Is private flood insurance the next new market?
When the U.S. federal government shut down for 43 days in the fall of 2025, the most meaningful consequences for many people were the sudden lack of access to national parks and the sudden abundance of political talking points on cable news channels. When the government experienced a partial shutdown less than three months later over four days in the winter 2026, most people hardly noticed.
What happened in the world of flood insurance during each shutdown, though, may have generated fewer conversations and less coverage, but was still highly disruptive to housing markets and the insurance professionals who support real estate transactions.
During a government shutdown, a borrower attempting to close on a property in one of the Federal Emergency Management Agency (FEMA)’s designated Special Flood Hazard Areas is unable to buy a federally backed flood insurance policy, a legal requirement for securing a mortgage. The National Flood Insurance Program (NFIP) underwrites more than 4.7 million flood insurance policies, equating to 88% of the nation’s total flood insurance market.
When FEMA is closed, the NFIP lacks authority to issue new policies or renew existing ones. That’s how a routine underwriting step can become a bottleneck for tens of thousands of impacted home sales—or more, depending on the length of the shutdown.
The 2026 winter shutdown was over almost as suddenly as it began, and Congress eked out a deal to keep the government open through Sept. 30. Yet while some agents might be pleasantly surprised to find that the NFIP is once again fully operational, the fact that it remains subject to future government shutdowns inevitably means more stalled mortgages, thus accelerating pressure on lobbying efforts to privatize FEMA’s flood insurance.
For insurance carriers, it’s a familiar story of federal regulation, Congressional dysregulation, and the operational challenges of executing a precise risk mitigation strategy amid challenging circumstances.
An insurance program built on budget extensions, prone to disruption
FEMA’s NFIP does not operate under a permanent federal spending authorization; unlike air traffic controllers, NFIP workers don’t simply keep things moving whenever there’s a shutdown. Important, certainly, but essential government workers they are not.
Ordinarily, the NFIP relies on short-term funding extensions that typically last months, or even just weeks. There have been 33 of these short-term extensions since 2017. Normally these extensions pass with little fanfare as part of Washington’s ordinary budgetary procedure, yet over the past decade there have been four largescale government shutdowns lasting four days to six weeks. Agents are in a bind whenever FEMA and the NFIP go dark, left struggling to explain to their customers why a federally mandated flood insurance program has suddenly been shuttered.
These lapses are a foreseeable side effect of the way the NFIP is funded, yet there are not enough market incentives for the system to change. With greater competition, though, there could be improvements.
AI-powered data processes, compliance operations, and market opportunities
Flood insurance occupies a unique regulatory position, as federal law mandates it for mortgages across much of the increasingly flood-prone country. Yet the true cost of adequate coverage often deters established homeowners, and mortgagers invariably seek the lowest rate they can find. That’s why the NFIP is the dominant holder of flood insurance policies: Without transformational data insights, most carriers would struggle to break even, and few offer flood protection.
In theory, private flood insurance could better fill this gap, and in recent years Neptune Flood has emerged as the largest private flood insurer in the U.S., providing an alternative to the NFIP that is not disrupted by government instability. By leveraging artificial intelligence (AI) and machine learning, Neptune Flood has been able to successfully zero in on this underserved market.
For Neptune Flood and other competitive carriers, actionable data supports all core operations and workflows, including compliance, underwriting, claims, and distribution management. When further powered by AI, this data can enable carriers to make consistent, strategic decisions while adhering to strict regulatory requirements. Carriers exploring private flood and other market opportunities must contend with the ever-present complexity of managing compliance for agents across multiple states, as well as additional flood training to satisfy FEMA requirements.
What carriers should consider
Private flood insurers remained open during the NFIP closure, and where possible managed to keep mortgages moving during the government shutdown. But any carrier seeking to win new business away from the NFIP faces a challenge of scale, both in terms of data and distribution.
- In a warming climate, the risk of flood is both high-frequency and high-severity, and therefore high-premium.
- To ensure adequate coverage, pricing requires property-level modeling, not simply FEMA’s zone-based risk estimates.
- To distribute a flood product and maintain compliance, a carrier must ensure adequate P&C licensure, plus additional training, for all agents in all states.
Flood insurance in the U.S. operates amid growing political brinksmanship and worsening climate conditions that are not accurately represented in historical underwriting data. If private flood insurance is going to expand, the modern technology necessary to accurately manage data, compliance, and risk assessment will not function as a competitive differentiator: It will be table stakes for any carrier seeking to enter a challenging market.
