Insurance Journal

Private Flood Insurers Not Yet Ready to Fill Massive U.S. Protection Gap

The flood insurance protection gap in the United States is massive, but the take-up rate of private flood insurance continues to be low. The relative inability of private insurers to penetrate the flood insurance market has been blamed on the lack of risk models, low consumer demand, high private premiums and, most of all, on the availability of relatively inexpensive government-sponsored insurance.

Some of those systemic issues have been resolved — for example, flood risk models have been developed. But most issues remain.

“The private flood insurance market is small, but the [flood protection] gap is huge,” affirmed Robert Muir-Wood, chief research officer for RMS, the Newark, Calif.-based catastrophe modeling company. “In the U.S. at present, there are 5.1 million households in the so-called ‘100-year flood zone’ as defined by the Federal Emergency Management Agency (FEMA),” he added. “Of those households, 65 percent do not have flood insurance,” which shows the extent of the potential business opportunities for the insurance industry, said Muir-Wood during a panel discussion at the reinsurance Rendez-Vous de Septembre (RVS).

During Hurricanes Harvey and Sandy, less than 20 percent of the houses that were flooded had flood insurance, he said, noting that these catastrophes have highlighted the enormous protection gap around U.S. flood peril. The insurance protection gap—or underinsurance—is defined as the value of assets at risk that are not covered by insurance when a catastrophic event occurs, either natural or manmade.

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