Private carriers make headway in growing flood insurance market

From 2016-2022, the U.S. flood insurance market increased 24%, growing from $3.29 billion in direct premium written to $4.09 billion, according to the Insurance Information Institute, which noted that private carriers now write slightly more than 32% of the market.

In 2016, 18 private insurers accounted for just 12.6% of the market and accounted for less than $1 billion in direct written premium.

Triple-I noted that the growth in private flood overlaps with the launch of Risk Rating 2.0, the new pricing methodology for the National Flood Insurance Program (NFIP) that aims to more accurately match a property’s flood insurance rate with its risk. The change is expected to result in rate hikes for more than 60% of NFIP policyholders. This potential for rate increases has moved 10 states and a number of municipalities to sue to stop the further implementation of Risk Rating 2.0.

Higher NFIP rates would likely help move some policyholders into the private flood insurance market. Triple-I said that private carriers will recognize this opportunity and seize it through the use of advanced analytics, more refined pricing and innovative products such as parametric insurance.

However, as flood insurance doesn’t see as high of a demand as other insurance products, private carriers could be hesitant to launch flood programs.

Community resiliency discounts

While the new pricing guidelines are expected to spike flood insurance rates for some, Triple-I pointed out that within the NFIP there are a number of ways to score lower rates. Chief among them are community discounts for flood mitigation efforts.

However, recent research from the Government Accountability Office found that these community discounts are also a major driver of the NFIP’s debt, as the program fails to collect enough premiums to cover its claims. The GAO reported these discounts, which FEMA is statutorily required to provide, in effect charge future and current policyholders for previous losses. These losses go largely unnoticed, as they are not recognized in the federal budget.

Additional research from Poulton Associates found that from 2014-2019, NFIP rates dropped 9%. This is despite a Congress mandating a 5% annual increase.

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