Many of us spend our lives working to pay off a mortgage, cover the cost of property taxes and homeowners insurance, and make the improvements that turn a house into a home. For most Americans, home is our biggest investment. The possibility of losing everything we’ve built is not something that’s we worry about when the sun’s shining and we’re going about our daily lives. Once in a while, however, disaster strikes, and when the disaster is a flood, the impacts are devastating. On average, an inch of flooding causes $25,000 of property damage[1]. A few feet of flooding can cause a total loss. When disaster strikes, we often turn to insurers to help us bounce back. Unfortunately, many homeowners are unaware that their homeowners insurance policy does not cover flooding. Flood insurance is a misunderstood and underutilized product. Out of 8.3 million homes in Florida, only 22% were covered by flood insurance in 2020[2]. Even homeowners that understand flood insurance often feel that the expense is out of reach, or not worthwhile.
In this exclusive interview with Garrett Mitchell, the President and founder of Rocket Flood, we uncover expert insights on the private flood insurance market and how homeowners can save 40% or more on flood insurance when they shop around and compare the NFIP (National Flood Insurance Program) from FEMA to the private flood insurance marketplace.
Adrian Santiago Tate: Can you tell us the story behind Rocket Flood?
Garrett Mitchell: We launched Rocket Flood in 2017 as a microcosm of one of our sister companies, Insurance Express. Insuranceexpress.com is the leading privately owned homeowners insurance agency in the country. We currently write between seven and eight thousand policies a month.
Within Insurance Express, we’ve always been a large producer of flood insurance as a result of writing a lot of homeowners insurance policies.
The market started changing with the emergence of private flood between 2012 and 2015, with the first private flood insurance companies coming to market. We were at the forefront of that, and I immediately saw it as an opportunity to provide value to consumers. We noticed that most agents didn’t know what was going on with private flood, especially in the early years. So we immediately leaned into the flood insurance market to differentiate ourselves.
Later on, when homeowners insurance started hardening, we leaned into flood more. Around that time, we saw some of the first companies providing direct-to-consumer capabilities in the flood space. We were working very closely with one of the forefront leaders. There was no marketplace experience on the internet for flood insurance. My vision was to create a platform where a consumer could get comparative quotes for flood insurance from every vendor in the country. We set out to build that and because it was an emerging market and a new product, there was no comparative rating product in existence that we could use, which ended up being one of the best things at the time. It was a major road bump for us in deploying our product fast, but because it didn’t exist and we set out to build it ourselves, it put us into a unique position.
It took us over two years to build our flood rating technology, but we’re now one of the few groups with a true flood insurance comparative rater. We feel that our technology is second to none, and it’s currently powering all of our systems. Long story short, we created RocketFlood.com, and we’ve since evolved it in a couple of different capacities. We now have a digital flood insurance MGA, powered by the same flood rating technology, and we’re also providing flood insurance solutions to insurance agents across the country as well, where they can partner with us to access our flood rating technology and access the competitive carriers that we’ve developed relationships with.
“Since Rocket Flood represents more private companies than any insurance agency in the country, we’re quoting more options than anyone else on every quote request. Because of that, we have a higher probability of uncovering a private flood insurance option that’s more competitive than the NFIP. It boils down to the fact that we represent more flood insurance carriers than anybody.”
- – Garrett Mitchell, President & Founder of Rocket Flood
Adrian Santiago Tate: How is Rocket Flood able to regularly beat the NFIP on price?
Garrett Mitchell: One of the main reasons is that every private flood insurance company has a different analysis, or way that they underwrite risk, and way that they price risks. Since Rocket Flood represents more private companies than any insurance agency in the country, we’re quoting more options than anyone else on every quote request. Because of that, we have a higher probability of uncovering a private flood insurance option that’s more competitive than the NFIP. It boils down to the fact that we represent more flood insurance carriers than anybody.
Adrian Santiago Tate: On average, how much can homeowners save by switching from the NFIP to private? What’s the biggest savings you’ve seen?
Garrett Mitchell: It’s very common for us to find premiums that are 50% to 60% lower than the NFIP. It happens every day, multiple times a day. It’s not uncommon to see, for example, a $5,000 NFIP quote and for us to be able to write a private policy at $1,500 or $900. I’ve also seen certain risks that are, for example, $12,000, and we have options at around $2,000.
Adrian Santiago Tate: I remember when we first met you told me that about 80% of all policies that you sell are private.
Garrett Mitchell: That is up to 90% now.
Adrian Santiago Tate: Wow. How has that evolved over the past seven years since you started Rocket Flood?
Garrett Mitchell: It was pretty consistent until the transition into the NFIP’s Risk Rating 2.0. The transition created a larger delta because the NFIP started single-risk modeling and approaching their pricing in a more similar fashion to private companies. So they finally had actuarily-sound rates when that happened. That’s where we started to see a bigger rate disparity. Also what has increased the percentage from 80% to 90% is that there are now more carriers in the marketplace. With more options typically comes more savings. If you’re comparing one private market to the NFIP, they may win on 60% to 70%. But when you’re comparing the NFIP to a 30-carrier private marketplace where all we need is one of those companies to be more competitive than the NFIP, then it’s not a fair fight. We typically find somebody that’s more competitive.
What’s happening now, which was a fear going into Risk Rating 2.0, (this was one of the reasons why they transitioned to Risk Rating 2.0 to try to alleviate this, but it’s still happening) is that NFIP is now getting the adverse selection. When a property doesn’t model well, and private companies know about it, private carriers might say “our data supports that this property is going to have a claim in the next 24 to 36 months.” So, they rate it with very high premiums because it does not model well and they see it as a guaranteed loss. They might not offer terms at all, they’re just passing on it, but the NFIP has to offer terms.
Adrian Santiago Tate: What are the places where you’re seeing no private carriers offering insurance?
Garrett Mitchell: The extremely limited coverage opportunities would be in places like the COBRA Zone. But COBRA Zone is not offered by NFIP either.
A couple of scenarios that are not eligible for private flood but are going to be eligible for NFIP, in which NFIP is the only option, are a home built over water, homes with certain loss history, and homes with one or two claims. I would say a property with two claims is not going to be eligible with private companies, but it will still be eligible with the NFIP. Once you get three losses, it goes into a repetitive loss program, and it’s not even eligible in NFIP’s main program. You lose all subsidies at that point as well.
Another example where there’s a lot less coverage opportunity in general for a consumer would be mobile homes. Only a couple of private companies offer coverage for mobile homes, and still a lot of that is going into NFIP.
Adrian Santiago Tate: When I talk to reinsurers, they tell me that they’re urging their carriers not to write policies in coastal Florida. It’s an area that they’re wary of. I was under the impression that there were places where reinsurers are saying “no more here.”
Garrett Mitchell: You are going see a reduction in availability for coastal Florida, but you’re not going to see an elimination. Because we have so many carriers, even if 60% of the marketplace doesn’t want to play ball, that leaves us with 10 to 12 companies. That’s where we have an advantage over your average flood insurance agent that has 2 to 3 options. They are going to be forced to go to NFIP in those scenarios much more frequently than we are just because we have so many more carriers.
Obviously, there’s a higher surge exposure for coastal Florida. It all comes down to the modeling. For example, on the west coast, like in St. Petersburg where everything is pre-FIRM, everything is slab-on-grade, you are going to see less availability compared to the coastal east coast, in an area where construction is newer, where the building codes require homes to be built above BFE, and you get more positive elevation that models better. You’re going to see a lot more product availability compared to St. Petersburg.
“A really important question is how many private flood insurance companies your agency represents. If that answer is under five, they’re not an expert in the space. If that answer is more than five, then they’re ahead of the curve. If that answer is one or two, I wouldn’t even waste my time. I would just call another agent that has more options for you.”
- – Garrett Mitchell, President & Founder of Rocket Flood
Adrian Santiago Tate: What advice do you have for flood insurance buyers?
Garrett Mitchell: When you’re shopping for flood insurance, you want to make sure that your agent is quoting you with multiple carriers. Some qualifying questions would be: how many flood insurance companies do you represent? How many flood insurance policies do you write per month? Or how big is your flood insurance portfolio?
A really important question is how many private flood insurance companies your agency represents. If that answer is under five, they’re not an expert in the space. If that answer is more than five, then they’re ahead of the curve. If that answer is one or two, I wouldn’t even waste my time. I would just call another agent that has more options for you.
Adrian Santiago Tate: What is the most common misconception you encounter relating to private flood insurance?
Garrett Mitchell: “My mortgage company won’t accept it” is a common concern. Also “FEMA is the only option” or “FEMA is the main option.” That would be the biggest misconception even among insurance agents. FEMA hasn’t been the main player in years. Well, they still are in terms of their policy count and the number of policies being bound on a monthly basis, but there’s now a bona fide private marketplace that can offer much more advantageous options to the consumer than the NFIP. Even insurance agents are way behind on this.
Adrian Santiago Tate: The other misconception that I hear often is that if you buy private flood insurance, those companies are going to go out of business and you’re never going to see your claim paid out. Are private flood insurers a safe bet?
Garrett Mitchell: The bellwether of insurance company rating is AM Best, the largest credit rating agency in the world. The vast majority of flood insurance providers are rated by AM Best. All of Rocket Flood’s carriers are A-rated.
The majority of private flood programs are actually issued through an MGA basis, not an insurance company basis. These MGAs partner with large global capacity providers. Though it’s a niche market, it shouldn’t be compared to something like the Florida homeowners insurance market, where you see a lot of smaller Florida domiciled carriers popping up to serve an underserved market.
The capacity providers on the flood side, and the reinsurance companies, are global leaders. They have way more money in reserves than the guarantee associations typically do. These are financially secure companies that meet AM Best’s stringent A-rating requirements. They have capacity providers and reinsurance companies on top of that.
We haven’t really seen many companies go out of business recently. The only time you’re going to be in a compromised situation is if the company is a really bad underwriter, doesn’t know how to qualify risk, and takes on way too much. What would happen is you’re going to have your claim paid, but they’re just going to drop you. The capacity providers know how much exposure they have and they have the money to pay that. If the program isn’t profitable, their reinsurance contracts are not going to get renewed, and then that program is going to dissolve moving forward, which would result in you getting a non-renewal. In this situation, you’ll have to shop around and find a replacement provider.
The likelihood of a carrier going out of business is low because they’re not operating as insurance companies. They’re MGAs that have partnered with capacity providers and reinsurance companies that have much greater financial backing than your homeowners insurance company if you’re located in the state of Florida.
Sources
[1] Federal Emergency Management Agency, 2023: Flood Insurance. Available at: https://www.fema.gov/flood-insurance [Accessed 11 March 2024]
[2] Florida Department of Financial Services, 2023: Anywhere it Rains, it can Flood. The Importance of Flood Insurance. Available at: https://www.myfloridacfo.com/docs-sf/insurance-consumer-advocate-libraries/ica-documents/anywhere-it-rains-it-can-flood.pdf [Accessed 11 March 2024]
