Private companies now writing nearly one-third of flood policies

The National Flood Insurance Program has increasingly gotten more help from the private sector in covering some of the damage from disasters like Tropical Storm Hillary. 

Private insurers were responsible for 32.1% or $1.31 billion of a total $4.09 billion in direct premiums written in 2022. In 2016, private insurers represented $410 million or around 12% of a total $3.29 billion, according to a recent Insurance Information Institute study.

The growth in share comes as the national program has instituted a revamped pricing regime that's led to some fluctuation in rates, with some state and local government plaintiffs suing over Risk Rating 2.0, claiming there've been large hikes in mandatory flood coverage areas. Legislators also have attempted to relieve rate increases resulting from the new pricing.

"As the cost of participating in the government-run flood insurance program rises for some, private insurers will recognize the market opportunity," the institute said in a press release.

Overall, the amount of direct premiums written in the U.S. flood insurance market has grown 24% between 2016 and 2022. The number of private insurers offering flood insurance has risen during the same time period from 18 to 77.

While private insurance has helped absorb some of the increase in premiums, it has run up against some limits, according to the institute, citing a separate 2021 study by actuarial and consulting firm Milliman.

"A relative lack of consumer demand compared to other property insurance offerings still gives carriers hesitation," Milliman said in that research.

Consumers may be underestimating their flood risk, according to a study that the institute and Munich Re published earlier this year. That study shows 64% of homeowners and renters don't believe they have flood exposures, and 14% are unsure.

The exclusion of the Federal Housing Administration from the Biggert-Waters Insurance Reform Act passed in 2012 also has played a role in limits on the use of private flood insurance, but policymakers have taken steps to lower this hurdle.

The FHA, which provides mortgage insurance that makes financing possible for a large number of first-time homebuyers with affordability constraints, said it would start insuring loans with private flood coverage late last year, with some caveats.

However, in congressional hearings earlier this year, some testified that there's still room for improvement in this area.

"Institutions that require flood insurance, such as federally backed mortgages may not have clear, consistent, and enforced requirements, especially for future flood risks," said Carlos Martin, remodeling futures director at the Harvard Joint Center for Housing Studies.

Also while more private insurers may be participating in the flood insurance market, a Federal Emergency Management Agency report that the Associated Press obtained through a Freedom of Information Act request last year projected that price hikes would cause roughly 1 million fewer people to buy this type of coverage by the end of this decade.

Still, the increased availability of options outside the National Flood Insurance Program are likely mitigating this concern.

"Increasing private-sector competition can only increase the opportunities to obtain affordable coverage," the institute said.