Though risk increases, flood insurance purchases lag

The recent state of emergency in New York City provides the latest example of increased flood risk around the country, but most people still aren’t buying flood insurance.

Among residents who live in a 100-year flood zone, only 31% have flood insurance, according to new research from Growth Focused Insights and Research. Ignorance may be the largest barrier, as the most common reason given by the other 69% is that they do not live in a flood zone.

Other reasons for not purchasing flood insurance include:

• “There has not been any flooding in my area since I lived here.”
• “I do not have a basement.”
• “There are no nearby rivers, streams, lakes or oceans.”

“A lot of this is just awareness, and that can be taken care of with messaging,” said John Huffman, the chief insights officer at GFI Research.

Innovation required

The Federal Emergency Management Agency (FEMA), which commissioned the study, needs to be more innovative on how it communicates products and services from the National Flood Insurance Protection program with residents of flood zones, Huffman said during a webinar hosted by the Society of Insurance Research to present his research.

“Data and technology can drive flood insurance,” Huffman said. “FEMA can place their messages adjacent to relevant news articles by using digital media targeting.”

FEMA and the private insurance industry could also take a note from consumer goods and start using “psychographic segments” to more accurately market products to clients and increase enrollment rates, he added. Rather than traditional demographics like age, gender or race, GFI Research identified four distinct personas who think and feel differently about needing insurance.

Another suggestion is for the NFIP and insurance companies to start connecting with manufacturers of smart appliances. Household items connected to the internet could alert both homeowners and insurance providers to water damage and could potentially solve many problems currently faced by claims adjusters, Huffman said.

Flood insurance not a priority

Part of the problem is that most insurance agents don’t prioritize flood insurance unless it’s a priority with clients, Huffman added. If a homeowner isn’t required by law to have flood insurance, it’s often never messaged, his research found. Because of this, “disruptive innovations are not likely to come from the flood insurance sector,” Huffman said.

“The innovation in the insurance space tends to be focused on quick wins,” Huffman said during a recent webinar hosted by the Society of Insurance Research to present the findings of his study. “There are not a lot of disruptive innovations on the horizon. For other types of insurance, absolutely, but it doesn’t seem to be filtering down to flood insurance.”

Insurance is a highly regulated industry, which slows down the rate of innovation and sometimes for good reason. By embracing what Huffman called “a culture of innovation,” agencies like FEMA can realize a massive uptick in adoption of the National Flood Insurance Protection program.

Ryan W. Neal has more than 14 years of experience as a reporter, including nine years covering the financial services industry. He formerly served as technology editor at Investment News. 

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