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Best’s Special Report: U.S. Private Flood Market Growing, Especially Commercial Property

A new approach in determining rates for policies issued through the National Flood Insurance Program (NFIP), Risk Rating 2.0, appears to shifting more premium into the U.S. private flood insurance market, according to a new AM Best special report.

From a geographic standpoint, a significant amount of flood premium remains concentrated in the Atlantic Hurricane Basin. Seven of the eight U.S. states with more than $100 million in private and public flood premium are located within this region. The lone state not located there is California, which has now experienced two major flooding events in 2023, in addition to a magnitude 5.1 earthquake during that last event.

“The California floods and mudslides earlier this year will pose a good test of the private flood market,” said Christopher Graham, senior industry analyst, AM Best. “California has a larger share of flood DPW in the private market than any other state with at least $100 million in DPW.”

Business insurance appears to be driving the increase in the purchase of private flood insurance, driven by the need for larger policy limits, according to the Best’s Special Report, “U.S. Private Flood Market Growing, Especially Commercial Property.”

The goal of the Risk Rating 2.0 system, implemented in 2021, was to improve flood premium determination so that it reflected actual, up-to-date flood risk based on higher quality information. In doing so, it has led to private insurance coverage being more competitive, as the number of insurers offering this has more than quadrupled from 47 in 2016 to 198 in 2022, according to the report. In calendar year 2022, which included nine months of the new rating plan, private flood direct premiums written (DPW) jumped by 24%, while federal flood DPW declined by almost 12%.

According to the report, AM Best expects that 2023 results will provide a clear indication as to how the private market is handling the flood risk. Further rate increases to NFIP policyholders, currently capped at 18% per year until the true risk rate is reached, should lead to more insureds moving to private insurers.

The NFIP has remained saddled with debt since Hurricane Katrina in 2005, despite a move by Congress to cancel $16 billion of debt in 2018. The NFIP’s 2022 cumulative debt level of $20.5 billion is expected to worsen due to Hurricane Ian, with another subpar year expected to prevent the program from repaying its debt to the U.S. Treasury.

To access the full copy of this market segment report, please visit .

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit

Copyright © 2023 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.


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