Wednesday’s Post  January 18, 2012 –  When will the administrators of the NFIP figure out why they are having such a difficult time paying their bills?  The National Flood Insurance Plan which has lost money for years got another new lease on life this month. Leaders in the insurance industry appreciate the extension by both the Obama Administration and the U.S. Congress for additional time to right its sinking ship. The NFIP would have expired at midnight on December 31st.  The program’s cancellation would have left in excess of  five million American homes with the required flood insurance coverage required to maintain a mortgaged property against damages.  Waiting for this programs extension has been frustrating and has rattled a few nerves. in Washington and around the U.S.  This is not the first time the NFIP has been saved by a federal extension.  All involved in the Program have been looking for a permanent solution for the program to survive and continue to serve the public. The National Flood program has suffered the effects of the global economic meltdown, with some in Republican Party wanting the program to finally expire. It’s believed if the National Flood Insurance Program is finally allowed to expire, a private Homeowners Insurance Company would underwrite the program. If this were to happen – a profitable business model would need to be put in place.

So back to the original question. When will the administrators of the NFIP figure out why they are having such a difficult time staying profitable? Answer: Their underwriting guidelines are unrealistic and foolish.  If you want to be a profitable enterprise, your business plan can’t be intentionally unprofitable.  The NFIP is such an enterprise.  It started that way and has continued through years of being bailed out by the federal government every single time it loses money.  If you own a home on the beach in Malibu, California; and the house is swept away by a storm – the typical Homeowners Insurance Company will pay the claim, rebuild your house – but not reinsure the home. This is fair.  On the other side of town you have the NFIP. They will pay the claim, rebuild your home, then do it again 15 more times over the next 30 years. With a business plan like that – no one should question why they are always broke. If the Fed would allow someone with real underwriting experience to take over the Flood Program and lend some discipline to its business practices – they would finally be profitable. Unfortunatley; with the current administration running the federal govenment the same way – I would not expect any type of change soon.

-Mike

Michael E. Dortch
President &  Managing Agent
InsureDirect.com
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