Insurers and Policymakers Must Work Together to Bridge the Insurance Gap

Hurricane Michael made landfall as a Category 4 hurricane causing wind and flood damage along the Florida Panhandle. The storm is expected to continue to wreak havoc as it moves inland, through the Southeast causing additional devastation to the regions that are recovering from the historic flooding from Hurricane Florence. These storms underscore a major and often overlooked public policy crisis — the millions of families and businesses that are underinsured or uninsured for natural catastrophes. These storms are yet another reminder that policymakers and insurers need to work together to identify solutions for bridging the insurance gap.

According to CoreLogic, 85 percent of the properties and communities impacted by Florence do not have flood insurance.

And last year’s back to back hurricanes didn’t do much to persuade residents to be better prepared for the next catastrophe. A poll conducted this summer by the Property Casualty Insurers Association of America found that only 35 percent of respondents said that last year’s storms prompted them to take any precautions this year.

Flooding, whether it is caused by a hurricane, heavy rain fall, snow melt, dam breach, or rivers can cause a great deal of damage and many property owners do not realize that flood damage is not covered under a standard policy. Flood insurance is critically important to manage the flood risk associated with hurricanes (or an inland flood event) and to provide the financial protection for families, businesses, and communities to recover from the devastation.

The losses from Hurricanes Harvey and Irma could have been mitigated if homeowners and business owners took proper precautions ahead of time and purchased flood insurance. For instance, close to 80 percent of the properties impacted by Hurricane Harvey were woefully unprepared and did not have flood insurance. And the Federal Emergency Management Agency estimates that only one third of U.S. properties in the riskiest areas for flooding are insured and one in every four small business will not re-open after a disaster.

And it’s not just a problem in the U.S. A 2018 University of London study found that nearly 70 percent of global losses in the last 10 years from natural catastrophes were uninsured.

In order to prevent these troubling and catastrophic trends from continuing, there are a few things that we can do.

The first and most immediate step is for Congress to reauthorize the National Flood Insurance Program, which is set to expire on Nov. 30, 2018. Passing a long-term bill with reforms that expand consumers’ flood insurance options will provide would provide greater stability and reliability for consumers.

Insurers and policymakers also must continue to work together to bring more flood insurance options to the marketplace and educate consumers about the dangers of flooding. Private sector participation in the flood insurance market could increase consumer options and lower costs. Congress needs to pass important legislation that would provide more regulatory certainty for private flood insurers. Positive steps have already been taken by the Florida Legislature and Pennsylvania insurance regulator to encourage the private flood market.

Another challenge is the abysmal low percentage of homeowners living far from the coast, in regions outside of the riskiest areas, that purchase and retain coverage. Insurers and policymakers need to put greater emphasis on educating consumers on their potential risks and explaining the needed insurance to reduce gaps in coverages.

Flood insurance is often the difference between rebuilding homes, businesses, and communities and total devastation. Insurers and policymakers must continue forging impactful partnerships and working together to better prepare and protect our nation from natural disasters and the threat of floods. Hurricanes Michael and Florence were devastating storms — and they certainly won’t be the last.

Nat Wienecke is the senior vice president of federal government relations at the Property Casualty Insurers Association of America.

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