Advice to Canadian industry from former U.S. government flood insurance CEO

A former head of the United States National Flood Insurance Program has some frank advice for Canadian insurance professionals concerned about the lack of affordable overland flood coverage insurance for high-risk properties.

“Look at what they have done south of the border in the United States and don’t repeat it,” Roy Wright, president and CEO of the Insurance Institute for Business and Home Safety, said Wednesday in Toronto at CatIQ Connect.

Before joining IBHS in 2018, Wright was CEO of NFIP, which provides flood insurance for U.S. properties in communities that agree to enforce certain floodplain management standards. In some cases, NFIP premiums are subsidized, and the federal program has borrowed more than US$30 billion since inception in 1968.

“Please, Canada. Do not replicate that,” Wright said of NFIP during a Q&A at his presentation, Narrowing Disaster Impacts: Flood, Fire, and the Importance of the Roof.

There is no strong movement afoot to copy and paste NFIP into Canada. But at the moment, Canada has no government-sponsored high-risk overland flood insurance pool. The industry estimates that affordable flood coverage is not available to about 10% of Canadian properties because they are in high-risk areas.

Public Safety Canada told Canadian Underwriter last month it is premature to speculate on a flood insurance program. This was in response to a question about an Insurance Bureau of Canada paper, released this past June, suggesting the feds consider a pool for high-risk homeowners. That was one of three scenarios presented by IBC in its report, Options for Managing the Flood Costs of Canada’s Highest-risk Residential Properties.

The other two options were a pure market solution and one in which the risk of borne by a blend of homeowners and government.

South of the border, an emphasis on affordability has led to NFIP premium rates that in many cases do not reflect the full risk of loss, the U.S. Government Accountability Office said in a report released last year.

The U.S. Congressional Research Service reported this past December that NFIP owes more than US$20 billion but that does not include US$16 billion in debt that was cancelled in October of 2017 in the aftermath of hurricanes Harvey, Irma and Maria.

When NFIP was first established more than 50 year ago, the idea was to work with communities to make insurance available and affordable in the short term, Wright said at CatIQ Connect, held Feb. 3 through 5 at the Metro Toronto Convention Centre and produced by Catastrophe Indices and Quantification Inc.

“If you read the early documents, they asserted that within 10 years of telling people that they lived in harm’s way, that they would move, so that this would not continue on forever,” said Wright. “It hasn’t quite materialized that way.”

With the Biggert-Waters Flood Insurance Reform Act, passed in 2012, the U.S. government was aiming to raise rates to reflect true flood risk. But in 2014, some provisions of Biggert-Waters were repealed after politicians got pushback from floodplain-dwelling constituents facing massive increases for their flood insurance.

“By the time a politician thinks they can help a constituent change their flood risk, you’ve lost,” Wright said Wednesday.

“The United States has done more in identifying and communicating flood risk than any other nation in the world, and while I think there is a tremendous amount of good that has come out of that, fundamentally, the communication of flood risk has just created an environment where people fight it incessantly. If you tell someone that they are in harm’s way, instead of meeting the objective that [NFIP originally] thought they were going to see in 1968 – that people would move – instead, people go, ‘It cannot be true. And I will fight you to the bitter end.’”