Commercial flood insurance coverage options are expanding as more private insurers enter the market and as risk managers brace for more frequent and severe flood hazards driven by climate change.

Data analytics and investments in technology are helping insurers to assess flood risks and price the coverage more accurately, experts say.

Parametric coverages, which have been developed for hail, wind and earthquake exposures, are also being explored as excessive rainfall hits businesses.

Many businesses are required to purchase flood coverage in areas designated high-risk flood zones by the Federal Emergency Management Agency if they have a government-backed mortgage, and many lenders require the coverage regardless of the flood zone.

The government-backed National Flood Insurance Program provides limited commercial flood coverage, up to $500,000 for direct physical damage to buildings and up to $500,000 for personal property.

Commercial property owners are increasingly looking to private market coverages for “something that better fits their needs,” said John Dickson, Kalispell, Montana-based president of InsurMark, a unit of Aon PLC.

“The NFIP has some hard limits on what it can deliver. Some of these commercial structures have valuations considerably higher than $500,000, so we’ll offer a solution that can sit on top of the NFIP and respond,” Mr. Dickson said.

Many programs are available, either on a standalone basis, as a bolt-on endorsement to a property program, or through the NFIP, said Lauren Savage, Miami-based president of the private flood division at Tokio Marine Highland.

The addition of new insurers has led to a more competitive flood market, she said.

There’s a push into the private market for commercial flood because of the need for increased limits, said Brad Turner, Morehead City, North Carolina-based vice president, national product manager, flood, at Burns & Wilcox Ltd.

Capacity varies depending on the risk, but typically additional limits of up to $10 million per building are available, he said.

Even if buyers can’t always get the limits they need, they can get more expansive coverage, Mr. Turner said. For example, business interruption or loss of use coverage and replacement cost coverage for buildings and contents are available, he said.

Generally, significant flood limits are available, and prices are softening, said Polly James, Palmetto, Florida-based senior director of risk management at Feld Entertainment Inc., a live show production company.

But coverage can be challenging to coordinate for businesses such as hotel complexes and school districts because a separate NFIP policy has to be purchased for each building on a property, she said.

In her prior role as director of risk management at Hilton Worldwide, Ms. James said a 22-acre site in Hawaii had 47 different policies.

Most large organizations take significant risk retentions in excess of NFIP limits, and for small businesses that need cover, NFIP limits are too low, she said.

Some risk managers use the NFIP coverage as a deductible buy down, said Stephen Penwright, San Francisco-based property technical director for U.S. national accounts at Zurich North America.

“Then we will treat that as a million-dollar deductible, and our limits will go well in excess of that,” he said. Zurich provides primary flood coverage on a sub-limited basis as part of its all-risk programs.

Parametric coverage can be applied to buy down a flood deductible in a property policy, said Rich Coyle, London-based commercial director at FloodFlash Ltd., a sensor-enabled parametric flood insurance provider.

“In the hard market, carriers with limited risk appetite for flood have either been saying no to flood coverage entirely or insisting that the client takes a large deductible to retain that first layer of risk,” he said.

Parametric coverage, which has an agreed-upon trigger such as defined rainfall amounts within a particular area, pays out on a zero-dollar deductible basis to a loss and then traditional flood coverage can respond on an excess basis, Mr. Coyle said.

Industries such as heavy manufacturing, dealer open-lot businesses and golf courses are showing increased interest in parametric flood coverage, he said.

Trevor Burgess, president and CEO of Neptune Flood Inc., a St. Petersburg, Florida-based private flood insurance provider, said the market has changed and demand for commercial flood coverage has been “strong” in the last two years.

Since the NFIP stopped subsidizing new policies and rates on existing policies increased by 25%, the private market has been able to compete on “a level playing field,” Mr. Burgess said.

In 2021, the release of Risk Rating 2.0 — the first major update to the NFIP’s pricing system in 50 years — set out to provide actuarially sound flood insurance rates.

With changing weather patterns, catastrophe insurance is more volatile, which limits underwriting appetite, but technology is driving better risk management and understanding of flood risk, InsurMark’s Mr. Dickson said.

“You’re not going to see a flood of capital enter this space and write every risk and location and hope they get it right,” he said. Insurers will be cautious and take a measured approach, he said.

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Excessive rainfall changes profile of global catastrophe exposures

Recent catastrophic weather events demonstrate the changing nature of flood risk, experts say.

Hurricanes Beryl and Debby this summer highlighted the risk of inland flooding in areas outside of flood zones and far from where storms typically make landfall.

In 2023, large floods in urban areas worldwide resulted in insured losses of $14 billion, above the five- and 10-year averages of $10 billion and $9 billion, respectively, according to Swiss Re Ltd.

And record rainfall and flooding in the United Arab Emirates in April of this year led to challenging midyear reinsurance renewals in the Middle East, Gallagher Re said.

Flood historically meant “storm surges, waves crashing onshore, or rising lakes and riverbanks overflowing,” said John Dickson, Kalispell, Montana-based president of InsurMark, a unit of Aon PLC. “Today, it’s all about rainfall,” he said.

Insurers are seeing an uptick in claims related to flooding, especially pluvial flooding, which is not accounted for in Federal Emergency Management Agency flood maps, said Stephen Penwright, property technical director for U.S. national accounts at Zurich North America.

Pluvial flood events, such as surface water flooding or flash floods triggered by extreme rainfall, are happening more frequently, Mr. Penwright said.

“We’re seeing that either from hurricanes that are tropical storms — like Hurricane Debby — sitting over a geography for a longer period of time, dumping a bunch of rain and moving very slowly, and from atmospheric rivers in California,” he said.

Climate, exposure growth and aging infrastructure are all factoring into an enhanced risk profile for flood, said Steve Bowen, Chicago-based chief science officer at Gallagher Re, the reinsurance brokerage unit of Arthur J. Gallagher & Co.

“There’s increasing vulnerability to damage to commercial properties, automobiles and to residential property. All these pieces of the puzzle are interconnected,” Mr. Bowen said.