NFIP

Question 1

2 policy Purposes of National Flood Insurance Program AM&R

Answer 1

Availability (via transfer all risk to fed govt)

Mitigate/Reduce risk (via flood plain management standards)

Question 2

Social Goals of National Flood Insurance Program (2)

how accompish each?

Answer 2

transfer all risk to federal govt –> Availability of coverage to anyone who cant get coverage privately

floodplain managment standards –> Reduce Federal Expenses during flood disasters

Question 3

Non-Insurance NFIP activities (4)

Answer 3

1. flood Maps
2. requries Land use & building codes in order to participate
3. funds disaster relief
4. protect Lenders (against mortage defaults from uninsured losses)

Question 4

Private companies insurance activities YES handle (3)

Private companies insurance activities NO handle (1)

Answer 4

marketing

sales

claims

dont handle: any risk aka do NOT pay losses

Question 5

Special flood hazard area (SFHA)

Answer 5

1. Flood risk >= 1% in a year

Question 6

Who is required to buy flood insurance?

Answer 6

1. special flood hazard area (SFHA) properties w/ federal backed mortgage

Question 7

How to increase flood insurance participation (3)

Answer 7

1. Require coverage for all SFHA properties (not just federal backed mortages)
2. Require coverage for private mortgages (not just federal backed mortages)
3. Include coverage (by default) in HO policy

Question 8

NFIP Direct service agent vs NFIP write-your-own program (2)

how are they the same?

Answer 8

1. private contractor on behalf of FEMA vs. private company writes & services policies
2. Buy from NFIPvs. buy from private insurer

same: NFIP retains all risk, premiums are the same

Question 9

Why flood risk is NOT insurable (on private market)

Answer 9

Cats, unaffordable, adverse selection, hard to price

Question 10

NFIP rates are cost based aka low risk don’t subsidize high risks except for 3 subsidies

Answer 10

1. Pre-FIRM subsidy (built before ‘Flood Insurance Risk Maps’ were made)
2. Newly mapped to SFHA
3. Grandfather cross-subsidy (remapped to new rate class)

Question 11

Barriers of entry for private flood insurers (4)

Answer 11

1. 3 Subsidies will go away if switch to private
2. high price (private insurers include profit vs NFIP does not)
3. Hard to price (no loss data, poor flood maps, poor cat models)
4. non-compete clause: private company that sells NFIP policy (write-your-own program) can not sell their own policy too

Question 12

Benefits of greater private insurer participation in flood insurance

Answer 12

Consumer choice→higher limits, other coverages

lower price if dont have 3 subsidies

Question 13

Concerns of greater private insurer participation in flood insurance (3)

Answer 13

consumer protections: Private insurer regulation varies a lot by state VS NFIP highly regulated by federal govt

Adverse selection – private insurers cherry pick low risks → NFIP keeps high risks

Flood Mapping:

less NFIP participation–>Less fees to pay for flood mapping & management

less NFIP participation–> fewer homes follow floodplaln management standards –> more development in flood prone areas

Question 14

Describe NFIP coverage limits and coverages

Answer 14

low caps on limits

vanilla coverage