Private Flood Insurers See Opportunity as NFIP Increases Rates

While the National Flood Insurance Program (NFIP) rolls out a new rating program generating premium increases for many policyholders, the private flood insurance market has seized the opportunity to grow its market share across the U.S., according to an issues brief published this week by the Insurance Information Institute (Triple-I).

The U.S. flood insurance market has grown 24% between 2016 and 2022 from about $3.3 billion in direct premiums written to about $4.1 billion – with 77 private companies writing about 32% of the flood business across the country as of Dec. 31, 2022, the brief noted, according to the issues brief, Flood: State of the Risk.

“The timing of the private market’s increasing appetite for flood risk is fortuitous, as it coincides with Risk Rating 2.0, NFIP’s new pricing methodology that aims to make the government agency’s flood insurance premium rates more actuarially sound and equitable by better aligning them with individual properties’ flood risk,” said Triple-I. “As NFIP rates become more aligned with principles of risk-based pricing, some policyholders’ prices are expected to fall, while many are going to rise.”

The brief went on to explain that as the cost of participating in a government-run flood insurance program rises, private insurers may respond by “applying cutting-edge data and analytics capabilities, more refined pricing techniques and new products, such as parametric insurance, to seize those opportunities”.

Affordable coverage can only come with increased competition, according to Triple-I.

A recent consumer research conducted by Triple-I, in partnership with reinsurer Munich Re, found that 64% of homeowners and renters said their residences were not at risk from flood, and another 14% were unsure of their flood risk.

Unless required by their mortgage lender, most homeowners don’t purchase flood insurance. Also, many homeowners believe their standard homeowners policies cover flood damage.