New York partners Tom Dawson and Michael Halsband were quoted in a Reactions article titled, “The NFIP expands US flood reinsurance buying.” The article discussed FEMA’s recent expansion of its placement of reinsurance for the National Flood Insurance Program (NFIP), marking a key step towards achieving a stronger and more resilient NFIP.
Tom explained that FEMA’s purchasing activities are consistent with Republican “small government” orthodoxy – essentially privatizing whatever government functions can be privatized.
“These purchases are just the first step in the privatization process,” said Tom. “Commercially, more and more flood insurance risk will be written outside the NFIP. How much more, presumably, will be to a large extent a function of demand, supply and the willingness of consumers to pay market rates determined by actuarial science rather than by political science.”
Michael said he fully expects more U.S. flood risk to be transferred to the capital markets through either traditional re/insurers or instruments such as insurance linked securities (ILS).
“It is no longer a matter of time,” said Michael, adding: “ILS and other non-traditional risk markets will accelerate the transfer of this peril to their invested capital base. State and quasi-government platforms have been accessing the ILS markets for some time. Republican control of the executive and legislative branches will accelerate this commercialization and democratization of risk transfer.”
Many are hopeful that FEMA’s decision will inspire other governmental bodies to make similar moves.
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