Inland areas are increasingly vulnerable to flooding from both tropical storms and severe convective storms, yet the number of homeowners who purchase flood insurance is dismal, reflecting consumer misunderstandings about the coverage, according to the Insurance Information Institute’s Report. Beinsure analyzed the report and highlighted the key points.
Flood: State of the Risk examines the flood insurance gap throughout the U.S., and what can be done to remedy the problem.
Floods can happen anywhere — just one inch of floodwater can cause up to $25,000 in damage. Most homeowners insurance does not cover flood damage. Flood insurance is a separate policy that can cover both buildings and contents.
The devastation wrought by Hurricane Helene across a 500-mile swath of the U.S. Southeast, including Florida, Georgia, the Carolinas, Virginia, and Tennessee, is just the latest example in recent years of the growing vulnerability of inland areas to flooding from both tropical storms and severe convective storms.
Scale of the flood insurance protection gap
These events also highlight the scale of the flood insurance protection gap in non-coastal areas. Helene dumped 40 trln gallons of water across these states in September 2024, causing hundreds of deaths and billions in insured losses, according to Gallagher Re.
Helene was a unique hurricane that has produced devastating consequences in Florida’s Big Bend, but also in areas well away from the landfall location. The extremely wide swath of Helene’s wind field was quite notable and wind-related damage is widespread in Florida and Georgia.
Steve Bowen, Gallagher Re
But, luckily, the storm’s peak winds missed the largest population areas in Florida and Georgia. This will help limit some of the wind-related loss costs (see Top 10 Costliest Insured Events).
The water damage – coastal storm surge inundation and inland flooding – is catastrophic. Many parts of the highly vulnerable Tampa Bay area, for example, rewrote their record book for storm surge / inundation heights. Areas from Sarasota to Fort Myers and in the Big Bend (>15 feet) were also heavily affected by inundation.
The inland rainfall in Georgia, the Carolinas, Tennessee, and southern Appalachia is resulting in historic flooding in many communities.
It is still very early, and assessments are just beginning, but the private insurance market impact is expected to land in the mid/high single-digit billion range. This is a slight bump from our initial pre-landfall guidance of $3-6 bn for the private market.
With a worst-case scenario avoided, this event does not appear to be large enough to meaningfully impact the broader re/insurance market.
Much of the loss was concentrated in western North Carolina, with parts of Buncombe County – home to Asheville and its historic arts district – left virtually unrecognizable.
Less than 1% of residents in Buncombe County had federal flood insurance when Helene struck, as illustrated in the map below, which is based on National Flood Insurance Program (NFIP) take-up rate data.
In August 2021, the National Weather Service issued its firstever flash-flood warning for New York City as remnants of
Hurricane Ida brought rains that flooded subway lines and streets in New York and New Jersey.
More than 40 people were killed in those states and Pennsylvania as basement apartments suddenly filled with water.
The whole swath going up the East Coast that Hurricane Ida struck in the days after it made landfall had less than 5% flood insurance coverage
Sean Kevelighan, Triple-I CEO
Then, in July 2023, a series of intense thunderstorms resulted in heavy rainfall, deadly flash floods, and severe river flooding in eastern Kentucky and central Appalachia.
Flooding led to 39 fatalities and federal disaster-area declarations for 13 eastern Kentucky counties. According to the Federal Emergency Management Agency (FEMA), only a few dozen federal flood insurance policies were in effect in the affected areas before the storm.
More than half of all homeowners with flood insurance are covered by NFIP, which is part of FEMA and was created in 1968 – a time when few private insurers were willing to write flood coverage.
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.
“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”, said Dale Porfilio, FCAS, MAAA, chief insurance officer, Triple-I.
Insurers have grown more comfortable taking on flood risk
In recent years, insurers have grown more comfortable taking on flood risk, thanks in large part to improved data and analytics capabilities.
The private flood market has changed since 2016, when only 12.6% of coverage was written by 16 insurers. In 2019, federal regulators allowed mortgage lenders to accept private flood insurance if the policies abided by regulatory definitions.
The already-growing private appetite for flood risk gained steam after that.
“Private insurers are accounting for a bigger piece of a growing flood risk pie,” said Porfilio. “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”.
Consumer Awareness is Crucial
Low inland flood insurance take-up rates often result from misunderstandings about coverage. While around 90% of U.S. natural disasters involve flooding, many homeowners remain unaware that standard policies do not cover flood damage.
“Empirical research into this question is limited because few policy experiments exist where a clear comparison can be made of ‘treatment’ settings, where incentives for development have been removed, and ‘control’ settings, similar areas where such incentives remain,” the study states. “One such experiment does exist, however.”
The 1982 Coastal Barrier Resources Act (CBRA) rendered more than one million acres along U.S. coasts ineligible for various incentives, including access to flood insurance through the National Flood Insurance Program (NFIP).
Though development in these high-risk areas remains legal, the CBRA shifts total responsibility onto property owners to manage that risk.
Decades later, areas under the CBRA have 83 percent fewer buildings per acre than similar non-designated areas, leading to higher development densities in less risky neighboring areas. Subsequent reductions in flood damages have generated hundreds of millions in NFIP savings per year – due not only to NFIP ineligibility in CBRA areas, but also to fewer and less costly flood claims filed in neighboring areas.
Misconceptions persist, with some believing flood insurance is unnecessary unless required by mortgage lenders. Once mortgages are paid off, it’s also common for homeowners to cancel coverage to cut costs.
The National Flood Insurance Program (NFIP), part of FEMA, covers more than half of insured homeowners. It was established in 1968 when private insurers avoided flood risk.
Number of private insurers writing flood coverage
Growth in Flood Direct Premiums Written
Private Flood Insurance Market Rising
Recently, insurers have become more willing to assume flood risk, largely due to better data and advanced analytics. The private flood insurance market has evolved significantly since 2016, when only 12.6% of coverage came from 16 insurers.
A key change in 2019 allowed mortgage lenders to accept private flood insurance meeting regulatory definitions. This policy shift spurred further interest from private insurers.
As shown in recent data, the private sector is capturing a greater share of flood insurance, which continues to grow. Rising private sector involvement may also lead to more affordable coverage, especially as NFIP’s Risk Rating 2.0 reforms align pricing more closely with actual flood risk.
Innovative tools like parametric insurance
Low inland take-up rates highlight the widespread misunderstandings about flood insurance among consumers. Even though flooding is a factor in about 90% of natural disasters in the U.S., many homeowners don’t realize that standard homeowners policies exclude flood damage. Additionally, some only purchase flood insurance if their mortgage lenders require it and often drop it once the mortgage is paid off to cut costs.
The U.S. homeowner’s insurance market experiencing its worst underwriting results since at least 2000, according to AM Best report.
Analysts notes that a factor in the insured loss increase is population migration into areas where weather-related events are occurring more frequently.
The homeowner’s insurance segment faced a $15.2 bn underwriting loss in 2023, more than double the previous year’s losses. This loss was the worst this century, with 2011 being the next highest at $14.8 bn.
Urbanization and rising populations have exacerbated problems in regions prone to natural disasters. According to the U.S. Census, California, Florida, Georgia, North Carolina, Texas, and Washington accounted for 53% of the country’s population growth between 2010 and 2020. These states are all vulnerable to severe weather events.
The U.S. population grew 7.4% from 2010 to 2020, with increases of 10.2% in the South and 9.2% in the West. These trends show a movement towards areas more susceptible to hurricanes, severe storms, and wildfires.
Innovative tools like parametric insurance and community-based catastrophe insurance present new opportunities to strengthen flood resilience.
Unlike traditional indemnity insurance, parametric structures offer payouts based on specific conditions, such as a defined wind speed or earthquake magnitude, without requiring damage assessments. This approach simplifies administration and delivers quicker payments, benefiting both insurers and policyholders. Whether used alone or alongside indemnity coverage, parametric insurance provides essential liquidity to support post-disaster recovery.
Localized insurance strategies are valuable, but broader initiatives like public education and preemptive risk mitigation are vital. Collaboration between governments and insurers on zoning, building codes, and infrastructure can create safer, climate-adaptive communities, minimizing losses and making insurance more accessible.
FAQ
Many inland homeowners don’t have flood insurance due to misunderstandings about coverage. Despite flooding being involved in around 90% of U.S. natural disasters, people often mistakenly think standard homeowners policies include flood damage. Others view flood insurance as unnecessary unless their mortgage lenders require it.
In September 2024, Hurricane Helene caused widespread devastation across the U.S. Southeast. It dumped 40 trillion gallons of water, resulting in severe inland flooding and billions in insured losses. Areas like western North Carolina, especially Buncombe County, suffered greatly, yet fewer than 1% of residents there had federal flood insurance.
The gap is vast, with many communities lacking adequate flood insurance. For example, less than 5% of areas affected by Hurricane Ida in 2021 had flood coverage. Similarly, in Kentucky in 2023, flash floods devastated counties where few homeowners had federal flood insurance policies.
The NFIP, part of FEMA, was established in 1968 when private insurers were unwilling to cover flood risk. More than half of all insured homeowners still rely on NFIP. However, its Risk Rating 2.0 reforms have aligned premium rates more accurately with flood risk, which has increased costs for higher-risk properties.
Since 2016, private insurers have become more interested in offering flood insurance, thanks to better data and advanced analytics. A 2019 policy change allowing mortgage lenders to accept private flood insurance that meets regulatory standards further accelerated private market growth.
Parametric insurance and community-based catastrophe insurance are emerging as effective tools. Unlike traditional insurance, parametric policies pay out based on specific conditions (like wind speed or earthquake magnitude), simplifying the claims process and providing faster payments.
Education and mitigation are crucial. Government collaboration with insurers on development zoning and building codes can foster climate-adaptive infrastructure. These efforts help reduce risk, minimize losses, and make flood insurance more accessible and affordable for homeowners.
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AUTHOR: Dale Porfilio, FCAS, MAAA – chief insurance officer Insurance Information Institute (Triple-I). Edited and Fact-checked by Nataly Kramer
