Residential flood exposure poses a growing credit risk in the US because there is a large insurance protection gap, Moody’s says.

This “structural mismatch” – a widening gap between growing flood risk and insurance coverage – is transferring financial strain to households and governments, according to the ratings agency.

Under a one in 100-year flood scenario, the US faces uninsured loss exposure of $US375 billion ($574 billion), with a 65% protection gap.

This could rise to more than $US1 trillion ($1.53 trillion) in rarer, more severe events, with risk spreading to inland states such as Illinois and Pennsylvania.

“Flood risk is no longer confined to a small number of coastal hotspots ... Most US counties face some level of flood exposure and high insurance protection gaps, posing rising credit risks for local governments,” Moody’s says.

Modelling suggests uninsured flood losses could rise by 25% to about $US472 billion ($722 billion) by 2050 if insurance take‑up and resilience investment are unchanged, it adds.

Residential flood cover take-up rates are low, even in the highest-risk coastal areas. In the southeast along the Gulf Coast and eastern seaboard, uptake ranges from 10%-30%.

“Uninsured losses arise not from isolated outliers, but from persistent gaps between expanding flood hazards ... and insurance take-up,” Moody’s says in a report.

The government National Flood Insurance Program remains the primary provider of residential flood cover in the US. These policies cap coverage at $US250,000 ($382,500). Private policies represent about 10% of the in-force total.

Moody’s notes federal flood hazard maps relied on by the NFIP omit increasing risk from extreme rainfall, storm surges and sea level rise.

See the report here.