Three Emerging Trends Impacting Flood Insurance

We recently hosted a roundtable session with leading geospatial data and insurance experts to discuss the impact of flooding in the property and casualty (P&C) industry. Keep reading to explore the key trends and insights that emerged from the conversation.

1. Floods are increasing in frequency and intensity

To kick off the roundtable, the experts all reflected on how flooding is the most frequent and costly natural disaster in the US, causing billions of dollars in damages each year. Last year alone, the US experienced multiple billion-dollar flood events. Looking ahead, the severity and frequency of flooding events are expected to increase, with flood-related damages projected to rise by more than 25% in the next 30 years​. Moreover, the National Oceanic and Atmospheric Administration (NOAA) predicts that by 2050, coastal areas will experience flooding ten times more frequently than now due to rising sea levels. Flood risks are not limited to coastal areas. Other regions of the country are likely to experience increased fluvial and pluvial flooding due to a combination of climatic shifts and human activities. Fluvial flooding impacts communities near water bodies, while pluvial floods, including flash floods and surface water inundation, can occur anywhere when rainfall overwhelms drainage systems.

Climate change, urbanization, inadequate infrastructure, and land use changes, were all highlighted by the group as contributing factors that increase the frequency and severity of flooding across various regions of the US. In fact, according to the Federal Emergency Management Agency (FEMA), 99% of counties in the US have been impacted by a flooding event at least once between 1996 and 2019. This increased frequency and intensity have left insurance carriers, government agencies, and policyholders alike faced with unprecedented challenges in climate resilience, necessitating a shift in how society approaches flood insurance.

2. Flood insurance needs to adapt to the changing climate

Our roundtable attendees unanimously agreed that flood insurance is a crucial tool for mitigating the impacts of flooding on communities. It provides financial protection to alleviate the economic burden that floods can impose, allowing individuals and communities to recover from the impacts of flooding. Flood insurance also fosters preparedness and incentivizes resilience measures. By encouraging investments in resilient infrastructure, thoughtful land use planning, and other protective measures, P&C insurance can help communities better withstand future flooding risks. 

Despite the importance of flood insurance, more than 40% of single-family homeowners in high-risk flood zones do not have coverage. This gap in coverage is partly due to escalating risks and significant losses from severe floods, which have led some carriers to stop offering new policies in high-risk states. However, there remains a substantial market opportunity for insurers who can leverage technological advancements to accurately forecast and price climate risks. By improving risk assessment capabilities, insurers can better manage their exposure and continue to offer essential coverage in vulnerable areas, ultimately supporting broader efforts to protect communities and build resilience. Moreover, roundtable participants suggested that the ability of an insurer to evaluate the potential impact of catastrophic events like floods may currently be the most effective method for pricing climate-related risks in the absence of robust regulatory frameworks or global leadership on climate change mitigation.

3. Flood is no longer an untouchable risk

The conversation then shifted to discuss how, for many years, insurers viewed flooding as an untouchable peril due to the complexities of modeling risk. Fortunately, the landscape of flood insurance is undergoing a technological transformation with the integration of new tools such as earth observation, artificial intelligence (AI), and cloud computing. Geospatial data is a cornerstone in this evolution, offering insurers unprecedented insights into the properties they cover and their associated risk profiles. Comprehensive, accurate, and up-to-date data allows insurers to conduct highly accurate analyses of specific properties with a level of precision that was not previously achievable, making it possible for carriers to not only understand flooding across their portfolio, but also offer insurance coverage to those who need it without opening the firm up to financial risk.

Building-Based Geocoding for flood insurance 

The participants remarked that a P&C insurer must first be able to accurately and precisely identify the specific locations of structures associated with policies in order to determine flood risk. Insurers establish the geographic coordinates of buildings associated with a policy through a process called geocoding. However, many geocoders fail to accurately generate the coordinates of buildings linked to policies, often assigning addresses to neighboring properties or even locations miles away. This discrepancy arises primarily from two common geocoding methods: the parcel centroid approach, which places a geocode at the center of a land parcel, potentially encompassing multiple buildings with numerous addresses; and the street-segment methodology, offering a rough approximation of a building's position on a street rather than its exact whereabouts.

Inaccuracies from these geocoding methods can potentially result in billions of dollars of unaccounted-for risk. If an insurance provider lacks precise details regarding a building's location and its surroundings, their ability to gauge the structure's closeness to potential risks such as flood zones is impaired. As a result, they are unable to accurately evaluate the building's vulnerability to flooding. Thankfully, AI is helping to address this challenge. At Ecopia AI (Ecopia), our AI-powered Building-Based Geocoding offers the first and only complete building footprint map in the US, paired with best-in-class address data. Insurers are increasingly leveraging this high-precision geocoding to accurately assess the unique flood risk of individual properties, providing their customers with fair quotes that reflect real-world risk profiles.

Connecting datasets with master data management

High-precision geocoding forms the basis for conducting detailed analyses that drive comprehensive risk assessment. The roundtable then expanded on this topic to highlight how once a carrier is confident about the location of buildings associated with a policy, they can utilize a variety of relevant data to assess risk. This includes information on proximity to water sources, first-floor height, water table levels, elevation, land cover, and hydrology, among other factors. Traditionally, the resource-intensive process of merging disparate datasets together prevented many carriers from layering insights for flood risk analysis, further contributing to the lack of flood risk analytics and insurance coverage.

Master data management (MDM) refers to the process of integrating and organizing various sources of data to create a unified, accurate, and comprehensive view of the information needed to assess flood risk. MDM ensures that all data related to a policy is consistent, accurate, and accessible throughout an organization. AI-driven technology streamlines data layering processes to ensure uniformity and enhance efficiency. For example, Ecopia’s AI-powered Building-Based Geocoding provides unique identifiers for buildings, parcels, and addresses to make it easy for carriers to understand how flood risk varies across complex property relationships. This also enables all departments to establish a unified source of truth for flood risk profiling, bolstering operational efficacy and reliability while providing unprecedented information for flood modeling and analytics.

Join our next roundtable for more insurance trends

In today's dynamically changing landscape, it is crucial for P&C insurers to leverage comprehensive, accurate, and up-to-date geospatial datasets to drive informed decision-making that protects communities across the United States from dangerous and costly natural hazards like flooding. We look forward to hosting future roundtable discussions with geospatial and P&C insurance leaders to keep a pulse on evolving trends and see how innovations in technology continue to foster more accurate risk assessment and more resilient insurance strategies.

If you’re interested in learning more about Ecopia’s insurance solutions or participating in our upcoming roundtable discussion, get in touch with our team. We’ll save you a spot!