Not long ago, private flood insurance was thought to be an impossible dream in the property/casualty sector. There were numerous arguments supporting the common wisdom that a meaningful market for residential flood coverage from admitted private insurers would never exist. In recent years, however, we’ve seen the private flood sector grow rapidly—growth that we believe will continue until the new market significantly closes the U.S. flood “protection gap.”

Executive Summary

Nancy Watkins and David D. Evans of Milliman provide an overview of the trends in the U.S. private flood market, with the prediction that within a few years private insurers will significantly close the protection gap by routinely offering flood coverage alongside most homeowners policies.

Although the private flood market already has overcome substantial obstacles, there are more ahead.

Obstacle 1: The National Flood Insurance Program (NFIP) is billions of dollars in debt, so doesn’t that imply its rates are inadequate? How can the private flood market profitably compete?

Flood was a peril once thought to be uninsurable by the private market, so the NFIP was created in 1968 by the U.S. government to make affordable flood insurance available to the public. Over the past 50 years, the NFIP has provided most of the primary (paying first dollar of loss) flood insurance policies purchased in the U.S. Today, some private insurers offer excess coverage over NFIP policies, but most households remain uninsured altogether for floods. In fact, according to the Insurance Information Institute’s 2018 Pulse survey, only 15 percent of U.S. homeowners had a flood insurance policy.

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