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How 2020 Challenged, Strengthened the Flood Insurance Industry


Last year was a year unlike any other – from fighting a global pandemic to facing a record-shattering hurricane season with 31 named storms forming in the Atlantic alone. However, despite these unforeseen difficulties, the flood insurance industry made major headway in protecting individuals and properties from a growing flood risk.

Here’s a look at the accomplishments that made the greatest impact on property owners and the companies that help keep them safe.

 

Important Advances in Analytics

 

Ranging from non-profit First Street Foundation’s new flood scoring capabilities to continuous improvements in flood models and maps, the 2020 advances in data and analytics are a major reason the flood insurance industry continues to evolve. Not only does this progress provide insurance agents and property owners with new and updated technologies that better evaluate flood risk and more – it also contributes to increased awareness and understanding of flood risk.

 

This increased awareness and understanding is critical. With real flood risk intelligence, property owners can make educated decisions to protect their most valuable assets. For example, flood insurance may not be the best option for one property owner but putting in new flood vents may be.

 

Organizations like First Street Foundation also play an important role in driving the message that we need to rethink our current reliance on decades-old flood maps. The data they deliver shows in black and white that proximity to a floodplain is no longer the only reason to purchase flood insurance and that flooding can indeed happen anywhere.

 

Regulatory Breakthroughs

 

The stage was also set in 2020 for more programs and more admitted private flood solutions – a major win for both the industry and property owners. These ongoing regulatory and legislative changes indicate an increasing interest in protecting and developing this space.

Examples include:

 

  1. State model legislation – The National Council of Insurance Legislators (NCOIL) adopted a model act specific to flood insurance, which creates a framework for states to adopt consistent regulations for this industry. The NCOIL model provides clear definitions and establishes disclosure and market conduct practices.  Similar measures are being considered by the National Association of Insurance Commissioners (NAIC).  Starting in 2021, the NAIC will also begin requiring insurers to separately report flood insurance business on financial statements, providing additional visibility into industry trends.
  2. New lending proposal – The Federal Housing Administration (FHA) proposed a rule that would allow FHA insured loans to accept private flood insurance policies for single family insured loans for properties located in FEMA-designated Special Flood Hazard Areas. There’s a sizable portion of the mortgage market that’s insured by the FHA that, up until now, could only be insured by the National Flood Insurance Program (NFIP).
  3. Risk Rating 2.0 – The NFIP plans to unveil a redesign of its risk rating system, which will leverage industry best practices and current technology to deliver rates that are fairer, easier to understand and better reflect a property’s unique flood risk. Risk Rating 2.0 has experienced a few delays but is expected to launch in October 2021.

 

In addition to these new regulatory breakthroughs, the federal authority for the NFIP was extended yet again, with the act currently scheduled to expire on September 30, 2021.

 

Greater Accessibility, Increasing Competition

 

For flood insurance to work, it has to work for everyone. And today, it’s much easier for agents to access private flood insurance options for their clients through private quoting, rating platforms, multi-raters, write-your-own partners and more. As more players come into the private flood insurance space in different ways, our industry continues to expand its reach and deliver more value to property owners.

 

Historically, many insurers shied away from entering the flood insurance market, largely because it’s been difficult to get an accurate view of flood risk. However, with the advances mentioned above – from technology, analytics and regulation – insurers are better equipped with better flood intelligence and, as a result, we’ve seen multiple new market entrants over the past year. This is a positive development, signaling market acceptance and commitment. With new capital and players joining the marketplace, the more competitive it becomes – which forces the market to operate more efficiently and provide better priced products.

 

Inspiration in Human Resilience

 

If 2020 proved anything, it’s that remarkable inspiration can be found in human resilience. We faced one of the hardest years of our lifetime, yet here we are talking about opportunity and excitement for the year to come. And that includes the flood insurance sector.

 

As we look at the current state of our market and nation and think about the year ahead, we must evaluate how we can harness the resource of human resilience to do even more to better protect our families, our communities, and our lifestyles.


John Dickson is president and CEO of Aon Edge, a private flood insurance provider.