Risk & Insurance recently took the opportunity to speak with Dana Sutton, a P&C flood insurance expert at NFP. What follows is a transcript of that discussion, edited for length and clarity.

Risk & Insurance: Dana, thank you so much for your time. How much of an imperative is it to better educate the public on flood risk?

Dana Sutton: This is a conversation I’m having day in and day out and something I feel pretty strongly about. There’s been a long history, decades really, with the National Flood Insurance Program (NFIP) of rating and assessing risk and the regulations around the mandatory purchase requirement with federally backed loans and other factors which have shaped the public understanding and the way we buy and sell flood insurance. There’s very much this belief out there that, you’re either in a flood zone or you’re not; you either have a risk or you don’t. And time and time again, we are just proving ourselves wrong.

There was a study that came out from NC State’s geospatial and analytics department where they found 84 and a half percent of flood losses are occurring outside the special flood hazard area or outside the so-called flood zones. So, we’re missing the mark by a tremendous margin, and we are only continuing to see more and more weather-related flood losses. We’re seeing continued development in areas that are impacting runoff and exposures. And as an industry, we are not doing enough to really explain to our insureds their actual flood risk.

We’ve really allowed the NFIP to drive the narrative on the actual exposure here. As more data comes out, it’s just supporting this notion that, if it rains where you live, you should have a flood policy and that is being continually enforced. Look at hurricane Beryl and all these events that just this past hurricane season really challenged the idea of how accurate these flood maps are.

R&I: It strikes me that there are many different areas of the public sector and the private sector, beyond insurance, that could do a better job of explaining what the risk is.

DS: I think that’s true. When the NFIP rolled out Risk Rating 2.0 a couple years ago, it was a sort of public declaration that, “Hey. These flood maps maybe aren’t it.” And they sort of did away with zones as a rating factor. They were the architects of that entire rating methodology and even they are now acknowledging that it wasn’t enough. I feel strongly that the federal lending regulations need to catch up to this as well, and I think that would be helpful in changing the belief out there about flood insurance and about flood exposure, but no one in the federal government wants to be the one to pull the trigger on something like that.

That’s a conversation that comes up at every flood conference I attend and at any meeting of anybody that that plays a role in flood insurance. It is great that the NFIP has made these changes, but until these federal lending regulations adapt to the reality of the flood exposure it’s an uphill battle to combat that.

When somebody comes to you and says, “I’m not in a flood zone or my lender doesn’t require it and I don’t need it,” that’s a tough hurdle to overcome and to try to talk through with your insurance provider. It would be helpful to see some of that catch up certainly, but there’s tons of room across a lot of sectors to improve on this.

R&I: The growth of the private flood insurance market is always an interesting topic. Can you give us an idea of how much it has grown over the past few years?

NFP Flood Expert Dana Sutton

DS: This is my favorite topic. I’m a big fan of the private market. I would love to see the NFIP still be there. I think there’s still place for it. But I would like it to see it become a market of last resort rather than the only game in town, which it was for many years.

Even when I first started my career, pretty much everything we did was with the Federal Flood Program, with the exception of a handful of properties that weren’t eligible. That was the only game in town for the private market. It was just very limited. In the past, certainly 10 years, but really even in the past 5 years, there’s been tremendous growth in the private market. There is a ton of capital in the space right now. This is a really interesting convergence in the explosion of really great technology that’s being utilized.

There’s been dramatic improvement in the technology we use to rate, to issue, to administer, and to file claims. That process has become so much easier and so much more streamlined. But then we also have, with the rolling back of a lot of these federal subsidies, there’s now a move to more private market options that are offering more competitive rates and broader options for insured, higher limits, more endorsements. So, that’s all coming together at the same time to drive a lot of this. We’re seeing new carriers pick up in the space. We’re seeing more admitted options, which, for a long time, weren’t even available.

There’s a lot of movement happening and I don’t know what the NFIP would like to be. I don’t know where they would like to be positioned, but I think the private market is proving that there’s a place for them in this now. You know, as these subsidies roll back and they’re still rolling off, we still see policies with tremendous credits that are phasing out and that’ll take some time. But I think as that happens, we will see more and more insureds move to the private market. Hopefully that will just build and prove to these carriers there’s a demand for this and, it’ll continue to move that way.

R&I: I guess one of the challenges to a further expansion of the private flood insurance market is price sensitivity.

DS: That’s a major component. For people not under any mandatory purchase requirement, any amount seems like a lot. So, that can be tough.

I think that goes back to our jobs as risk managers to really express to people that, actually, you’re far more likely to experience a flood loss than you are even a fire loss. Now you’re paying those homeowners’ premiums year after year after year without thinking twice about it, and you’re not even considering the flood insurance. You’re much more likely to see a flood loss in most cases than a fire loss. I think that idea is just not really on people’s radar. I really do feel that’s a byproduct of this federal program with which we’ve had, probably, unintentional consequences.

I think the intentions initially back in the sixties were good, and the insurance industry was saying, “Hey, we don’t know how to underwrite this peril of flood. So the federal government said, “Okay. We’ll do it.” What’s come out of that is, a lot of misguided understanding of flood risk.

As we see more and more of these massive large-scale catastrophic flooding events, people are starting to come around to the idea that maybe the federal government missed a little bit on the accuracy of these maps. Maybe they’re not as quick to update them as they should be, as was probably the case in Western North Carolina. As agents, we’ve really allowed that mandatory requirement for flood to dictate whether we’re even talking about it with our insureds, unfortunately. I think that needs to change. I think we really need to express to our insureds, “If it rains where you live, you have a risk.” For most people, something in the neighborhood of $500 a year can get them quick coverage for exposures like that, and we’re just not having those conversations.

R&I: Are you still fairly optimistic that we’re going to continue to see substantial growth in the private flood market over the next 5 years or so?

DS: I am. I don’t really see an alternative, honestly, short of all of this risk going back to the NFIP. I don’t think that’s what the NFIP even wants. But, you know, even as we speak, there are remaps going on and more and more people are going to, whether they want to or not, be pushed into a flood policy. It’s a matter of necessity at this point.

So, whether it’s the NFIP or the private market, I’d love to see the private market do it. Obviously, they’ve got to be able to do it profitably. And if they can’t do that, then it won’t be an option. These things ebb and flow for sure. But I think there’s been some, you know, with these advances in technology, and the move to similar rating methodologies, I think there’s more opportunity now than ever for the private market, and I do see opportunity there. Because if we continue to work to spread this risk, and if FEMA continues to do things to help people build resiliency and, floodproof some of these more severe repetitive loss properties, I do think there’s still opportunity there.

R&I: Is there anything about this topic that’s top of mind for you that you think our audience would benefit from knowing that we haven’t touched on?

DS: I am still a little bit PTSD from Helene. I’m here in North Carolina and, fielded probably hundreds of calls in the wake of that storm. I write a fair bit in Florida as well. So, it was Florida on up that I was just phone call after phone call after phone call. The thing I heard most was, “I wish I had purchased more.”  Whether that meant their agent didn’t tell them or they didn’t think or they assumed it was included on their homeowners, which the fact that there’s that thought still out there is horrifying to me.

But they thought they didn’t need it, and they wish they had purchased more.

I think that’s my personal quest, to try to move the needle on the public understanding that it’s not included. It’s typically not covered under homeowners. And as basic as that seems, it’s not understood. &