Catastrophic floods have been damaging homes for as long as people have had permanent dwellings. They can cause devastating losses to homeowners and businesses alike almost anywhere in the U.S., both on and off of established flood plains. Executive SummaryNew tools to more accurately assess flood risk are among the promising factors opening up the prospect of profitable expansion for insurers into areas that may have seemed too risky in the past, according to AIR Worldwide’s John Elbl. Here he presents specifics about insurable counties in Florida and reviews provisions of pending federal legislation to modernize the flood insurance scheme, allowing private insurance policies to fulfill mortgage lender requirements.
Exacerbating the impact of floods is the fact that flood insurance, the product that should serve as the primary backstop against these types of losses, is not widespread. Outside of dedicated government-funded programs and a limited set of specialty policies, flood coverage is extremely limited, and only a small fraction of those risk-exposed residential and commercial properties have any real source of financial protection.
A Program Destined to Fail
At the time of its founding, the U.S. National Flood Insurance Program (NFIP) had the best intentions of its lawmakers at heart. Flood insurance had once been a covered provision in a typical homeowners policy. However, as a result of a series of damaging floods that took place in the U.S. during the 1950s and ’60s, payouts from flooding consistently exceeded the premiums this coverage generated. The policies had simply proved to be unprofitable, and flood coverage was almost entirely eliminated.