Losses from the historic atmospheric river storms that hit California earlier this year are estimated to be between $5 billion and $7 billion, according to Moody's Risk Management Solutions (RMS), the global catastrophe risk modeling and solutions company. The insured losses are anticipated to be between $500 million and $1.5 billion, including losses covered by the National Flood Insurance Program (NFIP) and the private flood market.

However, only 2% of California homeowners were covered by flood insurance when the storms hit, according to Neptune Flood, illustrating the flood insurance coverage gap.

The media coverage of this natural disaster and the $132 billion in insured losses relating to natural disasters that occurred in 2022 have highlighted the need for flood insurance coverage for both homeowners and businesses—wherever the location. With changes in the frequency and severity of flooding events, opportunities are considerable for the continued evolution of the flood insurance market and for the sustained education of consumers about flood insurance.

“For every unprecedented flooding event that is picked up by the media, we see some additional interest from people in finding out whether or not flood insurance is available to them and what the price is," says James Watje, senior vice president of private flood at Wright National Flood Insurance Services.

“For every one of these flooding events, we see a very small percentage of property owners—no more than 20% max—with damage who actually have flood insurance," Watje says. “Ultimately, those people have a way to get back to where they were prior to the loss from a financial perspective. The majority do not."

While 75% of homeowners across the U.S. believe they have flood insurance, the actual percentage is less than 5%, according to Neptune Flood's third Annual Consumer Survey of Flood Awareness. And with over 25% of events occurring outside designated high-frequency flood zones, flood exposure represents the largest segment of underinsured and uninsured risk within the U.S. 

One year on from the implementation of Risk Rating 2.0, FEMA's new pricing methodology has impacted the flood insurance market in several ways.

“With Risk Rating 2.0 in place, properties previously rated in non-hazardous flood zones (B, C and X) that are close to a water source may be rated higher now than legacy prices," says Cassie Masone, vice president, flood operations, Selective Insurance.

“Unlike in the past, Risk Rating 2.0 rates these properties based on exposure, not the flood zone," Masone says. “Risk Rating 2.0 has also brought a property's replacement cost into focus, which is now a required rating element."

Changes to the NFIP rating structure brought flood insurance—public and private—into the spotlight. “With Risk Rating 2.0 and rates changing, it creates an awareness and interest by the general public in alternatives," Watje says. “We're seeing more property owners and consumers ask questions, such as whether private flood insurance is available to them and its cost, which provides consumers with the understanding of what protection is available and how they can access it."

Meanwhile, “many factors, including global warming, sea-level rise, storm surge, king tides, land erosion and unprecedented record rainfall, increase the risk of flooding for many coastal and even non-coastal areas," says Wes Brum, account executive, Insurance Associates Inc. “These factors, as well as the increase in urbanization, have had an impact on the rate and risk of flooding."

Independent agents play a key role in ensuring clients understand the options available to them in the flood insurance market, encouraging clients to purchase flood coverage and assisting clients as they navigate the market.

“There is a wide spectrum of agent engagement and knowledge when it comes to selling flood insurance," says Ginny Pierson, head of the national Big “I" Flood program.

“On one end is the agent who has a deeply ingrained procedure for offering flood to every client and prospect, who is facile with the new risk rating process and has FEMA on speed dial," Pierson explains. “On the other is an agent who has never sold a single flood policy."

To improve their knowledge, “a rookie flood agent can connect with their dedicated Selective territory manager and truly learn the ropes of flood, access education and training, and get a great process in place for protecting a clients," she adds.

Floods will continue to occur, and it is essential that U.S. homeowners are aware of the options available to them.

“Risk Rating 2.0 has created a significant marketing event—whether or not an individual property is experiencing a substantial increase, the headlines and general perception of Risk Rating 2.0 is such that more and more insureds and their agents are interested in considering alternatives in the private market than they have in the past, which is healthy for the industry and helps us experience some competition," says John Hannah, assistant vice president, lending and insurance solutions, SWBC.

Olivia Overman is IA content editor.