The Risks of Hazard

In August, we took a look at how this winter’s El Niño was shaping up. While most predictions pointed to an El Niño comparable with 1997 (the worst on record), some were predicting that a “Godzilla El Niño” was on its way. Now that we’re in the midst of it, let’s take a look at how El Niño has shaped up.

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.

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.

The Associated Press recently ran a story on new research that tries to ascertain the return period (or annual likelihood) of the 2013 Colorado floods. Here is a reminder from the Denver Post of what the flood was like; since it was over two years ago (it seems like yesterday!).

As any decent summary should, let’s start with the conclusion of the research: “…the best way to characterize this storm is a very unusually widespread 100-year event with some small pockets of a 500-year event thrown in there.”

A very unusually widespread event? A 100-year event, except where it was a 500-year event?