NFIP reform and flood insurance privatization - the latest

by Jon Sonnenschein on December 8, 2017

At a glance: 

Roundup: Hurricanes postpone (first) NFIP ruling, now Congress has extended again

The NFIP has been extended until December 22. You may recall the NFIP was also extended in September, following a slew of hurricanes that resulted in the costliest hurricane season on record ($202 billion to be exact). Hurricane Harvey was particularly historic in the amount of rain it dropped on Texas—50 inches in some areas. This specific event was a wake-up call for NFIP legislators to get it right this time and open the flood insurance market to private insurers. And if that wasn’t enough, Hurricane Irma came just a week later. Then Maria. For a while, it felt almost apocalyptic. These events were devastating enough to postpone the amendment of NFIP legislation by months, and now, it’s officially set to happen again on December 22 (maybe). Make sure to check back here for the latest updates.

Up next: Time to start writing private flood insurance

Assuming some measure of privatization needs to happen for the NFIP to survive, the floodgates will open to a largely untapped market. With almost 40 percent of small businesses never re-opening their doors after a flood disaster, and most business insurance policies excluding flood coverage, companies have a significant need for flood insurance. A near-term opportunity exists for carriers to increase the number of insureds that purchase flood insurance, or migrate from the NFIP, which manages over five million flood policies each year.

Although the NFIP essentially removed private insurance from the flood insurance market decades ago, they are now amending legislation to encourage the involvement of the private sector. That being said, it would be easy to simply begin assuming flood risk and start collecting premium, and that may be a profitable avenue—until an actual flood occurs. With 90 percent of all natural disasters involving flood and all 50 states having experienced some degree of flooding in the past five years, insurers don’t want to find themselves on the hook for, say, the entire state of Louisiana. The ability to access industry-leading flood data and associated insight will be a key differentiator for insurers looking to enter this space. Successful insurers won’t be the ones who just load up on new policies, rather they will be the ones who can identify the right risks through advanced intelligence and analytics. With a geospatial insurance analytics platform like SpatialKey, underwriters can do just that.

flood insurance data KatRisk.pngSample of portfolio exposure to 2016 Louisiana flooding using KatRisk data.

Creating competitive advantage: Advanced data and analytics critical for flood risk selection

Insurers that begin offering flood coverage will establish themselves as early-adopters and market leaders. This is an opportunity for certain carriers to create a competitive advantage unlike any before. Josh Woodbury, a flood specialist at Swiss Re, is enthusiastic about the opportunity, mentioning “There’s approximately $10 billion in flood protection gap in the U.S.—that’s the difference between the economic loss and the insured loss.” This gap remains untapped thanks to the NFIP. With advanced flood data and analytics, carriers can maximize their profits and ensure they are offering flood insurance that aligns with their risk appetites.

With extreme weather becoming more common, coastal areas are no longer the only locations deserving of flood coverage. Insurance Thought Leadership reports, “U.S. inland flood insurance is an untapped source of non-correlated premium unlike any other in the world.” As you get away from the coast and further inland, things like slope, elevation, ground cover, and rainfall all contribute to the intensity of a flood. A solution like SpatialKey offers the ability for insurers to assess and visualize flood risk factors at a granular level, as well as monitor and manage adverse risk accumulations. Additionally, users can view historical events, such as Hurricane Sandy, to gauge how a similar event would impact potential new business and help insurers identify optimal locations to write flood.

flood maps KatRisk.png

Sample portfolio showing large accumulations of TIV in KatRisk flood zones.

Having access to the most up-to-date flood maps, models, and data is critical for insurers looking to successfully, and profitably, offer flood coverage. With a centralized hub like SpatialKey, insurers have access to expert global flood data from Ambiental, Atkins Global, HazardHub, Impact Forecasting, JBA, KatRisk, SwissRe, as well as traditional FEMA data. This provides insurers with the ability to overlay expert data with their own to create the most informed and up-to-date intelligence possible. Bottom line, advanced geospatial insurance analytics will be a game-changer, enabling insurers to create significant commercial opportunity in this quiet, untapped market.

To learn more about how you can increase profits and drive growth in this revived market, contact us today.

Topics: Flood Insurance, flood data, NFIP privatization, Flood risk, flood risk assessment, NFIP reform

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