Potential reform of the National Flood Insurance Program (NFIP) could create one of the biggest growth opportunities the US private flood market has seen, but Hiscox specialists say the main constraint isn't capacity. It's persuading homeowners and businesses to buy coverage.
The eventual shape of reform remains unclear, but possible outcomes could include the NFIP closing to new business, becoming more clearly defined as a market of last resort, or pursuing some form of depopulation or policy transfer.
Even without sweeping reform, the private market has been expanding as insurers use more granular catastrophe models, property-level data and digital distribution to compete with the federal program. But Tom King (pictured on the right), flood line underwriter at Hiscox, said the market's immediate challenge isn't finding enough capital.
"The barrier to scale is demand and purchase rather than capacity,” he said.
The disconnect between available capacity and customer take-up is stark because standard US homeowners policies generally exclude flood. Only a small proportion of US homes buy flood insurance, despite exposure extending far beyond properties in federally designated high-risk zones.
James Brady (pictured on the left), property divisional director at Hiscox, said the private market has the technology, underwriting infrastructure and reinsurance support to absorb significantly more business if reform accelerates. "We've got more than enough capacity and appetite right here, right now to satisfy the next few years of growth," he said.
Brady said 99% of US counties have experienced at least one flood event in the past 20 years, while changing weather and development patterns are creating risks that older maps may not fully capture. "Every home pretty much in the US is exposed to the peril of flood, but a relatively small proportion actually protect themselves," he said.
King argued the current system can give consumers outside mandatory purchase zones a false sense of security. "Ultimately, there's no way that only 3% of homes in the US are exposed to flood," he said. "Some of these maps date back to the 1960s."
Urbanization is also changing how water moves through communities. King pointed to Houston, where extensive development and hard surfaces contributed to the severity of flooding during Hurricane Harvey. At the same time, population growth in coastal and waterfront areas is concentrating values in locations already exposed to storm surge, river flooding and heavy rainfall.
The Hiscox specialists acknowledged that even relatively low premiums don't guarantee a sale. "Insurance is expensive," King said. "That's money out of someone's pocket that could be used for something else they need or would much rather spend elsewhere."
This leaves brokers and agents with a significant education task. Consumers may question why they should buy coverage if their mortgage lender doesn't require it, particularly when official flood-zone maps suggest they're outside the highest-risk areas.
King said broader intervention from mortgage lenders or government-backed education initiatives may be needed to produce a material increase in take-up. "Until we get to that point where there's more transparency, I think it becomes difficult," he said.
If NFIP reform makes it easier for customers to move between federal and private products, brokers may need to compare the two markets more actively. The decision can involve more than premium: private policies may offer higher limits, replacement cost coverage, loss-of-use protection and other features that differ from the NFIP. The federal program's residential building limit is capped at $250,000, a gap that is becoming more significant as reconstruction costs and property values rise.
However, King believes administrative and financial incentives can discourage movement between the markets. Customers leaving the NFIP may lose grandfathering benefits or rating credits, while agents may face additional work compared with letting a federal policy renew automatically.
"There are all these external and other sales dynamics that mean the customer might not move to private or might stay in the NFIP, or vice versa," King said.
Hiscox is expanding the range of risks it can write as it prepares for further private-market growth. The insurer is launching Hiscox SURF, short for "Submitted Underwritten Rate of Flood," to complement its Lloyd's-backed flood insurance product FloodPlus.
While FloodPlus is designed for more standardized risks that can be priced digitally, SURF will target more complex business, including shared and layered programs, schedules, higher excesses and larger commercial exposures. The product will retain digital modeling and data capabilities but add more direct human underwriting.
King said the aim is to create a broader flood offering that ranges from low-premium, high-volume residential policies to more complex commercial placements.
"Reforms, whether wider depopulation measures or closures, should be aimed at making the market more fluid to move between the two," King said, "and that is what makes it a more efficient market."
