At the final public meeting of the Federal Emergency Management Agency (FEMA) review committee yesterday, the panel voted to send a final report and recommendations to the President, emphasizing that greater private market participation is critical for U.S. flood insurance.
The Council examined numerous areas for reform of FEMA, as well as the idea of states and localities assuming greater responsibility for disaster relief, as well as different ways to fund some of FEMA’s long-term activities.
But an overarching theme is the need to reform FEMA’s role in flood insurance through the National Flood Insurance Program (NFIP) and increase participation in the private insurance market.
Reforming the NFIP is considered critical to ensuring the sustainability of the provision of flood insurance in the United States, while also ensuring protection for those most at risk and in greatest need.
Risk-based pricing is part of this, as a way of ensuring that the cost of risk is recognized and incentivizing greater private market participation.
At the same time, the committee’s report recommends exploring establishing a takeout program for the NFIP that would move flood insurance policies back to the private market, much like we have seen with Florida citizens.
In addition, continued focus is needed on the modernization of flood risk data, as well as new flood maps to better identify risks relevant to policy in specific areas and to aid risk pricing.
There is also a call for the state level to work with the insurance commissioner while empowering communities and developing stronger land use policies.
“These changes are expected to accelerate disaster recovery, reduce the financial burden on the federal government, send a clear financial signal, and provide predictable financial outcomes for homeowners, ultimately preparing the nation,” the committee concluded.
There is no mention of FEMA’s use of reinsurance, which ceases after the 2025 treaty year.
Reducing the size of FEMA through private market participation in flood insurance is considered the best way to remove taxpayer risk and shift it to a functioning private market.
Another area of interest is the much-discussed “parametric” Reform and Partnership Initiative for Disasters (RAPID).
While the trade press reports this as a parametric insurance arrangement, it is more of a way to disburse government or state funds immediately after a disaster, simply using predetermined parametric triggers as a way to qualify when the funds start flowing.
That recommendation now also goes to the president as a recommendation, along with a number of proposals to reform FEMA and its work program.
Equity analysts were positive about the flood insurance specialist after yesterday’s meeting, with them looking for future growth opportunities if plans to reduce the size of the NFIP progress.