Private Flood Webinar Recap: Don't get caught in the rain

  • By James Barber, MBA
  • 29 July 2021

On July 20th, a panel of leading industry experts from Swiss Re, Milliman and Flood Service Corporation presented a webinar discussing key components of how to develop a profitable private flood insurance program. The key takeaway from the presentation is that getting into flood is easier than ever before, especially with the latest technological innovations in modeling and the prebuilt flood solutions that exist today.

Webinar attendees engaged with the industry panelists, asking a dozen insightful questions contributing to a very robust discussion.

Click here to watch the webinar recording

The opportunity for entering the private flood market exists now. Milliman estimates the size of the potential U.S. residential flood insurance market to be between $37 and $47 billion USD, compared to 2020 homeowners’ direct written premium of $110 billion. At present this is a largely uncontested market, since the NFIP and Private Flood insurers have direct written premiums combined of only $4 billion in 2019. The outdated notion about flood being uninsurable is no longer true, but perceptions are still lagging and insurers can get stuck at the point of understanding where to start.

Dave Evans from Milliman kicked off the hour-long presentation with an overview on why and how to launch a profitable flood product. Insurers have the upside to entering the private flood insurance market because:

  • It is feasible: Recent developments have changed the narrative that flood risk is uninsurable.
  • It is practical: The risks of offering a flood insurance product are outweighed by the risk of doing nothing.
  • It is accessible: Insurers have multiple ways to enter flood, whether developing programs from the ground up or leveraging prebuilt flood solutions.

Over the last several years a host of converging forces have made the flood opportunity much more attractive to private insurers. Some of the most important developments include:

  • Advancements in flood risk modeling and data availability
  • An appetite within the reinsurance industry to absorb the flood risk
  • Increasing lender acceptance of private flood policies as a legitimate alternative to the NFIP
  • A move on the part of the National Flood Insurance Program (NFIP) to more actuarially sound rates under Risk Rating 2.0, and removal of non-compete provisions for insurers
  • Heightened consumer awareness of their flood risk
  • Lessened state regulatory hurdles for getting new products to market.

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Wherever it rains, a flood can occur. Millions of homes are at risk for flood events which can happen anywhere -- not only near a coast or a river, or “in a flood zone.” Studies by FEMA have shown that almost every county in the U.S. has experienced a flood event since 1996.

Unfortunately, a lot of consumers don’t realize that they are not covered for flood. Milliman estimates that only about 4% of U.S. single-family homes have flood insurance, although the number of carriers writing private flood insurance has grown by a factor of four since 2016, up to 175 carriers in 2020. By waiting to provide a flood solution, insurers are allowing their competitors to offer more complete coverage to valued customers and gain crucial early mover advantages in the market. So how do you get started?

Dave covered the three product categories for insurers wanting to get into flood:

  • Bespoke: Building a product from the ground up maximizes custom options but requires a heavier lift and more time involved, especially in getting regulatory approvals.
  • Customized: Expend fewer resources, reduce time to market and regulatory uncertainty, but preserve competitive differentiation.
  • Off-the-Shelf: Minimize regulatory uncertainty and gain greatest speed to market.

The key to identifying the best solution for your organization’s flood path is understanding whether you have the time and resources to spare in creating a profitable flood program. Getting into flood shouldn’t be hard. It can be easy, and there are a lot of options.

What is your best path to flood? Click here to start a conversation about what matters most to your organization's success

Flood Services Corporation’s Kyle Stuart provided an in-depth historical overview of various legislation enacted since 1803 and the evolution of the NFIP. He shared insights on why it is necessary to conform to NFIP language, coverage, terms and conditions for homes in Special Flood Hazard Areas (SFHAs) with federally backed loans. While lenders are understandably conservative, lender acceptance has grown steadily over the years, especially in Florida.

Alternatively, policies outside of the SFHA or without federally backed loans are not required to conform to NFIP language, coverage and T&C’s. In these cases, the NFIP language is perceived as a step backwards from traditional property coverage due to statutory requirements. Citing as an example, Kyle explained how FSC worked with Milliman and created a Bungalow flood policy to offer solutions to insureds with federally backed mortgages. It is through this collaboration that FSC was able to transform their product into one which a lender felt comfortable in accepting and was an instant market success.

Kyle concluded his segment of the webinar stating that people suffering from catastrophic events recover better when they have full insurance - like that offered by private flood insurance - which includes coverage for additional living expenses.

The final portion of the webinar featured Matt Junge, who shared Swiss Re’s mission to making the world more resilient and decision to address the multi-billion-dollar flood protection gap in fulfillment of that mission. Matt walked through Swiss Re’s journey in building and launching a scalable flood solution, including product pricing, forms and reinsurance support. He shared with attendees the complex challenges insurers face and Swiss Re’s approach to address them via a simplified product that removes initial regulatory and execution barriers.

What has changed over the years, Matt explained, were three insurtech advancements which now enable flood risk to be prudently managed, and flood insurance to be adequately priced:

  1. A better understanding of hydrodynamics
  2. Having more granular maps and calculating the loss for an individual home
  3. Computing power to determine what kind of loss can happen on the individual level

Matt concluded his presentation by explaining that “the largest competitor to flood insurance is inertia - complacency and acceptance of the status quo”.

The reality is that insurers have a unique opportunity to address a growing need to serve their customers, with more confidence and speed than ever before. Right now, the greatest risk insurers face with respect to the huge and growing flood risk is the risk of doing nothing. Given the many options available, more and more insurers are realizing that now is the time to get into the flood space.

Thank you to all of the attendees who engaged with compelling questions and extended the dialogue; these are included within the webinar’s live discussion and chat.

Click here to watch the webinar recording

Need more information?
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  • Speak with a Flood Insurance Consulting Specialist

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