Privatizing Flood Insurance in the United States: Options, Challenges, and Pitfalls
92 Pages Posted: 10 Mar 2019
Date Written: February 8, 2019
In this paper, we examine the options, challenges, and potential pitfalls in expanding the role of the private sector in providing flood insurance in the United States. This topic that has garnered considerable interest given the problems facing the National Flood Insurance Program (NFIP). There are many advocates of "privatization" in some form as they see it as a way to ameliorate the problems afflicting the NFIP as well as providing benefits to consumers. The form of privatization that we give the most attention to involves legislative and regulatory measures that would make it easier for private companies to offer flood insurance on their own paper noting that there are other schemes that could be employed that would fall within the scope of privatization defined more broadly. While privatization has many advocates, it also has some detractors. We discuss both the potential benefits of the expansion of private flood insurance as it has been proposed as well as the principal concerns about certain provisions of the proposals that have been put on the table. Based on our analysis, it is our opinion that expanding the sale of private flood coverage, if done properly, would be welfare enhancing and in the public interest. The devil is in the details. This is where the rubber would meet the road in crafting a scheme that would yield the best possible outcomes for consumers while still making it attractive and feasible for carriers to substantially increase the provision of private flood insurance. Our objective is to provide insights into the relevant considerations and posit a scheme that would be workable and politically realistic.
Keywords: Flood Insurance, Catastrophe Risk, Regulation, Political Economy, Public Finance
JEL Classification: G18, G22, P15, P43
Suggested Citation: Suggested Citation