A number of private insurance companies are reconsidering participation in the National Flood Insurance Program (NFIP) after a Congressional stall and massive losses. The future of the NFIP has been in question for some time as Congress looks at ways to provide flood insurance to individuals in need. However, after suffering through months of ups and downs in the insurance sector, some insurers think the best solution is to pull out.
NFIP Has Been on Shaky Ground for Some Time
The National Flood Insurance Program has been going through a series of changes for some time that has left it in a semi-fragile state. Lawmakers understood that changes needed to be made because standards were proven unsatisfactory, so when the program expired, Congress simply approved a short-term extension in hopes of getting it on the right track.
Unfortunately, that short-term extension resulted in several more that often left policyholders unable to make claims on their homes after a flood because the program had expired. Now, lawmakers have taken steps to improve the program with a flood insurance overhaul, but for some insurers, it’s already too late.
Insurers Looking for a Way Out
Due to the instability of the NFIP, private insurance companies are now reconsidering their participation. In addition, many insurers simply don’t have the money they need to pay out claims. FEMA, the programs overseer, is currently seeking a $19 billion taxpayer bailout to properly reimburse insurers, but this doesn’t help current shortfalls seen by insurers.
To save its budget, State Farm Mutual Insurance Company, the nation’s largest provider of flood insurance, pulled out of the NFIP in June. The company handled over 800,000 customers and left the NFIP in a position to find them all new policies. Now, another large company, Fidelity National Property and Casualty Insurance is considering other options if the government doesn’t find effective ways to reimburse claims.
With the program already in the red, it is possible that other large companies could follow suit. Hopefully the overhaul will create the funds to keep insurers around and customers covered if their homes are flooded.
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