AM Best

Best’s Commentary: Historic California Flooding Highlights Need for Robust Private Flood Market


Christopher Graham
Senior Industry Analyst,
Industry Research and Analytics
+1 908 439 2200, ext. 5743

David Blades
Associate Director,
Industry Research and Analytics
+1 908 439 2200, ext. 5422
Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

Al Slavin
Senior Public Relations Specialist
+1 908 439 2200, ext. 5098


OLDWICK - JANUARY 17, 2023 08:29 AM (EST)
As private flood insurance accounts for over 40% of California’s entire flood market—a significantly larger share than in the other leading states—the ongoing flooding issues in the state will present a good test for the private flood insurance market, according to a new AM Best commentary.

In its Best’s Commentary, “Historic California Flooding Highlights Need for Robust Private Flood Market,” AM Best notes that the inadequacy of the National Flood Insurance Program’s (NFIP) rates has been apparent for some time. However, the NFIP’s newly implemented Risk Rating 2.0 increased the potential for more private insurers to provide flood insurance options outside the federal program, and according to the commentary, this seems to have taken hold in California. Of the states with at least $100 million of direct premiums written in flood insurance, California has the largest share of premium written by the private market, at 41%, compared with 24% nationally.

At the same time, just 2% of California residents have purchased flood insurance, and the state’s NFIP policies represent just 4% of the NFIP’s total policies despite the state representing approximately 12% of the U.S. population. These percentages indicate that the preponderance of the flood losses suffered by homeowners and businesses will not be covered by insurance.

“Homes in California protected by NFIP insurance may still be underinsured, given that NFIP insurance is limited to $250,000 per residence, well below California’s median home value of nearly $685,000, the second-highest in the country,” said Christopher Graham, senior industry analyst, AM Best. “Many homes covered by the NFIP would benefit from an excess policy above the NFIP coverage limit, so opportunities abound for private flood insurers willing to take the risk.”

Historically, private flood insurance has been profitable for California’s top private flood writers, but the extensive damage from the current storms may be enough to wipe out several years of good results. However, the commentary also notes the regulator’s directive to insurers stating that mudslides, which are typically covered by flood insurance, are to be covered under a homeowners or other property policy as a fire loss if the hill in which the mudslide emanated was previously weakened by fire. Although the total economic loss would be unaffected, the decree may shift some losses from flood policies to other property policies.

To access the full copy of this report, please visit .

For a video discussion about this commentary, please visit .

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.