US Flood System
Hi,
In the wiki, it states that the US system uses the risk-based pricing. However, the summary table in the source states that the pricing is set by government. Also, when I read the detailed description, it says that "The federal government – through
the Federal Emergency Management Agency (FEMA) – is responsible for administering the program." "FEMA sets the premiums based on Flood Insurance Rate Maps (FIRMs)".
Am I understanding this correctly?
Thank you.
Comments
The U.S. system is confusing because it's true that the government sets the rates, but according to the way their National Flood Insurance Program is set up, the rates should be risk-based. That's the reason for using FIRMs. Those maps will tell you how to set actuarially sound rates. (Note that they do allow certain exceptions to using risk-based rates however.)
The IBC.Flood reading on the Exam 6C syllabus makes it seem like rates must be either government -set or risk-based. But as noted above, both could be true: the government-set rates may in fact be risk-based.
In any case, the U.S. system is not a good system for Canada to follow because it is heavily in debt and mainly relies on the federal government and taxpayers to sustain the system. (So despite the goal of using risk-based pricing to set actuarially sound rates, the rates appear to be too low. This is probably because of pressure on the government to keep flood rates affordable.)
Hi,
I don't quite understand how the government underwrite flood policies as well as the private insurers? based on the battlecards, private insurers write and service policies, does that mean an insured can purchase flood coverage from the government or the private insurer, through private insurer coverage would be more expensive I assume? are private insurers getting an allowance for writing and servicing these policies, if there's a claim, the private insurer would seek reimbursement from the government? I guess it's just not clear to me the role played by the private insurer here.
Thanks,
In the United States, individuals have 2 options for purchasing flood insurance:
Private insurance is likely more expensive than insurance through NFIP in the United State. Private insurers selling NFIP policies get an allowance for servicing the policies.
(I'm not quite sure which BattleCard you're referring to here. Let me know if this doesn't answer your question.)
That answers perfectly my questions, thank you so much!