Facts + Statistics: Flood insurance

About 90 percent of all U.S. natural disasters involve flooding, according to the National Flood Insurance Program (NFIP), administered by the Federal Emergency Management Agency (FEMA). FEMA says one inch of flood water can cause as much as $25,000 in damage to a home. Whether related to coastal and inland inundations due to hurricanes, extreme rainfall, snowmelt, mudflows, or other events, floods cause billions of dollars in losses each year. Between 2010 and 2018 the annual cost of flood damage in the United States was approximately $17 billion, according to FEMA, and was four times more than was recorded in the 1980s.

According to the Triple-I, in its report, Flood: Beyond Risk Transfer, in the United States much of rising loss trend is due to people moving into risk-prone areas. More people, homes, businesses and infrastructure means more costly damage when extreme weather events occur. In fact, the number of housing units in the United States has increased most dramatically since 1940 in many areas that are most vulnerable to weather and climate-related damage. Flood losses are also influenced by weather and climate trends, according to a study by Stanford University researchers and the observations of Dr. Philip Klotzbach, an atmospheric scientist at Colorado State University and a Triple-I non-resident scholar, with respect to hurricanes.

Flood damage is excluded under standard homeowners and renters insurance policies. However, flood coverage is available as a separate policy from the National Flood Insurance Program (NFIP), administered by the Federal Emergency Management Agency (FEMA), and from many private insurers. Industry observers note that many properties that should have flood coverage do not. On average, nationwide only 30 percent of homes in the highest-risk areas have flood coverage, according to the Risk Management and Decision Processes Center of the Wharton School at the University of Pennsylvania. Latest data from the Triple-I (see chart below) shows that nationwide, 27 percent of all American homeowners policyholders said they had flood insurance, a higher rate than estimates cited by the NFIP and other observers. Previous Triple-I survey results found that the rate was about 12 percent to 14 percent. A First Street study estimates economic damage due to flooding will grow over the next 30 years by 61 percent, to an average estimated annual loss of $7,563 per property — for an estimated total loss of $32.3 billion. This total loss is almost double the cost of flood damage of about $17 billion annually between 2010 and 2018, according to FEMA’s data, cited above.

 
National Flood Insurance Program

Congress created the NFIP in 1968 to make federally-backed flood insurance available in communities that agree to adopt and enforce floodplain management ordinances. The NFIP owed more than $20.5 billion to the U.S Treasury in January 2021, leaving $9.9 billion in borrowing authority from a $30.43 billion legal limit. This debt is serviced by the NFIP and interest is paid through premium revenues.        

 

The NFIP has created public funding programs to narrow its deficit. Since 2016 FEMA’s National Flood Insurance Program has been using reinsurance protection. For 2021 the NFIP arranged for $1.15 billion in coverage from 32 private reinsurers, up from 27 in 2020. The cost of reinsurance coverage for 2021 was $195.8 million compared to $205 million in 2020 for $1.33 billion of coverage. In terms of total coverage and the structure of the coverage, FEMA will have slightly less reinsurance in 2021, according to Artemis.  

In August 2018 FEMA launched its first catastrophe bond to transfer risk from the NFIP to capital markets, acquiring $500 million of reinsurance protection from FloodSmart Re Ltd. (Series 2018-1 issuance). In February 2021, $575 million was secured for flood reinsurance protection from a fourth FloodSmart Re catastrophe bond. This is the largest FEMA has secured, and will more than replace the funds secured in the 2018 deal that matured at the end of July 2021. According to Artemis, the 2021 cat bond raises FEMA’s NFIP flood reinsurance program funds to $2.925 billion of reinsurance protection, which will be reduced to $2.425 billion as the 2018 bond matures.

On April 1, 2021 FEMA announced it will implement a new rating methodology designed to provide actuarially sound rates that are equitable and easy to understand. According to FEMA more than 200,000 policies will have a significant increase in premiums while about 1.15 million policies will have a decrease. The new rates went into effect on October 1, 2021 for new policies, and will go into effect on all remaining policies renewing on or after April 1, 2022. A Triple-I Blog post explains how the new rating methodology will make the system fairer.          

Congress must periodically renew the program’s authority to operate. If the program were to lapse, claims would still be paid but the NFIP would stop selling and renewing policies (more details can be found here.)  

 

              

 

  • As of January 2021, 57 insurance companies participated in the Write Your Own (WYO) program, started in 1983, in which insurers issue policies and adjust flood claims on behalf of the federal government under their own names.
  • As of August 31, 2021, 88 percent of NFIP policies were held in the WYO program.
  • As of August 31, 2021, 69 percent of policies covered single family homes; 21 percent covered condominiums and other residential properties; and 4 percent covered two- to four-family units. Business and other non-residential policies accounted for the remainder.

 

The chart below shows the 10 most significant floods based on National Flood Insurance Program (NFIP) payouts from 1978 to January 31, 2019 (latest data available). Hurricane Katrina in 2005 was the worst U.S flood event based on the amount paid to NFIP policyholders, $16.2 billion, paid to 167,000 policyholders. Hurricane Harvey in 2017 ranks as the second most significant U.S. flood event, with $8.9 billion paid to more than 76,000 NFIP policyholders. Superstorm Sandy ranked third with $8.8 billion paid to more than 132,000 policyholders.

 
Top 10 Most Significant Flood Events By National Flood Insurance Program Payouts (1)

 

Rank Date Event Location Number of
paid losses
Amount paid
($ millions)
Average
paid loss
1 Aug. 2005 Hurricane Katrina AL, FL, GA, LA, MS, TN 166,790 $16,258 $97,474
2 Sep. 2017 Hurricane Harvey AL, AR, FL, GA, KY, LA, MS, NC, TX 76,257 8,909 116,823
3 Oct. 2012 Superstorm Sandy CT, DC, DE, MA, MD, ME, NC, NH,
NJ, NY, OH, PA, RI, VA, VT, WV
132,360 8,804 66,517
4 Sep. 2008 Hurricane Ike AR, IL, IN, KY, LA, MO, OH, PA, TX 46,701 2,702 57,866
5 Aug. 2016 Louisiana severe storms
and flooding
LA 26,976 2,468 91,507
6 Sep. 2004 Hurricane Ivan AL, DE, FL, GA, LA, MD, MS, NJ, NY,
NC, OH, PA, TN, VA, WV
28,154 1,608 57,097
7 Aug. 2011 Hurricane Irene CT, DC, DE, MA, MD, ME, NC, NH,
NJ, NY, PA, RI, VA, VT
44,314 1,346 30,369
8 Jun. 2001 Tropical Storm Allison FL, LA, MS, NJ, PA, TX 30,671 1,105 36,028
9 Sep. 2017 Hurricane Irma FL, GA, SC 21,920 1,054 48,095
10 Oct. 2016 Hurricane Matthew FL, GA, NC, SC, VA 16,586 654 39,455

(1) Includes events from 1978 to January 31, 2019 as of December 23, 2019. Defined by the National Flood Insurance Program as an event that produces at least 1,500 paid losses. Stated in dollars when occurred.

Source: U.S. Department of Homeland Security, Federal Emergency Management Agency; U.S. Department of Commerce, National Oceanic and Atmospheric Administration, National Hurricane Center.

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Private flood insurance

The National Flood Insurance Program, now 50 years old, compensated for coverage not available in the private market. Private insurers did not have reliable ways of measuring flood risk but technological advances now allow insurers to underwrite risk more accurately and make sounder actuarial decisions. In 2019 federal regulators allowed mortgage lenders to accept private homeowners flood insurance if the policies abide by regulatory definitions. Also allowed are private insurance policies that do not meet regulations if insurers provide adequate protection according to general safety and soundness requirements. The effect is likely to impact homeowners in states where most of the nation’s flood insurance policies are held.

In 2019 net premiums written for private flood insurance totaled $287.2 million, down 46.9 percent from $540.9 million in 2018, according to NAIC data compiled by S&P Global Market Intelligence. Premiums in 2019 were impacted by the largest writer of private flood insurance, FM Global, reclassifying private flood insurance into allied lines. When 2018 net premiums written are restated to exclude premiums from FM Global, they totaled $307.9 million. On the restated basis, net premiums written for 2019, at $287.2 million, were down at the much lower rate of 6.7 percent. Direct premiums written (which are before reinsurance transactions) for private flood insurance totaled $522.6 million in 2019, up 45 percent from $360.1 million in 2018, excluding FM Global’s 2018 private flood premiums. There were 41 private companies writing flood insurance in 2019, compared with 32 in 2018. The number of companies also excludes FM Global.

AM Best says the increase in private carriers improves competition and helps spread the economic risk that comes from flooding. Private carriers can also offer higher coverage than FEMA’s National Flood Insurance Program policies, currently capped at $250,000 for residential buildings and $500,000 for non-residential buildings.

Despite technological advances that enable private insurers to accurately underwrite flood risk, a sub­stantial flood protection gap remains, according to an April 2021 paper published by the Triple-I. Flood: Beyond Risk Transfer notes that a growing number of experts consider the existing approach to flood risk to be insufficient and unsustainable. In the United States, experts have charted rising loss trends, much of which is due to people moving into risk-prone areas, resulting in more costly damage when extreme weather events occur. Another factor is intensifying rainfall fueled by climate change over the past 30 years. Despite these dangers, on average, in the United States only 30 percent of homes in the highest-risk areas have flood coverage, according to the Risk Management and Decision Processes Center of the Wharton School at the University of Pennsylvania. The report recommends educating homeowners to purchase flood insurance when they buy homeowners insurance, but acknowledges that more must be done to close the protection gap. The insurance industry can help by working with governments to promote improve­ments in zoning, land use, and building codes. Some new approaches would be to increase the use of parametric insurance, which covers risks without sending adjusters to assess damage after an event and pays out if certain agreed-upon conditions are met, or microinsurance, which could provide low-cost insurance to individuals generally not covered by traditional insur­ance or government programs.

 
Private Flood Insurance, 2016-2020

($000)

Year Net premiums
written (1)
Annual percent
change
Combined
ratio (2)
Annual point
change (3)
2016 $277,819.0 NA 93.8 NA
2017 470,961.0 69.5% 186.1 92.3 pts.
2018 540,875.0 14.8 55.0 -131.1
2019 287,197.0 -46.9 58.5 3.5
2020 302,444.0 5.3 50.7 -7.8

(1) After reinsurance transactions, excludes state funds and premiums written by private insurers participating in the National Flood
Insurance Program's Write Your Own program.
(2) After dividends to policyholders. A drop in the combined ratio represents an improvement; an increase represents a deterioration.
(3) Calculated from unrounded numbers.

NA=Data not available.

Source: NAIC data, sourced from S&P Global Market Intelligence, Insurance Information Institute.

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Top 10 Writers Of Private Flood Insurance By Direct Premiums Written, 2020 (1)

($000)

Rank Group/company (2) Direct premiums written (3) Market share (4)
1 Zurich Insurance Group $98,749 13.8%
2 Assurant Inc. 97,374 13.6
3 American International Group (AIG) 75,318 10.6
4 AXA 68,696 9.6
5 Swiss Re Ltd. 67,471 9.5
6 Arch Capital Group Ltd. 49,678 7.0
7 Berkshire Hathaway Inc. 41,417 5.8
8 Liberty Mutual 38,601 5.4
9 Allstate Corp. 35,584 5.0
10 MAPFRE 27,123 3.8

(1) Private flood includes both commercial and private residential coverage, primarily first-dollar standalone policies that cover the flood peril and excess flood. Excludes sewer/water backup and the crop flood peril.
(2) Does not include FM Global, which reclassified private flood insurance as part of allied lines in 2019. FM Global had $300 million in direct premiums written for private flood insurance in 2018 or 43 percent of the total U.S. private flood market.
(3) Before reinsurance transactions.
(4) Based on U.S. total, includes territories.

Source: NAIC data, sourced from S&P Global Market Intelligence, Insurance Information Institute.

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Coastal State Storm Surge And Hurricane Wind Risk

Storm surge is ocean water that is pushed ahead of a storm. Storm surge can penetrate well inland from the coastline and cause severe damage. States along the U.S. Gulf of Mexico and Atlantic Basin are potentially vulnerable to storm surge damage. A 2021 CoreLogic report shows that in 2021, there were nearly 8 million coastal homes along the Gulf and Atlantic Coasts, representing more than $1.9 trillion in reconstruction costs, at risk for storm surge damage. The reconstruction cost is based on the 100 percent destruction of the residential structure, using a combined cost of construction materials, equipment and labor costs, calculated by geographic location.  The study also found that more than 31 million homes along the Gulf and Atlantic Coasts were at a moderate or greater risk from being damaged by hurricane winds. The reconstruction costs of those vulnerable homes was about $8.5 trillion. These enormous reconstruction costs stress the importance of understanding the risk of hurricane damage and protecting homes and other property. Moreover, climate change affects hurricane risk from sea-level rise, increased rainfall, increasing frequency of hurricanes and the intensity of hurricanes.

The data shown in the following charts are cumulative. For storm surge risk, a home potentially affected by a Category 1 storm would also be affected by Category 2 to 5 storms. Thus, Category 5 represents the aggregate total risk from Category 1 to 5 storms. For hurricane wind risk, a home at moderate or greater risk would encompass all wind risks from moderate to extreme.

 
U.S. Storm Surge Risk, Gulf and Atlantic States, 2021

 

  Single-family residential
homes potentially affected (1)
Multi-family residential
homes potentially affected (2)
Storm surge
risk level (3)
(Storm category)
Number of units Reconstruction
cost value (4)
($ billions)
Number of units Reconstruction
cost value (4)
($ billions)
Category 1 1,309,160 $327.55 41,662 $16.56
Category 2 2,754,989 701.93 94,101 39.14
Category 3 4,420,104 1,104.02 150,212 61.34
Category 4 6,462,072 1,611.27 221,920 92.54
Category 5 7,487,405 1,829.84 246,136 98.57

(1) Residential structures less than four stories, including mobile homes, duplexes, manufactured homes and cabins.
(2) Apartments, condominiums and multi-unit dwellings.
(3) The risk categories are cumulative and increase in value from Category 1 to Category 5. Category 1 represents the higher risk of damage from a weak hurricane; Category 5 includes Categories 1 to 4 and the low risk of damage from a Category 5 hurricane.
(4) Represents the cost to completely rebuild including labor and materials by geographic location.

Source: CoreLogic®, a property data and analytics company. May not be re-sold, republished or licensed to any other source without prior written permission from CoreLogic.

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U.S. Hurricane Wind Risk, Gulf and Atlantic States, 2021

 

  Single-family residential
homes potentially affected (1)
Multifamily residential
homes potentially affected (2)
Hurricane wind risk level (3) Number of units Reconstruction
cost value (4)
($ billions)
Number of units Reconstruction
cost value (4)
($ billions)
Extreme 6,197,146 $1,323.43 120,815 $33.60
Very high or greater 14,365,874 3,219.63 226,310 67.47
High or greater 21,725,272 5,406.02 619,567 253.82
Moderate or greater 31,288,878 8,081.11 953,257 413.47

(1) Residential structures less than four stories, including mobile homes, duplexes, manufactured homes and cabins.
(2) Apartments, condominiums and multi-unit dwellings.
(3) The risk categories are cumulative and increase in value from extreme to moderate or greater. The moderate or greater wind risk level encompasses all four wind risk levels.
(4) Combines materials, equipment and labor, but does not include the value of the land or lot.

Source: CoreLogic®, a property data and analytics company. May not be re-sold, republished or licensed to any other source without prior written permission from CoreLogic.

 
Top 15 Metropolitan Areas At Risk for Storm Surge and Hurricane Wind, 2021

 

Single-family (1)
    At risk for storm surge At risk for hurricane wind
Rank (2) Metropolitan area Number Reconstruction
cost value (2)
($ billions)
Number Reconstruction
cost value (2)
($ billions)
1 New York, NY 781,823 $304.50 3,378,397 $1,430.10
2 Miami, FL 738,994 149.26 1,997,608 406.28
3 Tampa, FL 544,433 100.80 1,102,691 218.14
4 New Orleans, LA 396,870 100.59 424,460 107.52
5 Virginia Beach, VA 395,653 94.95 578,622 140.62
6 Fort Myers, FL 321,940 67.02 348,965 72.23
7 Bradenton, FL 284,828 57.46 373,133 79.19
8 Houston, TX 261,103 56.89 1,987,408 494.62
9 Jacksonville, FL 220,301 52.71 548,161 123.33
10 Naples, FL 197,265 44.46 201,314 45.08
11 Charleston, SC 184,563 46.82 275,321 65.22
12 Boston, MA 159,245 53.98 1,289,430 477.06
13 Myrtle Beach, SC 156,161 30.43 247,907 49.65
14 Lafayette, LA 146,254 33.41 179,528 40.05
15 Baton Rouge, LA 136,951 34.27 299,849 71.08
Multi-family (3)
    At risk for storm surge At risk for hurricane wind
Rank (2) Metropolitan area Number Reconstruction
cost value (2)
($ billions)
Number Reconstruction
cost value (2)
($ billions)
1 New York, NY 108,607 $52.04 448,051 $213.78
2 Miami, FL 28,747 7.04 61,458 16.28
3 Boston, MA 14,548 9.14 58,943 37.73
4 Tampa, FL 14,220 3.86 26,239 6.85
5 Fort Myers, FL 13,417 3.29 14,248 3.49
6 New Orleans, LA 6,518 3.38 6,518 3.38
7 Jacksonville, FL 4,495 1.48 8,643 2.75
8 Savannah, GA 4,479 1.63 4,511 1.64
9 Virginia Beach, VA 4,244 1.42 5,015 1.67
10 Philadelphia, PA 3,397 1.26 53,927 25.02
11 Daytona Beach, FL 3,289 0.85 5,159 1.26
12 Bradenton, FL 3,279 0.88 3,739 1.00
13 Providence, RI 2,544 1.48 32,960 19.13
14 Baltimore, MD 2,221 0.45 4,672 1.12
15 Naples, FL 2,206 0.63 2,350 0.66

(1) Residential structures less than four stories, including mobile homes, duplexes, manufactured homes and cabins.
(2) Combines materials, equipment and labor, but does not include the value of the land or lot.
(3) Apartments, condominiums and multi-unit dwellings.

Source: CoreLogic®, a property data and analytics company. May not be re-sold, republished or licensed to any other source without prior written permission from CoreLogic.

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The Insurance Institute for Business and Home Safety (IBHS) “Rating the States” report ranks the 18 Atlantic and Gulf states vulnerable to catastrophic hurricanes by comparing the quality of state building codes, state enforcement and contractor licensing. Building codes are critical to disaster mitigation, as well as to enabling families, communities, and businesses to bounce back from natural and man-made catastrophes. According to the National Institute of Building Sciences, adopting model codes saves $11 for every $1 spent.

Florida ranked first by the IBHS for building codes, enforcement and contractor licensing, with a score of 95 in 2021 which has been consistent over the past four years. Virginia ranks second with 94, followed by South Carolina (92), New Jersey (90) and Connecticut (89). The three bottom states were Delaware (17), Mississippi (29) and Alabama (30).

 
Atlantic And Gulf Coast States Ranked By Building Codes and Related Factors, 2012 to 2021 (1)

 

Rank State 2012 2015 2018 2021
1 Florida 95 94 95 95
2 Virginia 95 95 94 94
3 South Carolina 84 92 92 92
4 New Jersey 93 89 90 90
5 Connecticut 81 88 89 89
6 Rhode Island 78 87 87 89
7 North Carolina 81 84 83 88
8 Louisiana 73 82 83 82
9 Massachusetts 87 79 81 78
10 Maryland 73 78 78 78
11 Georgia 66 69 68 69
12 New York 60 56 64 60
13 Maine 64 55 54 55
14 New Hampshire 49 48 46 48
15 Texas 18 36 34 34
16 Alabama 18 26 27 30
17 Mississippi 4 28 28 29
18 Delaware 17 17 17 17

(1) Rating based on the current statewide residential building code, the processes in place to ensure uniform code application, state and local enforcement programs, licensing and education of building officials, contractors, and
subcontractors.

Source: Insurance Institute for Business and Home Safety.

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