Private flood insurers may gain lasting business advantages from the ongoing US government shutdown, which has suspended the National Flood Insurance Program (NFIP) and disrupted thousands of property transactions.
According to AM Best senior industry analyst Christopher Graham, policyholders shifting to private insurers during the shutdown could remain with their new providers due to convenience or inertia. The lapse in NFIP reauthorization, effective September 30, has stopped the issuance of new policies, renewals, and amendments until the government resumes operations.
AM Best’s Market Segment Report titled “US Government Shutdown May Require Private Flood Insurers to Compensate for Lack of NFIP Coverage” estimated that more than 1,000 real estate closings could be delayed each day. The NFIP supports roughly half a million home sales annually, according to Shannon McGahn, executive vice president and chief advocacy officer at NAR.
The shutdown has been particularly detrimental to Florida and Texas, states where many home sales depend on buyers obtaining flood insurance. The shutdown is having a “significant impact on Florida real estate, as the state accounts for more properties in special flood hazard areas than anywhere else in the country,” said Triple-I spokesperson Mark Friedlander.
Triple-I has advised buyers to consider private insurers, which may offer broader coverage and benefits such as higher limits and additional living expenses. “The major benefit of NFIP is the community rating system discount, which reduces premiums for every homeowner in the participating community, not just those who are required to have flood insurance,” Friedlander added.
AM Best associate director David Blades noted that private insurers use advanced technologies to assess flood risks. He said private insurers “underwrite flood risks by using advanced technology and data analytics to conduct granular risk assessments for individual properties.” Graham added that tools like drones and catastrophe models help insurers evaluate terrain and price risks more accurately.
NFIP’s outdated flood maps and rigid policy rules have drawn criticism for years. NFIP policies do not allow returns on unearned premiums for incomplete policy periods, limiting flexibility. “Switching insurers or adding coverage midterm is much more feasible with a policy from a private insurer,” Graham said.
Private flood coverage has grown steadily. AM Best reported that private insurers accounted for less than 13% of the total flood insurance market in 2016, rising to 27% by 2024. Adjusted reporting practices suggest the actual figure could approach 40%.
Managing general agent Neptune Flood said NFIP should evolve into a last-resort insurer, covering only properties private companies cannot insure. According to Flood, the private market “already has the tools, technology, and capacity to manage the risk that the NFIP continues to add.”
How do you think the NFIP’s suspension will reshape the future of flood insurance in the US? Share your insights in the comments below.
