Inland areas are facing an increasing threat from flooding due to tropical and severe convective storms, yet many homeowners remain without flood insurance. This gap in coverage is highlighted by the Insurance Information Institute's (Triple-I) updated Issues Brief.
The brief titled "Flood: State of the Risk" explores the nationwide gap in flood insurance and suggests potential solutions. Floods can cause significant damage, with just one inch of water capable of causing up to $25,000 in damages. However, most standard homeowners' insurance policies do not cover flood damage; separate flood insurance policies are necessary for such coverage.
Hurricane Helene's impact on the U.S. Southeast and southern Appalachia underscores this issue. The storm delivered 40 trillion gallons of water across several states in September 2024, resulting in hundreds of deaths and billions in insured losses. Western North Carolina, particularly Buncombe County, was severely affected, yet less than 1% of its residents had federal flood insurance at the time.
Similarly, intense thunderstorms in July 2023 led to heavy rainfall and flooding in eastern Kentucky and central Appalachia. The floods caused 39 fatalities and prompted federal disaster declarations for 13 counties. Before these events, only a few dozen federal flood insurance policies were active in these areas.
Dale Porfilio, chief insurance officer at Triple-I, stated: “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.” He added that some homeowners believe flood coverage is unnecessary unless required by mortgage lenders and may cancel it once their mortgage is paid off to save money.
More than half of all flood-insured homeowners have coverage through the National Flood Insurance Program (NFIP), which is part of FEMA. This program was established in 1968 when private insurers were reluctant to offer flood coverage.
Recently, improved data analytics have encouraged more private insurers to enter the market. In 2019, federal regulators allowed mortgage lenders to accept private flood insurance if it met regulatory standards. Since then, private insurers have shown increased interest in providing flood risk coverage.
Porfilio noted: “Private insurers are accounting for a bigger piece of a growing flood risk pie.” He expressed optimism about improved affordability due to this interest alongside NFIP’s Risk Rating 2.0 reforms aligning pricing with actual risk levels.