Reinsuring flood insurance in the US

In the US, the annual uninsured economic impact from flooding is roughly USD 10 billion, making it one of the most common and costly natural disasters. While the private flood insurance market is developing, the US Government has been offering residential flood coverage since 1968. Today, the National Flood Insurance Program (NFIP), which is managed by the Federal Emergency Management Agency (www.fema.gov), insures five million households. As the power and frequency of floods have been increasing over the last decade, insurance claims have risen beyond the amount that policyholders pay into the programme.

In response to this evolving threat, the NFIP has sought to put the programme on a more sustainable financial path. Along with the establishment of a reserve fund, its strategy includes the creation of a reinsurance programme with partners from the private sector. Swiss Re has been involved in this initiative from the beginning and is one of its three original reinsurance providers.

The programme’s purpose is to cover losses from large and unexpected insured events such as severe floods caused by hurricanes. It proved its value in its first year by providing private capital to help homeowners recover from the devastation caused by Hurricane Harvey. This coverage saved US taxpayers USD 1 billion and helped prevent the programme from falling further into debt.