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New Market for Private Flood Insurance is Fraught with Obstacles

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New Market for Private Flood Insurance is Fraught with Obstacles

By: Adam M. Matheny

1. The National Flood Insurance Program (NFIP) is currently billions of dollars in the red.

Some might say this is simply because catastrophic claims exceed annual premiums. If this is the case, is it possible for private insurers to be competitive in this market? Since 1968, the NFIP has been the primary source of flood insurance with some private insurers offering additional coverage. Yet, according to a 2018 survey conducted by Insurance Institute, a mere 15% of homeowners in the U.S. have flood insurance.

2. Do private insurers have the ability to and capital for them to cover catastrophic floods and be able to re-insure the majority of the risk?

Most are not willing to increase the premiums of their existing reinsurance programs with each new catastrophic event. At the same time, they don’t want to reduce their ability to cover other events.

Following congressional legislation in 2012, a number of international insurers started working to create a market for private flood insurance here in the U.S. using experienced gained in their own countries to create flood insurance products that meet the needs of consumers, put together underwriting rules that demonstrate their appetite for risk, and create rate plans that match the premium to the risk.

3. How Are private flood insurers supposed to manage and measure flood risk?

Insurers use a complex series of models that simulate a variety of risks involved in events such as earthquakes and hurricanes. Only recently have inland flood models become available. Currently, there are approximately six commercial inland flood models, along with a few proprietary models. Many private insurers have used these models to adjust their underwriting and adjust their premiums relative to the risks.

4. Are private flood insurers going to be able to underwrite for floods if they have no way to assess the accuracy of these models based on historical flood information?

Try making flood your lead line of insurance. Single line flood accounts won’t pay the bills, but well rounded account do. With the private flood insurance markets available you have the chance to deliver a real solution to people that have been struggling with the raising NFIP premiums. Flood insurance is a pain-point for many, and you can be the solution. Lead with flood insurance and circle back for the rest. On the residential side start with the flood and cross sell with the rest of of the household. On the commercial side lead with flood insurance and round out with the commercial property portfolio. You can market in any zone, to any type of property owner. The best news is, if they need flood insurance it is almost guaranteed that they have other lines of business. In an industry that is hard to be a hero, this is your chance. Deliver the solution that your prospects and clients have been waiting for!

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