Massive storms test state and federal insurance plans
The plan has more than 190,000 policies with $71.7 billion in total exposure. Before Hurricane Florence made landfall, R.J. Lehmann, senior fellow and director of finance, insurance, and trade policy for the R Street Institute, said the storm could seriously stress the Beach Plan.
“The Beach Plan may not have the resources to pay,” Lehmann said. “If it doesn’t, what it has to do is issue bonds, and those bonds are paid off with assessments. Assessments are on every policy in the state whether you’re on the beach plan or not.”
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While the Beach Plan is probably safe for another year, the National Flood Insurance Plan is another story. Lehmann said Hurricane Florence could add to the roughly $20.5 billion debt the National Flood Insurance Plan owes taxpayers already.
There are more than 184,000 NFIP policies in North Carolina with $33.7 billion in exposure. While it’s unlikely Hurricane Florence will completely wipe out the NFIP’s claim paying capacity, Lehmann said, it is likely to add to the existing debt.
“To come close to burning through all of the program’s resources, Florence would have to approach the record $16.3 billion the NFIP paid out in 2005 for Hurricane Katrina,” Lehmann wrote.
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Lehmann said an extraordinary number of policies must be claimed before the NFIP runs out of money. The program, once it runs out of its own resources, has authority to borrow from the U.S. Treasury. A storm on scale with Hurricane Harvey or Superstorm Sandy could do the trick.
“The program is up for reauthorization again at the end of November,” Lehmann said. “There was legislation in the House last year that did a number of reforms but got nowhere in the Senate. We hope that a major storm will put it on the Senate’s radar, but I’m not tremendously optimistic.”
Lehmann cited the private sector. Congress could pass legislation to encourage development of the private flood insurance market, which is only now starting to emerge. In North Carolina, state lawmakers could encourage a more competitive insurance market, as well.
“We have to move to risk-based rates across the board, particularly for repetitive loss properties that only account for 2 percent of the policy but about a quarter to a third of all claims,” Lehmann said. “They should be paying risk-based rates, but in addition to that we can give incentives to do mitigation to raise their homes if necessary, or community grants given to build levees and dams to control flooding.”
