The Risks of Hazard

At the Risks of Hazard we explore what is happening in the cat underwriting market. Today we can share a bit of good news close to home – our InsitePro team are now working with Chubb Global Markets. It is exciting for us here because this is a group that is leading the entry of “private flood insurance” (i.e. actual flood insurance from the insurance industry) into the US.

As regular readers of The Risks of Hazard know, this blog focuses on the primary underwriting of cat risk, and the benefits of better underwriting that can be realized by insurers and society at large. Thus, catastrophe bonds are a topic that rarely come up in our discussions. However, the protection gap does (and does and does!). When The Intelligent Insurer published this paragraph-length headline - ILS Leads the Way ... and May Help Closing the Protection Gap - it was inevitable that cat bonds would make their debut in the blog.

Cat bonds, or Insurance Linked Securities (ILS), are far removed from the act of underwriting a cat risk – in fact, they are at opposite ends of insurance. Cat bonds are the final divestment of risk from the insurance industry into capital markets, (unless they bypass insurance completely, as with the MetroCat cat bond), while underwriting is how the risks get into the industry. Granted they are so far apart, how does underwriting relate to cat bonds?

Time really does fly – incredibly it has been a year since the epic flooding in South Carolina after Tropical Storm Joaquin inundated the state. To mark the anniversary the trio of Zurich, ISET and Aon has published a white paper on the event. It is a thorough and insightful summary of both the event and the aftermath and is worth reading.

It is even more worth summarizing three key points in a blog.

1.     The Protection Gap

The South Carolina floods were a stark illustration of the protection gap in US flood coverage. The figures are quoted in Zurich CEO Mike Foley’s introduction to the report:

"The floods caused an estimated USD 12 billion in total losses with approximately USD 2 billion in insured and other funded losses. As we approach the one year anniversary of the floods, some residents are still trying to rebuild, and the sad reality is South Carolina could experience this type of extreme event again".

This is massive. A flood is considered noteworthy when it causes $1 billion in losses – this event caused $10 billion in uninsured losses. The true gap, though, is illustrated by the second sentence – a year later many families impacted are still trying to get their lives back on track. The flood protection gap is a rare opportunity to grow revenue/profits in a way that can really improve people’s lives.

As we move into Autumn, and Q4 and hurricane season, let’s take a quick look back at the three most popular Risks of Hazard blogs. It was an exciting few months here at the blog, highlighted by a new monthly readership record in September and our first appearance on NPR.

Friday marked the introduction of new in-force FIRMs for New Orleans that were approved earlier in 2016. Because of Katrina and the politics around the creation of the new FIRMs, this was national news. The New York Times had a piece on it in, we here blogged about it, and it was even discussed on All Things Considered on Friday (yes – that is what I sound like). Rarely does FEMA generate such fanfare without a catastrophe actually happening.