A wake-up call for the industry

The U.S. flood insurance landscape faces a significant challenge, with the number of policies in force steadily declining.

Despite the increased frequency and severity of storms caused by climate change, fewer properties are covered by flood insurance. Data from the National Flood Insurance Program and Neptune Flood highlights this worrying trend, showing a 2.4% drop in coverage nationwide from July 2023 to July 2024. This equates to a loss of 87,159 policies, leaving just 2 .7% of the 133.8 million buildings in the US insured against flooding.

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In July, just 3.6 million properties were insured under the NFIP, down from 3.7 million a year earlier.

This decline is particularly alarming given the nation’s growing population and the increasing number of homes being built in flood-prone areas. Millions of properties remain vulnerable to the devastating impact of flooding, which can lead to catastrophic financial losses for homeowners and businesses.

Florida: A unique case

Florida, one of the states most at risk of flooding, presents a mixed picture. While the number of flood insurance policies in the state increased by 1.2 percent from June 2023 to June of this year, overall coverage remains woefully inadequate. As of June, only 12 percent of Florida’s 9 million properties had flood insurance. This means that despite the slight increase in coverage, most Floridians are still exposed to flood risks without any financial protection.

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The Florida Legislature has taken the positive step of mandating a separate flood insurance policy for all participating homeowners in its insurance company of last resort, Citizens. Other states may want to follow Florida’s lead in increasing flood coverage and help manage the risk for insurance companies that rely on the state’s balance sheet.

The Growing Gap in Flood Insurance

The data paints a clear picture: The flood insurance gap is widening across the country. As the population grows and development continues in flood-prone areas, the number of uninsured properties increases. This gap poses significant risk to homeowners, businesses, and the economy at large. When floods occur, those without insurance can face financial ruin, leading to a ripple effect that can affect entire communities.

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Given these challenges, it is imperative that the insurance industry takes proactive steps to reverse this trend. Here are three strategies that could help address the widening flood insurance gap:

Awareness campaigns led by insurance agents

Many homeowners and business owners are unaware of the risks they face from flooding, especially in areas not traditionally considered high risk. More importantly, they do not understand that their building policy does not cover flood risk and that they must purchase a separate policy from the NFIP or a private flood insurer. The insurance industry needs to take the time to talk to each policyholder about the importance of flood insurance. These campaigns should highlight the increasing frequency and severity of storms due to climate change and the potential financial devastation that can occur without adequate coverage. By raising awareness, the industry can encourage more homeowners to consider purchasing flood insurance, even if they are not in designated flood zones.

Improve the accessibility and affordability of flood insurance

One of the barriers to flood insurance is cost. For many homeowners, especially those in lower income areas, flood insurance premiums can be prohibitively expensive. Private flood insurance companies have made some progress by offering lower prices and better coverage to hundreds of thousands of homes and businesses.

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By diversifying the market and increasing competition, private flood insurance can help bridge the insurance gap by giving more property owners access to the coverage they need. This, in turn, will help protect more homes and businesses from the financial devastation of flooding, ensuring that fewer people are left vulnerable when disaster strikes. As the market for private flood insurance grows, it can serve as a vital complement to the NFIP, especially the post-risk 2.0 rating (and the phasing out of government subsidies), which will help reverse the decline in flood insurance coverage nationwide.

Update and upgrade FEMA flood maps

One of the critical tools used to assess flood risk in the US is the Federal Emergency Management Agency’s flood maps. However, many of these maps are outdated, failing to reflect the current realities of climate change, urban development and land use changes. These outdated maps can give property owners a false sense of security, causing them to forgo purchasing flood insurance because they believe they are not at significant risk. Ask any of the hundreds of thousands of home and business owners who suffered from Hurricane Harvey in Texas – all of whom were told by FEMA that they were not in a high-risk area and therefore were not forced to buy flood insurance.

The insurance industry should advocate and invest in updating FEMA flood maps in collaboration with government agencies and private sector partners. This includes incorporating the latest data on weather patterns, sea level rise and the impact of new developments. By ensuring that flood maps accurately reflect today’s risk landscape, property owners can make more informed decisions about flood insurance. In addition, updated maps can help identify previously unrecognized high-risk areas, encouraging widespread adoption of flood insurance in those regions.

Declining flood insurance coverage in the US is a worrying trend that requires immediate attention from the insurance industry. As the population grows and climate change continues to drive more severe weather events, the gap between insured and uninsured properties widens. Florida’s slight increase in coverage is a positive sign, but not enough to counteract the overall national decline.

The industry can take significant steps to reverse this trend by expanding public awareness, improving the affordability and affordability of flood insurance, and improving FEMA flood mapping. It’s not just about protecting individual property owners, it’s about protecting entire communities and the economy from the devastating effects of flooding. Let’s not wait for the next Katrina, Harvey or Ian to take action.

Burgess is president and CEO of Neptune Flood. He is also the Chairman of TRB Development, a residential real estate development and consulting company.