This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Private Market Considers Bolting From Flood Insurance

Stocks in this article: ALL TRV

WASHINGTON ( TheStreet) -- Private insurance companies participating in National Flood Insurance Program are reconsidering their participation after Congressional stalling and massive losses are putting its future in doubt.

"Every insurer operating in America today has to have the money to pay for the claims they take on," says Robert Hartwig, president of the Insurance Information Institute. "This business shouldn't be run any differently."

The flood program is overseen by Federal Emergency Management Agency (FEMA) which is currently seeking a $19 billion taxpayer bailout. The program, which insures 5.6 million properties nationwide, offers flood insurance at discount rates and has been hit hard by losses following Hurricane Katrina.

While federally funded, private insurance companies sell the flood policies and then are "reimbursed" by the government. However, over the past year lawmakers in Washington have stalled on renewing flood insurance legislation and private insurance companies had to front the cost of policies. The program has lapsed four times so far this year.

The lapses, coupled with a massive shortfall, are giving private insurance companies pause.

"There is a real political risk associated with the program because the last two lapses were so long," says Ben McKay, senior vice president of federal government relations for Property Casualty Insurers Association of America. "I had several companies call me to ask what that political risk was. Many are weighing whether or not they want to stay in the program, or acquire other companies that write the FEMA policies."

In June State Farm Mutual Insurance Company announced that it would no longer write flood insurance policies. The company handled over 800,000 flood insurance customers across the country--40 percent of them in Florida.

Other large companies participating in the program include Allstate (ALL), The Hartford (HIG) and Travelers (TRV). One of the companies weighing that risk is Fidelity National Property and Casualty Insurance. Fidelity CEO Mark Davey spoke to Congress in June about risks associated with the program and its need for reform.

"As a company, after you pay the flood the claim, then you are out that money until FEMA reimburses you," says McKay. "If the lapses get longer this is a real problem for insurers."

As USA TODAY reported, the government program has been running deeply in the red. This is because politicians haven't wanted to bailout the program until it was reformed. The only problem is that it has remained on the Congresses to-do list since Hurricane Katrina took place.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,030.21 +6.04 0.03%
S&P 500 2,081.88 -0.29 -0.01%
NASDAQ 4,773.4720 +8.0480 0.17%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs