NFIP Privatization: New Opportunities Flooding the Insurance Industry

by Jon Sonnenschein on June 1, 2017

With the NFIP $24.1 billion in debt, the floodgates are opening to an epic, never-before-seen private flood insurance market. Now more than ever, underwriting and risk selection are not only paramount, but clear areas for competitive advantage as the market heats up.

Private flood insurance remains an untapped market, due largely in part to the NFIP’s existence, as well as the general cautiousness of insurers. 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.

Screen Shot 2017-05-25 at 3.16.10 PM.pngSample of portfolio exposure to 2016 Louisiana floods using KatRisk data.

Now is the time to create competitive advantage.

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. By using SpatialKey, carriers can maximize their profits and ensure they are offering flood insurance that aligns with their risk appetites, handpicking their policy locations based off of where they will profit most and experience the fewest flood losses.

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. SpatialKey offers the ability for insurers to analyze all of these factors, as well as visualize flood risk, so insurers can 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.

Screen Shot 2017-05-24 at 2.14.49 PM.pngSample portfolio showing large accumulations of TIV in KatRisk flood zones.

Data is a differentiator.

Putting the best data into the hands of the right people at the right time is critical for insurers looking to successfully, and profitably, offer flood coverage. With a centralized hub like SpatialKey, insurers have access to expert flood data from KatRisk, JBA, HazardHub, Atkins Global, Ambiental and FEMA, as well as the ability to overlay this data with their own to create the most informed, detailed, 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. This is a great open market opportunity for the insurance industry, and something that early adopters will benefit from first-to-market advantage and differentiation among their peers.

With billions to be made by insuring the right flood risk, SpatialKey empowers the insight and confidence needed to become a leader in a space where risk selection is everything. To learn more about how you can increase profits and drive growth in this revived market, contact us today.

Topics: Underwriting, Flood, Analytics, Event response

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