Best’s Market Segment Report: U.S. Government Shutdown May Create Opening for Private Flood Insurers to Fill Void Left by Lack of NFIP Coverage

OLDWICK, N.J.--(BUSINESS WIRE)--The U.S. government shutdown has halted a key federal agency’s ability to renew existing flood insurance policies or even underwrite new coverage through the National Flood Insurance Program (NFIP), potentially affecting millions of homeowners as the Atlantic hurricane season enters its final weeks, according to the new AM Best report.

The NFIP has approximately 4.7 million policies in place that cover residential properties and provides $1.3 trillion in coverage, according to Federal Emergency Management Agency (FEMA) data available as of August 31, 2025. Because Congress did not reach a funding agreement, it did not reauthorize the NFIP. The federally subsidized program has slowly ceded ground to coverage provided through the private flood insurance sector, which has increased its share of premium in this segment to 27% in 2024, compared with 13% in 2016. “What remains to be seen is whether a pivot from publicly subsidized coverage gains momentum and leads to an even larger role for private flood insurers in this segment,” said David Blades, associate director, AM Best.

Homeowners with active policies will still be covered until their respective expiration dates, and FEMA can continue processing current claims as long as its existing funds last. Individual lending institutions may also choose to suspend requirements for flood insurance until the program is renewed; however, new homebuyers, especially those in high-risk zones, may find themselves dangerously exposed if a disaster or a storm hits the United States and leads to widespread flooding.

The challenges created by a prolonged shutdown extending to multiple weeks would be most acute in Florida and Texas, where thousands of monthly home sales depend on purchasers securing home coverage. During the shutdown, with both new and renewal policies unavailable, it will likely bring to a halt numerous real estate closings requiring proof of flood coverage. “The onus will then fall squarely on the private flood market to provide alternative coverage to policyholders that cannot secure NFIP coverage,” said Christopher Graham, senior industry analyst, AM Best. “However, the private market may not be a viable option for all homeowners, particularly those in high-risk areas where the NFIP is the only viable choice.”

The NFIP accounted for almost 90% of the flood premium written nationally less than ten years ago. With the buildup of coastal properties over the past 25 years, states in hurricane-prone areas have become the most at risk for flooding, and therefore where residents purchase the most flood insurance. Florida is the largest flood market in the United States, with over one-third of total flood direct premiums written, with Texas and Louisiana ranking second and third, respectively; these three states account for over half the total flood premium in the United States. Data related to these three flood-prone states has shown that private flood insurance segment has consistently outperformed the NFIP, with a lower loss ratio in eight of past nine years.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=358856.

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. For more information, visit www.ambest.com.

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