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Flood Insurance Market Makes Strides Against the No. 1 Natural Peril

While the National Flood Insurance Program remains the main source of standalone flood insurance in the U.S., the number of primary and excess private flood insurance options continues to grow.
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flood insurance market makes strides against the no. 1 natural peril

Flooding is the No. 1 natural peril in the U.S., and the frequency and severity of flood events are only increasing. Compounding the risk is the fact that there are approximately “14.6 million properties across the country that are at substantial risk of flooding and only 5% of single-family homeowners have flood insurance," says Kevin Tobin, CEO of Torrent Technologies, a Marsh company.

“2020 saw a record-breaking number of named storms during the Atlantic hurricane season; 30 in total, with 12 storms making landfall in the U.S.," says Cassie Masone, vice president, flood operations, Selective. “Many areas that have never experienced flooding have seen some level of flooding over the past few years and we believe this trend will continue."

Despite this bleak outlook, there is optimism when it comes to the flood insurance market. “We're seeing a lot of positive trends, particularly if you look back about five years ago and then look at where we are today," says Bill Bold, chief strategy officer, Palomar. “We've seen several new insurers enter the private flood space."

The National Flood Insurance Program (NFIP) has been the primary source of flood insurance for homeowners over the past 50 years but recently the flood insurance market has expanded. “The private flood insurance market has expanded rapidly, giving insurance agents more options than ever to ensure their clients are adequately protected from flood risk," Tobin says.

“We are seeing a broader focus on resiliency as governments, regulatory authorities, insurance leaders and other stakeholders increasingly understand that flood risk is not a problem that insurance alone can solve; that it requires public and private coordination that combines resistance—measures that hold back water—with the ability to recover quickly," Tobin adds.

While “disaster seasons are getting somewhat more frequent and certainly more severe," Bold says, “we are encouraged to see bipartisan interest growing with respect to the federal government's interests in not only managing the market with the proper custodial treatment given that the public is on the line, but also to expand the overall coverage, and not just with respect to flood, but with other perils as well."

The flood insurance industry continues to make advances in flood modeling, thereby making forecasting at-risk areas even more accurate.

“Carriers are increasingly using new tools to supplement FEMA's flood zones, accounting for inundation patterns and high-resolution differences in elevation as well as giving carriers an improved view of risk," says Louis Hobson, senior vice president, North America flood insurance, Chubb. “The impact of storms, including their resulting damage, has made modeling and forecasting even more important. The industry is continuously looking to enhance its capabilities."

Over the past year, the housing market has been strong, a direct result of the low interest rates that have prevailed.

As home sales increase, “we are seeing more people inquire about and purchase flood insurance for the first time," Masone says. “One option that exists in the NFIP and that homebuyers should consider is the NFIP's policy assumption option. NFIP policy assumption can help the home sale process as it allows the current homeowner, with an in-force NFIP flood insurance policy, to transfer this policy to the new owner. This cuts down on the time to get a new flood policy and can also save money."

Meanwhile, homes continue to be built in coastal areas and areas close to water, leading to an increased risk of flood from storms and rising sea levels.

“When this happens, it changes the landscape—areas once covered by vegetation, such as ground cover, shrubs and trees, are now covered by concrete or asphalt, or the underlying groundcover is removed and replaced with groundcover that may not help to absorb water runoff," Masone says. “This change of landscape creates an opportunity for flooding that many homebuyers do not consider." 

“Experts indicate that both sea and inland lakes and stream levels are rising, and with the steady rate of new home construction in areas close to water sources, the importance of flood insurance continues to grow," she continues. “But even homes that are not near a water source can be at risk for a flood. Properties close to areas impacted by wildfires is one example of this."

Yet, property owners frequently do not consider purchasing flood protection even though coverage is often excluded from homeowners and commercial insurance policies. “Although the NFIP remains the main source of standalone flood insurance in the U.S., the number of primary and excess private flood insurance options continue to grow and complement the NFIP," Tobin says.

Olivia Overman is IA content editor.