt, National Flood Insurance Program Facing Billions of Dollars in Sandy Claims, FEMA Tells Federal Advisory Committee on Insurance
Nov 15, 2012
Already strapped with a $17 billion debt, the National Flood Insurance Program (“NFIP”) faces looming new flood-related claims from “Superstorm” Sandy, the cost of damage from which early projections already place in the $6-12 billion dollar range, according to Ed Connor, Deputy Associate Administrator for the Federal Insurance and Mitigation Administration with the Federal Emergency Administration Agency (“FEMA”).
Speaking before the Federal Advisory Committee on Insurance (“FACI”) at its meeting in Washington D.C. yesterday, November 14, 2012, Mr. Connor said Sandy has already resulted in $43 million worth of claims, with thousands more expected to pour in.
“It will be huge. It’s going to be a big event,” Mr. Connor warned FACI members.
FEMA is estimating approximately 143,000 storm-related claims will be filed in the wake of Sandy.
The NFIP has a borrowing authority of $20.7 billion, but has already exhausted all but $2.9 billion of that borrowing authority, Mr. Connor said, explaining that, in order to pay the mounting claims from Sandy, the NFIP has to borrow more money.
FEMA will likely use the $2.9 billion to pay claims that have already been filed, and work to negotiate further borrowing authority beyond the $20.7 billion, Mr. Connor added. The NFIP has $840 million in cash-on-hand.
“That is still not going to help you when you are looking at the severity I am talking about. It’s going to be a long haul. A very long haul,” he continued.
To help beleaguered policyholders, grace periods for the payment of flood insurance premiums have been extended 30 days. Property owners also have been allowed advances of up to $5,000 on contents coverage, Mr. Connor noted, cautioning that rate increases are imminent.
The Biggert-Waters Flood Insurance Reform Act of 2012 (“Biggert-Waters”) — geared toward creating actuarially sound rates — will spur rate increases of about 20 percent in January 2013 for non-primary homeowners, he said.
“Is that going to retire $20 billion in debt? No it isn’t, but it’s going to take us a long way down the road in terms of getting to where the program needs to be,” Mr. Connor stated. He said he did not know how many policies would be affected, or what the increases would mean in terms of dollar amounts.
Discussion at the meeting also touched on the need for a national catastrophe insurance policy that is based on loss mitigation. A multi-peril policy would eliminate duplicative administrative costs and other inefficiencies, it was noted.
FACI member Birny Birnbaum, executive director of the Center for Economic Justice, said Biggert-Waters provides the Federal Insurance Office with an opportunity to phase out the NFIP and move flood insurance to the private market.
“There is no insurance mechanism that is ever going to cover ever-increasing losses,” Mr. Birnbaum said. Policies need to include provisions for business interruptions, to ensure the economy is not totally disrupted or unable to recover as a result of a major storm.
Additional reporting from yesterday’s FACI meeting is forthcoming.
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