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The Rough Notes Company Inc.



July 31
08:02 2018


Entrants offer new coverages that replace or complement traditional NFIP offerings

It’s been reauthorized six   times since 2017. As of July 31, 2018, it was in danger of lapsing—a situation that’s happened before. In January 2017, it borrowed another $1.6 billion from the Treasury Department, bringing its total debt last year to $24.6 billion.

By all accounts, the National Flood Insurance Program (NFIP) appears to be much like some of the properties it insures—repetitively underwater and facing constant threat of being washed away with the next big storm. An average 8% rate hike in April 2017 and another in April 2018 did little to dam the flow of money.

All of this has led to legislation that, if passed, could take much of the burden of a nationally funded flood insurance program and distribute it to the private market. The 21st Century Flood Reform Act (HR 2874) passed the House in mid-November 2017 and is awaiting action in the Senate.

“No stakeholder should rely on yesterday’s knowledge, and all should stay current with today’s options. Choice is essential to delivering meaningful insurance protection capable of responding to individual needs.”

—John Dickson
NFS Edge

The market isn’t waiting. In 2017, the U.S. private flood market grew by 51.2%, even without national-level reform. According to Cameron Conboy, the catalyst has been technology. “Most notably, catastrophe models have been incorporated into flood,” says Conboy, assistant vice president for Palomar Specialty. “Traditionally, admitted companies hesitated to enter the market for various reasons, one being the difficulty of pricing it out on an exact location basis. Now with the introduction of some catastrophe models, and there are a handful on the market today, that reservation has slowly relaxed.”

Evolution of a market

Now that some of the trepidation is dissipating, it’s game on. Fueled by technology, the market is also getting a boost from other factors. According to John Dickson, president of NFS Edge, a few things—like product innovation, improved flood risk awareness, and competitive pricing—are contributing to new players entering the market. And they’re bringing their “A” game.

“To date,” Dickson says, “different markets have introduced private flood insurance that serves as an alternative to the NFIP by providing primary flood insurance or coverage that complements the NFIP by offering protection for personal property in basements, food spoilage or additional living expenses. Over the past four years, many new programs have entered the market, creating more choice for property owners and improving flood insurance affordability.”

Those new programs are based on better modeling. Craig Poulton, CEO of Poulton Associates and founder of the Natural Catastrophe Insurance Program (NCIP), says the private market is showing every sign of an increasing “willingness to assume a wide spectrum of flood risk from risks that are minimal to risks that are severe. More producers are offering private flood insurance options to their clients,” he says.

Poulton believes risk modeling is influencing the market, noting that “several geospatial analytics companies are offering flood risk estimation models, but no clear leader has emerged.”

Models themselves are exciting for a number of reasons, Conboy says. In particular, the level of detail available now is opening the market to new policyholders. “The ability to scan geography and have that granular elevation differentiation per location—those examples now allow us to offer a product that doesn’t require an elevation certificate,” he explains. “Sometimes, the elevation certificate can cost more than the policy.”

Such availability of data is bringing more innovation to products as well, Conboy notes. He says that the market, once limited due to the lack of data sharing by the NFIP, now can better model and price flood risk. It’s a far cry from the NFIP of even four years ago. Because of limited data, Conboy says that the private market players, even on an E&S basis, were adhering strictly to the NFIP coverage limits, deductibles and terms.

How times have changed. “The NFIP only offers up to $250,000 of dwelling coverage. Our dwelling goes up to $5 million,” says Conboy. Contents limits of around $1 million are not uncommon, either, he adds. The NFIP’s current contents limit is $100,000. The private market also is offering loss-of-use coverage, something the NFIP doesn’t have, he adds. Add to that a single-event deductible and same-day quoting and binding (the NFIP has a 30-day waiting period), and the private market seems poised to take over flood risk.

Poulton believes the private market may in fact influence the NFIP’s model. “The invisible hand of the marketplace is forcing the NFIP toward more accurate rating methodologies,” he says, and that could speed up NFIP improvements. “Insurance industry compliant coverage forms, such as that offered under the Natural Catastrophe Insurance Program’s private flood insurance policies, which are unaffiliated with the NFIP, are looked upon much more favorably by lenders as well as consumers. Such policies typically have more robust coverage than that offered by the NFIP or NFIP look-alike policies.”

While competition is strong, Poulton says it could be better. “Competition is very healthy and would be much healthier if the NFIP would make risk-level data easier for their policyholders to request and if the NFIP responded to such requests in a timelier fashion,” he notes.

Market conditions

While there are obvious pluses in the market, it’s not immune to loss. Dickson says catastrophic flood events last year caused some capital market tightening, which he says resulted in regional pricing increases. While the market will continue to grow, he says, claims will, as well. “Widespread flooding, such as that produced by Hurricane Harvey in 2017 or experienced in East Baton Rouge, Louisiana in 2016, drive many claim events,” says Dickson.

These events, he adds, are the result of severe weather and record-setting rainfall. “The recent flash flooding event in Ellicott City, Maryland, highlights new drivers that impact both the frequency and severity of flooding. Post-event analysis concluded that this flood resulted as much from prodigious rainfall (more than eight inches of rain in three hours) as from land use and development,” Dickson says.

Poulton says climate change is driving the increased storm severity and is “moving us toward greater frequency of severe rainfall, rapid snow melt as well as more named and un-named storms and hurricanes.”

Additionally, severe repetitive losses remain the issue to resolve, says Conboy. “That is an issue that can be addressed either by public policy or other avenues.” Another claim driver is “urban development, where the natural runoff of water is being filtered through streets and concrete. That’s changing the game and wasn’t incorporated into how the NFIP thought out their flood zones.”

Poulton agrees, saying claims are being driven by “the expanding inaccuracy of NFIP flood zone designations. Inaccurately drawn flood zones result in mismanagement of structures within the designated floodplain as well as those that should have been contained within the flood zone. This in turn is causing massive numbers of uncovered losses to structures whose owners feel as though they were misinformed by FEMA, floodplain managers, and municipal officials.”

Also, the NFIP is just outdated, says Dickson. Properties have grown in both complexity and number. “When the NFIP was created nearly 50 years ago, average home values were less than $25,000, but today they average more than $180,000. With many homes today valued far above the limits available from the NFIP, property owners with exposures that exceed the $250,000 limit available from the NFIP should consider options,” he adds.

Advice for agents and brokers

Conboy says agents and brokers should be communicating those options to their customers. Also, he notes, “The agent needs to communicate to the insured that they need to understand their flood risk. So often, it’s a binary assumption that you’re either in a flood zone or you’re not. There’s a whole span of risk associated with a property—it’s not just yes or no. It’s understanding what the flood risk is in general.”

Plus, Conboy says, agents and brokers should be educating their insureds on prevention. Maintaining property, keeping drainage areas free of debris, and cleaning gutters can lessen the potential for loss. “Also, keeping valuables elevated can help mitigate loss.”

Conboy suggests also that insureds become familiar with their policy offerings. “Some policies incorporate loss avoidance coverage. You might have a limit of, say, $1,000 to buy sandbags if there’s a flood in your area.”

Dickson agrees that problems can be addressed well in advance of flood events by “ensuring each insured understands the flood insurance coverage in place and by making an inventory of property, including photographs, wherever possible.” He suggests that insureds report losses as soon as possible, take photos of damage, and hold on to the damaged items until the loss is adjudicated.

Most of all, agents and brokers should be aware of all that exists within the private flood market. “The private flood insurance marketplace is rapidly changing and growing, and almost every advancement helps agents and property owners protect what is most important,” says Dickson. “No stakeholder should rely on yesterday’s knowledge, and all should stay current with today’s options. Choice is essential to delivering meaningful insurance protection capable of responding to individual needs.”

For more information:

Natural Catastrophe Insurance Program

NFS Edge

Palomar Specialty

The author

Lori Widmer is a Philadelphia-based writer and editor who specializes in insurance and risk management.


In much the same way technology has improved flood insurance market conditions, innovation is improvinghome owner preparedness and response. For example, a number of products on the market help keep flood waters out and reduce flood-related costs.

Tiger Dams, offered by U.S. Flood Control, is a system of water-filled tubes that connect to any length and stack from 19 inches to 32 feet to provide a barrier of any shape. The tubes, which reportedly offer up to 100% water diversion when used properly, were shown at the Risk & Insurance Management Society (RIMS) conference this year.

Inflated using either flood waters or other water sources, Tiger Dams are described by the manufacturer as “easy to use and store.” The system, which reportedly costs half the price of traditional sandbags, is reusable, and each dam unit replaces 500 sandbags. The company offers three heights—19, 24, and 36 inches; units can be filled in 90 seconds. (

Quick Dams offers water-activated flood bags—sandless sandbags, if you will—that absorb water to create a barrier. “Just get them wet,” the manufacturer says. Bags grow to 12 inches by 24 inches by 3.5 inches high. ( A competing similar product, Floodsax, claims to absorb 50 times its dry weight. (

From Quebec comes Water-Gate, a wedge-shaped device that uses the pressure of oncoming water to stabilize itself. It costs more than traditional sandbags but is designed so it can be set up by one person. It requires no filler material. (

Fluvial Innovations manufactures two systems: the Floodblock modular flood prevention system, a stackable, interlocking block system that fills with rising flood waters and acts as a stable barrier; and Floodstop barriers, which similarly self-fill and can be rapidly deployed by one person. (

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