Historic flooding in California highlights the need for a strong private flood insurance market, according to a new report from AM Best.
Private flood insurance accounts for more than 40% of California’s entire flood market – a significantly higher share than in other states, according to a recent Best’s Commentary, “Historic California Flooding Highlights Need for Robust Private Flood Market.”
In the commentary, AM Best said that the National Flood Insurance Program (NFIP) has long been inadequate.“
However, the NFIP’s newly implemented Risk Rating 2.0 increased the potential for more private insurers to provide flood insurance options outside the federal program, and according to the commentary, this seems to have taken hold in California,” AM Best said. “Of the states with at least $100 million of direct written premiums in flood insurance, California has the largest share of premium written by the private market, at 41%, compared with 24% nationally.”
However, only 2% of California residents have purchased flood insurance, and California’s NFIP policies represent only 44% of the NFIP’s total policies despite the state boasting approximately 12% of the national population. These numbers indicate that most flood losses suffered by businesses and homeowners in the state won’t be covered by insurance, AM Best said.