Flood is one of the most devastating catastrophic perils, in which a single event can create tens of billions of dollars of loss. It is also one of the least insured perils, affecting people in every part of the United States. Advanced risk models now provide granularity, assessing flood risk at local levels. Such technological development presents insurers the opportunity to offer affordable, risk-based coverage within a private insurance market. Milliman colleagues Nancy Watkins, Matt Chamberlain, Andrei Stoica, and Garrett Bradford offer perspective in this video.
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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: