FEATURES
SECTOR FOCUS: FLOOD
When it rains, it pours Flooding is the most common and costly natural disaster in the US, yet property owners across the country remain severely underinsured
RISING SEA levels, intense weather events and other effects of climate change are driving home the importance of appropriate flood insurance. In 2019, there were 14 weather and climate disaster events in the United States – including three flood events and eight severe storms – where losses exceeded $1 billion, according to the National Oceanic and Atmospheric Administration. In addition, 2019 was the fifth year in a row with 10 or more billion-dollar weather and climate disasters in the US. “People need to be prepared for higherseverity events in the future,” says Eric Weber, executive vice president of The Flood Insurance Agency (TFIA). “Frequency and severity of storms are going to continue to drive claim costs up, and not just in high-risk areas. We are going to see more properties affected in so-called low-risk areas as well.” There’s no shortage of examples of the monumental damages flooding can cause. Between hurricanes Harvey, Irma and Maria, insurers paid $105 billion in disaster-related claims in 2017, largely to properties on the Texas, Puerto Rico and Florida coasts. Aside from Hurricane Katrina, these have been the costliest catastrophes in the US to date.
The growing private market For both residential and commercial properties, many mortgage companies require flood insurance coverage, especially if the property is near the coast. Historically, most people have opted to get their coverage from the
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National Flood Insurance Program (NFIP), which is managed by FEMA. Previously, mortgage companies could require property owners to buy flood insurance from the NFIP specifically, but that recently changed. In July 2019, Congress passed the BiggertWaters Act, which requires lenders to accept private flood insurance once it satisfies certain criteria. “The government has been the 800-pound gorilla of providing flood insurance to the US for 50 years,” says Ralph Blust, CEO of National Flood Services (NFS). “They’ve had
market improve underwriting, modeling and pricing for flood exposures. While private flood insurance makes up a small part of the market, there has been significant growth in recent years. Flood insurance premiums were up 71% from 2016 to 2018, and 15 states experienced more than 100% growth in premiums over that span, according to a recent study by the National Association of Insurance Commissioners. “Premiums are moving rapidly into the excess & surplus market,” says Bryan Schofield, senior vice president of Orchid
“Frequency and severity of storms are going to continue to drive claim costs up, and not just in high-risk areas” Eric Weber, The Flood Insurance Agency the goal of providing adequate coverage and an affordable option so both lenders and homeowners were secure, and structures built in high-risk areas could seek coverage.” In recent years, Blust says he’s seen a big trend of the government encouraging the evolution of the private sector by allowing Write Your Own programs, where insurers can issue policies and adjust flood claims on behalf of the government under their own names. The NFIP also made its claims data public last year, which will help the private
Underwriters. “I wouldn’t call it a hard market, because there is still available capacity to be had, but the market is firming up as carriers look to return to profitability.” Because the government has historically been the main provider of flood insurance, many private carriers are on a mission to educate developers, lenders and investors on where there might be gaps in coverage. Most property insurance policies do not automatically cover flood, so it’s often necessary to purchase flood insurance. Weber says almost
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10/04/2020 3:33:27 AM