New Analysis Calls for NFIP Privatization

The Cato Institute has issued a policy analysis arguing for the federal government to either exit or diminish its position in the flood insurance market and allow for the privatization of the National Flood Insurance Program (NFIP).

 

In the report “Reforming the National Flood Insurance Program: Toward Private Insurance,” Cato visiting fellow Ike Brannon and research assistant Ari Blask point to the upcoming September expiration date of the authorization for the NFIP by stating the time has come for Washington to "allow a robust private market to flourish in place of government-provided insurance." Brannon and Blask note that the NFIP is responsible for a system riddled with inaccurate rates, regressive subsidies and premiums that are not actuarially sound while running itself more than $25 billion in debt.

 

In their analysis, Brannon and Blask conclude the private market would be able to measure risk more accurately and insurance prices that cover the expected costs. Privatization would introduce discipline to the flood insurance market and improve fairness and increase accuracy of insurance costs. Although federally backed lenders are able to accept private insurance, the report lists continued obstacles that ensure continued federal domination of this market.

 

“Privatization would not disproportionately hurt the working class,” the authors stated. “A fully private flood insurance market coupled with a targeted, means-tested subsidy would be much less regressive than the status quo. Short of full privatization, Congress should ensure that private insurers can compete on an even playing field with the NFIP.”

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