Category Archives: Flood Insurance

Cyclone Debbie: Storm Surge Biggest Threat

More than 30,000 people in low-lying coastal areas have been urged to evacuate their homes ahead of powerful Cyclone Debbie, as it bears down on the Queensland coast in northeastern Australia.

With landfall expected early Tuesday, Cyclone Debbie is currently a Category 4 storm and could intensify to Category 5. A Category 4 storm on the Australian scale equates to wind gusts of more than 140 miles per hour, the New York Times said.

Storm surge poses the biggest threat as the cyclone strengthens, according to major weather forecasters and news outlets.

The Sydney Morning Herald: Cyclone Yasi, which struck north Queensland in 2011, powered a storm surge that reached 7.5 metres between Cardwell and Tully Heads, akin to a tsunami, said David King, the director of the Centre for Disaster Studies at James Cook University in Townsville.

The New York Times: “People living in coastal or low-lying areas prone to flooding should follow the advice of local emergency services and relocate while there is time,” said Bruce Gunn, the regional director of Queensland’s bureau of meteorology. 

The warnings are a good reminder that while we may think of destructive winds as the biggest danger in a cyclone or hurricane, storm surge is often more deadly.

Here in the U.S. the National Oceanic and Atmospheric Administration this hurricane season will use a storm surge watch/warning system to highlight areas along the Gulf and Atlantic coasts that are at risk of life-threatening inundation.

The new tool will alert residents to the risks of rising water and the need to evacuate, the Tampa Bay blog said.

A 2016 updated study by CoreLogic found that more than 6.8 million homes located along both the Gulf and Atlantic coasts of the United States are at risk of damage caused by hurricane-driven storm surge flooding. More on storm surge risk via the Insurance Information Institute facts and statistics on flood insurance.

Spring-Ready With Flood Insurance

It’s the first day of Spring and here in New Jersey we’re expecting a balmy 50 degrees Fahrenheit. Rising temperatures + snowmelt = flooding.

NOAA’s Spring Outlook calls for moderate to major flooding in northern North Dakota and in the Snake River basin in Idaho and flags California, which saw extensive flooding in February, as susceptible to additional flooding in the coming weeks.

Spring also marks the start of severe weather season for many states. Resources on severe weather preparedness are available at the Insurance Information Institute ( I.I.I.) website and weather.gov.

Which brings us to this:

Many homeowners incorrectly believe that flooding is covered by standard homeowners insurance, according to the I.I.I. Consumer Insurance Survey.

In fact, flood insurance is available from FEMA’s National Flood Insurance Program (NFIP) and a few private insurance companies.

How to change the misperception?

Part of the answer lies in education, as the I.I.I. says:

“Consumers can—and should—educate themselves about their coverage, recognize that they may have gaps in their coverage and seek guidance from an insurance professional when they purchase or renew a policy.”

The other part of the challenge, as outlined by Wharton professor Howard Kunreuther in an issue brief, lies in how to communicate to people that the best return on an insurance policy is no return at all.

“In reality, insurance is a protective measure should one suffer a loss. Homeowners should celebrate not having a loss because the financial consequences for an uninsured individual could be staggering.”

What do you think?

What Does Private Market Flood Insurance Look Like?

In his second post from the Cat Risk Management 2017 conference, Insurance Information Institute chief actuary James Lynch discusses private market flood insurance options:

Florida has opened its market to private flood insurance, and there has been some activity in that area. Most plans have been National Flood Insurance Program (NFIP) clones in that they mimic how the NFIP prices risk but introduce a lot of underwriting rules to try to avoid problem risks.

Other than mimicking the NFIP program, there are two alternative ways to price risk:

    • Develop a refined rating plan, which resembles (to me at least) a traditional classification plan. The company develops a base rate then credits and debits a risk based on factors like:
      • Elevation.
      • Relative elevation (whether a risk is higher or lower than the areas that immediately surround it).
      • Distance to coast.
      • Distance to river.
    • Use a sophisticated catastrophe model to price each risk individually. That approach is more precise, but it could be more difficult to pass regulatory approval.  (The model might be too much of a black box.) It could also be harder for agents to understand the model and explain it to clients.

Much of the industry long-term seems interested in how computer models can price flood risk, but most people recognize the challenges. A big one is how to build in the precision necessary.

Figuring out how far a property is from a river is easy. But it is hard to use Big Data techniques to determine something as simple as whether a property has a basement; let alone knowing the elevation of the lowest vulnerable point in a property. (Hint: It’s probably not the front threshold.)

Private Market Looks Closely At Flood Insurance

Almost all private insurers have shunned covering flood since the 1950s, but that could be changing fast, writes Insurance Information Institute (I.I.I.) chief actuary James Lynch:

At the Cat Risk Management 2017 conference I attended earlier this month, flood was the hottest topic. Here’s why:

  • Insurers have become increasingly comfortable with using sophisticated models to underwrite insurance risk, and modeling firms are getting better at predicting flood risk.
  • The federal government, which insures the vast majority of flood risk, is looking for ways to share the risk with private industry. Key reasons:
    • The National Flood Insurance Program (NFIP) owes the Treasury more than $20 billion (thanks to flooding from Hurricane Katrina and superstorm Sandy). It has no practical way to pay that back, and the government has made it clear that it doesn’t want to fund more losses. So the NFIP is purchasing private reinsurance. More on that below.
    • The number of people who lack flood insurance is distressingly high. I.I.I. surveys show that only about 12 percent of Americans have flood insurance. The government wants people to be protected, and encouraging a private flood insurance market could do that.

Here are some of my notes from #catrisk17 on flood insurance:

  • The NFIP reinsurance deal (effective January 1, 2017) means that reinsurance would reimburse NFIP for 26 percent of the losses from an event where losses exceed $4 billion. The maximum recovery is $1.046 billion, and the cost, according to my notes, is $150 million. (If you work in reinsurance it may be easier to think of the pricing this way: NFIP cedes 26 percent of the $4 billion excess $4 billion occurrence layer at a 14.3 percent rate on line.) There have only been a couple of floods that big in NFIP history (Hurricane Katrina and superstorm Sandy), so the cover is in place primarily to protect against storm surge. However, it would cover other major types of flood as well.
  • A significant obstacle to modeling flood risk is the fact that much of the most important data (underwriting and claims information) is in the federal government’s hands. The government wants to share the data responsibly, but its hands are tied by federal rules on sharing data about individuals. The rules are driven both by privacy concerns and cyber security laws. The government will likely be developing a certification process so that professionals could qualify to have access to the data on a limited basis.
  • A live poll found that flood modeling was the most important topic at the conference, cited by 56 percent of respondents – outpacing severe convective (thunder) storm models, cyber insurance models or terrorism models.

Hurricane Matthew: Storm Surge Risk

Almost 2 million homes in Florida, South Carolina, North Carolina and Georgia are at risk of storm surge damage from Hurricane Matthew with an estimated $405 billion in total reconstruction cost value, according to new analysis from CoreLogic.

Here’s the CoreLogic graphic showing the total number and value of residential properties at risk of storm surge damage from Hurricane Matthew by state:

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The estimates come as Hurricane Matthew, still a major Category 3 storm packing 120 mph winds, continues its northward trek brushing along Florida’s northeast coast Friday, with its eye remaining just offshore.

In its latest advisory, the National Hurricane Center (NHC) said that Matthew is expected to remain a hurricane until it begins to move away from the U.S. on Sunday, though it is forecast to weaken during the next 48 hours.

A hurricane warning now stretches as far as Surf City, North Carolina.

The NHC said:

“The combination of a dangerous storm surge, the tide and large and destructive waves will cause normally dry areas near the coast to be flooded by rising waters moving inland from the shoreline.”

And:

“There is a danger of life-threatening inundation during the next 36 hours along the Florida northeast coast, the Georgia coast, the South Carolina coast, and the North Carolina coast from Sebastian Inlet, Florida, to Cape Fear, North Carolina. There is the possibility of life-threatening inundation during the next 48 hours from north of Cape Fear to Salvo, North Carolina.”

Here’s the 11am NHC prototype storm surge watch/warning graphic, showing locations most at risk for life-threatening inundation from storm surge extend from Florida to North Carolina:

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It’s important to note that flood damage resulting from heavy rain, storm surge and hurricanes is excluded under standard homeowners, renters and business insurance policies.

Separate flood coverage is available, however, from FEMA’s National Flood Insurance Program (NFIP) and from a few private insurers.

Flood damage to cars would be covered under the optional comprehensive portion of an auto insurance policy.

The NHC has a storm surge inundation map which means anyone living in hurricane-prone coastal areas along the U.S. East and Gulf coasts can now check out and evaluate their own unique risk to storm surge.

Insurance Information Institute experts are available to discuss the insurance implications of Hurricane Matthew.

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

Hawaii, Florida, Georgia and North Carolina Prepare for Storms

With numerous tropical systems in the Atlantic and two major hurricanes (Madeline and Lester) threatening Hawaii in the Pacific, insurers are keeping a close watch to see how things develop.

Over at Wunderblog, Dr. Jeff Masters observes that the dual scenario of two major hurricanes heading towards Hawaii is unprecedented in hurricane record keeping.

Hurricane Madeline, the closer of the two to Hawaii, intensified rapidly, growing from tropical storm to Category 3 strength in just 24 hours, Dr. Masters notes, and has since intensified to Category 4.

While the forecast models are not conclusive on the exact tracks and intensity of these named storms, it’s clear that both Hurricane Madeline and Hurricane Lester could affect Hawaii with high surf, torrential rain, and potential winds over the next week.

Hawaii’s costliest hurricane, based on insured property losses, was Hurricane Iniki in September 1992. Iniki caused $1.6 billion in damage when it occurred, or $2.7 billion in 2014 dollars, according to the Insurance Information Institute (I.I.I.).

Check out the I.I.I.’s Hawaii Hurricane Insurance Fact File for more information, including the top writers of homeowners, commercial and auto insurance.

Meanwhile, on the U.S. Atlantic coast, a tropical storm warning is in effect for the coast of North Carolina from Cape Lookout to Oregon Inlet for tropical depression eight.

A second system—tropical depression nine— is also being closely watched in the Gulf of Mexico. In its latest public advisory, the National Hurricane Center says the system is set to strengthen and that interests in central and northern Florida, and southeastern Georgia should monitor its progress.

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I.I.I.’s Florida insurance representative Lynne McChristian offers some sound advice on making sure your property insurance is ready for named storms in her latest blog post.

Take a look at I.I.I.’s North Carolina Hurricane Insurance Fact File, Georgia Hurricane Insurance Fact File, and Florida Hurricane Fact File for more information.

Being Prepared for Summertime Flash Floods

Several regions of the country appear to be under flash flood watches and/or warnings as we head into the weekend, underscoring the risk of summertime flooding from slow-moving thunderstorms or excessive rainfall and the need to be prepared.

Weather Underground reports that the threat of flash flooding, and eventually river flooding, will become more widespread from Texas and Louisiana to the Ohio Valley and parts of the Great Lakes in the coming days.

Flash flooding is already reported to be serious in parts of Louisiana and Mississippi as of Friday morning.

Climate scientists believe that the number and volatility of extreme intense precipitation events is on the rise due to the changing climate.

Munich Re describes flash floods as a much underestimated risk:

“While media interest tends to focus on storm surges and river floods, the risk of flooding in places away from rivers and lakes is generally overlooked.”

Flash floods typically occur as independent, localized and random events and unlike river flooding, it’s the intensity rather than the total amount of rainfall that is the concern.

A recent report by FM Global warned that U.S. businesses, depending on their location, should start preparing now for increased, extreme rainfall that a changing climate will likely deliver.

Certain regions of the United States are expected to be prone to more intense precipitation events and a potentially increased risk of flooding, FM Global said. Here’s the graphic:

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Buildings, machinery, data centers, transportation networks, supply chains, people and sales can all be affected by extreme wet conditions, according to the report. When companies have a choice, they should site their facilities in nothing less than 500-year flood zones (where there’s only a 1-in-500 chance of a flood every year), it suggests.

Businesses should also sharpen their focus on water management, diverting water from property, optimizing drainage and protecting water supplies, and considering new weather extremes when managing supply chains.

For any home or business the purchase of flood insurance is key to being prepared for flash flooding, or any kind of flooding event, according to the Insurance Information Institute. Flood damage is excluded under standard homeowners and renters insurance policies, but available as a separate policy both from the National Flood Insurance Program and some private insurers.

Check out these Insurance Institute for Business and Home Safety (IBHS) resources on steps you can take to protect your home or business from flood damage.

June Flood Losses Highlight Insurance Protection Gap

The economic cost of flood losses worldwide in June will exceed $5 billion, though the insured loss portion will be significantly less, according to Aon Benfield’s latest Global Catastrophe Recap.

Impact Forecasting, the cat modeling center of Aon Benfield, reports that major June floods highlighted by China and U.S. events, saw the global economic toll mount.

Seasonal “Mei-Yu” monsoon rains led to multiple rounds of significant flooding across central and southern parts of China throughout June, resulting in more than 130 fatalities.

The most damaging floods occurred in the Yangtze River basin as rivers and tributaries overflowed their banks and minimally inundated 200,000 homes. Beyond property damage, there were substantial impacts to the agricultural sector.

Impact Forecasting said:

“Total aggregated economic losses were estimated by the Ministry of Civil Affairs at upwards of CNY29 billion (USD4.4 billion). Given low penetration levels, the insured loss portion was only a small fraction of the overall damage cost.”

Exceptional rainfall in the U.S. state of West Virginia also led to catastrophic flooding in several counties. The federal government declared a disaster after major damage occurred in Clay, Fayette, Greenbrier, Kanawha, Monroe, Nicholas, Roane, and Summers counties, As many as 5,500 homes and 125 businesses were damaged or destroyed.

“Total economic losses were anticipated to reach into the hundreds of millions of dollars. The insured loss portion of the loss was expected to be less given rather low up-take in the National Flood Insurance Program (NFIP).”

Additional major flood events in the month of June occurred in India, Indonesia, Myanmar, and Ghana, according to the report.

The gap between economic and insured losses for both major flood events in China and the U.S. illustrates the need for greater insurance penetration around the globe.

A 2015 Swiss Re report estimated the current annual disaster protection gap between insured and total losses at around $153 billion, assuming an average catastrophe loss year.

In absolute terms, the U.S., Japan and China account for more than half that amount, with a combined annual shortfall of $81 billion, Swiss Re said.

A 2015 poll by the Insurance Information Institute found that 14 percent of American homeowners had a flood insurance policy. This percentage has been at about the same level every year since 2009.

Top Metro Areas Have More to Lose When a Hurricane Hits

Latest Atlantic hurricane season forecasts are focused on the numbers – how many storms can we expect? and how many of those will be major hurricanes? NOAA, Colorado State University and Tropical Storm Risk cast their predictions here, here and here.

But as the latest storm surge analysis from CoreLogic indicates, it is where a hurricane hits land that is often a more important factor than the number of storms that may occur during the year.

Why?

More than 6.8 million homes located along both the Gulf and Atlantic coasts of the United States are at risk of hurricane-driven storm surge, with a total reconstruction cost value (RCV) of just over $1.5 trillion, according to CoreLogic.

But the disproportionate numbers of at-risk homes in just 15 major metropolitan areas means that where the storm makes landfall can make all the difference in terms of property damage and loss of life.

15metroareas

CoreLogic’s analysis reveals that some 67 percent of the 6.8 million total at-risk homes and 68 percent of the total $1.5 trillion RCV is located within 15 major metropolitan areas.

That’s 4.6 million homes, with total RCV of just over $1 trillion located in urban centers along the Gulf and Atlantic coasts including Miami, New York City, New Orleans, Houston, Philadelphia, Charleston and Boston.

The Miami metro area, which includes Fort Lauderdale and West Palm Beach, tops the list with 780,482 at-risk homes and an RCV of $143.9 billion.

By comparison, the New York City metro area has slightly fewer homes with potential storm surge risk at 719,373, but a significantly higher RCV totaling $260.2 billion.

As CoreLogic says:

“History has shown us that a single low-level storm can cause substantial property loss and potential loss of life it it occurs in or near an area of dense development.”

It’s important to note that properties located outside of designated FEMA flood zones may still be at risk for storm surge inundation.

However, only homes located within FEMA-designated high risk flood areas are required to carry flood insurance through the National Flood Insurance Program.

A 2015 poll by the Insurance Information Institute found that 14 percent of American homeowners had a flood insurance policy. This percentage has been at about the same level every year since 2009.

U.S. Dominates March Catastrophe Claims

A reminder of the impact of severe thunderstorms is evident in March catastrophe estimates, with seven separate events across the country resulting in several billion dollars of insured losses.

Aon Benfield’s March Global Catastrophe Recap noted that overall economic losses sustained to property, infrastructure and agriculture across the U.S. from the convective storm and flood damage were anticipated to approach $3.5 billion.

Insured losses incurred by public and private insurance entities were tentatively estimated at $2.0 billion. (Presumably, that number includes estimated payouts by FEMA’s National Flood Insurance Program.)

More than 1,000 individual reports of tornadoes, damaging straight-line winds and hail were recorded by the Storm Prediction Centre, while torrential rains also led to significant riverine and flash flooding in the Lower Mississippi River Valley.

Among the hardest-hit states was Texas, Aon Benfield said, where events during consecutive weeks of greater than golf ball-sized hail in the greater Dallas-Fort Worth metro region led to more than 125,000 home and auto claim filings.

The Insurance Council of Texas has put preliminary estimated insured losses in the state at more than $1.1 billion alone.

Here’s the visual on March catastrophe losses in the U.S.:

UnitedStatesMarchCatastropheLosses

Artemis blog mentions that Impact Forecasting estimates for insured or reinsured losses in the U.S. in the first-quarter of 2016 from severe and winter weather now total $4.48 billion.

“Globally the figure is $5.82 billion, again demonstrating the importance of the U.S. property catastrophe insurance and reinsurance market.”

In its must-read facts and statistics on hail, the Insurance Information Institute notes that events involving wind, hail or flood accounted for $21.4 billion in insured catastrophe losses in 2014 dollars from 1994 to 2014 (not including payouts from the National Flood Insurance Program), according to Verisk’s Property Claim Services.

Information about how to reduce hail damage to businesses and homes is available from the Insurance Institute for Business and Home Safety website here and here.