While the insurtech industry has expanded greatly in the past few years, the spotlight has generally been on the homeowners and automotive insurance marketplace. Companies are offering homeowners insurance quotes in 60 seconds or less — just a few years ago this process would have taken upwards of three months. Flood insurance, perceived as a complex product, is only now just beginning to see digital online offerings enter the market.
The digital flood insurance market faces many challenges. This is the first of a three-part series in which we cover how digital flood insurance helps to solve problems surrounding claims, regulatory compliance, fraud control, data management, risk management, ease of use and digital security threats.
With flood insurance, first and foremost is the difficult task of filling the massive protection gap in the US. The floods of recent years have highlighted the inadequacy or complete lack of coverage for many Americans, yet still 65% of households in the “100-year flood zone” do not have flood insurance, according to FEMA.
Another challenge for private flood insurers is education of the public. The National Association of Insurance Commissioners states that half of US flood losses occur outside the designated high-risk areas, yet only 1% of properties outside of the defined flood zones have flood insurance, according to a report on the protection gap published by Lloyd’s of London. More than 70% of the losses in Hurricanes Harvey and Florence occurred in non-mandatory zones. With a product that is often seen as the red-headed stepchild of insurance, private insurers and agents must make it a point to educate residential and commercial property owners as to the risk of flood, now and in the future.
Further, the monopoly-like government flood insurance option — the National Flood Insurance Program (NFIP) — is a massive program that many consumers think is their only option. And while private, digital flood insurance companies offer many benefits compared to the NFIP, changing ingrained behavior is an immense, multiyear task. Given the immense debt owed by the NFIP, it’s in the public interest to distribute risk and help make consumers and industry aware that they have options outside the NFIP.
Digitizing the flood insurance market has benefits for all parties, including:
Speed and ease of use: NFIP requires consumers to wait 30 days for flood insurance coverage once an application is submitted. With a digital flood insurance option, consumers are able to obtain protection in minutes. This is not only a great selling point for agents, but an attractive option for consumers in need of quick coverage.
Appeals to the digital generation: Millennials and Gen Z have a proven digital track record and expect ease of use with digital offerings. Baby boomers — the largest US demographic — are aging out and millennials — the second-largest US demographic — represent the next largest target market for insurers. Meeting their digital demands will be the difference between success and failure for all insurers.
Increased transparency: Online flood insurance offerings come with increased transparency that may help overcome behavioral biases against the purchase of insurance. According to a report by the Geneva Association, online insurance platforms may also assist consumers in comparing complex products and helping them find the one that best fits their needs.
Private interest in the flood insurance market has been rapidly growing. In fact, according to Verisk, the market could be as big as $40 billion. Private flood insurance companies have a world of advantages in front of them, but they also have a mountain of challenges to overcome. How they handle each — with digital in mind — will determine their success.
