The Risks of Hazard

Last September I wrote about the difference between underwriting with a pen vs. a paint-roller, exploring the problem with using analytics and data that are not able to accurately depict flood risk at a specific location. The post took a critical look at using FIRMs for underwriting flood insurance because they are not intended to depict location-specific flood risk (they’re pricing tools for the NFIP). That blog was very well received, so I thought I would follow it up with a graphical look at the same topic. The notion was reinforced by the news from Washington on the Flood Bill.

First off, Happy New Year to everyone with an interest in nat cat analytics for insurance.

To kick off 2016, The Risks of Hazard would like to address the biggest single problem faced by the insurance industry as a whole. Is it the coverage gap? Is it inaccurate data or analytics? Is it the need to transition to the cloud? Nope – those are minor by comparison.

According to the U.S. News Millennial Report 2014 (cheers to The Actuary for reporting it), 22% of the largest demographic likely to buy insurance in the coming decade claim to somewhat understand insurance. Yes – 78% of people in their 20s and early 30s don’t even somewhat understand insurance. Yikes.

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.

What? Flood models are biased? 

Have you heard it’s raining in California? Los Angeles has broken precipitation records for July, and there have been flash floods throughout southern California and Arizona. The Angels even had a ball game rained out for the first time in over 20 years. The moisture has helped with the drought and a bad wildfire season, but it has added to the headaches of property insurers writing in California. Weather from the west coast is regularly newsworthy, but this past week has been extraordinary. How weird has it been? It even snowed in the Sierra Nevada this week.