You wouldn’t drive a car without car insurance … so why gamble with the entire value of your home, a much larger family investment, by not having flood insurance if you live in a flood zone?
The penetration rate for flood insurance in the United States is dangerously low, putting the American taxpayer at huge risk. Homeowners with federally-insured mortgages are required by law to obtain flood insurance under the National Flood Insurance Program (NFIP) if they live in a Special Flood Hazard Area (SFHA) designated by the Federal Emergency Management Agency (FEMA). Despite this legal requirement, the overall take-up rate for NFIP insurance sits at around 25%.
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For too long, people have relied solely on FEMA flood maps to dictate their flood risk. Many people living in flood-vulnerable areas choose not to buy insurance and instead gamble that FEMA or another government agency will pick them up and put them back on their feet after a flood event.
“In the past, when NFIP was the only game in town for homeowners, the underwriting for flood insurance policies was done exclusively with FEMA flood maps,” said Albert Slap, president of Coastal Risk Consulting. “It was a binary process that placed people inside or outside of a 100-year flood plain. If you wanted a substantial discount on your flood insurance policy, you would have to raise your home above the 100-year base flood elevation. But, that’s extremely expensive and often impractical and unfeasible, especially in built-up areas of the US.
“We are now starting to see the emergence of private flood insurance companies, who have the ability in their underwriting and their premiums to look at other issues in the flood market in a more granular and holistic way.”
Simply knowing where your house lies on a FEMA flood map is not going to provide homeowners all the information needed for them to understand how to mitigate flood risk and to protect families and homes when a flood event occurs.
Private flood insurers are just beginning to consider flood risk mitigation in addition to traditional risk transfer issues, which has been the paradigm for many years in flood insurance. According to Slap, carriers and reinsurers can both lower their flood payouts and help insureds prevent flood damages through the use of new technology and by communicating flood risks more effectively to vulnerable parties.
Coastal Risk Consulting is one company helping to make this happen. It creates cloud-based, property-specific, flood risk assessments to help customers get climate-ready and storm-safe. Its website, floodscores.com, offers quick and inexpensive flood-risk modelling and visual reports aimed at changing behaviors around flood insurance. The company has recently partnered with two companies in the “insurtech” space: vHomeInsurance and Yep Insurance, to provide specific flood risk reports online.
“Our
floodcores.com is the only web service that’s available to consumers right now to help them better understand their flood risk,” Slap commented. “In terms of underwriting, our technology does two things: is has better modelling of a property’s flood risk and it provides better risk communication.
“We are trying to change behaviors in the sense that we want more people to buy insurance when they need it and where they need it, and we do that with better modelling of all types of flood risks – tidal, storm surge and heavy rainfall risks - and not just identifying homes as inside or outside of a FEMA flood zone.”
When it comes to communicating flood risk, a picture really is worth a thousand words, according to Slap. Coastal Risk’s flood-risk modelling reports grab clients’ attention because of their visual power. “If insurers, including NFIP, make their flood reports more visual, I think more people would buy flood insurance, because they can see and imagine the type of risk their property is subject to,” said Slap.
Learn more about what’s next for flood insurance at the Future of Flood Summit being held in Miami, Florida, on November 16. Click here for more details and to register.
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