The Risks of Hazard

It’s an exciting time around the world for flood insurance, with new mass markets opening up through the introduction of the necessary analytics and (in some cases) reinsurance capacity. In Canada, for example, it was nearly impossible to get flood coverage on residential property — until last year. After the floods of 2013 in Calgary and Toronto, it was inevitable that flood insurance would become available, but it was uncertain how it would be implemented. The Insurance Bureau of Canada (IBC), the federal and provincial governments, and the insurance industry have explored the possibilities together, and now flood insurance is about to really happen.

Unlike the United States, where flood insurance is evolving from a centralized and subsidized program to the private market, Canada has no legacy that needs to accommodate new flood products. Historically, water damage was only covered for “sewage backup”, which proved to be inadequate for everyone in 2013. When entire streets of urban homes are submerged, it’s highly likely that dirty water will enter houses through the sewage lines. But most of the water damage in such circumstances is definitely not caused by the sewer back-up. The resulting claims were mutually unsatisfactory: homeowners were technically not covered for most (if not all) the damage they sustained but they nonetheless claimed the damages with nowhere else to turn; insurers paid the claims for which they had not collected premium to avoid public relation disasters. By 2014, it was clear that Canada needed generally available flood insurance.

Imagine for a moment that your home has been damaged, and you and your family need to move out for a few months while it’s repaired. The more you think of it, the more the extra expenses add up – rent, extra groceries because you have a smaller fridge, extra commuting costs, and on and on. Luckily there is insurance for this: loss of use.

The Curiosity Rover has discovered liquid water on the surface of Mars. While this is an epoch-defining moment for planetary scientists and astro-biologists, the news also heralds a new peril for the P & C insurance industry. Martian Flood is a nascent market, and preparatory work is already underway to enable early innovators to enter it.

The announcement came two weeks ago, and stated that liquid water was observed to be seeping from the sides of canyons and craters. The source of the water is not yet understood, but the leading theories suggest it is coming from aquifers, melting surface ice, or condensation. Regardless of the source, the marks of the water can be seen on the rusty landscape.

One of the challenges (and joys) of writing The Risks of Hazard is to find an interesting perspective on topics that concern underwriting property insurance. But, sometimes, there is an event that has only one angle: head-on. The “one in a thousand years” rain in South Carolina is a perfect example.

There is no doubt about it – South Carolina has had some seriously bad rain; tons of it, brought by the highly unusual convergence of at least eight key factors. October 4th was the rainiest day on record in Columbia, with almost 7 inches falling on the airport. Charleston set their own single day record on October 3rd with 11.5 inches hitting the city. In addition, it’s already the wettest October on record for most of the state, and we are only a week into it. But, to hear Gov. Nikki Haley state: "We haven't seen this kind of rainfall in the low country in a thousand years," is not just misleading – it is nonsense. Dave Baker at KATC in Louisiana has saved me the trouble of explaining why.

Recently I’ve been researching where hurricanes have historically made landfall in the southeastern United States, and I have found little nuggets of wisdom that help drive underwriting in Florida. The variability of the frequency of hurricane strikes along the coast is surprising. Some places get nailed a lot, and some rarely get hit.