The future of flood insurance

Have you ever considered how susceptible your home might be to a flood? Flood is one of the world's most frequent and costly natural disasters, according to the Federal Emergency Management Agency (FEMA), yet it's still one of the most underinsured risks today.

One in four flood claims happen in areas deemed to be “low risk”, and just one inch of floodwater can cause more than $25,000 in damage to a home. When you consider these FEMA statistics, it may be surprising to learn that only 15% of homeowners in the US have a flood insurance policy in place.

Historically, homeowners only purchased flood insurance if their home was in a Special Flood Hazard Area (SFHA) and coverage was federally mandated as part of their loan conditions. With more flood events happening in low-risk areas and today’s growing climate change concerns, flood insurance is becoming more of a necessity than an option.

The good news is that homeowners have more flood insurance options today than they did just a couple of years ago.

National Flood Insurance Program and private insurance options

When it comes to protecting a home from flood risk, a standard flood insurance policy, backed by the federal government's National Flood Insurance Program (NFIP), is available in most communities.

Looking towards the future, the NFIP is planning to undergo a program shift, called Risk Rating 2.0, currently anticipated to start on October 1, 2021. This new program may offer a more individualized assessment of a property’s flood risk than in the past, including insurance premium rating changes.

Along with the NFIP flood insurance policy, homeowners have additional coverage options through the private flood insurance market. In the past, lenders did not always accept private flood insurance. However, recent changes to lender guidelines and the inclusion of required terms in private flood insurance policies have provided homeowners with the benefit of choice.

While the NFIP and private flood insurance policies are similar in form, a significant difference is that the coverage available through private insurers may be broader than the coverage available under the NFIP.  

Technology advancements

As technologies continue to advance and offer a better understanding of flood risk, homeowners may benefit from more robust flood insurance options and insurance premium stability. Torrent Technologies outlined the following flood technology advancements in the State of Flood Report:

• Visual intelligence - Sophisticated satellite, aerial, and drone systems make up a "visual intelligence" technology stack that allows observation and precise measurement of flood areas before, during, and after an event. With the further application of fluid mechanics methods, risk modeling and loss response capabilities are quickly advancing.
• Data and analytics – Increased development of data, technology, and analytical tools, such as predictive flood models and water flow dynamics, allows individuals to make better-informed decisions. Insurers and reinsurers rely heavily on these tools to assess the risks they assume.
• Artificial Intelligence (AI) - Insurers are turning to AI to enhance their ability to assess and underwrite risk by more accurately modeling individual risks as data and analytical tools advance. In the context of flood insurance, AI may provide a clearer view of exposure at specific property locations rather than more expansive areas, such as ZIP codes.

These innovative technologies allow insurers to identify and assess flood risk more accurately than ever before.

To learn more about flood insurance and to help ensure you have the proper coverage in place, contact your insurance advisor. There also are proactive steps you can take beyond insurance to protect yourself, your loved ones, and your property before, during, and after a flood.

For more information, please request a home quote.