With insured losses from Hurricane Michael potentially reaching up to $11 billion, according to projections from the University of South Carolina, and Hurricane Willa bearing down on Mexico, flood insurance take-up among homeowners in the US is in the hotseat again. Despite the threat of hurricanes becoming ever-present, many still don’t have coverage for the risk.
“Flood insurance is an optional purchase for the majority of US homeowners and business owners,” said Tim Brockett, senior vice president of the strategic products reinsurance division at Munich Re, and a speaker at the upcoming Flood Risk Summit in Miami. “While the flooding from recent events such as Hurricanes Florence and Harvey have been devastating, and 98% of the US counties have flooded in the past decade, the take-up rate for flood insurance remains unacceptably low.
“According to the Insurance Information Institute, only 12% of US homeowners have flood insurance. Making matters worse, a large percentage of homeowners incorrectly think their homeowner’s policy covers them in the event of a flood loss. A 2015 survey by the Insurance Information Institute revealed that 24% of homeowners believe their policy covers flood and an additional 19% said they did not know.”
After Hurricane Harvey hit Houston, the importance of flood insurance and the potential for damage if homeowners didn’t have coverage was especially clear as Swiss Re reported that 80% of homes in the metropolitan area were uninsured against flood risk. There’s a lot of education that needs to be done, in part by agents and brokers, to ensure that people are adequately protected in the event of a natural catastrophe that brings storm surge, heavy rains, and flooding.
“When it comes to flood insurance, insurance professionals need to begin by educating their customers about flood risk and what options exist for coverage,” said Brockett. “Customers should understand that flood is a high gradient peril where inches of elevation can make a big difference in expected flood losses. Thus, detailed location information from the customer will be essential for proper underwriting of flood risk.”
As the NFIP struggles with high losses, the private flood market continues to rise to the challenge and meet coverage demands even further, a topic of discussion at the upcoming Flood Risk Summit, revealing the changes still needed in the government-funded program.
“A gradual transition from the NFIP to a public/private partnership will be necessary. But for that to take place, the NFIP needs to be fortified in the short-term against events generating very large losses like Hurricane Katrina, Superstorm Sandy and Hurricane Harvey,” said Brockett.
“The recent placement of reinsurance is a key step toward achieving a stronger and more resilient NFIP. There should be a focus on a long-term reauthorization of the NFIP, without delay and without lapses, to provide the needed stability in the market while the private insurance market better equips itself to complement the NFIP over time. There should also be a continued drive toward risk adequate pricing in the NFIP. This could include the incorporation of private flood model output and mapping data in the ratemaking process to better reflect extreme event potential and individual risk attributes in the underwriting process.”
Take a deeper dive into this issue at Flood Risk Summit on November 29.