Bridging the Flood Insurance Gap

Hurricane Beryl caused destruction and loss across Texas and throughout the middle of the country, reminding us, once again, of the dangers of climate change-impacted storms.

As the rest of the 2024 hurricane season looms, homeowners across the country are bracing for the potential upheaval of their daily lives. While they stock up on generators, batteries, and sandbags, there is a crucial defense they often overlook: flood insurance.

The Scope of the Problem

To truly grasp the scope of the flood insurance gap, let’s examine the numbers.

According to numerous studies, over 50 million buildings are at risk of flooding. However, data from the National Flood Insurance Program and Neptune indicates that only around 5 million flood insurance policies are in force.

That’s one-tenth the number of flood policies that there should be. Of those 50 million, First Street Foundation’s research found nearly 18 million properties face significant flood risk.

This stark contrast highlights a critical vulnerability in our nation’s preparedness for flood-related disasters.

The Worrying Trend of Decreasing Coverage and Increased Claims

Even as we see stronger storms more frequently, the number of flood policies throughout the country has decreased. From May 2023 to May 2024, the NFIP saw a decrease of omore than 96,000 policies, or 2.6%.

While some policies may have transitioned to private insurers, seeing such a downward trend is not a positive sign, adding to the significant number of already uninsured properties. With proposed ideas to dismantle the NFIP, this trend could continue at a faster pace.

Only nine states plus Washington, D.C., have seen an increase in coverage:

Alaska (3.9%)
Washington, D.C. (1.3%)
Florida (1.9%)
Maine (4.5%)
Massachusetts (1.4%)
Michigan (0.2%)
New Hampshire (0.7%)
Rhode Island (1.6%)
Vermont (16.2%)

Where are we seeing the largest decrease in policies? Across the Midwest, and surprisingly, some coastal states:

Utah (-41.5%)
North Dakota (-12.7%)
West Virginia (-9.1%)
Minnesota (-8.8%)
Oklahoma (-8.1%)
Texas (-6.2%)
South Dakota (-6.1%)
Arizona (-5.9%)
Louisiana (-5.8%)
Missouri (-5.7%)

And how about claims payouts? Six states have more than $1 billion in claims payouts since 2010, accounting for 86% of the $42 billion total paid over the last 14 years:

Texas ($11.7 billion)
Florida ($7.6 billion)
New Jersey ($5.6 billion)
New York ($5.1 billion)
Louisiana ($4.8 billion)
North Carolina ($1.2 billion)

How Did We Get Here?

Several factors contribute to the flood insurance gap, each presenting unique challenges that need to be addressed to improve coverage rates:

Lack of Awareness – Many homeowners are unaware of their flood risk or mistakenly believe that their standard homeowners’ insurance policy covers flood damage. In reality, most homeowners insurance policies do not include flood coverage, requiring a separate policy to protect against flood-related losses. A recent survey showed 56% of respondents were unaware flooding is excluded from the homeowner’s policy.
Cost Concerns – While some homeowners may find the premiums unaffordable, the financial impact of flood damage without insurance can be far more devastating. The average flood claim payout between 2016 and 2022 was $66,000.
Inaccurate Risk Perception – Many homeowners underestimate their flood risk, especially if they do not live in designated high-risk flood zones. However, FEMA data shows approximately 25% of flood claims come from properties outside high-risk areas. Plus, looking at outdated government maps that don’t take the increased risk due to climate change makes homeowners believe they’re safe when they are not. Just because FEMA’s flood maps say you are not in a high-risk zone does not mean that the hurricane, or flood will listen.

How to Close the Gap

Closing the flood insurance gap requires a collaborative effort among government agencies, private insurers, and homeowners. Here are some key steps that can help bridge the gap and protect more American properties from the devastating impacts of flooding:

Enhance Public Awareness – Increasing public awareness about flood risks and the importance of flood insurance is essential. Government agencies, insurers, agents, and community organizations should work together to launch targeted education campaigns that inform homeowners about their flood risk and the need for flood insurance. Agents should highlight the risk of flooding to every customer.
Simplify The Process – Making it easier for homeowners to obtain flood insurance is critical. Streamlining the application process, improving customer service, and offering clear and concise information about coverage options can encourage more homeowners to purchase flood insurance.
Highlight Private Flood Options – Highlighting the advantages of private flood insurance can provide homeowners with more choices and better coverage options. Encouraging competition in the flood insurance market can lead to innovative solutions and more affordable premiums. Private options can also provide higher coverage limits and optional coverages that are not offered through the NFIP.
Invest in Mitigation and Resilience – Investing in flood mitigation measures, such as improved infrastructure, floodplain management, and community resilience programs, can reduce the overall risk of flooding and lower insurance premiums. Encouraging homeowners to adopt mitigation strategies can also lead to lower insurance costs and increased coverage. We’re seeing some action taken, such as FEMA recently updating flood zones in parts of the southeast.

The flood insurance gap represents a significant vulnerability in our nation’s preparedness for flood-related disasters. With millions of American properties at risk and only a fraction covered by flood insurance, the financial and emotional toll of flooding can be devastating.

By raising awareness, simplifying the insurance process, promoting private insurance options, and investing in mitigation, we can protect more American homes and families from the devastating impacts of flooding.

Burgess is president and CEO of Neptune Flood. He is also chairman of TRB Development, a residential real estate development and consulting company.

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