The New Flood Risk – Where! not When.

Posted by Ivan Maddox on Aug 31, 2016 7:00:00 AM

Over the past year, flood and flood insurance has really become more apparent in the media and trade publications. Normally only catastrophic events (i.e. hurricanes) capture so much attention, but the combination of some massive floods and the continued progress of private flood legislation has started conversations that are overdue. Both the nature of these storms and floods, and their impact on property owners are getting close attention, and that is welcome because it is changing the way people think about underwriting flood insurance.

©2016 Roger Pottorff. All Rights Reserved.

In the past two weeks, there have been two articles published that illustrate such changes of perception.

The first is from Jeri Xu of Swiss Re, and she offers a very useful way to think of the rain events that have caused some of the most serious recent floods (i.e. 2016 Texas, West Virginia, Maryland, and Louisiana). She offers an angle on these events that is potentially transformative for evaluating flood risk: since flood-causing storms are localized at the county-level (roughly speaking), and there are about 3,000 counties in the country, it is not unreasonable to expect three 0.1% annual probability floods in any given year. In other words, we should expect three thousand-year-floods annually. With this insight, Ms. Xu has transformed the extremely rare to the commonplace, and reconciled the headlines with the stats.

The second is from David Bull, North America Editor of The Insurance Insider, specifically about the recent Louisiana floods. He has tracked down the 0.1% annual probability of the rain that caused these floods, ensuring his article is apples to the Swiss Re article’s apples. Mr. Bull writes about the profound protection gap in Baton Rouge and Lafayette for flood, quoting all the ugly stats about how most of the property that has been flooded is uncovered for it: “Across the Baton Rouge area, no more than 15 percent of homes have flood insurance, while Lafayette, also hard-hit, has a take-up rate of 14 percent.” The reason for this sorry penetration of flood insurance is the same as always: “many of the areas flooded were outside the 100-year floodplain and not considered at high risk.” Mr. Bull has shown the obvious need for a new form of flood insurance.

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Topics: InsitePro, Flood Risk, Private Flood

The Risk-Price Paradox

Posted by Ivan Maddox on Aug 17, 2016 7:00:00 AM

AM Best and Target Markets (the Program Administrators Association) just put on their annual webinar exploring the state of program business. 

Quickly, here is a primer on what “programs” are. Programs are when a carrier delegates underwriting of a well-defined type of coverage with very specific underwriting guidelines to independent underwriting groups typically known as Managing General Agents (MGAs) or Managing General Underwriters (MGUs). The carrier carries the risk, while the underwriting groups are the distribution network for the carrier. Lloyd’s of London does most of their US business through programs, but other big carriers (AIG, QBE, Zurich are a few that come to mind) have a wide offering of programs. A well designed program is a classic win-win, with the carrier collecting premium without the cost of sales and marketing the insurance products, and underwriters can sell coverages without bearing the risk. 

Programs are interesting because they are the crucible in which many coverages are initiated and tested before becoming more broadly offered. The underwriters who bring programs to the market are known for their innovation and the field is full of start-ups. Most programs are built around non-admitted risks that require deep specialized knowledge to underwrite. Flood is a peril that fits well into a program.

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Topics: InsitePro, Insurance Underwriting, Insurance Software

Houston Flooding, Again.

Posted by Ivan Maddox on Aug 3, 2016 7:00:00 AM

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.

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Topics: InsitePro, Flood Insurance, Flood Modeling, Flood Risk

Profitable Underwriting Depends on Modernization

Posted by Ivan Maddox on Mar 15, 2016 8:21:39 AM

Last week, Property and Casualty 360 published a post by Sean Allen entitled 4 areas for the Insurance Industry to Modernize. The article is based on the consensus after the Xchanging London Market Conference last November, and it starts with:

Fair or not, many look at insurance as an outdated industry, lagging behind others of similar stature and scale when it comes to innovation.

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Topics: InsitePro, Big Data, Insurance Underwriting, Property Insurance, Insurance Software, Risk Scoring, Insurance Technology

How to Underwrite “Challenging” Flood

Posted by Ivan Maddox on Mar 11, 2016 9:31:49 AM

In August 2015, Lloyd’s and JBA Consulting published a white paper called California Flood – Central Valley Risk Analysis. At the time of publication, it was received with raised eyebrows as the state was in an historic drought. Characteristically, Lloyd’s took the long view and they released the study, knowing El Niño was on the way.

The report is very much focused on the accumulated flood risk in the Central Valley, including property, crop, and business interruption, and the figures it cites are as huge as expected – a potential loss exceeding $24B.

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Topics: InsitePro, Insurance Underwriting, Flood Modeling, Flood Risk, Risk Scoring

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