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Flood Insurance Industry Change Snapshot

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Rising Sea Levels Aren't Putting the Brakes on Coastal Development

By: Adam M. Matheny

Private Industry Competition

Numerous insurance providers have avoided this market because it’s difficult to get an accurate picture of the relative risk of flooding in various regions. But today’s advancements in catastrophe modeling have enabled providers to understand flood risk better. As a result, many new entrants have joined the market in the last year.

The National Association of Insurance Commissioners (NAIC) says that direct written premiums are up nearly 10 percent in the past two years, and up over seventy percent since 2016. There are increasing numbers of new entrants to the market—more than ever before seen—and they’re introducing products at an unprecedented rate.

This new competitive landscape means that consumers and agents alike are benefiting from the new options. This increased competition, bolstered by innovation, allows property owners to finally find a variety of solutions that really work.

Technology Drives Improvement

The private flood insurance sector has been transformed by technological innovations, from incredible improvements in claims efficiency to more accurate underwriting and pricing capabilities. Tech which is now considered mainstream, yet was unheard of just a few years ago, includes:

  • Probabilistic algorithms which estimate losses and risks
  • Mapping improvements based on a more detailed understanding of regional topography
  • Machine learning and image analysis applications which are capable of precise estimation of the elevation of first floor structures
  • Remote controlled drones which are able to evaluate property attributes without an engineer or survey assessor on site
  • High-res images that facilitate a greater understanding of risk and resilience in relation to floods

These are only a handful of the advances which have transformed the flood insurance industry. Others, like mitigation improvements which help properties withstand floods, are combining to change the market landscape entirely.

Legislative Changes

Changes in legislation and regulation have also had a very impressive effect on the industry. The shifts in federal regulations are just one influence. Others include:

  • New regulations in lending. Now that lenders are required, by regulation, to accept a broader range of policies from different providers, and these policies themselves are carefully regulated by the Biggert-Waters act, lenders and property buyers are both enjoying many more choices which they can count on to be both reliable and consistent.
  • Additions to export lists. Texas, in addition several other states, added flood insurance to lists of surplus product lines. This creates even more healthy competition in the market.
  • The National Association of Insurance Commissioners has begun considering a process which would adopt a new model that is specific to flood insurance. This then would be submitted as legislation in states which expressed an interest in following this new model—which many will, because it will create a policy for the industry based on a new consistent framework.

This rapidly growing industry, in combination with increasing concerns about flood risk, will keep regulators’ eyes trained on the future of the sector.

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