“My home won’t get flooded. I don’t live in a high-risk flood zone.” – That’s the common misconception held by many property owners, which has resulted in a significant flood insurance gap in the United States.
The flood peril is much more fluid and wide-reaching than boundaries on a flood map might suggest. It’s almost a year since Hurricane Harvey dumped record rainfall on the city of Houston, leaving countless properties submerged in murky waters. Many homeowners in the city never thought such a tragedy would happen to them.
“Lots of property owners have an understanding of flood risk that’s just too narrow,” said Matt Junge, senior treaty underwriter, property & specialty, Swiss Re. “They take one point of view, such as a published federal flood map, and they use that to determine whether they’re in a high-risk flood zone or not.
“Property owners need to expand upon that and realize that everyone, at some point, could be at risk of flooding. It not only comes from storm surge or rivers, but it also arises from heavy rainfall events and gradual accumulation of water in low urban areas that are full of concrete.”
According to the latest Swiss Re sigma report, more than two-thirds of 2017’s hurricane-driven floods were uninsured, and an overwhelming majority of US homeowners (85%) lack flood insurance policies. Floods cost the US $15 billion annually, of which only $5 billion is insured, according to the insurance giant.
“The flood insurance coverage gap is high because people don’t realize or understand their risk,” Junge told Insurance Business. “We see it event, after event, after event, with people left in shock at their losses despite not being situated in a high-risk flood zone. We need to educate homeowners about flood risk and how to understand and mitigate their unique exposures.
“That education requires team effort. As a homeowner, I view it as my responsibility to understand the risks my home faces and what protection I have in place. The insurance industry and the government can also play an important role in providing education. At Swiss Re, we’re investing tremendous effort into educating people about flood risk and the coverages that are available.”
The fast-emerging private flood insurance market is only going to help the situation, according to Junge. As more markets become interested in flood and start to offer coverage, more homeowners will realize they can buy the product and at an affordable price. More choice in the private flood market, alongside a long-term reauthorization of the National Flood Insurance Program (NFIP), should help to close the flood insurance protection gap. However, the NFIP is struggling after six short-term reauthorizations and with a seventh very possibly on the cards unless Congress can decide on policy in the coming weeks.
“Swiss Re would support a long-term reauthorization of the NFIP. It’s important not only for the stability of the NFIP’s flood business, but also for helping property owners with flood insurance requirements under federally-backed mortgages, to be able to close on their mortgages and home sales,” Junge commented. “The important thing is that the NFIP remains in force, but clearly a long-term reauthorization would be beneficial. As far as closing the flood insurance protection gap, the NFIP and the private market will have to work together to solve the problem.”