As of Nov. 10, the National Flood Insurance Program (NFIP) has received more than 44,000 flood claims from Hurricane Ian and paid nearly $437 million to policyholders.
The Federal Emergency Management Agency’s (FEMA) initial estimate predicts that Hurricane Ian could result in NFIP claims losses of between $3.5 billion and $5.3 billion, including loss adjustment costs. The losses include flood insurance claims received from five states, with the majority of claims coming from Florida.
The agency based the initial estimate on several data points. These include policy information, daily reports of claims and payments made, significant historical events, reported claims and payment patterns, current economic conditions, and adjusters’ observations.
FEMA will continue to update models and confirm future estimates as the claims process evolves.
NFIP flood insurance claims are paid by the National Flood Insurance Fund and Reserve Fund. The program also has the ability to borrow an additional $9.9 billion.
FEMA Reinsurance Program includes an annual traditional reinsurance program with a trigger of $4 billion or more for a percentage of recovery payments and three capital market investments with a recovery payment starting at $5.32 billion in claims payments received . To collect the maximum amount of reinsurance, the NFIP would have to incur at least $10 billion in losses from flood insurance claims. In addition, FEMA currently holds $2.49 billion in reinsurance coverage for fiscal year 2022. If a covered flood results in NFIP claim payments equal to or greater than an agreed amount, reinsurers agree to pay a certain percentage.
The NFIP Reinsurance Program helps FEMA manage future NFIP exposure by transferring risk to private reinsurance companies and capital market investors. By guaranteeing reinsurance at a fair and reasonable cost, FEMA has an additional method to fund the payment of flood-related claims after catastrophic floods.
Insurers, such as the NFIP, pay premiums to reinsurers. In exchange, reinsurers provide coverage for losses incurred up to a specified amount for events like Hurricane Ian.
While Hurricane Ian is a significant flood insurance event that can trigger reinsurance payments, it will take FEMA several weeks to determine if NFIP is able to collect under its reinsurance agreements.