- Advancements in flood mapping, model science, and analytics mean insurers have the information they need to more accurately quantify and price flood risk
- NFIP is openly acknowledging the need for more private sector involvement, with (fingers crossed) more favorable legislation likely coming down the pike
- Consumers and businesses alike are becoming savvier to the need for flood insurance or better coverage (e.g. Hurricane Florence exposed a large protection gap with an estimated 70% of total losses uninsured)
- Insurers are looking for new markets and areas to expand their portfolios—and US flood is a leading candidate
- With an extensive amount of excess capital in the market, now is a prime time for startups, re/insurers, MGAs, and brokers to partner up—and dip their toes in the private flood pool
Certainly, challenges still exist for insurance organizations looking to enter the private flood market, but the availability of trusted flood data is no longer one of them. Although the US private flood insurance market is still small ($600 million) compared with the US protection gap ($10 billion), early adoption is happening—and insurance organizations that establish footholds in the market now will be well-positioned to succeed once the floodgates inevitably open.
Opportunity awaits for early adopters
In 2017, the private flood market reached $600 million in premiums, up 57 percent year-on-year according to the National Association of Insurance Commissioners. By expanding their flood portfolios, leading insurers are slowly helping to close the extensive US flood gap made so evident by Hurricane Florence in 2018 and Hurricane Harvey in 2017. In fact, it’s estimated that 70 percent of both Hurricane Florence and Hurricane Harvey flood damage was not covered by any insurance.
Yet despite Hurricane Harvey (or perhaps because of it), Texas is one of the top 10 states leading the private flood market, along with Florida, California, New York, New Jersey, Ohio, Louisiana, Massachusetts, Pennsylvania, and Georgia. These 10 states represent 63 percent of all private flood business written in 2017. Most significantly, Florida with $36 million in direct written premium, according to a 2017 market study by Carrier Management.
Imagine if the above chart were reversed. A significant opportunity exists for the private market to displace the NFIP. According to Swiss Re, a $10 billion protection gap exists in the US. And, a 2018 study by the University of Bristol puts the gap at an estimated 41 million Americans at risk of flooding—and it doesn’t even include coastal risk.
But, while private insurers are expanding their presence in the above states, the question is, why isn’t it more?
At least three key challenges still exist:
NFIP & pricing - i.e. broad availability of inexpensive coverage that doesn’t reflect true risk
Low demand for private policies - i.e. insureds are either...
not aware their policy doesn’t include flood cover
not aware of the limitations of their NFIP flood coverage (i.e. residential coverage up to 250,000; non-residential coverage up to $500,000)
not aware of their actual flood risk (i.e. the property might be just outside a designated flood zone)
Legislation - i.e. broader inclusion of flood coverage as a requirement in mortgages would accelerate demand for private flood coverage (right now flood insurance is only required for properties within 100-year flood zones)
Quantifying flood risk with the latest flood data & analytics
Despite the challenges, how can insurance organizations feel confident about entering or expanding their presence in the US flood market? The answer: better data and analytics. As Swiss Re's Mohit Pande, head of property underwriting for the U.S. and Canada, noted, “One of the reasons why we are confident around the insurability of this peril is because of the recent technological advancements that have taken place, which allow us to understand, assess, and quantify this risk.”
Flood maps have come a long way and technology is shaping more advanced data and analytics than ever before. This provides insurance organizations looking to tap into the private flood market more confidence in their risk selection and pricing—so they can expand their portfolios and better serve the millions of businesses and homeowners with no (or limited) flood coverage. Just recently, SpatialKey partnered with JBA on the launch of their 5m flood maps. These are the most detailed flood maps available for Florida and the start of the initial rollout of JBA’s high-resolution maps for the continental US (shown below).
JBA’s new Florida Flood Maps, available within SpatialKey, provide a comprehensive view of flood risk at 5m resolution (the highest available in the market today) for all three principal types of flood: fluvial (river), pluvial (rainfall), and storm surge flood hazard.
Getting as granular as possible with flood risk is the only way for insurers to determine the difference between an opportunity and a liability. That’s where up-to-date flood maps and models come into play. Having access to the latest data is paramount for insurers looking to successfully underwrite flood risk. A centralized hub like SpatialKey, offers access to expert global flood data from KatRisk, SwissRe, JBA, Ambiental, and Impact Forecasting, plus US-specific data from Atkins Global, HazardHub, and FEMA. This provides insurers with the ability to overlay expert data with their own portfolio data to visualize and contextualize risk for the most informed and up-to-date intelligence possible.
Flood accumulations at the point of underwriting
By coupling better flood maps and data with advanced analytics, insurers have the tools they need to assess flood risk at a more granular level than ever before. Case in point, accumulations at the point of underwriting. This feature, available in SpatialKey’s Underwriting solution, provides insurers with a competitive edge by enabling the ability to set distance and financial thresholds to identify concentrations that are unfavorable before they're written.
In the above screenshot, flood hazard data from KatRisk coupled with SpatialKey’s accumulation engine at the point of underwriting, brings to light possible accumulation potentials before binding an account. By doing pre-bind analysis, you can better determine capacity and avoid writing adverse risk upfront, so that you’re not left overexposed in certain areas.
We’ve touched on only a few of the advancements that are helping insurers, brokers, and MGAs feel more confident about underwriting US flood risk. Without a doubt, we’re now at a pivotal intersection where advancements in flood data and model science, coupled with robust analytical solutions, will create the confidence insurers need to start staking their claims in the new flood frontier. With so much capital in the market, we expect to see US private flood grow exponentially in the next few years, especially as the NFIP seeks broader private market involvement, and as solutions like SpatialKey help organizations make the educated decisions they need to dip their toes in the private flood insurance market.
To learn more about SpatialKey’s flood solutions, reach out to me directly: firstname.lastname@example.org.
Christine Wallinger is a seasoned analytics and insurance expert. She’s passionate about making her clients (insurers, brokers, MGAs) wildly successful by ensuring they are profitable in their underwriting decisions and claims practices, as well as helping them to achieve more informed decision-making through world-class industry data and intelligent geospatial analytics.