Does NFIP "improve" the economy?

[PhildeTruth]

Originally Posted by Mary Frances

Oh boy. Congress is going to get a bucket load of angry feedback from home buyers who wanted to close before the end of the month. All those postponed closings until the second half of April at the earliest are going to be really good for the economy, too.

I'm no President-elect of the American Academy of Actuaries, nor am I the Chairman of the International Actuarial Association Education Committee, nor am I a past President of the CAS, so I think there is only one correct conclusion -- NFIP improves the economy.

[MountainHawk]

You need to do one of two things:

(a) Ban people from building in flood prone areas

or

(b) Provide a way to insure against the peril of flood.


(a) isn't going to happen, though I think it's probably the better option. The private market will not provide flood insurance, at least they refused back before the NFIP was created.

Now, the NFIP has been horribly run (of course?), but we do need some way of spreading the risk of a 100 year flood among all people that live in the 100 year flood plain, so they can pay 1% of the cost every year instead of 100% in a random year.

[PhildeTruth]

Originally Posted by MountainHawk

Now, the NFIP has been horribly run (of course?), but we do need some way of spreading the risk of a 100 year flood among all people that live in the 100 year flood plain, so they can pay 1% of the cost every year instead of 100% in a random year.

Is this were possible, private insurance would work.

What NFIP does is spread the cost to the US tax payer -- people who do not live in the 100 year flood plain.

[MountainHawk]

Originally Posted by PhildeTruth

Is this were possible, private insurance would work.

What NFIP does is spread the cost to the US tax payer -- people who do not live in the 100 year flood plain.

Private insurance didn't fail due to the losses, it failed due to the concentration of loss in certain regions. Only large national writers can write flood.

I agree the NFIP has failed to charge adequate premiums in the past, and that ought to be fixed ASAP.

[johnny storm]

Originally Posted by MountainHawk

Only large national writers can write flood.

Or small regional carriers that buy reinsurance for flood from large, well-capitalized cat reinsurers.

[MountainHawk]

Originally Posted by johnny storm

Or small regional carriers that buy reinsurance for flood from large, well-capitalized cat reinsurers.

I'm not sure flood would have a large reinsurance market. Maybe I'm wrong, but it would be hard for reinsurers to prevent exposure accumulation in an area.

[johnny storm]

Maybe there'd be, like, um, I don't know, some kind of experts in modeling floods? Maybe I'd start a company, call it Risk Management Solutions or something, and model catastrophe losses from floods. I bet you could make a lot of money in that area, since nobody's come up with that idea.

[johnny storm]

Originally Posted by MountainHawk

I agree the NFIP has failed to charge adequate premiums in the past, and that ought to be fixed ASAP.

By the way, the problem with NFIP, or any such program, is that this problem will never be solved as a result of a need for appropriate pricing, it will only be fixed as a result of a political negotiation, if it hits a point where the best interests of people in power are served by fixing the problem.