A recent report from Neptune Flood explores the widening gap in flood insurance coverage across the United States, as millions of homes face rising risks from climate-driven flooding.
The analysis focuses on the potential of private insurers to step in where federal programs fall short, emphasizing urgent reforms to close this critical gap. With over 20 million homes at moderate to severe flood risk and only 3.8 million insured, the report highlights the need for a collaborative effort to protect homeowners.
The report reveals that private insurers have the capacity to address much of the unmet demand. According to Neptune’s analysis, 90-95% of policies under the National Flood Insurance Program (NFIP) meet private market risk criteria.
For 30-40% of current NFIP policyholders, private insurers can already offer comparable or better coverage at lower premiums. As the NFIP phases out subsidies under its Risk Rating 2.0 framework, private insurers are expected to provide more affordable options for approximately 55% of policyholders, representing half of the NFIP’s premium base.
The financial strain on the NFIP further underscores the need for reform. Since its creation in 1968, the NFIP has paid $129 billion in claims (adjusted to 2024 dollars), including $112 billion for residential properties. It currently carries $20.5 billion in debt, accruing nearly $2 million in daily interest payments to the US Treasury. The report argues that expanding private market participation could reduce taxpayer burdens while making the insurance system more sustainable.
The analysis also outlines key legislative opportunities to unlock the potential of the private market. Proposed reforms include transitioning from broad government subsidies to means-based assistance, requiring disclosure of flood risks during property transactions, and prohibiting NFIP coverage for new construction in high-risk flood zones.
Additional measures, such as allowing policyholders to switch between NFIP and private insurers without losing premium discounts, and raising NFIP coverage limits to align with actual replacement costs, could address underinsurance issues and increase market efficiency.
Nepture Flood CEO, Trevor Burgess said that private insurers are uniquely equipped to leverage date science and AI-driven underwriting to address modern risks.
"With nearly $100 billion in coverage across 222,000 properties, Neptune’s private market approach is transforming flood insurance, reducing costs, and offering broader protections to homeowners," said Burgess.
Neptune's chief revenue officer, Matt Duffy added that private market growth helps build a more resilient insurance system.
“By fostering competition and innovation, Neptune aims to ensure all homeowners are protected from the increasing threats of climate-driven flooding,” said Duffy.
As flooding risks continue to grow, the report calls for urgent action to expand private sector involvement and create sustainable solutions.
Should lawmakers focus on fostering competition or enhancing federal programs to close the gap? Share your perspective in the comments below.
