Nearly three months after hurricanes Helene and Milton delivered record flood and storm surge levels to cities in Florida, the state accepted three flood loss models, including one led by FIU, designed to assess financial risks faced by insurance companies and set the premiums paid by their customers.
The Florida Public Flood Loss Model, certified by the Florida Commission on Hurricane Loss Projection Methodology, analyzes both coastal and inland flooding. It was developed by eight universities and includes collaboration from the National Oceanic and Atmospheric Administration’s hurricane research team and AMI Risk Consultants.
“Use of the flood loss model is going to increase in the future as more private insurance companies come into the market,” said Shahid Hamid, FIU Business finance professor and director of the Laboratory for Insurance, Financial and Economic Research, part of FIU’s Extreme Events Institute. “They will need to use the model to justify their rates.”
Most flood insurance coverage in the U.S. is provided by the National Flood Insurance Program (NFIP), which is managed by the Federal Emergency Management Agency (FEMA), and is delivered to homeowners and renters by a network of more than 50 insurance companies.
The public loss model, Hamid explained, estimates the annual loss average for different types of structures that can be delivered by three types of flooding:
- Coastal Surge and Wave– delivered by strong winds from a hurricane or tropical storm.
- Inland Flood from Tropical and non-Tropical Rainfall Events
- Inland Flood from Riverine Overflow Events
“Florida is largest market in terms of flood policy and premiums, representing roughly one-third of those written,” Hamid said. “Still, only 18% of properties in the state have flood insurance. That’s surprising because it’s substantially cheap compared to windstorm insurance and most flood damage isn’t covered because you don’t have flood insurance.”
NFIP’s annual average loss in Florida has exceeded $1.1 billion since 2004. In 2022, Hurricane Ian caused NFIP payouts of over $5.1 billion on a price-inflated basis. Today, NFIP is in debt for $20 billion-plus.
Hurricanes Helene and Milton have resulted in more than 80,000 flood claims, including some 6,183 claims with private flood insurance companies, according to FEMA and Neptune Flood Insurance.
“We’re at a point where we anticipate that in the coming year the model will be used for rate making and regulatory purposes and it will continue to grow,” said Hamid. “The use of such a model will become more frequent and important over time for pricing premiums as more private companies enter the market and a greater proportion of homeowners will go to include flood insurance.”
Work is already underway on a third storm model, following the wind loss and flood loss models, funded by the State of Florida, that will model severe convective storms not connected to hurricanes. Hamid explained that these are regular rainstorms, tornadoes, and those that deliver hail, severe wind and lightning.
“Worldwide severe convective storms caused $64 billion in damages in 2023,” he said, noting that it has led to increasing concern for the insurance industry. “It’s going to be a new challenge that will take several years.”