Private, less expensive flood insurance a possibility for some areas: Analysis

Private insurers might be able to provide flood insurance at prices that are potentially lower than those charged by the National Flood Insurance Program, according to a study released Friday by the University of Pennsylvania's Wharton School.

The study, “A Methodological Approach for Pricing Flood Insurance and Evaluating Loss Reduction Measures: Application in Texas,” calculated what it called the “actuarially fair” flood insurance premium based on probabilistic catastrophe flood modeling conducted by Santa Ana, Calif.-based CoreLogic Inc.

The Wharton Risk Management and Decision Processes Center examined the likelihood of future catastrophic flooding and the potential cost of providing private flood insurance in two flood-prone Texas counties: Galveston and Travis.

According to the study, private insurers might be able to provide flood insurance at prices lower than those charged by the NFIP in parts of the two counties.

“This presents opportunities for private insures to provide coverage in some of these areas, to complement the NFIP,” Erwann Michel-Kerjan, the study's co-author and managing director of the risk center, said in a statement outlining the results.

Mr. Michel-Kerjan said there would be “several practical barriers” that would have to be dealt with before private insurers could offer flood coverage.

According to the report, one of the challenges would be devising a strategy for moving existing NFIP policies into the private market. But if those barriers were overcome, “this could significantly increase the number of residents with proper coverage, thus reducing the need for government disaster relief,” he said.

The study was released as Congress yet again considers reauthorizing the NFIP, which is slated to expire at midnight Friday. The program has been extended on a short-term basis several times this year.