Comprehensive flood insurance

S&T notes that the Department of Homeland Security (DHS) Science and Technology Directorate’s (S&T) Flood Apex Program funded a project with the Risk Management and Decision Processes Center of the Wharton School at the University of Pennsylvania to:

·  document the current state of the private, residential flood insurance market across the U.S.;

·  ascertain the main factors influencing the number and form of flood insurance policies offered by the private market; and

·  identify policy options for closing the flood insurance gap.

“One of the main goals of the Flood Apex Program is to assist FEMA in applying new innovation to address flood risk across the nation,” said Dr. David Alexander, the S&T Flood Apex Program Director. “To achieve this goal, DHS S&T, along with FEMA, needed to better understand the emerging private flood insurance market and how it might contribute toward national flood risk reduction.”

“Partnering with the Wharton School afforded us an opportunity to fill this knowledge gap. Having this type of data and insight helps not only FEMA in achieving their moonshot goals for flood insurance and mitigation, but also S&T in making smart investments in research and development that would benefit FEMA and the larger flood risk community,” he continued.

One of the key outputs for this project was The Emerging Private Residential Flood Insurance Market in the United States report. Funded by S&T and supported by FEMA, the report provides key findings to stakeholders on the status of the private residential flood insurance market and its relationship to the NFIP.

“This study is the most comprehensive report yet on the status of the private flood market in the United States. The report illustrates the significant role private flood insurance could play along with the National Flood Insurance Program in the national goal to increase residential and small business coverage against the peril of flood. As past years have proven, insurance is a crucial tool in personal resiliency and enables insured survivors and communities to recover quicker and more fully after floods and reduce unneeded disaster suffering,” said NFIP chief executive David Maurstad.

The report findings also support further discussion on how to close the flood insurance gap and increase the number of residents with flood insurance. According to one of the main authors of the report, this study is important to get a clear understanding of the current state of the market and how it is evolving.

“Our next step in the project is to evaluate policy options for closing the flood insurance gap in the United States and to consider how the private sector could play a role in achieving that goal,” Dr. Carolyn Kousky, Wharton School of the University of Pennsylvania said.

The report’s findings are based on in-depth, semi-structured interviews with market participants. Among the report’s most interesting and relevant findings are:

Flood is insurable: Historically, residents were told by the insurance industry that flood damage was uninsurable. As many companies invest in the technology and infrastructure to support flood products, this perception is changing. More insurance companies are willing to underwrite flood insurance.

Continuing role for the NFIP: The private market will not be able to underwrite all risks, especially for severe repetitive loss properties or high-risk areas. These areas will remain under NFIP policies.

Need for aggressive flood risk reduction: In order to expand private insurance, there is a need for more aggressive public commitments to risk reduction. These types of risk reduction investments will play a complementary role to insurance.

Easier access to flood insurance: Many participants also agree flood coverage should be included in homeowners’ insurance policies to avoid confusion, ensure coverage and to be easier to administer.

Expanded education on flood insurance: There is a need for expanded insurance agent education about flood risk and flood insurance products, both for the NFIP and private policies.

Commitment to flood resilience: Flood insurance is only one component of flood resilience. Flood resilient communities will require commitments by both the private and the public sectors to a range of mutually beneficial activities.

“Achieving greater community flood resilience for the nation is going to require more innovation and continual participation from all stakeholders – all levels of government, individual citizens and the private sector,” echoed Alexander.

— Read more in Can A Growing Private Flood Insurance Market Close the Coverage Gap? (Wharton School, 23 July 2018)