The Risks of Hazard

It’s the Return of the Bill, as the Flood Insurance Market Parity and Modernization Act has been reintroduced to congress with bipartisan support. As every reader of this blog knows, that’s the bill that will help open up the U.S. flood insurance market for insurers, offering property owners options beyond the National Flood Insurance Program (NFIP) for protection.

All the trade groups are behind it, including Big I, PCI, NAMIC, and others.

But the main reason for excitement is the benefit to society – there remains an enormous Protection Gap on U.S. flood. Every time we read about big floods, one of the statistics is how many damaged homes and buildings were NOT covered for flood – in the Baton Rouge flooding in autumn 2016, it was about 80% of damaged property that was without coverage. Let that sink in…Louisiana (home of some of the most famous floods in history) had only 20% coverage for these floods. It is crazy.

Critics of the NFIP frequently point to its historical deficit ($23B, and counting) as the most damning evidence of its failure. From society’s perspective, it is this lack of coverage for property owners that makes it a failure.

So, the passage of the flood bill is an important first step to fixing this messed up system. But only the first step – ensuring property owners have protection from the very real threat of flooding will be the success that matters. For that to happen, flood insurance needs to become a peril covered by all property insurance.

A few weeks ago there was a piece published on AIR’s In Focus blog about how to use a cat model for underwriting. The piece immediately caught my attention because I spend my days discerning the difference between underwriting and accumulation management/financial modeling. They’re different, and here was an article about how to use one for the other.

Did anyone reading the Intelligent Insurer last week notice their Most Read highlights? Here it is from November 15:

I don’t know if it was intentional or not, but they made a perfect microcosm of an interesting and important debate resounding through the corridors of insurance conventions.

Both articles are behind the subscription wall (to which I don’t have a key), but the blurbs illustrate the point brilliantly.

The first article is from an interview with Arno Junke, CEO of Deutsche Rück, and he cautions against becoming “obsessed with developing new products driven by technology and fears of competition from new entrants.”

Meanwhile in the second article, Florence Tondu-Melique - European COO of Hiscox, cautions that “digitally-focused new players in the insurance industry are increasingly threatening the market dominance of traditional insurers in a dynamic that could ultimately force the incumbent players to become nothing more than risk carriers.”

Risks of Hazard took a look at Houston last year after the flooding that ravaged the city in May. We discussed the flooding problem in Houston, and a way to handle it for underwriting flood insurance. Since then, in the past 12 months, Houston has had three (THREE!) headline-making floods.

According to The Weather Network, Houston is America’s Flooding Capital– a designation easily assigned. According to the article, Houston has had 96 days with reported residential flooding (pretty much entirely pluvial) in the past 20 years, averaging a little under five such days each year. It’s a staggering statistic – forget 100 year flood plains, because Houston is in a 2 MONTH flood plain based on the past two decades.

To try and get a better view of the flood risk, here is a very handy flood management tool published by Harris County. It’s a mapping portal that displays the FEMA (NFIP) flood zones, the bayous/waterways designed to whisk flood waters into the Gulf of Mexico, and ponding areas where water is expected to accumulate during storms.

Wow, 2016 is now half over. It has been an eventful half year, including private flood legislation coming closer to implementation and historic wildfires in Alberta and California.