Private Flood Insurers Seize Opportunity as NFIP Raises Rates
As the National Flood Insurance Program (NFIP) implements a new rating program that leads to premium increases for policyholders, the private flood insurance market in the United States is capitalizing on the opportunity to expand its market share. A recent issues brief by the Insurance Information Institute (Triple-I) sheds light on the growing private flood insurance market and its response to the changing landscape.
The Growth of the Private Flood Insurance Market:
Between 2016 and 2022, the U.S. flood insurance market has seen a significant 24% growth, with direct premiums written increasing from $3.3 billion to approximately $4.1 billion. Interestingly, 77 private companies now account for about 32% of the flood insurance business nationwide as of December 31, 2022. This information was highlighted in the issues brief titled “Flood: State of the Risk” published by Triple-I.
Alignment with NFIP’s Risk Rating 2.0:
The timing of the private market’s increasing interest in flood risk is advantageous, coinciding with the implementation of Risk Rating 2.0 by the NFIP. This new pricing methodology aims to bring greater actuarial accuracy and equity to the flood insurance premiums offered by the government agency. By aligning rates more closely with individual properties’ flood risk, some policyholders may experience lower premiums, while others will see increases.
Seizing Opportunities with Advanced Capabilities:
As the costs of participating in a government-run flood insurance program continue to rise, private insurers are leveraging cutting-edge data and analytics capabilities, refining pricing techniques, and introducing innovative products like parametric insurance to capitalize on the evolving market. Increased competition is crucial for offering affordable coverage, as highlighted by Triple-I.
Consumer Awareness and Perception:
Consumer research conducted by Triple-I in partnership with reinsurer Munich Re revealed that 64% of homeowners and renters believe their residences are not at risk from floods, and an additional 14% are unsure about their flood risk. Unless mandated by their mortgage lenders, many homeowners do not purchase flood insurance, often assuming their standard homeowners’ policies cover flood damage.
With the NFIP’s new rating program leading to premium increases, the private flood insurance market is taking advantage of the opportunity to expand its market share. As private insurers employ advanced data and analytics capabilities and develop new products, increased competition will ultimately lead to more affordable coverage options. It is essential for homeowners to understand their flood risk and consider purchasing flood insurance to protect their properties adequately.
