Year in review: 2019 and the flood insurance industry
Three factors, in particular, have influenced the evolution and growth of the flood insurance industry this year.
2019 was a landmark year for the flood insurance industry — the NFIP underwent multiple short-term extensions, a new regulation took effect regarding lender acceptance of private flood insurance, and a growing wave of technology transformed the industry with new market entrants and modeling capabilities.
Out of all of the milestones and moments, three factors, in particular, have influenced the evolution and growth of the industry this year.
Increasing competition in the private industry
Historically, many insurers have shied away from entering the flood insurance market, largely because it has been difficult to get an accurate view of flood risk. However, advancements in catastrophe modeling, technology, and data and analytics have enabled insurers to better understand flood risk and, as a result, we’ve seen multiple new market entrants over the past year.
According to the National Association of Insurance Commissioners (NAIC), private flood insurers reported direct written premium of $644 million in 2018, up 9% from 2017 direct written premiums and up 71% since 2016. These new entrants are coming online faster than we’ve ever seen before and are looking at admitted products at a scale that’s unprecedented.
With a more competitive landscape represented by reputable, responsible underwriting organizations, consumers and agents enjoy greater options and customization. As the market place responds to customer needs with innovation and increasing competition, property owners truly have the ability to find solutions that work.
Giant leaps forward with new technology
There are few aspects of the world of private flood insurance that technology has not touched, from improvements in customer experience to greater claims efficiency to expanded and more accurate pricing and underwriting capabilities. Technology that is now commonplace, which wasn’t necessarily fully adopted even a few short years ago, includes:
- Probabilistic models that estimate risk and potential losses.
- Better mapping capabilities that provide a more detailed understanding of topography.
- Image capture and machine learning applications capable of estimating the elevation of the first floor of structures.
- Drones that enable an evaluation of property attributes remotely rather than by an engineer or survey assessor on site
- High-resolution property images that can help understand the proximity to risk and flood resilience.
- Digital quoting experiences that streamline the process to quote and purchase coverage.
The above list offers only a glimpse of the many advancements relevant to this industry; many other examples exist, such as mitigation work that makes properties better equipped to withstand floods.
Technology benefits the entire flood insurance industry. The NFIP’s Risk Rating 2.0 — which calculates flood insurance rates based on the risk profile of an individual location over a blanket map — is largely made possible by the same developments the private industry actively employs. In fact, for many, the sophistication of flood modeling technology, the advent of Risk Rating 2.0, and the countless investments made into understanding flood signals that perhaps it is time flood zones be eliminated entirely. Without these hardline and somewhat arbitrary lines removed from the flood insurance conversation, more property owners can access broad protection.
An active legislative docket
The flood insurance industry also saw continued regulatory and legislative changes. The federal authority for the NFIP was extended multiple times. With the act currently scheduled to expire on December 20, it appears likely that additional action is on the horizon.
Other key developments include:
- New lending regulations: This rule requires certain regulated lending institutions to accept policies that meet the statutory definition of ‘private flood insurance’ in the Biggert-Waters Flood Insurance Act. By providing certainty and clarification, these institutions have the ability to more reliably and consistently determine the acceptability of flood insurance.
- Export list additions: This year, Texas joined a growing group of states by adding flood insurance to its list of cleared surplus lines products, allowing agents and property owners better access to the private market.
- State model legislation: The National Association of Insurance Commissioners has commenced the process to consider adopting a model act specific to flood insurance. Such model acts may then be submitted as legislation in states interested in following the model guidance, creating a framework of consistent policy for the industry.
With rapid industry growth and an ever-changing peril of flood, regulators will continue to be active in this space.
At the intersection of these factors — competition, technology, and regulation — lies the future of the industry and space in which flood insurance that works for all stakeholders resides.
John Dickson is the CEO of Aon Edge, a provider of private flood insurance products. Opinions expressed here are the author’s own.
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