New Frontier: Why You Need to Take a Serious Look at Private Flood

Have you ever wished there were more options to provide more affordable and better flood insurance protection to your customers?

Have you been tracking the slow but steady changes in the developing private flood insurance market over the past year?

At long last, it looks like the evolution of this marketplace has reached a point where every agent should revisit their traditional approaches to selling flood insurance.

The federal government adopted the NFIP as the market of last resort for flood insurance in 1968. As a typical residual marketplace, the NFIP was designed as a one-size-fits-all flood exposure market that focused on traditional coastal and riverine areas subject to flood. The basic design of the NFIP provided pricey, limited coverage which never really penetrated the other areas in the country that have floods which are not as frequent or severe as the more catastrophic losses associated with hurricanes, nor’easters and major river flooding.

For many years, the NFIP system was sustainable due to the limited number of major hurricanes and other insurable flood incidents. But in the past 20 years, many high-profile catastrophic hurricanes have made the NFIP fiscally insolvent, requiring continual governmental subsidies and loans to keep it operational. It is this basic reality that has made it politically difficult to reauthorize and fix NFIP over the past two years.

How has the NFIP affected independent agents? First and foremost, it has provided a guaranteed market for clients that faced a catastrophic flood exposure and mortgage requirements for this protection. Second, due to the cost, the flood insurance sales process has become a discussion about a mandated coverage rather than a necessary protection that virtually all clients should have.

Third, agents have historically been unable to provide other product options—a situation that defies our usual ability to offer coverage choices. Finally, NFIP flood maps focus on past flood history rather than other elements that might change a flood exposure, such as changing weather patterns, land use, population densities, topography and more. Consider the following:

  • In most recent highly visible flood events, flood maps did not accurately indicate where floods occurred, causing many consumers to make the decision to not purchase flood insurance.
  • Past historical flooding events may not be indicative of future floods. Would anyone have thought a hurricane or tropical storm would park over an area and dump 30-plus inches of rain, or that an atmospheric river would pound the West Coast with massive rain or snow over an extended period of time?
  • “Surface waters” result from a wide range of incidents which are not the high-profile flood events we see on the local, national and world news.

One of the cornerstones of the evolving private flood insurance marketplace is the use of data analytics which consider a vast array of data points to more accurately assess flood exposure.

Today, the traditional approach to the flood insurance sale has reached a breaking point. We must all reconsider the flood exposure and how we can best help our clients protect themselves from this peril. But it won’t be easy to change our attitudes about the decision paradigm for buying flood insurance, let alone that of our clients.

Stay tuned to and upcoming editions of the Markets Pulse e-newsletter for concrete steps you can take to maximize the opportunity of private flood insurance at your agency.

John Putnam is a consultant for Putnam Assurance & Risk Services in Colorado Springs, Colorado.