24 Feb 2020 Flood Insurance: What is Changing?
In the United States alone, there are more than 60 million homes that are classified with flood risks ranging from moderate to extreme, according to Verisk Analytics. This data analytics provider recently published a paper on determining the potential size of the personal flood insurance policy market. The report was a confirmation of information already shared by FEMA (Federal Emergency Management Agency), which administers the National Flood Insurance Program, also known as the NFIP.
By FEMA’s numbers, flooding is not only the most frequent natural disaster in America, it’s also the most expensive. Nine out of ten US natural disasters involve flooding in some form. Yet, not many American property owners carry flood insurance. While exact numbers aren’t known, it is estimated that at most 15% of homeowners have it.
The number may actually be far, far, lower. According to a study conducted by ValuePenguin.com, 90% of families in the United States don’t have sufficient insurance against flood damage. In fact, only 7% of property owners in the US have any flood insurance at all, according to statistics from the Census Bureau.
There are far more people who need flood insurance than have it, according to Verisk, which goes to show just how ready the market is to expand, if insurers are willing to explore this new growth potential.
According to one of the chairmen of Neptune Flood, one reason for the gap in flood insurance is due to the fact that consumers simply don’t understand it. There have also been instances of difficult user experiences that can make property owners hesitant to invest in it.
One of the primary misunderstandings is that homeowners believe that they’re already covered by their home insurance policies. Flood insurance is not, however, included by default, and many homeowner’s insurance companies don’t even offer the option as an add on. Navigating the NFIP website isn’t always the easiest thing to do either. While the site has a wealth of additional information and statistics, this in itself can make it hard for homeowners to figure out what kind of coverage they need and purchase it.
Another issue is the fact that many property owners rely too much on floodplain research conducted by the US government. This research is often outdated.
Simply put—most homeowners and business owners simply don’t know they’re at risk, or how much they stand to lose. In the past, severe flooding risks were essentially restricted to a few states. But changing climate patterns have demonstrated that the entire US is at risk, including areas in the Midwest and other regions not traditionally considered to be in danger of severe flood damage. The Carolinas, for example, were hit by flooding as a result of Hurricane Dorian.
While the NFIP has been an invaluable resource to those in disaster ridden areas, it’s also presented consumers and insurers alike with some challenges. Developed in 1968, many of the provisions of the program may be outdated, making it difficult for some insurers to work within the program. Others find it easier to work with. Innovation and improvements will likely be necessary to bring flood insurance coverage up to acceptable levels.
Some of those may come from the private market, which uses newer technology to manage their risks. Cooperation between the private and public flood insurance marketplaces will provide both with new resources.
One thing that the NFIP will have to address is reauthorization. In the past, reauthorization has generally been done at five year intervals, but in recent years, some reauthorizations have only covered weeks or a few months. This can result in lapses in coverage and the inability to issue new policies.
Another issue is the fact that the NFIP does not share its flood data publicly, which does not benefit consumers or the private marketplace when assessing risk.
Private insurers will need to learn to demonstrate the value of flood insurance to consumers if they are to grow this market—and it needs to grow to mitigate future disasters. New players will also enter this market, and they are expected to innovate the policyholder experience in a variety of ways, including increased digitization.
These improvements—and more competition—will have an impact in 2020 and the following years.