Role of the Federal Government

If we were asked what the role of the Federal Government was, would both of these answers be acceptable?

  • Private insurers issue & service policies, the Federal Gov't acts as a reinsurer
  • The Fed. is the main provider of primary flood insurance coverage.


  • The second statement is definitely true, that the federal government is the main provider of primary flood insurance coverage. That's actually the first sentence in the summary section of the source text.

    Your first statement however, that the federal government acts as reinsurance is not quite accurate. Under the servicing arrangements that private insurers can operate under (Direct Servicing Agent, Write-Your-Own program) NFIP is still basically the primary insurer. It's as if the private insurers are employees of NFIP who simply service the policies. NFIP pays the claims and the private insurers assume no risk.

    If a private insurer does U/W the policy and retain the risk, that's separate from NFIP. The private insurer can purchase reinsurance but it wouldn't be through NFIP. (NFIP itself is a purchaser of reinsurance.)

    The role of the federal government includes promoting social goals like making flood insurance available to high-risk customers at reasonable rates and non-insurance goals such as distributing flood maps and funding rebuilding after a flood.

    Just as an FYI: This reading has been updated again for 2020.Fall but this time, it really is just a minor update, with 1 material change regarding issues & barriers to private flood insurance. (I will publish the revised version once the CAS confirms that the 2020.Fall syllabus is in effect.)

  • I should have also provided a source, these contradicting view points come from Spring 18 Q4, Part D.

    The definitions given for NFIP seem to be from outdated sources & the role of the Fed. isn't explicitly mentioned in the current Horn reading but I figured I'd ask. I initially thought that the Fed. is the primary insurer but after thinking about it, it does kind of make sense that they fill the role of a reinsurer, but retain all the risk. (Especially with WYO policies).

    Based off the current syllabus do you think that primary insurer is the more acceptable answer?

  • Ok, I see now. I think it's semantics really. I was saying that if the federal government retains all the risk, then they aren't really a reinsurer since they're essentially behaving like a primary insurer and their "staff" consists of the so-called private insurers.

    Then again, what if a primary insurer cedes 100% of the risk? The entity they cede it to would still be called a reinsurer. So under that interpretation, the federal government can indeed be thought of as a reinsurer. I edited the BattleCard answer to make that point.

    I don't think anything in the updated reading would change the answer to this exam question. In retrospect, both of your answers should be acceptable.

Sign In or Register to comment.