Many people still operate under the outdated thinking that they are not in a flood zone or that they do not need flood insurance because their lender does not require it. (Credit: U.S. Geological Survey/Wikimedia Commons)

Risk management professionals often feel that their field is misunderstood. This is especially true when it comes to flood insurance.

However, today's unique market conditions underscore the need for broader understanding of flood risk as well as the workings of the National Flood Insurance Program (NFIP).

Federal flood insurance changes are driving more ingenuity and opportunity than ever before in the delivery and understanding of flood insurance.

Looking back...

Historically, insurance professionals covered flood risk through tax-subsidized NFIP rates or less affordable private-carrier coverage sector. That put most of the onus of coverage on the federal government. As a result of this, as well as the program’s former rating methodology, much of the public’s understanding of flood insurance is still based on outdated information. This means many folks are underprepared for risks they may face in the event of a severe weather catastrophe.

This good news is, data and predictive modeling have improved our knowledge of where floods will likely occur. This has allowed us to more accurately assess flood risk.

Flood is no longer a nearly uninsurable peril. As such, the insurance industry has to do a better job of helping people understand their flood risk. As climate change continues to trigger more frequent and devastating storms, the insurance community needs to capitalize on this moment and prioritize educating the public about the changing flood risk landscape.

The role of education in risk mitigation

Education is the first step. Flood insurance can make a difference, and we as insurance professionals have a duty to share that knowledge with our clients. Many people still operate under the outdated thinking that they are not in a flood zone or that they do not need flood insurance because their lender does not require it. We must do a better job explaining to our clients that this is simply untrue. In fact, if it rains where they live, their property is at risk of flooding.

With that in mind, insurance agents should work with property owners to help them understand that flood risk lies on a spectrum. From 2006 to 2020, 84.5% of flood loss occurred outside the Special Flood Hazard Area or outside areas commonly referred to as high-risk zones. While these maps can be useful in assessing overall risk, our updated modeling methodology can provide more accurate assessments of the risk posed by floods.

Leveraging data to improve forecasting

Data and modeling have been critical in driving our understanding of flood risk in areas beyond what is considered a high-risk flood area. Those of us in the industry know that flood insurance is beneficial no matter where a property is located, but the additional data is a further proof point to show the scale of properties vulnerable to flood risk.

With continuing improvement of technology, we have access to significantly more data than we did in the past. In comparison to the real time modeling data we now have access to, the use of flood maps has become antiquated. While flood maps were helpful tools at the time, we can now more accurately gauge risk through new technology. New catastrophic loss models enable insurers to more accurately assess flood risk, and reinsurers have the data to assure adequate premiums are charged for a given exposure. As technology continues to advance, the modeling and data will only improve, giving us better insights for the underwriting process, helping us as agents make the case to the public about the importance of flood insurance.

Each carrier uses their own modeling data to determine their flood rates. But with better modeling, these rates can become more standardized. The models allow them to make predictions and develop products and rates based on those models. As the modeling continues to evolve, it has become increasingly more accurate. For example, when Hurricane Ian hit Florida in 2022 as a Category 5 storm, it was modeled accurately by many risk forecasters. Our continued use of data will only improve our underwriting and prove the value of flood insurance.

What’s next for flood insurance in 2025

The private market will continue to open more doors for flood insurance, as nontraditional markets expand options even further. One innovative example centers on parametric flood policies, which offer a pre-specified flat lump sum payout based on a predetermined parameter being met. The payout can be used anyway the insured would like, and there is no adjusting of a claim. These policies can also respond quickly; as soon as the parameter is met, the payout can be sent to the policy holder.

In some ways these ideas seem complicated or out of reach, but these technologies are already in place and helping clients to mitigate the impact of damage by flood waters.

While new technologies and the improvement in modeling have an important role in mitigating the impact of floods on insureds, the government and private insurance sector must work together to help solve the flood loss crisis. Storms will only increase in frequency and severity, putting an increasing number of people at risk of damage and loss. Working in tandem, private flood insurance and the federal programs available such as the NFIP can help alleviate some of the devastation that floods can cause.

Dana Sutton is Assistant Vice President and Atlantic Region Flood Specialist at NFP. Opinions expressed here are the author's own.

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