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Congress is set to reform the National Flood Insurance Program later this year.  We have written before about how the NFIP has needed reform for years — it is $25 billion is debt.  One of the suggested ways to fix some of the problems with the NFIP is to make it easier for private insurers to sell flood insurance.  Allowing private insurers to sell flood insurance could help the majority of Louisiana’s policyholders see significantly cheaper and better coverage.  The problem is that it would also mean huge premiums increases for flood insurance for those in coastal areas.

Roughly 400,000 of the 500,000 of Louisiana flood insurance policy holders would have better, cheaper coverage from a private insurance than with the NFIP.   More private insurers would allow the NFIP to stop covering properties in low-risk areas.  These low-risk properties account for about 25% of the annual losses in the NFIP.  Not covering them would significantly lower the annual debt of the NFIP.  The low-risk properties help spread the risk, thereby lowering the overall cost of flood insurance.

But removing the less-risky policies would cause higher rates for the 100,000 in Louisiana’s coastal parishes.   Insurance Commissioner Jim Donelon said that the NFIP renewal would have to include coverage at affordable rates for the 100,000 coastal policyholders. There have been several suggestions by experts as to how to keep the rates reasonable for coastal policyholders.

Commissioner Donelon stated that he believes Congress would be willing to subsidize the 100,000 coastal policies.  This could help keep the rates lower for policyholders.  U.S. Rep. Garret Graves, R-Baton Rouge, warns, “If you just flat out allow private insurers to come in and cherry pick the market, you’re going to have the high-risk pool largely comprised of folks in south Louisiana.”   Graves suggests allowing private insurers to come in with no conditions, but that the federal government be required to subsidize premiums in areas where there is increased likelihood of flooding due to federal government activities.

The U.S. Army Corps of Engineers and the mismanagement of the Mississippi River system created much of the erosion causing coastal Louisiana policyholders to become more vulnerable to flooding.  Graves said, “This whole issue of the federal government making us more flood-prone and then trying to make us pay for it is bogus.”  There is growing support for the idea that property owners should pay for flood insurance, but only to the extent of the risk they caused.

The most common suggestion, to improve flood insurance rates is to make some form of mandatory flood insurance.  This would be very similar to how flood insurance is handled in the UK where it is bundled with homeowners insurance.  About 95% of homeowners in the UK have flood insurance, whereas only 14% do here in the US.  This would spread the risk across so many households that there would be a sharp decrease in the price per policy.

The National Association of Insurance Commissioners suggested lawmakers consider mandatory coverage.  The Coalition for Sustainable Flood Insurance has also given proposals that included considering mandatory flood insurance for properties that have flooded in the past and received federal assistance for repairs.

Graves believes that he can explain why the proposals make good policy, but stated that it was going to be difficult to get the support needed for them to be included in the NFIP renewal.

Regardless of the solution, efforts must be made to protect vital Louisiana coastland that provides critical natural resources to the rest of the country.


Special thanks to Celeste Birdsall for her help in researching and drafting this article.

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