The US private flood insurance market presents a $35bn opportunity to the (re)insurance industry, but improving the education of homeowners, realtors, banks and agents on the peril as well as increasing the availability of coverage is required to take advantage, Swiss Re’s Mohit Pande has told The Insurer.
Statistics from the National Flood Insurance Program (NFIP) show that 90 percent of natural disasters in the US involve some degree of flooding.
“We can say confidently there is increased rainfall potential from future events because of increasing climate change which is making flooding worse,” explained Pande, head of property underwriting in the US and Canada for Swiss Re.
The increased potential for flooding has heightened the need for the development of the private flood insurance market in the US, Pande said.
“The take-up rate for private flood right now, or flood insurance generally, is just so low. We want to get a solution to those people who need it and can benefit from it,” said Pande.
Increasing the take-up rate will require improving the understanding of flood risk, however.
“We feel that increasing the flood take-up rate and building a flood market requires investment in education,” said Pande.
“The education needs to be multi-faceted, and one of the facets of that education is we need to change the narrative that just because your property isn’t located near a body of water, then you’re not at risk from flooding.”
The impact of Hurricane Ida in the northeast US was a classic example of that mindset, according to Pande.
“[Ida] was unfortunately a sad and tragic reminder that flooding can happen anywhere, and often the realtors, bankers and insurance agents are reinforcing the idea that a homeowner should only purchase flood insurance if they are in a high-risk flood zone and we believe this needs to change,” said Pande.
There needs to be a shift in the way flood risk is discussed.
“Rather than talking about a 1-in-100-year flood zone, or a 1-in-500-year flood zone, we need to talk about the probability of flooding over the lifetime of a typical 30-year mortgage, or the cost to repair damage from just one inch of water in a home,” said Pande.
Education, he noted, “is a big part of increasing that take-up rate for flood insurance and building a more robust flood insurance market”.
Swiss Re supporting private flood growth
Swiss Re, the executive said, is among those leading the growth of the US private flood market.
“In just a few years Swiss Re has helped its clients write more than 200,000 flood policies [and] there’s so much more room for growth,” said Pande, who reiterated that the private flood market is not in competition with the NFIP, but instead complements it.
“[The private flood] product is largely focused on the segments of the population which have no coverage and not those who are already covered,” he explained.
Swiss Re estimates private flood insurance take-up rates in the US range between 5 percent and 10 percent, “so the room for growth is enormous and the door to the private market is well and truly open”, Pande stated.
Flood, Pande explained, was once regarded as uninsurable by the private insurance market. However, the advancement of modelling technology and the availability of high-resolution mapping data means that is no longer the case.
“A decade or so ago we were limited in our ability to assess the true flood risk for a location,” said Pande.
“Today we have fully probabilistic flood models where we can combine very detailed information on hazards and vulnerability of buildings together with value distribution which we can analyse at individual latitude and longitude level,” he added.
Rating the risk
Insurers can now better rate the risk on an individual basis and capture any unique characteristics it may have.
“When we partner with our clients to create a flood product, one of our key priorities is to make sure that they’re confident in their ability to understand and price flood risk,” said Pande.
“We want to build a long-term, sustainable private flood market with a goal of significantly increasing flood insurance. To do that, it’s really important that they understand what the risk is and they are able to charge a price that is commensurate with that underlying risk.”