Flood Insurance


A new study from NOAA reminds us that as sea levels rise, it no longer takes a strong storm or hurricane to lead to flooding.

So-called “nuisance flooding” – which results in public inconveniences such as frequent road closures, overwhelmed storm drains and compromised infrastructures – has increased on all three U.S. coasts by between 300 and 925 percent since the 1960s, according to NOAA.

Eight of the top 10 U.S. cities that have seen an increase in nuisance flooding are on the East Coast.

Annapolis and Baltimore, Maryland, lead the list with an increase in number of flood days of more than 920 percent since 1960.

New Jersey’s Atlantic City and Sandy Hook also made the top five with an increase in flood days of more than 600 percent, NOAA reports.

Port Isabel, Texas, along the Gulf coast, showed an increase of 547 percent, and nuisance flood days in San Francisco, California, increased by 364 percent.


Dr. William Sweet, oceanographer at NOAA’s Center for Operational Oceanographic Products and Services (CO-OPS) and the report’s lead author notes:

Flooding now occurs with high tides in many locations due to climate-related sea level rise, land subsidence and the loss of natural barriers. The effects of rising sea levels along most of the continental U.S. coastline are only going to become more noticeable and much more severe in the coming decades, probably more so than any other climate-change related factor.”

Scientists took data from 45 NOAA water level gauges with long data records around the country and compared that to reports of number of days of nuisance floods.

The study defines nuisance flooding as a daily rise in water level above the minor flooding threshold set locally by NOAA’s National Weather Service, and focused on coastal areas at or below these levels that are especially susceptible to flooding.

NOAA concludes that any acceleration in sea level rise that is predicted to occur this century will further intensify the impact of nuisance flooding over time, and will further reduce the time between flood events.

It also warns that while event frequencies are accelerating at many U.S. East and Gulf coast gauges, many other locations will soon follow regardless of whether there is an acceleration in relative sea level rise.

Check out I.I.I. facts and statistics on flood insurance and climate change and insurance.

Some 6.5 million U.S. homes with a total reconstruction value of nearly $1.5 trillion are at risk of damage from hurricane-driven storm surge, and more than $986 billion of that risk is concentrated in 15 metro areas, according to an annual report by CoreLogic.

The 2014 analysis by CoreLogic found that by state, Florida ranks number one for the number of homes at risk, with nearly 2.5 million homes and $490 billion in total projected reconstruction costs.

At the local level the New York metropolitan area (including northern New Jersey and Long Island) contains not only the most number of homes at risk for potential storm surge damage (687,412), but also the highest total reconstruction value of residential homes exposed, at more than $251 billion.

Ranked second among the major metropolitan areas at risk is Miami, Florida with 562,410 homes exposed and a total reconstruction value of $103.2 billion, followed by Tampa, Florida with 444,765 homes at risk and a total reconstruction value of $79.1 billion.

CoreLogic makes the point that just one storm of sufficient intensity occurring in or near one of the major metropolitan areas in the report is all that would be needed to cause tens of billions in property damage:

Past hurricane seasons have demonstrated the impact that just one storm of sufficient severity, located in exactly the wrong place, can achieve. Andrew, Katrina, and finally Sandy are still reminders that it takes no more than one hurricane roaring through a metropolitan and densely populated area to cause widespread property damage and threaten lives.”

CoreLogic goes on to explain that extensive regions along both the Gulf and Atlantic Coasts are vulnerable to storm surge, and yet many of the homeowners who live in these areas are not required to carry flood insurance because they are not located within a designated FEMA 100-year floodplain.

Since standard homeowners insurance excludes flood losses from either fresh or salt water, homeowners who are not located in FEMA Special Flood Hazard Areas, but are in high-risk surge zones, often do not consider buying National Flood Insurance Program (NFIP) coverage for their properties.”

Efforts to delay or repeal rate increases under the Biggert-Waters reforms to the National Flood Insurance Program (NFIP) would likely continue to increase the NFIP’s long-term burden on taxpayers.

They may also reinforce private insurers’ skepticism that they would ever be permitted to charge adequate rates and make their participation in the flood insurance market unlikely in the foreseeable future, according to a new Government Accountability Office (GAO) report.

In its analysis GAO notes that new technologies and a better understanding of flood risks may have increased private insurers’ willingness to offer flood coverage, but a key condition to their participation is the ability to charge rates that fully reflect the estimated risk of flooding.

GAO states:

As debates over the private sector’s role continue, one step to address the burden on low- and moderate-income policyholders could be taken immediately. As we have suggested previously, Congress could eliminate subsidized rates, charge full-risk rates to all policyholders, and appropriate funds for a direct means-based subsidy to eligible policyholders. The movement to full-risk rates would encourage private sector participation, and the explicit subsidy would address affordability concerns, raise awareness of the risks associated with living in harm’s way, and decrease costs to taxpayers, depending on the extent and amount of the subsidy.”

Even with increased private insurer participation in the flood insurance market, the GAO report foresees a continuing role for the federal government in the form of a residual market or NFIP reinsurer.

Insurance Journal has more on this story.

Check out this USA Today article on latest Congressional action to delay new flood insurance premiums.

Also check out I.I.I. facts and statistics on flood insurance.

A survey conducted by the Insurance Information Institute (I.I.I.) at its 18th annual Property/Casualty Insurance Joint Industry Forum found that property/casualty insurance industry leaders believe Congress will delay implementation of the Biggert-Waters (BW) reforms to the National Flood Insurance Program (NFIP).

Some 75 percent of respondents expect Congress will delay implementation of the Act intended to help reduce the debt of the NFIP, a debt now estimated at more than $25 billion, by bringing rates charged more in line with the risk and losses in flood-prone areas, the I.I.I. survey revealed.

A majority of respondents to the survey—93 percent—also believe the Terrorism Risk Insurance Act, which is set to expire at the end of this year, will be reauthorized by Congress.

Meanwhile, a panel of industry chief executives agreed that a repeat performance of the property/casualty industry’s stellar 2013 performance will be hard to repeat.

The CEOs said higher rates, fewer-than-normal catastrophes, and strong stock market returns seem likely to make last year one of the best of the past decade.

But new challenges in growth and price competition make a repeat performance unlikely this year, the CEOs said.

By lines of insurance, only 35 percent of I.I.I. survey respondents believe there will be an improvement in profitability in personal auto in 2014, while 45 percent expect an improvement in homeowners profitability.

Only 40 percent expect an improvement in profitability in commercial lines, while 50 percent expect an improvement in workers compensation.

Looking at economic growth, 40 percent of insurance industry leaders think the U.S. economy will accelerate and 58 percent think it will remain the same, according to the I.I.I. survey.

Dr. Steven Weisbart, senior vice president and chief economist with the I.I.I. said:

Many economic forecasts say that the U.S. and most global economies will grow stronger in 2014, and this means a greater need to protect more assets and income, which leads to greater insurance premium volume.”

Some 30 percent of survey respondents believe that premium growth will be higher in 2014; 42 percent believe it will remain flat; and 28 percent believe it will be lower.

In terms of capacity, as measured by policyholders’ surplus, 73 percent of respondents expect it to increase; 20 percent believe it will remain flat; and 7 percent believe it will decrease.

Some 68 percent believe the combined ratio (the percentage of each premium dollar a property/casualty insurer spends on claims and expenses) will be higher in 2014 compared to last year.

Flood risk threatens more people around the world than any other natural catastrophe, according to a new report from Swiss Re.

Across the 616 metropolitan areas included in the study, river flooding poses a threat to over 379 million residents. That’s more than the 283 million inhabitants potentially affected by earthquakes and the 157 million people at risk from windstorms.

When these natural catastrophes occur they not only affect millions of people but can also significantly disrupt the local and national economy.

Urban dwellers in Asia’s megacities are especially at risk, with Tokyo, Manila and Hong Kong-Guangzhou topping the population-at-risk index, Swiss Re says. Although smaller in size, European and U.S. cities could also face huge economic repercussions in the event of a major disaster.

Swiss Re’s report finds that metropolitan areas such as Tokyo, Los Angeles, New York and Amsterdam-Rotterdam rank high in terms of potential lost productivity, measured by the value of working days lost.

For example, the report shows that while a devastating earthquake in Los Angeles could affect just as many people as in Jakarta, the resulting value of working days lost would be 25 times higher.

Based on Swiss Re’s risk models and detailed hazard data, the report provides a global risk index comparing the human and economic exposure of 616 cities around the world. Together, these are home to 1.7 billion people and produce a combined GDP of $35 trillion, half of the world’s total economic output.

Swiss Re notes:

Investments in infrastructure are vital to strengthen the resilience of metropolitan areas. The potential damage that a large natural disaster can cause to roads, bridges, telecommunications and other essential infrastructure is perhaps nowhere more apparent than in the world’s big cities. This is why strengthening urban resilience is also a prime concern for the insurance industry. As an ultimate risk taker, the insurance industry has a vested interest in new infrastructure investments, upgrades to ageing infrastructure and adaptation measures.”

Flood events continue to dominate natural catastrophe losses in 2013, according to the latest Global Catastrophe Recap report from Aon Benfield.

The report reveals that billion-dollar flood losses were recorded in China, Russia, Philippines, and Pakistan during August 2013, causing an initial combined estimate of $10 billion in economic losses.

Additional flood events were recorded in Afghanistan, Niger, Sudan, Mali, Laos, Cambodia, India, and the United States.

In a press release Steve Jakubowski, president of Impact Forecasting, says:

The flood events during the month of August continues a similar theme that has been observed throughout the year, as the flood peril has proven the most costly – so far – during 2013. Economic losses from flood events have equated to more than 40 percent of overall losses sustained this year.”

He adds:

This highlights the need for insurers to further appreciate the impact of the flood peril through improved analysis and understanding of significant events and utilizing that learning curve to further strengthen the development, and usage, of catastrophe models.”

In the U.S., a severe weather event affected the Midwest and the Plains in early August, causing at least two fatalities. The states of Minnesota and Wisconsin were hardest-hit. Total economic losses were estimated at $1.0 billion, with insured losses in excess of $625 million.

Excessive rainfall also prompted major flooding between August 5 and 12 throughout parts of five states. More than 2,000 homes sustained flood damage in Missouri and Kansas alone due to inundated basements or backed-up sewers. Additional flood damage occurred in Tennessee, Arkansas and Oklahoma. Total economic losses were estimated by state governments at roughly $25 million.

In other U.S. catastrophe news, Aon noted that the Rim Fire became the fourth largest wildfire in California’s history.

Check out I.I.I. facts and statistics on flood insurance.

While 2013 so far has been a below-average catastrophe loss year for the global insurance industry, this could easily change in the coming months, Swiss Re warned yesterday.

Just-released sigma estimates put total economic losses from natural catastrophes and man-made disasters at $56 billion in the first half of 2013, of which $20 billion was insured.

Insured losses from natural catastrophes totaled $17 billion, with flooding a main driver.

In a press release, Kurt Karl, chief economist at Swiss Re says:

Though 2013 has so far been a below-average loss year, the severity of the ongoing North Atlantic hurricane season, and other disasters such as winter storms in Europe, could still increase insured losses for 2013 substantially.”

Flooding accounted for some $8 billion of the $17 billion in global insured losses from natural catastrophes in the first half.

As a result, 2013 is already the second most costly calendar year in terms of insured flood losses on sigma records.

Check out I.I.I. facts and statistics on global catastrophes here.

In other news, the late summer edition of Cavalcade of Risk, a round-up of risk related posts from around the blogosphere, is now live over at My Personal Finance Journey. Our recent post on cyber insurance is among the featured posts.

As we approach the peak of hurricane season, catastrophe modeler RMS has warned that storm surge poses a greater risk than hurricane wind.

RMS says its updated North American hurricane model shows there is a 20 percent chance that storm surge loss will be greater than wind loss for any U.S. hurricane that makes landfall. And for the northeast coast of the U.S. the risk is even higher.

Dr. Claire Souch, vice president, model solutions at RMS says:

Our model shows there is a 20 percent chance that storm surge loss will be greater than wind loss for any U.S. hurricane that makes landfall, which rises to almost 40 percent along the northeast coast of the United States – this is a risk the market can no longer afford to ignore.”

RMS’ updated North Atlantic hurricane model suite includes the ability to fully quantify the risk from catastrophic hurricane-driven storm surge.

An earlier paper by RMS on Superstorm Sandy made the point that storm surge loss can drive more insurance loss than hurricane wind.

In the paper RMS noted that while Sandy was not even classified as a hurricane at landfall, it caused a Category 2 storm surge in New York City:

This is not the first time that storm surge has had a dominant effect. It was responsible for more than half of the total loss from 2005’s Hurricane Katrina, which was a Category 3 storm at landfall, but had a Category 5 equivalent storm surge.”

Recent analysis by CoreLogic estimates that more than 4.2 million U.S. residential properties are exposed to storm-surge risk valued at roughly $1.1 trillion, with more than $658 billion of that risk concentrated in 10 major metro areas.

According to I.I.I. facts and stats on flood insurance, Hurricane Sandy was the second costliest U.S. flood, based on National Flood Insurance Program (NFIP) payouts as of July 12, 2013.

Flood events in Europe, Canada and Australia accounted for three of the five costliest natural catastrophes for global insurers in the first-half of 2013.

On Tuesday Munich Re said inland floods in Germany, Austria and the Czech Republic in May/June this year had cost insurers an estimated $3.9 billion so far, while total economic losses will be more than $16 billion. The majority of the insured losses occurred in Germany.

This tally makes the European floods the most costly natural disaster in the first half of 2013.

Floods in the Calgary region of Canada June 20-23 caused more than $1 billion in insured losses and more than $3 billion in overall losses, Munich Re noted. This was the worst flood in documented Canadian history.

Loss estimates are still in progress on both the European and Canadian flood events. Munich Re said:

Around 47 percent of the overall losses and 45 percent of the insured losses derived from inland flooding that occurred in Europe, Canada, Asia and Australia.”

Two thunderstorm events in the United States also ranked in the top five costliest natural catastrophes for insurers in the first six months of 2013.

Altogether, worldwide insured losses from natural catastrophes totaled around $13 billion in the first-half, well below the 10-year average of $22 billion. At around $45 billion, total economic losses were also below the 10-year average of $85 billion.

The Wall Street Journal has more on this story.

The complete overview of natural catastrophe activity for the first-half of 2013, jointly presented by Munich Re and the Insurance Information Institute (I.I.I.) is available here.

Check out I.I.I. facts and statistics on flood insurance and global catastrophes.

An annual report from CoreLogic reveals that the number and value of total properties along the Atlantic and Gulf coasts at risk of hurricane-driven storm surge is increasing significantly.

In its 2013 analysis CoreLogic estimates that more than 4.2 million residential properties are exposed to storm-surge risk valued at roughly $1.1 trillion, with more than $658 billion of that risk concentrated in 10 major metro areas.

Florida tops the state rankings with nearly 1.5 million properties at risk and $386 billion in total potential exposure to damage.

Louisiana ranks second in total properties at risk with just over 411,000 homes in storm-surge zones, while New York ranks second in total value of coastal properties exposed at nearly $135 billion.

At the local level, the New York metropolitan area, which encompasses northern New Jersey and Long Island as well, contains not only the highest number of homes at risk for potential storm-surge damage, but also the highest total value of residential property exposed, at more than $200 billion.

CoreLogic makes the point that extensive regions along both the Gulf and Atlantic coasts are vulnerable to storm surge, and yet the homeowners who live in these areas are not required to carry flood insurance because they are not located within a designated FEMA 100-year floodplain.

It says:

Homeowners who live outside of the FEMA Special Hazard Flood Areas (SFHA), especially in the Northeast, would have little reason to carry flood insurance, given that they may not be aware of the risk storm surge poses to their properties.”

For that reason, fully understanding the number and value of homes at risk of sustaining storm-surge damage allows insurance providers to improve underwriting policies and procedures.”

CoreLogic notes that public awareness of the risk hurricane-driven storm surge poses to coastal homeowners has never been higher coming off the heels of Hurricane Sandy last fall.

A press release quotes Dr. Howard Botts , vice president and director of database development for CoreLogic Spatial Solutions:

Sandy was a harsh reminder of the potential destruction associated with storm-surge flooding, and of just how many communities are vulnerable to that risk, in areas typically assumed to be relatively safe from hurricanes along the northeastern Atlantic shoreline.”

According to I.I.I. facts and statistics on flood insurance, Hurricane Sandy was the sixth costliest U.S. flood, based on National Flood Insurance Program (NFIP) payouts as of March 7, 2013.

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