With Storms, Flooding and Potential FEMA Cuts, Parametric Flood Is on the Rise

With inland flooding, storm surge losses and government cutbacks on the rise, parametric flood insurance may finally be having a moment in Florida and elsewhere in the Southeast.

“It’s starting to get some traction. We’re seeing more and more requests for quotes, and more people buying coverage,” said Chad LaTour, managing partner at Flood Risk Solutions, a managing general agent and insurance brokerage based in St. Petersburg, Florida.

Parametric insurance, which generally pays a predetermined amount when a weather or loss event reaches a trigger point, has been gaining in popularity in Florida since repeated storms slammed parts of the state in the last three years.

And the coverage instrument could soon get a big boost from changes in the federal government.

With recent White House talk of dissolving or slashing the reach of the Federal Emergency Management Agency and the National Flood Insurance Program, members of President Donald Trump’s newly established FEMA Review Council have floated the idea of counties and cities nationwide turning to some type of parametric coverage instead of relying on government disaster relief after floods.

“I’m very excited about this parametric insurance,” Tampa Mayor Jane Castor, a member of the review council, said at the council’s Aug. 28 meeting.

The council is tasked with producing a final report later this fall. The NFIP is due to expire Sept. 30 unless Congress reauthorizes it. Lawmakers have historically reauthorized the program just days before its previous expiration dates. But this time could be different, wreaking havoc on the insurance and mortgage markets, the First Street research organization warned in a July report.

Meanwhile, some insurers and brokers are hoping to spread the word about the potential value of parametric flood insurance as supplemental coverage for commercial and commercial residential properties, including condominiums. The problem, they said, is that many insurance agents remain unfamiliar with the parameters of parametric.

“It’s hard to sell something if they don’t fully understand it,” LaTour said.

In a webinar last week hosted by CBIZ Insurance Services, a national brokerage that specializes in condominium coverage, stakeholders explained that most windstorm insurance policies, as well as NFIP policies, do not cover everything. Expensive landscaping, irrigation systems, tennis courts, swimming pools, boat docks, fencing, retaining walls and other areas usually are not included – or require major escalations to annual premiums to be covered.

After Hurricanes Helene and Milton last year inundated parts of southwest Florida with storm surge, for example, a number of condominium associations were faced with removing tons of sand before they could restore the grounds. For one condo complex, that removal cost was more than $150,000.

“That blew my mind,” said Matt Mercier, community association national practice leader for CBIZ.

With parametric, all of those items can be covered, sometimes for less than the price of a special assessment fee – the dreaded “S word” – on condo owners, he said.

“No one likes to hear the ‘S word,'” Mercier said.

FloodFlash, an MGA and coverholder for Lloyd’s of London, is one company that offers parametric through the use of internet-connected flood sensors installed onsite. When flooding reaches a level specified in the policy, the company pays the policy limits. No adjusters needed. Little to no waiting for indemnity payments. Few, if any, disputes between insureds and insurer over what’s covered.

Cost will vary by property and location, but in the CBIZ webinar, FloodFlash’s Ben Lang provided a rough estimate of premiums and payouts for one hypothetical site: If the insured agrees to a flood-depth trigger of 12 inches, and a policy limit of $500,000, the premium may be about $54,300. For a 36-inch water level trigger on the property, the premium would drop to approximately $16,380.

That’s about $3,200 to $10,900 per $100,000 of coverage. It’s difficult to compare that to the cost of standard excess property insurance coverage, partly because excess coverage has its limits on what is covered, LaTour said. And some waterfront properties may not qualify for National Flood Insurance or for excess coverage.

Parametric can be used as a gap-filler or even as primary coverage, he noted.

Water-level sensors can be placed almost anywhere on the property but are often mounted on the perimeter or on outside walls, Lang explained. Flood levels are verified through weather data and other measures.

Lang declined to reveal the number of policies FloodFlash has in the United States now, but noted that sales have grown rapidly in recent years. The Insurance Information Institute reported early this year that parametric flood is growing rapidly. The market for all types of parametric, including flood insurance, is expanding at about 6% annually and could double by 2033 to top $34 billion globally, Allied Market Research noted in a report last year.

Other insurance companies, including Aon, Burns & Wilcox, Liberty Mutual, Swiss Re, Descartes Underwriting and Floodbase also provide parametric flood or storm surge policies, but mostly for commercial clients, according to company announcements and news reports. FloodFlash is one of the few firms that offers the product for residential clients, LaTour noted.

Florida-based Neptune Insurance provides parametric insurance through a partner firm, but only for earthquake losses on the U.S. West Coast, a Neptune spokesperson said.

Top photo: A flood of sand left by Hurricane Helene in the Siesta Key condominium last fall. (Courtesy, Matt Mercier)

Topics Flood Windstorm FEMA