The National Flood Conference (NFC) is a gathering centered on flood insurance hosted every year by the American Property Casualty Insurance Association (APCIA) and the Reinsurance Association of America. This year it was held as a virtual conference over three days. We attended to learn more about insurance developments, changes in policy, and emergent technologies in the space. Below are some of our takeaways.
FEMA continues to publicly underscore the importance of private flood growth in addressing the coverage gap. While a few presenters expressed optimism about their role in the flood insurance ecosystem, quite a few barriers to success still remain. James Watje of Wright Flood outlined the economics of writing flood during a panel on the private flood market. When compared to property and casualty revenue overall, the National Flood Insurance Program (NFIP) and private flood represent very small revenue opportunities. He argued that, in order for agents to be incentivized to sell flood insurance at scale, it would have to become more profitable.
It is still difficult for private carriers to coexist with the NFIP, which continues to provide flood insurance for the majority of American property owners. Because of the NFIP's market dominance, carriers and reinsurers have not historically been motivated to develop data or product expertise for flood insurance. Compounding this is the fact that there is a disproportionate demand for coverage in areas of greatest exposure. This misalignment of incentives has led to a slow maturation of the private flood products that the NFIP hopes will help achieve its moonshot goal.
Despite these obstacles, private flood is slowly growing. Cat bond trailblazer and Fermat Capital Management Managing Director John Seo expressed optimism about private growth — noting that patience is required. To make the market more amenable to more sophisticated flood products, states are taking action to minimize existent hurdles to private flood penetration. Nancy Watkins of Milliman spoke about a number of states (NJ, VA, NC, AL) that are deregulating and eliminating prior approval requirements for flood rates as an incentive.
We found that many of the challenges articulated by the flood insurance industry echoed those consistently described by floodplain managers. As in last quarter's Florida Floodplain Management Association Annual Conference, risk communication dominated some of the early NFC conversations. Siobhan Bunaes of GMMB presented on her work as a part of the NFIP’s Customer-Centered Communications (C3) team. She noted that voluntary flood insurance demand is typically driven by a number of factors including risk, disaster salience, financial exposure, and affordability constraints. These factors might each be addressed for greater consumer buy-in and insurance uptake. To take action on this front, FEMA partners with The Weather Channel on an program called Chase the Rain. When a large storm forms, an ad runs on The Weather Channel in affected regions to tap into weather salience.
In the same session, Denise Butler emphasized the importance of education as a keystone to a successful flood insurance practice. Across the board, presenters spoke about the confusing nature of flood insurance – it can take a lot of time and energy to understand it. Butler noted that educating property owners about how their actions impact policy costs might help them make better decisions in the long run. Key to this is being clear about the distinction between what is required by law and what will impact insurance premiums.
For insurance professionals already engaging in risk education, figuring out if it's working can be tricky. A cross-sector panel at the conference was asked how panelists measure success on this front. The answers ranged from hard metrics (like policy retention or percentage of property owners who were mapped out of mandatory purchase flood zones but still kept their policies) to more qualitative measurements (like shifts in the nature of conversations with residents from binary mandatory purchase questions to more nuanced discussions about mitigation or adaptation).
One of the last sessions of the conference focused on advances in technology that will help the insurance industry make better (and more informed) decisions. Helping flood professionals identify and take action in the face of flood risk is our goal here at Forerunner, so we were heartened to hear that the insurance industry continues to push for better data and better tech. The panelists each outlined applications for their products, which ran the gamut from historic observed flood data to LiDAR elevation information. It was clear that better flood risk data with more comprehensive coverage and more granular information would positively impact the work of a number of stakeholders. On the insurance side, this data can inform data-driven underwriting, portfolio risk assessment, and in-force book monitoring. On the government side of things, the same data could help expand mitigation opportunities, enable better risk communication, and support new building codes.
The flood insurance industry relies on government partners to be effective but floodplain management/planning departments across the country are stretched thin due to the pandemic. Several insurance agents noted that, as a result, they are taking on more community responsibility in providing education and conducting outreach.
On the FEMA front, Peter Herrick gave an overview of how the agency's operations have changed to adapt to current working restraints. Some processes (like open houses) have been suspended altogether. To address other needs, the agency has shifted to conducting virtual/telephone town halls, video depositions, and are working on a remote claims process. Like in other industries, developments in digital servicing hold the promise of helping FEMA reach a wider range of constituents and narrow the access gap – we'll have to wait on evaluation to find out!