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High Risk Issue
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IssueView Detailed Plan |
National Flood Insurance ProgramProblem: The National Flood Insurance Program (NFIP) is not actuarially sound because its subsidized policyholders (representing less than 25% of all policyholders, including the policyholders who are most at risk to the peril of flooding) pay less than 40% of their full risk premiums. The NFIP's enabling legislation does not permit actuarial rating of all risks. Also, the program is not structured to build loss reserves and thus does not build and hold capital to offset greater than average year losses. Instead, the NFIP pays claims and expenses out of current premium income and borrows from the Treasury when it has insufficient income to pay claims. It is very unlikely that the NFIP will be able to repay its current Treasury debt of $17.4 billion. This debt is the direct result of borrowing to pay the insured flood losses from the 2005 Hurricanes Katrina, Rita and Wilma. Claim payments for losses in 2005 equaled the total payments for all of the previous years for the NFIP. Goal: Create a program that is more actuarially sound by gradually phasing out several categories of subsidized structures and that educates communities and citizens about the risks of flooding and mitigates future flood damage. |
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