The Risks of Hazard

This week’s blog features a recent video from AM Best TV, and a podcast from InsNerds.com. First the video.

FM Global has published the Global Flood Map (or Global FM - fans of palindromes, rejoice). It is a free-to-use flood map that covers most of the world. The flood map is delivered through an easy-to-use portal, and is offered in the spirit of building awareness around flood risk. We here at the Risks of Hazard are excited to see it out there (especially since we like palindromes).

Early last month RIMS published a great article called Flaws in the Data – it’s about data, analytics, and “data driven decisions” (another term for using data in analytics). From the start, it was begging for a blog post, but all the action on private flood (missed it? try this, this, and this … and even this) has consumed us here for the past month. Let’s take a look at what “flaws in the data” is about.

The crux of the article is that more and more businesses are investing (hugely) in collecting data, and then exploiting it to make better decisions. Pretty uncontroversial stuff:

Cutting-edge companies like Amazon, Google, Netflix and Uber have exploited data from the get-go, developing advanced models and algorithms to facilitate business decisions, and are leaders in the persistent use of data collection and analysis.

Because:

Ultimately, the effort can also help to put a business on the path toward the wider use of predictive analytics and automation systems, including machine learning and artificial intelligence, which could lead to faster and more efficient decision-making.

Right? Cool!

But here is where it gets interesting:

Cap Radio ran a series of stories in March how the state of California is thinking of pulling out of the NFIP. Not only that – they are thinking about forming their own version of the NFIP for the state. Let’s take a look at this imaginative plan to replace a system that doesn’t work very well with a plan that’s…kinda the same.

The thinking is pretty clear for leaving the NFIP – California has paid more in premiums than they’ve received in claims. In other words, they’re the comparative low risk in the risk pool and they are paying the same rates as everyone else in the country. This makes sense in the same way that there are lower risk properties in A zones to offset higher risk properties – the program needs to balance high risk with lower risk. In yet other words, they are cherry picking the NFIP at the state level. Epic cherry-picking!

Last week, a new Senate bill was introduced (by a bipartisan tandem of senators) to reauthorize the NFIP for 10 years, along with a study on flood insurance from the General Accounting Office (GAO). Both documents propose expansion of private flood insurance in the US. When added to the NAIC/CIPR’s flood study  and the “monograph”  (love that term) from the American Academy of Actuaries, the momentum in regulatory circles is clear. We just need something from The Big I to add to the choir.

The Senate bill, as mentioned, is intended to reauthorize the NFIP for another decade, but with significant changes. It does its best to juggle the various mandates the NFIP fulfills (flood plain management, flood risk mitigation, lender support, economic growth, along with flood insurance), and thus presents a bucket list of ambitions. As usual, the imperative on the NFIP to serve so many purposes will ultimately jeopardize its ability to be an effective insurer. However, as long as everyone is OK with this state of affairs and doesn’t expect the NFIP to actually be a solvent insurer of flood risk… whatever. Here is a link to Insurance Journal for a summarized version of the bucket list.

On the same day, the GAO released a study on flood insurance that complements the other studies coming out in April. It is a hefty affair, as one would expect from that august body of bureaucracy, but it is very, very good reading. The thing I like most about reading the GAO study is that it is the latest in a tradition of studies on flood insurance – they refer to their previous reports from decades past, often citing conclusions that have proven to be valid. The other studies are firmly focused on the present and future, while the GAO discusses the future from a durable and decades-long foundation of studies. And what do they say from this position? The same thing as everyone else: there needs to be more private flood insurance. Well, that’s one of their six conclusions, at least: