AIA Study Finds Including Windstorm Insurance Could Double NIFIP’s Deficits in One Year

Gov. Marc Racicot, president of the American Insurance Association (AIA), sent a letter on Wednesday to Rep. Gene Taylor (D-MS), sharing with him the analysis of an AIA-commissioned study to examine the effects of including windstorm insurance in the National Flood Insurance Program (NFIP) as proposed by the “Multiple Peril Insurance Act of 2007 (HR920).”   
  
In his letter, Mr. Racicot shared the analysis provided by the AIA-contracted actuarial firm, Towers Perrin, to examine the effects that the proposal act would have on the NFIP. Here is what the letter said:   
  
“According to the Congressional Budget Office, the NFIP currently has a deficit that is expected to grow to $900 million per year. We commissioned the new analysis to determine whether adding windstorm coverage to the NFIP would add to the current and projected NFIP deficit. In our view, the results are troubling, especially to those who are concerned about the ultimate costs of an expanded program to our nation’s taxpayers.   
  
“Towers Perrin concluded that incorporating windstorm insurance would significantly increase NFIP deficits under every scenario examined—in some scenarios, deficits from catastrophic wind events in a single year could be $100 to $200 billion, or potentially even higher.   
  
“Additionally, these deficits are likely to be even higher than those specified in the analysis due to expected new coastal construction and inflation, and if the program attracts a disproportionate number of high-risk policyholders—as is often the case with government insurance programs—notwithstanding the legislation’s directive that premiums be based on 'actuarial principles.'   
  
“Although the property insurance market currently is under stress in several Atlantic and Gulf Coast states, the solution rests in improving, not displacing, private sector ability to serve homeowners and businesses in the path of potential storms. To this end, the American Insurance Association has developed a proactive agenda that includes protective measures, legal reforms, and regulatory reforms at the state and federal level. We oppose the creation of hurricane 'Cat Funds' and other government programs that ultimately result in a bail-out from taxpayers living in less-risky areas.   
  
“We hope this analysis proves useful as the Housing Subcommittee prepares for the July 17 hearing on H.R. 920. We would appreciate the opportunity to engage in further dialogue with you about this issue or other aspects of this legislation. Our hope is to work with you to develop constructive solutions that address concerns that you have raised about the NFIP and private wind insurance, without creating an unnecessary and unwieldy bureaucracy that does not serve the needs of policyholders or taxpayers.”   
  
The American Insurance Association is the leading property/casualty insurance trade organization, representing 350 insurers that write more than $123 billion in premiums each year. AIA member companies offer all types of property - casualty insurance, including personal and commercial auto insurance, commercial property and liability coverage for small businesses, workers compensation, homeowners insurance, medical malpractice coverage, and product liability insurance.