There’s a glaring coverage gap in the United States (US) flood market, with approximately 4% of US households having flood insurance according to FEMA. What’s more, of the estimated $24.4 billion in annual flood-related damage to single-family homes, only about 30% is insured, leaving roughly $17.1 billion in losses absorbed annually by uninsured or underinsured households.

Speaking to Insurance Business (IB), Serena Garrahan, Flood Product Manager at Munich Re US, revealed that mounting CAT events combined with a misplaced sense of security surrounding flood risk is leaving homeowners open to disaster.

“Flooding events have become more frequent and severe over the last 10 years,” said Garrahan. “As a result, we’ve seen a lot more homeowners at risk of potentially uninsured losses because the take-up rate for flood insurance is still low. There’s a significant protection gap in the US when it comes to flooding.”

“We have much better tools to understand and price flood risk”

One of the more startling aspects of this gap in coverage is that these flooding events are happening more frequently and in places where they historically never have before. And the impact of these incidents can have a huge effect on not only the homeowners themselves but the communities at large too.

“The private market in general has shown that we are willing and prepared to address the growing risk in the US and help close that protection gap,” added Garrahan. “When we looked at the private market between 2020 and 2024, we saw that it grew by approximately 20%. [Essentially], we know that flood is generally an insurable peril. Previously, when insurance companies left the market back in the 60s and the NFIP was set up, we didn’t understand the risk. As such, insurance companies were not able to accurately price it or get their arms around it. That’s why we saw insurance companies step back.

The result of those NFIP maps is that the insurance sector ended up with a very binary view of flood. As Garrahan told IB, there’s this prevalent mentality that you’re either in or you’re out — and some homeowners are totally unaware of their individual risk.

“Today, flood models capture both pluvial (surface water flooding) and fluvial flooding (river flooding), so we have a much more accurate view of risk,” she told IB. “Another aspect is an affordability issue; this is a significant barrier for a lot of homeowners when it comes to purchasing flood insurance especially when you don’t have a full understanding of what your risk is. At Munich Re US, when it comes to flood insurance, we feel that pricing needs to reflect the risk.

“A lot of homeowners, especially in inland areas where we’re seeing many of these events unfold, are not facing total losses from flood events the way you might see on the coast. Flooding itself is truly a game of inches and should be priced at a location level. Having these models and information has allowed insurers to offer coverage that is more in line with what homeowners need outside of the special flood hazard area and to do it at an affordable price.” 

Increasing severity, increasing claims

The increase in severity and frequency of flooding events is also reshaping the insurance market. Hurricane Helene (2024) caused losses of nearly $100 billion, with total insured losses estimated at $6.4 billion. What’s more, the July 4, 2025, central Texas flooding caused an estimated $18 billion to $22 billion in economic damage, with NFIP take-up estimated at or below 5% in the affected regions.

“2025 was a significant year when it came to flooding in the US and worldwide,” added Garrahan. “Within the US, the National Weather Service issued more flood warnings than in any other year dating back to 1986. Flood-driven events accounted for roughly more than $100 billion in US economic losses in 2025.

“Some of the more significant events that come to mind — like Hurricane Helene — really demonstrate the need for flood insurance. This happened in an area of North Carolina where NFIP take-up rates were less than 1%. And all the flooding occurred outside of the special flood hazard area. Again, this seems to show lack of awareness of risk in those areas.”

“It could never happen to me”

As Garrahan told IB, a lot of people wrongly assume “this could never happen to me” or “flooding would never happen around here.” Then an event unfolds and they’re left without coverage or help.

“An event happened last year in Wisconsin with heavy rainfall overwhelming storm systems and causing a lot of street flooding and backups into basements. We saw many homeowners in those areas who didn’t have flood insurance and would have benefited from having a policy in place.”

In the wake of such unpredictability, the private market is playing an increasingly important role here. As Garrahan told IB, the protection gap is still looming.

“In the US, we have requirements where if you’re in a special flood hazard area, you must purchase flood insurance. A lot of that leads to a misunderstanding of the risk — that if you’re not in one of those zones, you don’t face flood risk. [However], the private market can really help expand awareness and provide coverage options specifically for people who don’t live in those flood hazard areas.”

As Garrahan explained, there are a couple of different ways the market can help. There will always be NFIP policies, but there are also several other mechanisms to close the protection gap, including excess insurance, which provides coverage above what the standard policy would include.

“Parametric flood insurance options are based on measurable parameters, like flood gauges or flood depths,” she added. “And then there are endorsement products, such as the one we offer here at Munich Re US, which are designed to meet the needs of homeowners in low- to moderate-risk areas by providing lower limits at a more affordable price.”

And the growth in the private market over the last few years stands testament to Garrahan’s assertions.

NFIP Risk Rating 2.0

“Advances in flood modelling are giving insurers a better view of flood risk and allowing them to price that risk more accurately,” added Garrahan. “That’s resulting in carriers being more willing to offer these products. There’s also a lot of capacity available in the reinsurance market to help support carriers that want to offer flood coverage. States and local governments are also playing a role. A lot of insurance regulators and communities are realizing this is a big problem that needs to be addressed.”

Factors affecting the flood market

Then there’s the NFIP and the recent changes they made with Risk Rating 2.0. As Garrahan told IB, Risk Rating 2.0 changed the way the NFIP calculates premiums. Instead of just using maps, the NFIP is now taking into account individual property characteristics.

“Any new policy written under the NFIP is going to pay its full risk-based rate,” she added. “They’re phasing out subsidies, and current policyholders are going to see their rates increase every year until they reach that full risk-based rate. Those increases are capped at around 18% [annually], but ultimately the goal is for everyone to be charged their full risk rate. That makes the market more equitable and creates much more transparency around NFIP rates.”

For those homeowners who may be under the mistaken belief that they’re untouchable for flooding, now is the time to eradicate that “in or out” mentality.

“As an industry, we can also do a better job of helping homeowners and even agents understand what the actual risk is,” added Garrahan. “We can do that through a variety of ways. Insurance companies and agents play a role, but there are also opportunities for local governments and others involved in the homeownership process to help get information out there.

“Finally, realtors can play a significant role as well. The point of sale — when someone is buying a home — is a great time to think about flood insurance. People automatically assume flood insurance is really expensive, but there are a lot of options now, and it can be an affordable option depending on where you live and what your needs are.”

This article was produced by Insurance Business America, in collaboration with Munich Re US.