The National Flood Insurance Program (NFIP) had received over 44,000 flood claims from Hurricane Ian as of Nov. 10 and had paid nearly $437 million to policyholders.
According to FEMA’s preliminary estimates, Hurricane Ian could result in NFIP claims losses ranging from $3.5 to $5.3 billion, including loss adjustment expenses. The losses include flood insurance claims from five states, with Florida accounting for the majority of them.
The initial estimate was based on several data points, according to the agency. Policy information, daily reports of claims and payments made, significant historical events patterns of reported claims and payments, current economic conditions, and claim adjuster observations are all included.
As the claims process progresses, FEMA will continue to update models and confirm future estimates.
The National Flood Insurance Fund and Reserve Fund are used to pay NFIP flood insurance claims. The program can also borrow an additional $9.9 billion in funds.
FEMA’s reinsurance program consists of an annual traditional reinsurance program with a $4 billion or more trigger for a percentage of recovery payments, as well as three capital market placements with a recovery payment starting at $5.32 billion in received claims payments. The NFIP would need to incur at least $10 billion in flood insurance claims losses to collect the maximum reinsurance amount. Furthermore, FEMA currently has $2.49 billion in reinsurance coverage in place for fiscal year 2022. Reinsurers agree to pay a certain percentage if a covered flood event results in NFIP claim payouts that equal or exceed an agreed-upon amount.
The NFIP reinsurance program assists FEMA in managing the NFIP’s future exposure by transferring risk to private reinsurance companies and capital market investors. FEMA has an additional method to fund payment of flood claims after catastrophic flood events by securing reinsurance at a fair and reasonable cost.
Premiums are paid to reinsurers by insurance providers such as the NFIP. Reinsurers, in exchange, provide coverage for losses incurred up to a certain amount for events such as Hurricane Ian.
While Hurricane Ian is a significant flood insurance event that may result in reinsurance payments, FEMA will need several weeks to determine whether the NFIP is able to collect under its reinsurance agreements.