For the last several years, the Florida insurance market has seen significant increases in property premiums due to insurance fraud, natural disasters, and increasing reinsurance costs. Many homeowners insurance carriers have either requested massive rate increases or left the state entirely.

The emerging insurance crisis has forced several special legislative sessions in the past year. The most significant occurred in December 2022 when a new package of bills was signed into law by Gov. Ron DeSantis that promised changes to the property market with hopes of easing premiums. However, a small subsection of the legislation that forces policyholders of the Florida public insurance program—Citizens Property Insurance Corporation (Citizens)—to carry flood insurance, regardless of their flood zone or flood risk, could prove to be a coverage game changer in the marketplace.

While proving to be controversial, this new requirement will give coverage to those who may not have thought they needed flood insurance in one of the most flood-prone states in the country. In research conducted by Len Shabman and Carolyn Kousky in 2016, individuals don't purchase flood insurance because “People may think floods won't happen to them. Insurance may be too expensive, or they may believe it isn't worth it. They may be uninformed about flood risks." Requiring homeowners to have flood insurance has been one of the primary ways that the National Flood Insurance Program (NFIP) has gained policyholders and protected American households. In 1973, Congress passed the Flood Disaster Protection Act (FDPA). This established the mandatory purchase requirement and means homeowners with federally backed mortgages within FEMA's high-risk flood zones are required to carry flood insurance.

Shortly before the FDPA was passed into law, Hurricane Agnes hit the East Coast. At the time, there were only 95,000 active flood insurance policies nationally. Since the passage of the FDPA, the number of flood insurance policies with the NFIP significantly increased. While this number is still less than desirable, policy counts have increased to 1.2 million in 1977, and up to 4.9 million in 2021. However, mandatory purchase requirements from the federal level alone cannot protect all Americans from flooding.

A significant portion of flooding occurs outside of perceived high-risk areas, such as localized rain events inland near rivers, creeks, and other bodies of water, or in low lying areas. In 2022, presidential disaster declarations were made in Illinois, Kentucky, Minnesota, Missouri, Montana, and West Virginia due to flooding events that were unrelated to hurricanes. Flooding is the most common and costly natural disaster, and not enough property owners are insured against it. Put simply, where it rains, it can flood.

While encouraging property owners and communities to mitigate before disaster strikes and enforcing floodplain management standards and building codes in high-risk areas will go a long way in minimizing risk, flood insurance will always remain a necessary safety net for property owners. In that regard, the NFIP is a vital government program that is the primary source of flood insurance for U.S. property owners. According to the U.S. Census Bureau, there are over 124 million households in the country, but only approximately five million of these households participate in the NFIP.

Outside of the NFIP, there is a growing private insurance market. Historically, flooding has been a difficult risk to underwrite in that market. However, advances in modeling and underwriting technology have contributed to significant market growth in recent years., Direct premiums written for private flood insurance increased 41% from $522.6 million in 2019 to $737.1 million in 2020, according to the Insurance Information Institute (Triple-I). Also, AM Best reported that this increase continued in 2021, when direct written premiums topped $1.05 billion, a 43% increase over the previous year. During that same time, the number of private companies writing flood insurance increased.

It is estimated that over 200 companies now offer private flood options. Further, the number of active private flood insurance policies increased from 431,323 in 2020 to 561,871 in 2021, a 30% increase, according to the National Association of Insurance Commissioners. In Florida, the number of active private flood policies rose from 108,162 in 2020 to 117,332 in 2021, an 8% increase. Significantly, according to the Florida Office of Insurance Regulation, the number of active private flood policies has increased 300% since 2017. Overall, private flood options are making flood insurance more available, more affordable and with additional coverages.

Yet, to date, the private insurance market only covers a small portion of flood risk nationally. While commercial flood insurance markets are more developed, private flood insurance on residential properties remains less common. Nonetheless, even FEMA has publicly acknowledged on multiple occasions that both the NFIP and an expanded private market is needed to noticeably increase flood insurance coverage for the country because an insured survivor—regardless of how they purchase their coverage—will recover more quickly and fully from a flood. “FEMA is focused on doing what it can to close the insurance gap in this country," said David Maurstad, senior executive of the NFIP. “We need more insured survivors and less disaster suffering."

With all this being said, flood insurance continues to face a public perception challenge. In Florida, which has over 1.7 million active NFIP policies, and is in the top three states for claims payments in the nation, there is still not enough motivation for every property owner to purchase flood insurance. Nationally, only 4% of homes carry flood insurance, according to E&E News, an environmental news outlet, which notes that in Florida, that number is around just 19%.

The 2022 bill that was signed into law by Gov. DeSantis includes a provision that requires flood insurance for most personal lines Citizens policies, regardless of flood zone or flood risk. The Citizens law takes a phased-in approach. The first phase of the new Citizens law will require all households with a new Citizens policy located in a high-risk zone according to FEMA flood maps to purchase a flood insurance policy starting in April 2023. Property in a high-risk zone currently insured by Citizens must purchase flood insurance by their renewal starting June 2023. All other risks have a phased-in approach:

• March 1, 2024, for policies insuring property to a limit of $600,000 or more.
• March 1, 2025, for policies insuring property to a limit of $500,000 or more.
• March 1, 2026, for policies insuring property to a limit of $400,000 or more.
• March 1, 2027, for all other policies.

Regardless of how Florida homeowners may feel about the new law, it is a giant step forward in helping Florida homeowners become more resilient against the peril of flood. Considering Citizens has over 1.3 million policyholders, that means that 30% of Florida homeowners would have flood insurance by 2027 when the phase-in timeline is complete. Even though some argue that 100% of Floridian homeowners should be covered for flood risk, an 11% increase of flood policies in a four-to-five-year timeframe would be a major accomplishment.

No matter how the discussions around mandatory purchase are framed, one thing is clear: mandatory purchase requirements have covered flood losses that would have otherwise been uninsured. Hurricane Ian, which struck Florida in September 2022, was the third-costliest weather disaster in the world, according to the National Oceanic and Atmospheric Administration. According to CoreLogic, the estimated uninsured flood losses from Hurricane Ian will be about $17 billion. In turn, these uninsured losses end up being funded by taxpayers through congressional appropriations and FEMA disaster funding. While the new Citizens requirement won't fix the problem of uninsured flood losses, it's the first step to insure more households and bring awareness to the issue.

As the nation watches the number of active flood insurance policies increase in Florida, they will also witness less suffering by insureds, which translates to fewer post-storm interviewees lamenting the uninsured flood losses they are faced with. Hopefully with increased participation and awareness of the critical role that flood insurance plays, the U.S. could become a country where the uninsured losses from a flood disaster become a footnote rather than the headline. 

Joe Rossi is CEO and president of Joe Flood Insurance Brokerage in Carver, Massachusetts, and chairman of the Big “I" Flood Insurance Subcommittee.