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With the National Flood Insurance Program (NFIP) essentially on life support until the end of November, Chubb CEO Evan Greenberg is calling for a more comprehensive program that includes the “expertise and capacity” of private insurers.
The NFIP was originally up for its seventh short-term reauthorization next month – but Congress passed a bill last July that extended the program without any reform until November 30.
In an interview with The Wall Street Journal¸ Greenberg said the NFIP crowds out the private sector from playing a greater role in flood insurance.
“The government under the NFIP charges an inadequate rate in most instances,” he said. “It underprices the cost of risk. It incents people to live in places they otherwise wouldn’t because they don’t pay the right price to live with that risk. And it disincents government from putting money toward infrastructure to mitigate exposure to flood.”
“There is a better way. Where you recognize the right rate to the exposure, that creates responsible behaviors at both the public and private level that will drive society’s behavior in better directions.”
“The science around flood insurance has improved,” he added. “We have modeling and geomapping capabilities today that we didn’t have a decade or two ago. The private sector would charge an actuarially sound rate - that’s to everyone‘s advantage because it brings stability to the system.”
According to Greenberg, the government still has a role to play, and that is to serve those who are less fortunate and have an affordability problem but cannot move.
“The government should subsidize the cost for those people,” he said. “That’s a societal decision. And it’s the right decision.”
He added that the government can maintain a role as reinsurer of last resort for extreme events, as it would take time to develop a private-sector market.
A recent study by consulting and actuarial firm Milliman – in collaboration with Risk Management Solutions – found that more than 90% of homes in New Jersey and New York could have more affordable premiums with private flood insurance.
Milliman principal and consulting actuary Nancy Watkins, a co-author of the study, said that the report shows how a private insurance market could work in conjunction with the NFIP to not only reduce premiums in both states, but also to provide more choices and increase coverage for consumers.
Greenberg told The Wall Street Journal that his firm would be willing to play a greater role in flood insurance.
“We would be willing to write substantially more coverage if the government allowed private companies to charge an adequate, actuarially sound rate that is matched to the risk,” he said.
