Flooding is the most common and costly natural disaster in the United States, causing billions in economic losses each year. According to the National Flood Program (NFIP), 90% of all natural disasters in the United States involve flooding. There is no coverage for flooding in standard homeowners or renters policies or in most commercial property insurance policies. Coverage is available in a separate policy from the NFIP and from a few private insurers.
- NFIP Reauthorization: Congress must periodically renew the NFIP’s statutory authority to operate. In the unlikely event the NFIP’s authorization lapses, claims would still be paid but the NFIP would stop selling and renewing policies.
- Hurricane Harvey: Hurricane Harvey made landfall in Texas as a Category 4 storm on August 25, 2017 and then turned into the single biggest rain event in U.S. history. Harvey’s floodwaters have caused multiple deaths and billions of dollars in property damage in Texas. Harvey made a second landfall in Louisiana on August 30th. As of July 31, 2018, $8.8 billion in closed claims have been paid out to Texas and Louisiana flood insurance policyholders, according to FEMA.
- NFIP Reinsurance: In September 2016, the NFIP began a reinsurance program to put it in a better position to manage losses incurred from major events by transferring exposure to reinsurers. In January 2017, FEMA expanded its September 2016 placement and transferred $1.04 billion of the NFIP’s financial risk to 25 reinsurers in a program to be in force through January 1, 2018. The NFIP recovered the entire $1.04 billion from Hurricane Harvey’s floods.
- NFIP Policies and Premiums: The number of policies in force has been declining from the high point of 5.7 million in 2009 to 5.0 million in 2017. NFIP earned premiums rose 7.0% to $3.57 billion in 2017 from $3.33 billion in 2016. Flood loss payments totaled $8.7 billion in 2017, higher than the 2016 losses of $3.7 billion and less than the $9.5 billion in 2012, the year of superstorm Sandy. In 2005 loss payments totaled $17.8 billion, the highest amount on record, including losses from Hurricanes Katrina, Rita and Wilma.
- Private Flood Insurance: Flood insurance had long been considered an untouchable risk by private insurers because they did not have a reliable way of measuring flood risk. In recent years insurers have become increasingly comfortable with using sophisticated models to underwrite insurance risk, and modeling firms are getting better at predicting flood risk.
- In 2017, direct premiums written for private flood insurance totaled $589 million, up 57% from $376 million in 2016, according to S&P Global Market Intelligence. The number of private companies writing flood insurance increased to 33 in 2017 from 20 in 2016.
- Low Flood Insurance Take-Up Rates: The 2018 Insurance Information Institute Pulse survey found that 15% of American homeowners had a flood insurance policy, up from 12% who had the coverage in 2016. A McKinsey & Co. analysis of take up rates for flood insurance in areas most affected by the three Category 4 hurricanes that recently made landfall in the United States – Harvey, Irma and Maria – found that as many as 80% of Texas, 60% of Florida and 99% of Puerto Rico homeowners lacked flood insurance. Some of the reasons cited for lack of coverage is that it is too expensive, that homeowners are not aware they don’t have it, and that people underestimate the risk of flooding.
Source: The Insurance Institute