Private Flood Insurers Cannot Access NFIP's Claims Data to Price Risk

Private flood insurance has been touted as the solution to NFIP's failures -- introducing competition, innovation, and actuarially sound pricing. But private insurers face a fundamental data asymmetry: FEMA will not share granular NFIP claims history at the property level. A private insurer writing a new flood policy on a specific home cannot see whether that home has filed three previous NFIP claims, what the damage was, or what was paid out. They are pricing risk partially blind. This data gap creates adverse selection. Properties with bad claims histories -- the ones NFIP is underpricing the most under legacy rates -- are the most attractive candidates to keep on NFIP. Properties with clean histories and low actual risk are the ones most likely to be cherry-picked by private insurers offering lower premiums. The result is that NFIP's risk pool gets worse over time as good risks leave and bad risks stay, exacerbating the program's financial problems. For homeowners, this means the private market is smaller and more expensive than it needs to be. Private insurers add risk loading to compensate for the data they cannot access, which means premiums are higher than they would be with perfect information. Homeowners who could benefit from competitive private options are paying more -- or cannot find private coverage at all -- because the federal government hoards the data that would make the market functional. This persists because FEMA argues that property-level claims data is personally identifiable information protected under the Privacy Act. There is also an institutional incentive: if private insurers could access NFIP data and price accurately, they would siphon off the profitable policies and leave NFIP with only the worst risks, making the program even more insolvent. FEMA has little bureaucratic motivation to enable its own program's adverse selection death spiral.