The Risks of Hazard

Earlier this year, we introduced the concept of the butterfly chart at the Risks of Hazard. To quickly summarize what the butterfly chart is, there are two distinct opportunities for underwriters to grow flood premium each forms a wing of the butterfly.

Time really does fly – incredibly it has been a year since the epic flooding in South Carolina after Tropical Storm Joaquin inundated the state. To mark the anniversary the trio of Zurich, ISET and Aon has published a white paper on the event. It is a thorough and insightful summary of both the event and the aftermath and is worth reading.

It is even more worth summarizing three key points in a blog.

1.     The Protection Gap

The South Carolina floods were a stark illustration of the protection gap in US flood coverage. The figures are quoted in Zurich CEO Mike Foley’s introduction to the report:

"The floods caused an estimated USD 12 billion in total losses with approximately USD 2 billion in insured and other funded losses. As we approach the one year anniversary of the floods, some residents are still trying to rebuild, and the sad reality is South Carolina could experience this type of extreme event again".

This is massive. A flood is considered noteworthy when it causes $1 billion in losses – this event caused $10 billion in uninsured losses. The true gap, though, is illustrated by the second sentence – a year later many families impacted are still trying to get their lives back on track. The flood protection gap is a rare opportunity to grow revenue/profits in a way that can really improve people’s lives.

As we move into Autumn, and Q4 and hurricane season, let’s take a quick look back at the three most popular Risks of Hazard blogs. It was an exciting few months here at the blog, highlighted by a new monthly readership record in September and our first appearance on NPR.

Friday marked the introduction of new in-force FIRMs for New Orleans that were approved earlier in 2016. Because of Katrina and the politics around the creation of the new FIRMs, this was national news. The New York Times had a piece on it in, we here blogged about it, and it was even discussed on All Things Considered on Friday (yes – that is what I sound like). Rarely does FEMA generate such fanfare without a catastrophe actually happening.

This week I am in Atlanta hanging out at the annual NAPSLO convention. NAPSLO is the Nat’l Association of Professional Surplus Lines Offices – but if you don’t know that already, it probably still doesn’t make much sense. After all, what’s a “surplus line”? It sounds like an empty subway, or maybe the third line at a square dance.

Here is NAPSLO’s definition: surplus lines insurers fill the need for coverage in the marketplace by insuring those risks that are declined by the standard underwriting and pricing processes of admitted insurance carriers.

Further, there are three categories of such risks:

1. Non-standard risks, which have unusual underwriting characteristics.
2. Unique risks for which admitted carriers do not offer a filed policy form or rate.
3. Capacity risks where an insured seeks a higher level of coverage than most insurers are willing to provide.

Just because it’s surplus, though, doesn’t mean it’s a small sector - $38B in annual written premium in the US is a significant portion of the market.

But why am I here?