Flood insurance is facing a lot of challenges.
Climate change is expanding the bounds of risk, and there isn’t currently enough money in the federal pot to cover it. Not enough people buy policies to support what’s needed, and changes to how the federal program operates have caused upheaval in recent years.
But local officials also see opportunities on the horizon for improving flood insurance by fine-tuning the existing marketplace and embracing completely new approaches.
RISE Resilience Innovations, a Norfolk nonprofit that awards money to startups working on climate solutions, made the issue front and center with its funding challenge last year, called Flood Insurance of the Future.
The objective was to cut flood insurance premiums in half in order to get more people to opt in.
“We had, up until that point, been focused on adaptation solutions — hardware or data or that sort of thing,” said RISE executive director Paul Robinson. “But it became very apparent that the opportunities and the protections offered by flood insurance had some really big problems.”
Four companies each won between $15,000 to $300,000 in grants and loans to tackle the issue from different angles, using Norfolk as a testing ground.
Here’s what they’ve been up to.
Just how much risk is there?
To start, insurance and government officials need to know how likely it is for a certain building or area to flood.
Two of the RISE challenge winners seek to get a better grasp of flood risk.
A company called True Flood Risk focuses on something granular but important: the exact height of a structure’s first floor.
Founder and CEO Shelly Klose said it’s actually a tricky thing for officials to know. Historically, a property owner would need to commission a land surveyor to collect the information that would then be used for a document called an elevation certificate.
But that can cost hundreds of dollars, and changes to a building’s foundation can shift the elevation over time.
Klose said True Flood Risk allows customers to type in their address and get their first floor height based on the company’s algorithm.
“With that, then you know at what point a property will flood, what the substantial loss estimates will be, what the replacement costs will be, and ultimately, the mitigation strategy,” she said.
True Flood Risk worked on this issue after winning money in a previous RISE challenge. This time, they turned to helping the city build a framework for community-based insurance. (More on that later.)
That included creating a data dashboard for the city to help map out flood risk – including how that risk changes when officials build projects to reduce it.
“If the city of Norfolk moves forward with building a seawall, how many properties will have reduced flood risk as a result?” Klose said as an example. “You can kind of quantify it, you can visualize it, and most importantly, you can communicate it to the community.”
Another RISE winner, reThought Insurance, also homes in on assessing flood risk.
“One of the things that has been a big challenge for flood in the past is it's been considered uninsurable because it's catastrophic. It’s hard to predict,” said chief underwriting officer Derek Lynch. “And that's where we come in.”
The company wants more people to opt into flood insurance by making it more affordable.
Currently, the uncertainty around flood risk has led to unstable flood insurance premiums in the private market. A homeowner may pay one price one year, and four times as much the next, Lynch said.
reThought’s goal is to give insurers an accurate assessment of risk, using artificial intelligence, so they can charge fairly and better predict how much they’ll need to pay out after a storm.
“We really want to solve this so that we can really close this protection gap so that everybody has flood, or at least access to it,” said Cory Isaacson, reThought’s CEO.
Breaking through the “black box” of flood insurance
There’s also a lot of uncertainty when it comes to government-run insurance.
A couple years ago, the National Flood Insurance Program changed the way it calculates risk – and premiums.
The goal was to make things more equitable, so the owners of a mansion and a tiny house in the same neighborhood aren’t paying the same price.
The problem is, the agency’s new methodology is somewhat of a “black box,” said Brad Hubbard, president of National Flood Experts.
His company works to break through that box. Hubbard said their product lets customers type in their address and look at the 37 factors that affect how much they pay for federal flood insurance.
Knowing all of that, people can then make adjustments to lower their risk – either at a large scale like improving an area’s drainage, or work to an individual structure like raising it several inches or adding floodproofing.
“It can help these communities rebuild better” after a disaster, Hubbard said.
For Asheville residents whose homes were destroyed by Hurricane Helene, for example, officials “can run a couple of hypothetical situations to be able to say, ‘If you do this, your insurance will be cheaper and your property is less likely to flood in the future.’”
Immediate payouts after a storm
When you file a claim with the National Flood Insurance Program after a storm, it can take months or even years to receive a payout.
But families are often in urgent need of assistance, said Nikki Devlin, founder of Ric Insurance.
That’s what her company aims to do, through a strategy called parametric insurance.
Here’s how it would work: Customers pay $14 a month – much cheaper than typical flood insurance premiums.
Ric then looks at rainfall data in the area and sets a predetermined threshold – or parameter – for a flooding event, such as 5 inches of rain within 24 hours.
If a storm meets that threshold, it automatically triggers a payout of up to $10,000 for the policyholder, no claim required.
“You receive your payout within 48 hours,” Devlin said. “So we're really able to get funding to these folks rapidly after a larger extreme weather event.”
Think of it more like disaster insurance, Devlin said. There are no limitations on the payouts, meaning people could use the money for not only property damage but things like staying in a hotel or covering lost paychecks.
Devlin said employers have expressed interest in offering policies as a benefit, just like health insurance.
“It's their workforce that's impacted after these catastrophes, and the faster they can get their employees back to work, the better it is for them,” she said.
The city of Norfolk may even be the first to offer Ric as an employee benefit, though they haven’t committed yet.
Insuring a whole community
In the meantime, the city’s also thinking about a novel approach called community-based catastrophe insurance.
The concept has gained national attention in recent years. There are different forms, but the basic idea is for a local government to arrange insurance community-wide.
Matt Simons, Norfolk’s deputy resilience director, said the goal is to boost the number of households that are financially protected.
“If we have an event that presents an overtopping scenario to our floodwall, or some sort of compromise to our system, (then) we've got those layers of resilience in place so that the finance layer can pick up any pieces that the civil works layer, so to speak, might miss.”
Community-based insurance would also incentivize large-scale efforts to reduce risk, such as Norfolk’s planned floodwall.
This summer, the city took part in a fellowship through the Resilient Cities Network that connects leaders to insurance professionals to develop resilience solutions.
Simons said they decided to focus on the community insurance idea, which could also incorporate the parametric strategy.
The city’s now trying to figure out if there’s federal interest to support a pilot program.
“The whole concept here of financial resilience and insurance has for a long time been viewed as something to make somebody whole,” Simons said.
“You have a car accident, you get in a wreck and the idea is that I'm going to be put back to a position like I was before the event. But what we're eyeballing with some of these changes in the industry, is trying to find bands of protection to help with the most critical sorts of events that really can sometimes make all the difference.”
