Tag Archives: Flood Insurance

Mangroves and Reefs: Insurance Can Help Protect Our Protectors

Hurricanes and storm-related flooding are responsible for the bulk of damage from disasters in the United States, accounting for annual economic losses of about $54 billion, according to the Congressional Budget Office (CBO).  

These losses have been on the rise, due, in large part, to increased coastal development. More, bigger homes, more valuables inside them, more cars and infrastructure – these all can contribute to bigger losses. The CBO estimates that a combination of private insurance for wind damage, federal flood insurance, and federal disaster assistance would cover about 50 percent of losses to the residential sector and 40 percent of  commercial sector losses. 

Recent research illustrates the benefits provided by mangroves, barrier islands, and coral reefs – natural features that frequently fall victim to development – in terms of limiting storm damage. In many places, mangroves are the first line of defense, their aerial roots helping to reduce erosion and dissipate storm surge. A healthy coral reef can reduce up to 97 percent of a wave’s energy before it hits the shore. Reefs — especially those that have been weakened by pollution, disease, overfishing, and ocean acidification — can be damaged by severe storms, reducing the protection they offer for coastal communities. 

In Florida, a recent study found, mangroves alone prevented $1.5 billion in direct flood damages and protected over half a million people during Hurricane Irma in 2017, reducing damages by nearly 25% in counties with mangroves. Another study found that mangroves actively prevent more than $65 billion in property damage and protect over 15 million people every year worldwide.  

A separate study quantified the global flood-prevention benefits of coral reefs at $4.3 billion.  

Such estimates invite debate, but even if these endangered systems provided a fraction of the loss prevention estimated, wouldn’t you think coastal communities and the insurance industry would be investing in protecting them? 

Well, they’re beginning to.  

The Mexican state of Quintana Roo has partnered with hotel owners, the Nature Conservancy, and the National Parks Commission to pilot a conservation strategy that involves coral reef insurance. The insurance component – a one-year parametric policy – pays out if wind speeds in excess of 100 knots hit a predefined area. Unlike traditional insurance, which pays for damage if it occurs, parametric insurance pays claims when specific conditions are met – regardless of whether damage is incurred. Without the need for claims adjustment, policyholders quickly get their benefit and can begin their recovery. In the case of the coral reef coverage, the swift payout will allow for quick damage assessments, debris removal, and initial repairs to be carried out.  

Similar approaches could be applied to protecting mangroves, commercial fish stocks that can be harmed by overfishing or habitat loss, or other intrinsically valuable assets that are hard to insure with traditional approaches.  

Hurricanes Don’t Just Affect Coasts; Experts Say: “Get Flood Insurance”

With the 2020 Atlantic hurricane season activity expected to be “well above average” in intensity; three named storms having formed already; and Tropical Depression Cristobal bringing flooding rains and powerful winds from the South to the Midwest as it made landfall in Louisiana, preparedness should be on the minds of everyone who could be affected – and that means more than just people in coastal states.

Cristobal’s low pressure area is forecast to move from the lower Mississippi Valley to the Midwest – just ahead of a cold front that will eventually absorb Cristobal’s remnants as it moves into southeastern Canada, according to Weather.com: “The combination of deep, tropical moisture from Cristobal and the cold front will wring out heavy rain along a swath from the lower Mississippi Valley into the Midwest. Strong winds will also develop in the Midwest and Great Lakes from this setup.”

If Cristobal remains a tropical depression when it crosses into Wisconsin, it would be the first tropical depression on record in the state, according to the National Weather Service in Milwaukee.

“Inland flooding has resulted in more deaths in the past 30 years from hurricanes and tropical storms in the U.S. than any other threat,” said CNN meteorologist Brandon Miller. “Though wind speeds and storm surge are important, and get a lot of the headlines, flash flooding from intense rainfall associated with the storm’s rainbands impact far more people and stretch over a much larger area.”

About 90 percent of all natural disasters in the U.S involve flooding. This is why experts like Dan Kaniewski – managing director for public sector innovation at Marsh & McLennan and former deputy administrator for resilience at the Federal Emergency Management Agency (FEMA) – strenuously urge everyone to buy flood insurance.

If it can rain, it can flood

“Any home can flood,” Kaniewski said in a recent Triple-I webinar. “Even if you’re well outside a floodplain…. Get flood insurance. Whether you’re a homeowner or a renter or a business – get flood insurance. It’s not included in your homeowners policy, and most people don’t understand that.”

Dr. Rick Knabb – on-air hurricane expert for the Weather Channel, speaking at Triple-I’s 2019 Joint Industry Forum – was similarly emphatic:

“If it can rain where you live,” he said, “it can flood where you live.”

He recounted buying a new home, asking his agent about flood insurance, and being told, “You don’t need it.”

“I told him, ‘Get it for me anyway,’” Knabb said.

Flood insurance purchase rates too low

As the Triple-I blog previously reported, 2019 was the second-wettest year on record across the continental U.S., yet flood insurance purchase rates remain low. To illustrate the difference between having and not having flood insurance, Kaniewski described two scenarios related to 2017’s devastating Hurricane Harvey.

“The average [FEMA] payout for the uninsured homeowner in the Houston area was about $3,000,” Kaniewski said. “But if you were proactive and took out a relatively low-cost flood insurance policy…you would have received not $3,000 but $110,000. You’re not going to recover on $3,000, but with $110,000, you’d be well on the path to recovery.”

Unfortunately, he said, even inside designated floodplains, “two-thirds of homeowners do not have flood insurance.”

I.I.I. Non-Resident Scholar: 2019 hurricane season projected to be slightly below-average

The 2019 Atlantic hurricane season activity is projected to be slightly below-average, according to I.I.I. non-resident scholar Dr. Phil Klotzbach.

Dr. Klotzbach, an atmospheric scientist at Colorado State University (CSU), and his team are forecasting 13 named storms, five hurricanes, and two major hurricanes for the year.

A typical year has 12 named storms, six hurricanes, and three major hurricanes. Major hurricanes are defined as Category 3, 4, and 5 storms, where wind speeds reach at least 111 miles per hour.

A slower 2019 season might sound like welcome news after the 2018 Atlantic season saw 15 named storms, with eight of them becoming hurricanes (two major). However, major hurricanes can be potentially catastrophic, whether they hit during a relatively quiet year or not.

Sean Kevelighan, the I.I.I.’s CEO, stressed that homeowners and businesses need to prepare for the upcoming season. “For one, make sure you have insurance; especially for homeowners, you need coverage for both wind and flooding. Remember, these are two different policies, as flood is primarily offered via the National Flood Insurance Program. Secondly, take steps to ensure your home is fortified for resilience, such as having roof tie-downs and a good drainage system. And, finally, take inventory of your belongings as well as map out a safe evacuation route. Americans far too often bet on the storm not hitting them, but the unfortunate truth lies in historical data which shows virtually every mile of our Gulf and Eastern coastlands have been hit at one point or another.”

For more information on hurricane-proofing your home and business, check out the following:

NFIP reinsurance protection a good thing

From January 1, 2017, FEMA – the Federal Emergency Management Agency – secured increased reinsurance protection to share a meaningful portion of the risk of large and unexpected flooding with private reinsurance markets.

This placement of reinsurance transferred $1.042 billion in risk above a $4 billion deductible to 25 reinsurance companies.

Under this agreement, the reinsurers can cover 26 percent of losses between $4 billion and $8 billion arising from a single flooding event.

As Artemis blog reports here, with flood losses from Hurricanes Harvey and Irma on the rise, estimates suggest that the NFIP reinsurance program will pay out in full with losses from Hurricane Harvey alone.

Per Artemis: “The NFIP reinsurance program is a per-occurrence arrangement, meaning it covers a single loss event.”

Also noted by Artemis at the very end of its blog post, the NFIP reinsurance layer does not have a reinstatement provision.

This means that the NFIP cannot also claim on the program for its losses from Hurricane Irma as a second and separate event.

Nevertheless, it’s a good thing that NFIP secured first event coverage. A reinsurance payment for Hurricane Harvey flood losses will be welcome.

Back-To-School flood safety

From Buzzfeed, a back-to-school headline you may not have considered: Is Your School In A Flood Zone?

For example, a Salt Lake City rainstorm just caused a flash flood that damaged many properties, including East High School where Disney’s High School Musical was filmed.

According to a report from the Pew Charitable Trusts and consulting firm ICF, some 6,444 public schools across the United States that serve nearly 4 million students are located in the 100 counties with the highest composite flood scores.

The risk of school flooding is distributed widely across the U.S. Schools in both inland and coastal areas have the highest composite flood risk scores, the report says.

Think Atlantic Coast, Gulf Coast, Mississippi River corridor, and southwestern Arizona.

Even when a school is not located in a flood zone, students who attend it often live within areas of flood risk.

“Of more than 5,000 schools, half or more of the ZIP code is located in a designated 1 percent annual chance flood zone.”

Here’s the map:

The composite flood risk score calculated by ICF is based on three indicators: a school’s location within a designated flood zone, the percentage of a school’s neighborhood (as represented by ZIP code) located within a flood zone, and the number of historical flood-related federal disaster declarations in that county.

Taking proactive steps to reduce risks and improve flood safety is a growing priority for some schools.

Insurance Information Institute facts and statistics on flood insurance here.

Private market flood insurance is cheaper in many cases

Alongside the National Flood Insurance Program (NFIP), a thriving private flood insurance market would provide wider and in many cases cheaper coverage options, according to a new study.

Consulting firm Milliman, in partnership with risk modeler KatRisk, looked at three states – Florida, Texas, and Louisiana – which combined account for 56 percent of NFIP insurance policies in-force nationwide.

Its analysis compared modeled private flood insurance premiums to those of the NFIP.

Key findings:

  • Some 77 percent of single-family homes in Florida, 69 percent in Louisiana, and 92 percent in Texas could see cheaper premiums with private insurance than with the NFIP.
  • Of the homes modeled, 44 percent in Florida, 42 percent in Louisiana and 70 percent in Texas, could see premiums that are less than one-fifth that of the NFIP.
  • Conversely, private insurance would cost over twice the NFIP premiums for 14 percent of single-family homes in Florida, 21 percent in Louisiana and 5 percent in Texas.

prior post discussed how private carriers are dipping their toes in the flood insurance market.

Private Market Flood Insurance Is Budding

Private carriers are dipping their toes in the turbulent waters of flood insurance, writes Insurance Information Institute (I.I.I.) research manager Maria Sassian.

This year, for the first time, insurers were required to report in their annual statements data on private flood insurance.

I.I.I. has compiled a list of top insurers in the market by 2016 direct premiums written, based on data from S&P Global Market Intelligence:

As you can see, the top three companies hold almost 81 percent of the market share, and at number one FM Global has a 54 percent market share. Direct premiums written for all companies total $376 million.

Private flood includes both commercial and private residential coverage, primarily first-dollar standalone policies that cover the flood peril and excess flood. It excludes sewer/water backup and the crop flood peril.

Some of the reasons private insurers are becoming more comfortable covering flood risk include: improved flood mapping technology; improved flood modeling; the construction of flood resistant buildings; and encouragement from Congress.

The Federal Emergency Management Agency’s National Flood Insurance Program (NFIP) is billions of dollars in debt due to large losses from Hurricanes Katrina, Rita and Superstorm Sandy. Opening the market to private insurers is one of several measures enacted by lawmakers to get the program out of debt.

Another step in shoring up the NFIP took place with the January 2017 transfer of over $1 billion in financial risk to private reinsurers. FEMA gained the authority to secure reinsurance from the private reinsurance and capital markets through the Biggert-Waters Flood Insurance Reform Act of 2012 and the Homeowners Flood Insurance Affordability Act of 2014 (HFIAA).

Storm surge and flooding top of minds this hurricane season

Nearly 6.9 million homes along the Gulf and Atlantic coasts have the potential for storm surge damage with a total estimated reconstruction cost value (RCV) of more than $1.5 trillion.

But it’s the location of future storms that will be integral to understanding the potential for catastrophic damage, according to CoreLogic’s 2017 storm surge analysis.

That’s because some 67.3 percent of the 6.9 million at-risk homes and 68.6 percent of the more than $1.5 trillion total RCV is located within 15 major metropolitan areas.

“A low intensity storm in a population dense, residential urban area has the ability to do significantly more damage than a higher intensity hurricane along a sparsely inhabited coastline.”

The metro area that includes Miami, Fort Lauderdale and West Palm Beach continues to have the greatest number of at-risk homes (784,000) and an RCV of $143 billion.

On the other hand, the New York metro area has slightly fewer homes at risk (723,000), but a much higher RCV of $264 billion due to high construction costs and home values in this area.

CoreLogic’s analysis also shows local areas along the coasts are susceptible to potential damage that could exceed $1 billion for a single event.

Storm surge and other flooding is on the minds of many in 2017 as Congress considers reauthorization of the National Flood Insurance Program (NFIP), CoreLogic says.

Flooding Events May Shift Prevention Strategies

Hurricane season has yet to begin and already record-setting flooding in parts of the central United States will likely become the country’s sixth billion-dollar disaster event of 2017.

While Missouri and Arkansas have been hit the hardest, recent flooding in the central U.S. has been widespread and it will likely take weeks before the full extent of flood damages is known.

So far, 2017 has seen five billion-dollar disaster events, including one flooding event, one freeze event, and 3 severe storm events, according to NOAA.

KSGF.com: “This year is off to a quick start for the number of billion-dollar weather disasters, similar to 2016 and 2011, which each had 15 and 16 disasters, respectively.”

Climate Central reports that many communities across the U.S. are not prepared for massive rain events and living behind a levee is not an absolute guarantee of protection.

“The growing realization of the lingering risk from levees is causing some rethinking of flood protection strategies in riverfront communities. This can include simply setting levees back from the risk and installing parkland that is intended to flood and provide rain-swollen rivers some breathing space, as well as preventing development in flood-prone areas.”

Last week’s breach of the local levee system in Pocahontas, Arkansas is a good example. Check out these aerial pics via the Capital Weather Gang.

Flood damage is excluded under standard homeowners and renters insurance policies. However, flood coverage is available in the form of a separate policy both from the National Flood Insurance Program (NFIP) and from a few private insurers.

I.I.I. facts and statistics on flood insurance has additional information.

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.)