Property Casualty Insurers Association of America
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News Release



Jessica Hanson











May 19, 2011



Many NFIP Rates at 70 Percent Below True Risk Cost According to New PCI Study


WASHINGTON – Current rates for National Flood Insurance Program (NFIP) policyholders are about a third of the true risk cost in many parts of the country, according to a new study by the Property Casualty Insurers Association of America (PCI).

“We are releasing the findings of our new study on NFIP rates as a benchmarking tool to help lawmakers as they discuss the Flood Insurance Reform Act of 2011,” said Robert Gordon, PCI’s senior vice president of policy development and research. “The flood program is currently saddled with $17.75 billion of debt. We are pleased that the new bill in the House includes provisions to move the NFIP toward more adequate rates that will stabilize the program and reduce taxpayers’ exposure to costly relief efforts.”

PCI has calculated a rough approximation of the true market-risk cost of flood insurance, based on recent analyses by the Congressional Budget Office (CBO) and Government Accountability Office (GAO) of the NFIP’s costs plus the additional amounts necessary if coverage were to be provided in the private sector (such as reinsurance, cost of capital, and taxes). 

PCI concludes that, overall, the federal government is providing flood insurance at roughly one-half the true risk cost for NFIP policies. In higher risk areas, the explicit subsidy is even greater, resulting in a true risk cost that is more than three times higher than NFIP rates.

Estimated Annual Premiums for Different Risk Properties:

From NFIP to True Market-Risk Costs






$ 585

$ 443

$ 1,093

Explicit Subsidy

$ 361


$ 1,639

Required Load for Private Cos.

$ 220

$ 103

$ 635

Private Rate

$ 1,166

$ 546

$ 3,367

Private Rate is Higher than NFIP Rate by...




Note: Because NFIP rates do not reflect the true flood risk, the final private rates may be even higher.


“We support the current public-private partnership between the federal government and insurers to provide flood insurance to home and business owners across the country,” said Gordon. “But moving forward, we need to provide the flood program with the ability to sustain itself financially and adequately protect its policyholders with sufficient capital.”


Strengthening the NFIP remains a top national priority for home, auto and business insurers. PCI is committed to working with House and Senate leaders to protect taxpayers and consumers by strengthening and reauthorizing the NFIP. Since its expiration in 2008, and throughout the short-term extensions, PCI has been the leading advocate for long-term, balanced solutions for the NFIP to protect the more than 5.6 million Americans who rely on flood insurance.


A copy of the full PCI study is enclosed.


PCI is composed of more than 1,000 member companies, representing the broadest cross-section of insurers of any national trade association.  PCI members write over $175 billion in annual premium, 37.4 percent of the nation’s property casualty insurance.  Member companies manage almost 44 percent of flood insurance through the NFIP’s “Write-Your-Own” program.



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