Leading the shift to private flood insurance

In the Media

5 min read · Oct 27, 2021

In the complex and often confusing world of flood insurance, it can be difficult for homeowners to know whether they should buy policies through the federal government or from a private company. But with changes to the National Flood Insurance Program expected to push up premiums for many, the private market is gearing up for a possible mass migration to their services.

Trevor Burgess is the president and CEO of Neptune Flood, a flood insurance company with headquarters in St. Petersburg, which he said is the largest private alternative to the National Flood Insurance Program. It offers policies in every state except Alaska and Kentucky. Neptune uses artificial intelligence to simplify flood insurance, so that homeowners can type in their address and quickly know how much they would pay.

Trevor Burgess - private flood insurance

Trevor Burgess – private flood insurance

Burgess took the reins at Neptune in 2019 after selling St. Petersburg-based C1 Bank, where he had been the first openly gay CEO of a publicly listed bank.

He spoke to the Tampa Bay Times about the coming shifts in flood insurance and common misconceptions. The interview has been edited for length and clarity.

Your company conducted a survey last year and found that a lot of people think they have private flood insurance, when it’s likely they actually get it through the federal government. Why do you think that is?

People are confused about where their flood insurance comes from because the National Flood Insurance Program does not sell directly to consumers. They sell through agents, and those agents all have private-sounding names. So when you get your insurance packet, it doesn’t say, ‘This is from FEMA and the National Flood Insurance Program.’ It has the name of one of these big insurance agencies even though the underlying insurance is really coming from the federal government.

But the confusion doesn’t stop there. It really starts with, ‘Am I at risk of flooding?’ There are 5 million households in the state of Florida who do not have flood insurance. That means those 5 million households misunderstand their risk of flooding. They all have a high risk of flooding and should buy flood insurance.

So you think that anyone in Florida should have flood insurance, regardless of if they’re in a flood zone?

Everyone in the United States is in a flood zone. It’s just what flood zone they’re in. People are often confused by saying that they’re not forced to buy flood insurance, which only happens if you’re in a high-risk zone and that means that they don’t have any risk — but they do. An X Zone is just a lower risk.

But in Florida, the former head of FEMA made very clear that everyone should look at their driver’s license and if it says ‘Florida’ they should buy flood insurance, which I thought was a great line. It really just makes it very, very clear: Everyone in Florida is at risk. It’s a peninsula that sticks out into the ocean.

Are you gearing up for more people seeking out private flood insurance?

Neptune has seen a surge in interest over the past couple of months, as Risk Rating 2.0, the National Flood Insurance Program’s new pricing methodology, came into being, and we’re finding that many people can save a lot of money by exploring private alternatives. We’re excited to welcome them.

In cases where people are able to get better rates under private insurance compared to sticking with the National Flood Insurance Program, what should they make of that? I think it’s natural for people to wonder if this means the government is incorrectly analyzing their risk, or if the private market is offering a lesser product.

Private flood insurance is required to use the same underlying insurance form that the National Flood Insurance Program uses. That’s part of the law. So it is the same underlying insurance. Private flood insurance, such as Neptune, does offer optional coverages and higher limits, which allows that policy to be better than what the federal government offers.

Neptune uses very sophisticated computer systems and algorithms to determine the individual risk of each home. The federal government is moving in that direction, but not completely. They’re still using flood zones. For Neptune the flood zone is an output rather than an input. We’re looking at the individual risk of your particular house, which may mean that your price could be materially lower than your neighbor’s price.

How should somebody start researching if they should switch to private?

Four million American households over the next year are going to get a renewal notice from the National Flood Insurance Program that shows a price increase. That’s a great opportunity to go to Neptuneflood.com, type in your address and see if you can save money. We really have made it that simple.

It’s an enabling of the American consumer that Neptune has brought to the market, and giving the power to consumers to check their options and see if they can get a better price.

I’ve heard that private insurance companies may not want to absorb too many people leaving the National Flood Insurance Program out of fear of clustering too many policies together. Is there a way to deal with that?

Yes. Part of the patent application underlying Neptune’s systems has to do with that problem exactly. We make sure that we don’t insure every house on the same block and we spread out those risks across the state and country. Today, Neptune has 88,000 clients across the country, and we make sure that we’re not overconcentrated in any one particular area, and it’s our technology that enables us to keep selling and growing while preventing that sort of risk.

Does that mean there is a ceiling to how many people will be able to migrate into the private flood market?

Neptune has expanded the number of underlying reinsurers that we work with to four and soon to be five. What that means is, let’s say we could only insure one house on a street if we had one reinsurer. Now we can do four houses on that street, but we make sure that each reinsurer only gets one house. We split it up.

So we believe that a very large portion of the National Flood Insurance Program will eventually be able to go to the private market. We know that because 97 percent of the time someone types in an address, they will get a quote from Neptune. That means that, eventually, only a very small number of houses are really almost impossible to insure and really need the federal government’s backing.

Is there anything else that you’d like to add?

Florida has been pretty lucky in the past couple of years. But as we saw from Hurricane Ida, you never know where the next storm is going to hit. Ida was a really interesting storm because it had a devastating impact in Louisiana and, then again, huge impact 10 states away in New Jersey, Pennsylvania and New York.

While this hurricane season is winding down, it’s a great time for consumers to really think about their risk, and check out if flood insurance can help them manage that risk.