Moody's Model Highlights U.S. Flood Insurance Protection Gap Amid NFIP Lapses

Recent analysis using Moody's RMS U.S. Flood HD Model reveals a substantial flood insurance protection gap among U.S. residential properties, with two-thirds of modeled flood losses uninsured. This underinsurance exposes millions of homeowners and the broader economy to significant financial risks, especially as flood events increase in frequency and severity. The Federal Emergency Management Agency's (FEMA) National Flood Insurance Program (NFIP) remains the primary source of coverage, yet lapses in NFIP reauthorization have led to coverage gaps, further widening the protection gap across many communities. Financial institutions face compliance challenges during NFIP lapses as they continue lending in flood-prone areas, often with properties lacking adequate flood insurance. Private flood insurance is emerging as a key alternative, offering continuity when NFIP policies are unavailable, supported by advancements like FEMA's Risk Rating 2.0 and improved catastrophe modeling. These developments enable more precise flood risk assessment and pricing, encouraging greater private market participation to address the persistent flood insurance shortfall. The evolving regulatory and market landscape presents significant opportunities for insurers, reinsurers, and brokers to leverage advanced analytics, close the flood protection gap, and strengthen resilience against rising flood risks.