Looking ahead to the future of flood insurance

Waxhaw, North Carolina - September 16, 2018: Motorists inspect a road flooded by rain from Hurricane Florence

Lenders, it’s important to understand flood risk exposure, regulatory compliance, and insurance, so that your institution can be proactive in planning for changes ahead in the industry. Historically, flood coverage was deemed too high a risk by private insurers, so it was excluded from a traditional homeowner policy. In response, the National Flood Insurance Program (NFIP), a government program founded in 1968, was created to provide a flood insurance option to buyers. However, over its 50 year history the program has faced challenges of rising losses and the sustainability of managing those losses.

Flooding is the most common natural disaster that occurs in the United States. In fact, in the last 3 years with records available (2015-2017), property damage costs due to flooding rose over 2,500% ($2.8 billion reported in 2015 to $60.58 billion in 2017).1 And while it’s notable to point out that 2017 was a particularly heavy year for hurricanes (ie. Hurricane Harvey and Irma), it’s important to recognize that flooding and flood insurance policy claims are not limited to coastal areas, but impact consumers and lenders nationwide. FEMA’s flood map identifies all 50 states (98% of all US counties) have been impacted by a flooding or a flash flood event in recent years.2  Escalating costs are a growing concern as 7 of the top 10 significant flood events measured by NFIP payouts have occurred in the last 10 years (2008-Present), with average payouts exceeding $30,000.2 The NFIP currently reports a $20 billion deficit which comes after a government bailout in 2017 that cancelled an additional $16 billion.3

 

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