Blog post

Modernizing the sale of flood insurance

December 4, 2022

In late August 2021, Hurricane Ida made landfall, killing almost 100 people and causing tens of billions of dollars of damage from the Gulf Coast to New England. Many homeowners woke to tens or hundreds of thousands of dollars of water damage to their homes--flooded basements, destroyed sump pumps, piles of ruined furniture, clothes, and electronics. Many of these homes had never before flooded, and the shocking damage was made even more jarring by homeowners’ realizations that this damage would not be covered by their standard homeowners insurance policies. CoreLogic estimates thousands of households sustained $10b in uninsured residential flood damage as a result.

US households are dramatically underinsured for floods

Ida was not the first nor will it be the last shocking flood event in the US. From Harvey to Sandy, to Ida and Ellicott City, homeowners are often unaware they are exposed to significant flood risk and have been left underinsured as a result. The numbers are dramatic. While consumers are exposed to $18.8b of flood loss annually, less than 5% of households purchase flood insurance. Of that, half are homes in Special Flood Hazard Areas (SFHAs) and are required to purchase flood insurance to qualify for a federally-backed mortgage. The insurance industry manages to cross-sell just 2% of the remainder, a rounding error in a multi-hundred billion dollar industry. 

Climate change is already increasing the risk of both coastal and inland flooding

Despite this massive protection gap, exposure to extreme weather events is only likely to increase over the coming decades due to climate change. Stanford research estimates that climate change has caused $75b of additional flood damage over the past 30 years. By 2040, Swiss Re estimates annual flood losses in the US will increase by over 150%. 

Changing regulation and technology have created opportunity in flood 

The challenges and opportunities in flood insurance have never been more clear. Until 2012, the US had effectively a single price for flood insurance coverage, delivered by the federal government. In the late 1960s, FEMA formed the National Flood Insurance Program (NFIP) to write the risk the insurance industry lacked the technology to price. Today, the NFIP insures more than 90% of houses at significant risk for flooding. The challenges of running an insurance program within FEMA--everything from setting premiums to distributing and administering policies--have left the NFIP in debt to the US Treasury to the tune of $25b. 

In the last decade, changing regulations and technology have enabled the emergence of an increasingly robust private market for flood insurance. Private insurance options not only meet the requirements for federally-backed mortgages, but advances in catastrophe modelling often enable them to offer lower pricing and better coverage than the NFIP across all 50 states. With the NFIP introducing significant updates to premiums as part of its Risk Ratio 2.0 initiative, the opportunity for private insurers will continue to grow dramatically over the coming years.

Modernizing the way flood insurance is sold will unlock

Despite these regulatory and technological changes and the improvements in both pricing and coverage that have come with them, the way insurance agents sell flood insurance has hardly changed at all. With the insurance industry focused on the sale of mandatory products like home and auto, flood is simply an afterthought--50 question forms, manual surveys, quotes that take days. In a “sold-not-bought” category, this friction kills the sale of flood insurance time and again. The protection gap remains; flood isn’t bought because it isn’t sold.

The private insurance markets have taken an important step to eliminating this friction by creating digital experiences with competitive pricing for insurance agents. Nevertheless, several important challenges remain.

  1. Flood insurance pricing and state footprints vary dramatically; a single private provider is unable to competitively quote every risk. 
  2. Each private provider lives in its own portal outside of the agent’s typical workflow. Agents have to be individually appointed, trained and remember a login for each private provider.
  3. Most agents aren’t even aware that private providers outside the NFIP exist.

As a result, flood insurance isn’t at agents’ fingertips when they are having a conversation with a homeowner. It’s an affordable coverage that isn’t bought because the conversation never happens

Annex is solving the flood insurance coverage gap with world-class technology

Annex brings together all of the pieces to dramatically improve penetration of flood insurance in the US. Our platform enables an agent to quote and bind a comparison shopped, bindable flood policy in less than 90 seconds, all in a single portal. More importantly, agencies, aggregators, and tech companies can embed Annex’s APIs directly into their own checkout flows, turning flood insurance from a labor-intensive afterthought to a simple attached purchase.

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