Despite the growing threat of flooding from intense storms, many homeowners in inland areas remain unprotected as they do not have flood insurance coverage, reflecting a widespread misunderstanding about the coverage, Triple-I highlighted in a recent report.
The report “Flood: State of the Risk” examines the flood insurance gap across the United States and explores potential solutions to address this critical issue. It emphasises the widespread nature of flood risk, highlighting that only one inch of floodwater can cause significant damage, costing homeowners up to $25,000.
Importantly, the report underscores that most standard homeowners insurance policies exclude flood damage, noting that a separate flood insurance is a separate policy that can protect both the building and its contents.
The devastation wrought by Hurricane Helene across a 500-mile swath of the U.S. Southeast and southern Appalachia, including Florida, Georgia, the Carolinas, Virginia and Tennessee, highlights the scale of the flood-protection gap in non-coastal areas.
Hundreds of deaths and billions in insured losses resulted from Helene, which dumped 40 trillion gallons of water across these states in September 2024
In this case, much of the loss was concentrated in western North Carolina, with parts of Buncombe County – home to Asheville and its historic arts district – left unrecognisable. Less than 1% of residents in Buncombe County had federal flood insurance when Helene struck, the Brief noted.
Eastern Kentucky and central Appalachia experienced devastating flash floods and river flooding in July 2023 due to a series of severe thunderstorms. The floods tragically claimed 39 lives and prompted federal disaster-area declarations in 13 eastern Kentucky counties.
Despite the risk, the Federal Emergency Management Agency (FEMA) reports that only a small number of residents in the affected areas had federal flood insurance before the disaster.
“Though approximately 90% of all U.S. natural disasters involve flooding, many homeowners still are unaware that a standard homeowners policy doesn’t cover flood damage,” said Dale Porfilio, FCAS, MAAA, chief insurance officer, Triple-I.
He added: “Similarly, many believe flood coverage is unnecessary unless their mortgage lenders require it and will drop the flood insurance coverage once their mortgage is paid off to save money.”
The National Flood Insurance Program (NFIP), part of FEMa and created in 1968, provides flood insurance for homeowners. At a time when few private insurers are willing to write flood coverage more than half of all homeowners with flood insurance are covered by NFIP.
In recent years, insurers are increasingly embracing flood risk, driven by data and analytics improvement. This surge in confidence marks a significant shift from 2016 when the private flood insurance market was limited, with only 12.6% of coverage provided by 16 insurers.
In 2019, federal regulations allowed mortgage lenders to accept private flood insurance policies meeting regulatory standards. This regulatory change further fueled the growing private sector interest in flood risk, leading to expanded coverage options and greater market participation.
Porfilio concluded: “Private insurers are accounting for a bigger piece of a growing flood risk pie. This increased interest in flood among private insurers offers hope for improved affordability of coverage at a time when NFIP’s Risk Rating 2.0 reforms have more accurately aligned pricing with flood risk.
