The Growing U.S. Flood Insurance Gap: A Wake-Up Call for the Industry

The flood insurance landscape in the U.S. is facing a significant challenge, with the number of policies in force steadily declining.

Despite the increased frequency and severity of storms driven by climate change, fewer properties are being covered by flood insurance. Data from the National Flood Insurance Program and Neptune Flood highlight this troubling trend, showing a 2.4% decrease in coverage nationwide from July 2023 to July 2024. This equates to a loss of 87,159 policies, leaving only 2.7% of the 133.8 million buildings in the U.S. insured against flooding.

The National Picture

As of July, only 3.6 million properties were insured under the NFIP, down from 3.7 million the previous year.

This decline is particularly alarming considering the nation’s growing population and the increasing number of homes built in flood-prone areas. Millions of properties remain vulnerable to the devastating impacts of flooding, potentially leading to catastrophic financial losses for homeowners and businesses.

Florida: A Unique Case

Florida, one of the states most at risk for flooding, presents a mixed picture. While the number of flood insurance policies in the state increased by 1.2% from June 2023 to June of this year, the overall coverage remains woefully inadequate. As of June, only 12% of the 9 million properties in Florida had flood insurance. This means that despite the slight uptick in coverage, most Floridians are still exposed to flood risks without any financial protection.

Florida’s legislature took the positive step of mandating a separate flood insurance policy for all participating homeowners in its insurance company of last resort, Citizens. Other states may want to follow Florida’s lead in increasing flood coverage and help manage the risk of insurance companies that rely on the state’s balance sheet.

The Growing Flood Insurance Gap

The data paints a clear picture: the flood insurance gap is widening across the nation. As the population increases and development continues in flood-prone areas, the number of uninsured properties grows. This gap poses a significant risk to homeowners, businesses, and the broader economy. When floods occur, those without insurance may face financial ruin, leading to a ripple effect that can impact entire communities.

Considering these challenges, it is imperative that the insurance industry takes proactive measures to reverse this trend. The following are three strategies that could help address the growing flood insurance gap:

Insurance Agent Driven Awareness Campaigns

Many homeowners and business owners are unaware of the risks they face from flooding, particularly in areas not traditionally considered high-risk. More importantly, they don’t understand that their building policy does not cover the risk of flooding and that they must buy a separate policy from the NFIP or a private flood insurer. The insurance industry needs to take the time to talk to every policyholder about the importance of flood insurance. These campaigns should highlight the increasing frequency and severity of storms due to climate change and the potential financial devastation that can occur without proper coverage. By raising awareness, the industry can encourage more property owners to consider purchasing flood insurance, even if they are not in designated flood zones.

Improve Accessibility and Affordability of Flood Insurance

One of the barriers to flood insurance uptake is the cost. For many homeowners, particularly those in lower-income areas, the premiums for flood insurance can be prohibitively expensive. Private flood insurance companies have made some progress by offering lower prices and better coverage to hundreds of thousands of homes and businesses.

By diversifying the market and increasing competition, private flood insurance can help close the insurance gap, providing more property owners with access to the coverage they need. This, in turn, will help protect more homes and businesses from the financial devastation caused by floods, ensuring that fewer people are left vulnerable when disaster strikes. As the private flood insurance market grows, it can serve as a vital complement to the NFIP, especially post-risk rating 2.0 (and the phase-out of government subsidization), which will help reverse the decline in flood insurance coverage nationwide.

Update and Modernize FEMA Flood Maps

One of the critical tools used to assess flood risk in the U.S. is the Federal Emergency Management Agency flood maps. However, many of these maps are outdated, failing to reflect the current realities of climate change, urban development, and changes in land use. These outdated maps can give property owners a false sense of security, leading them to forgo purchasing flood insurance because they believe they are not at significant risk. Just ask any of the hundreds of thousands of home and business owners who suffered through Hurricane Harvey in Texas – they were all told by FEMA that they were not in a high-risk zone and, therefore, were not required to buy flood insurance.

The insurance industry should advocate for and invest in the modernization of FEMA flood maps in collaboration with government agencies and private sector partners. This includes incorporating the latest data on weather patterns, sea-level rise, and the impact of new developments. By ensuring flood maps accurately reflect today’s risk landscape, property owners can make more informed decisions about flood insurance. Additionally, updated maps can help identify previously unrecognized high-risk areas, encouraging more widespread adoption of flood insurance in those regions.

The decline in flood insurance coverage in the U.S. is a concerning trend that demands immediate attention from the insurance industry. As the population grows and climate change continues to drive more severe weather events, the gap between insured and uninsured properties widens. Florida’s slight increase in coverage is a positive sign, but it is not enough to counteract the overall national decline.

The industry can take meaningful steps to reverse this trend by expanding public awareness, improving the affordability and accessibility of flood insurance, and improving FEMA’s flood mapping. It is not just about protecting individual property owners but about safeguarding entire communities and the economy from the devastating impacts of floods. Let’s not wait for the next Katrina, Harvey or Ian to take action.

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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