California will show huge flood insurance gap despite private covers

California flooding will reveal a huge gap in insurance coverage but, where coverage has been purchased, will put the bill to private insurers to a greater degree than known in other US jurisdictions.

The flood insurance gap in California is high, with AM Best estimating that 98% of California residents are not insured for direct flood exposures.

“The preponderance of the flood losses suffered by homeowners and businesses will not be covered by insurance,” authors of the latest research from AM Best wrote.

For the policies that are in force, private insurers account for some 41% of the California flood insurance market, the highest in the nation by far and well above the 24% national average, AM Best analysts noted in research.

Part of the insurance gap - and by extension part of the California preference for private insurers - may stem from coverage limits in national flood programme NFIP programmes at $250,000, well below the median home cost of $684,000, the second highest in the nation.

Flood insurance premiums in California taken by private insurers were on track after 9M to grow nearly 24% year on year in 2022 to $124.6 million, projections by AM Best indicated. That followed 35% growth in 2021.

Results have been rosy to date, but “this event may be enough to wipe out several years of good results,” analysts wrote.

Some of the damages may be picked up by non-flood property policies. California insurance supervisors have deemed that mudslides from hills weakened by wildfire will be covered by homeowner fire policies.

AccuWeather came out with the first major public loss estimate from the California storms and flooding, putting total damage and economic loss between $31 billion and $34 billion dollars.

That estimate covered damages from onset late December through January 10. Storms from the ‘atmospheric river’ have continued beyond that date.

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