In the aftermath of Hurricanes Harvey and Irma there’s been increased public attention to both government-sponsored flood insurance (the National Flood Insurance Program, offered through FEMA) and the potential rise of a private flood insurance market. In Florida, a recent analysis by the Associated Press found that of the state’s 38 coastal counties, only 42% of homes are covered by flood insurance. The same analysis found that of the roughly 2.5 million homes in Special Flood Hazard Areas, Florida’s overall flood insurance rate for hazard-zone homes is just 41%.
Flood risk continues to be one of the most difficult perils to price for the homeowners industry. More than any other catastrophic peril, flood risk varies over short distances; critical factors that contribute to flood risk include elevation, relative elevation, distance to coast, and distance to river. This spring, Milliman, along with risk modeling firm KatRisk, sought to independently model the feasibility of a private flood insurance market in Florida, Texas, and Louisiana. The infographic below provides some of our findings for all single-family homes in the state of Florida:
Milliman has announced the results of a first-of-its-kind study to assess the feasibility of a private flood insurance market in several key states across the United States. The study, which was conducted in collaboration with risk modeling firm KatRisk, set out to model private flood insurance risk and potential premiums for all single-family homes in Florida, Louisiana, and Texas—which combined account for 56% of National Flood Insurance Program (NFIP) policies in-force nationwide. The study includes all single-family homes in those states, not only those who are currently purchasing flood insurance from the NFIP, and the modeled NFIP premiums do not include the effects of grandfathering. The estimated private insurance premiums were developed using reasonable assumptions selected by Milliman.
Key findings include:
• For all single-family homes, 77% in Florida, 69% in Louisiana, and 92% in Texas could see cheaper premiums with private insurance than with the NFIP.
• In Florida, 44% of homes modeled could see premiums less than one-fifth that of the NFIP, while the same holds true for 42% of homes in Louisiana and 70% of homes in Texas.
• Conversely, private insurance would cost at least double the NFIP premium for 14% of single-family homes in Florida, 21% in Louisiana, and 5% in Texas.
• Across Special Flood Hazard Areas (SFHAs)—the high-risk zones in which flood insurance is mandatory—private insurance could offer cheaper premiums than the NFIP for 49% of single-family homes in Florida, 65% in Louisiana, and 77% in Texas.
The catastrophic rainstorms in Louisiana in 2016 are one example of the devastating financial effect flood can have on communities outside mandatory purchase areas. “A thriving private insurance market would provide wider and in many cases less expensive options that could protect more U.S. consumers, expand the awareness of the need for flood insurance, and spread the risk beyond the NFIP,” the report says.
To view the complete report including additional findings and critical assumptions, click here.