Category Archives: Flood Insurance

Catastrophes, Coastal Property, Disaster Preparedness, Disaster Resilience, Flood Insurance

Removing Incentives
for Development From High-Risk Areas Boosts Flood Resilience

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(Photo by Jonathan Sloane/Getty Images)

By Lewis Nibbelin, Contributing Writer, Triple-I

Withdrawing federal subsidies in climate-vulnerable areas can deter development and promote disaster resilience, according to a recent Nature Climate Change study. The study found that these benefits extend beyond the targeted areas.

These findings underscore the utility of land conservation as hazard protection, as well as the critical role financial incentives play in driving – or obstructing – resilience.

A natural experiment

“Empirical research into this question is limited because few policy experiments exist where a clear comparison can be made of ‘treatment’ settings, where incentives for development have been removed, and ‘control’ settings, similar areas where such incentives remain,” the study states. “One such experiment does exist, however.”

The 1982 Coastal Barrier Resources Act (CBRA) rendered more than one million acres along U.S. coasts ineligible for various incentives, including access to flood insurance through the National Flood Insurance Program (NFIP). Though development in these high-risk areas remains legal, the CBRA shifts total responsibility onto property owners to manage that risk.

Decades later, areas under the CBRA have 83 percent fewer buildings per acre than similar non-designated areas, leading to higher development densities in less risky neighboring areas. Subsequent reductions in flood damages have generated hundreds of millions in NFIP savings per year – due not only to NFIP ineligibility in CBRA areas, but also to fewer and less costly flood claims filed in neighboring areas.

Neighboring areas benefit from the natural infrastructure provided by undeveloped wetlands, which can ease flood risk severity by impeding the rate and flow of flooding.

Housing demand a challenge

Despite the evident value of limiting development in high-risk areas, such limitations are challenging to implement during a nationwide affordable housing shortage. Navigating housing demands in tandem with a rise in natural disasters will require a coordinated effort on local, state, and federal levels.

One approach is FEMA’s Community Rating System (CRS), a voluntary program that incentivizes local floodplain management practices exceeding the NFIP’s minimum standards. Class 1 is the highest rating, qualifying residents for a 45 percent reduction in their premiums. Of the nearly 23,000 participating NFIP communities, only 1,500 participate in the CRS. Of those 1,500, only two have achieved the highest rating: Tulsa, Okla., and Roseville, Calif.

While high ratings are difficult to secure, investments in flood planning yield long-term gains via safer infrastructure and more affordable premiums, with discounts in lower-rated jurisdictions still equating to millions in savings.

CRS discounts are especially advantageous following NFIP’s Risk Rating 2.0 reforms and increased private-sector interest in flood risk. Both have contributed to a more representative and actuarially sound flood insurance market that sets rates based on property-specific risks, thereby raising the premiums of riskier property owners.

Concerns about effective climate risk mitigation strategies persist, however – especially in the wake of unprecedented destruction wrought by Hurricane Helene.

While NFIP reforms are making flood insurance more equitable, many homeowners – including many of those most impacted by Hurricane Helene – are unaware that flood coverage is not offered by a standard homeowners policy. Likewise, many believe that flood insurance is necessary only if required by their lenders, leaving inland residents more susceptible to costly flood damages.

This lack of common knowledge about insurance is not a failure of consumers – rather, it represents the insurance industry’s urgent need to provide greater outreach, public education, and stakeholder collaboration.

Incentivizing public-private collaboration has demonstrated success, so removing federal incentives from additional high-risk areas would require extensive multidisciplinary coordination to prevent inadvertently widening the insurance protection gap. Emerging approaches to risk mitigation and resilience – such as community-based catastrophe insurance, New York City’s recent parametric insurance flood pilot, and the nation’s first public wildfire catastrophe model in California – offer opportunities for fairer rates and targeted local resilience.

If paired with policies based on the CBRA, such innovations could help ensure that appropriate risk transfer occurs alongside substantial risk reduction.

Learn More:

Triple-I “State of the Risk” Issues Brief: Flood

Executive Exchange: Using Advanced Tools to Drill Into Flood Risk

Accurately Writing Flood Coverage Hinges on Diverse Data Sources

Lee County, Fla., Towns Could Lose NFIP Flood Insurance Discounts

Miami-Dade, Fla., Sees Flood-Insurance Rate Cuts, Thanks to Resilience Investment

Milwaukee District Eyes Expanding Nature-Based Flood-Mitigation Plan

Attacking the Risk Crisis: Roadmap to Investment in Flood Resilience

It’s not too late to register for Triple-I’s Joint Industry Forum: Solutions for a New Age of Risk. Join us in Miami, Nov. 19 and 20.

Catastrophes, Coastal Property, Disaster Preparedness, Disaster Resilience, Flood Insurance, Floods

CSU: Post-Helene, 2 More “Above Normal” Weeks Of Storm Activity Expected

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(Photo by Joe Raedle/Getty Images)

As work continues to address the harm inflicted by Hurricane Helene, researchers at Colorado State University (CSU) warn that the next two weeks “will be characterized by [tropical storm] activity at above normal levels.” 

The CSU researchers define “above normal” by accumulated cyclone energy (ACE) of more than 10. This level of hurricane intensity has been reached in less than one-third of two-week periods in early October since records have been kept.

Hurricane Kirk, they wrote, is “extremely likely” to generate more than 10 ACE during its lifetime in the eastern/central Atlantic. Tropical Depression 13 has just formed and is likely to generate considerable ACE in its lifetime across the Atlantic. The National Hurricane Center is monitoring an additional area for formation in the Gulf of Mexico that should be monitored for potential U.S. impacts.

“Hurricane Kirk is forecast to track northwestward across the open Atlantic over the next few days, likely becoming a powerful major hurricane in the process,” said CSU research scientist and Triple-I Non-resident Scholar Phil Klotzbach. “The system looks to generate approximately an additional 20 ACE before dissipation, effectively guaranteeing the above-normal category for the two-week period.”

With more than 160 people confirmed dead in Florida, Georgia, South Carolina, North Carolina, Virginia, and Tennessee,  Helene is now the second-deadliest hurricane to strike the mainland United States in the past 55 years, topped only by Hurricane Katrina in 2005.

Reinsurance broker Gallagher Re predicts that private insurance market losses from Helene will rise to the mid-to-high single-digit billion dollar level, higher than its pre-landfall forecast of $3 billion to $6 billion, according to Chief Science Officer and Meteorologist Steve Bowen.

As always – and with particular urgency in the wake of Helene’s devastation – Triple-I urges everyone in hurricane-prone areas to stay informed, be prepared, and follow the instructions of local authorities. We also ask that people be mindful of the potential for flood danger far inland, as reflected in the experiences of many non-coastal communities during Hurricane Ida and Helene.

Learn More:

How to Prepare for Hurricane Season

Triple-I “State of the Risk” Issues Brief: Hurricanes

Hurricanes Don’t Just Affect Coasts; Experts Say: “Get Flood Insurance”

Disaster Resilience, Flood Insurance, Floods

Executive Exchange: Using Advanced Tools
to Drill Into Flood Risk

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Analysis based on precise, granular data is key to fair, accurate insurance pricing – and is more important than ever before in an era of increased climate-related risks. In a recent Executive Exchange discussion with Triple-I CEO Sean Kevelighan, a co-founder of Norway-based 7Analytics discussed how his company’s methodology – honed by use in the oil and gas industry – can help insurers identify opportunities to profitably write flood coverage in what might seem to be “untouchable” areas.

7Analytics uses hydrology, geology, and data science to develop high-precision flood risk data tools.

“We are four oil and gas geologists behind 7Analytics,” said Jonas Torland, who also is the company’s chief commercial officer, “and between us we’ve spent 100 years chasing fluids in the very complicated subsurface.”

Torland believes his firm can bring a new level of refined expertise to U.S. insurers seeking to pinpoint pockets of insurability against flood.

“Instead of analyzing faults and carrier beds, we’re now analyzing streams and culverts and changing land-use features,” Torland told Kevelighan. “I think the approach we bring is brilliant for problems related to climate and population migration and urban pluvial flooding in particular.”

Torland said he hopes his company can help close the U.S. flood protection gap by giving private insurers the comfort levels and incentives they need to write the coverage. While more insurers have been covering flood risk in recent years, the National Flood Insurance Program (NFIP) still underwrites the lion’s share of flood risk.

NFIP’s recently reformed pricing methodology, Risk Rating 2.0 – which aims to make the government agency’s premium rates more actuarially sound and equitable by better aligning them with individual properties’ risk – has created concerns among policyholders whose premiums are rising as rates become more aligned with principles of risk-based pricing.

As the cost of participating in NFIP rises for some, it is reasonable to expect that private insurers will recognize the market opportunity and respond by applying cutting-edge data and analytics capabilities and more refined pricing techniques to seize those opportunities. This is where Torland believes 7Analytics can help, and he noted that the company had already had some positive test results in flood-prone Florida.

Kevelighan agreed that solutions like those provided by 7Analytics are what is needed to help private insurers close the flood insurance gap. Insurers are telling Triple-I as much.

“I think we can all agree that the current way we review flood risk is antiquated,” Kevelighan said. “So we’ve got to bring that new technology, that new innovation to begin changing behaviors and changing how and where we develop and how we live.”

Learn More:

Triple-I “State of the Risk” Issues Brief: Flood

Accurately Writing Flood Coverage Hinges on Diverse Data Sources

Lee County, Fla., Towns Could Lose NFIP Flood Insurance Discounts

Miami-Dade, Fla., Sees Flood-Insurance Rate Cuts, Thanks to Resilience Investment

Milwaukee District Eyes Expanding Nature-Based Flood-Mitigation Plan

Attacking the Risk Crisis: Roadmap to Investment in Flood Resilience

Catastrophes, Coastal Property, Disaster Preparedness, Disaster Resilience, Flood Insurance, Floods, Homeowners Insurance, Legal Environment, Regulation, Wildfire

Triple-I Experts Speak
on Climate Risk, Resilience

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Hurricane Beryl’s rapid escalation from a tropical storm to a Category 5 hurricane does not bode well for the 2024 Atlantic Hurricane season, which is already projected to be of above-average intensity, warns Triple-I non-resident scholar Dr. Philip Klotzbach.

“This early-season storm activity is breaking records that were set in 1933 and 2005, two of the busiest Atlantic hurricane seasons on record,” Dr. Klotzbach, a research scientist in the Department of Atmospheric Science at Colorado State University, recently told The New York Times.

The quick escalation was a result of above-average sea surface temperatures. A hurricane that intensifies faster can be more dangerous as it leaves less time for people in its path to prepare and evacuate. Last October, Hurricane Otis moved up by multiple categories in just one day before striking Acapulco, Mexico, as a Cat-5 that killed more than 50 people.

After weakening to a tropical storm, Beryl made landfall as a Cat-1 hurricane near Matagorda, Texas, around 4 a.m. on July 8, according to the National Hurricane Center, making it the first named storm in the 2024 season to make landfall in the United States.  Beryl unleashed flooding rains and winds that transformed roads into rivers and ripped through power lines and tossed trees onto homes, roads, and cars. Restoring power to millions of Texans could take days or even weeks, subjecting residents who will not have air conditioning to further risk as a sweltering heatwave settles over the state.

Extreme heat was just one climate-related topic addressed by Triple-I Chief Insurance Officer Dale Porfilio in an interview with CNBC’s “Last Call” on July 9. While most farmers are insured against crop damage due to heat conditions and homeowners insurance typically covers wildfire-related losses, Porfilio noted, a “more subtle impact is on roofs that we thought were built to a 20-year lifespan.”

When subjected to extreme heat, roofs can become more brittle and prone to damage from wind or hail.

“So, you have to think about the roof coverage on your home insurance policy,” Porfilio said.

He also pointed out that flood risk represents “one of the biggest insurance gaps in this country. Over 90 percent of homeowners do not have the coverage.”

Many people incorrectly believe homeowners insurance covers flood damage or that they don’t need the coverage if their mortgage lender does not require it.

In an interview on CNBC’s “Squawk Box,” Triple-I CEO Sean Kevelighan discussed the potential impact of the predicted “well above-average” 2024 season on the U.S. property/casualty market.

“This is what the insurance industry is prepared for,” Kevelighan said. “It keeps capital on hand after writing policies to make sure that those promises can be kept.” The P/C industry has $1.1. trillion in surplus as of March 31, 2024.

Kevelighan pointed out that the challenges to the industry go beyond climate-related trends, explaining how legal system abuse, regulatory environments, shifting populations, and inflation are impacting insurers’ loss costs.

In Florida, for example, “you’ve got over 70 percent of all homeowners insurance litigation residing in that state, whereas it represents less than 10 percent of the overall claims.”

He pointed out that Florida’s insurance market has improved – with homeowners insurance premium growth  flattening somewhat – as a result of tort reform legislation and added that Louisiana’s legislature addressed insurance reform during its most recent session.

“In California, insurers can’t catch up with inflationary costs because of regulatory constraints,” Kevelighan noted. “They are not able to model [climate risk] and are not able price reinsurance into their policies.”

California’s wildfire situation is complex, and the state’s Proposition 103 has hindered insurers’ ability to profitably write homeowners coverage in that disaster-prone state. In late September 2023, California Insurance Commissioner Ricardo Lara announced a package of executive actions aimed at addressing some of the challenges included in Proposition 103. Lara has given the department a deadline of December 2024 to have the new rules completed.

Learn More:

Florida Homeowners Premium Growth Slows as Reforms Take Hold, Inflation Cools

Lightning-Related Claims Up Sharply in 2023

Less Severe Wildfire Season Seen; But No Less Vigilance Is Required

Accurately Writing Flood Coverage Hinges on Diverse Data Sources

IRC: Homeowners Insurance Affordability Worsens Nationally, Varies Widely by State

Legal Reforms Boost Florida Insurance Market; Premium Relief Will Require More Time

2024 Wildfires Expected to Be Up From Last Year, But Still Below Average

CSU Researchers Project “Extremely Active” 2024 Hurricane Season

Triple-I Issues Brief: Hurricanes

Triple-I Issues Brief: Attacking Florida’s Property/Casualty Risk Crisis

Triple-I Issues Brief: California’s Risk Crisis

Triple-I Issues Brief: Legal System Abuse

Triple-I Issues Brief: Wildfires

Triple-I Issues Brief: Severe Convective Storms

Triple-I Issues Brief: Flood

Catastrophes, Disaster Resilience, Flood Insurance, Floods, Risk Management

Accurately Writing
Flood Coverage Hinges on Diverse Data Sources

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Flood risk is not only one of the most destructive perils facing property owners; it is among the most complicated forms of coverage for property/casualty insurers to underwrite. For decades, the private market wouldn’t cover flood risk, which is why the National Flood Insurance Program had to be established.

But improved data collection and the availability of practically unlimited computing power have changed the equation for insurers, according to Anil Vasagiri, senior vice president for property solutions at Swiss Re. In a recent Executive Exchange with Triple-I CEO Sean Kevelighan, Vasagiri discussed the developments that have helped turn flood from a nearly untouchable peril to a burgeoning area of opportunity for insurers.

Over 90 percent of natural catastrophes involve flood in some way or another.  Vasagiri said the ability to use multiple data sources in understanding flood conditions of specific properties helps insurers more accurately underwrite flood and help policyholders proactively address their own exposure to the peril. 

“Increased information leads to increased capacity,” Vasagiri said – a fact that bodes well for improving insurance availability and affordability and evidenced by the increased number of private insurers writing flood coverage since 2016.

The timing of the private market’s increasing appetite for flood risk is fortuitous, as it coincides with Risk Rating 2.0, NFIP’s new pricing methodology that aims to make the government agency’s flood insurance premium rates more actuarially sound and equitable by better aligning them with individual properties’ flood risk. As NFIP rates become more aligned with principles of risk-based pricing, some policyholders’ prices are expected to fall, while many are going to rise.

In the Executive Exchange, Vasagiri discussed the Swiss Re’s acquisition of Fathom – a U.K.-based company specializing in water-related risks – as part of the company’s ongoing commitment to helping close the flood protection gap.

Learn More:

Triple-I “State of the Risk” Issues Brief: Flood

Triple-I “Trends and Insights” Issues Brief: Risk-Based Pricing of Insurance

Lee County, Fla., Towns Could Lose NFIP Discounts

Miami-Dade, Fla., Sees Flood Insurance Rate Cuts, Thanks to Resilience Investment

Milwaukee District Eyes Expanding Nature-Based Flood Mitigation Plan

Attacking the Risk Crisis: Roadmap to Investment in Flood Resilience

Catastrophes, Coastal Property, Disaster Preparedness, Disaster Resilience, Flood Insurance, Floods, Homeowners Insurance

CSU Researchers Project “Extremely Active”
2024 Hurricane Season

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Colorado State University hurricane researchers predict an “extremely active” Atlantic hurricane season in their initial 2024 forecast. The team cites record-warm tropical and eastern subtropical Atlantic sea surface temperatures as a primary factor for their prediction of 11 hurricanes this year.

Led by senior research scientist and Triple-I non-resident scholar Phil Klotzbach, Ph.D, the CSU Tropical Meteorology Project forecasts 23 named storms, 11 hurricanes, and five major hurricanes during the 2024 season, which starts on June 1 and continues through Nov. 30. A typical Atlantic season has 14 named storms, seven hurricanes, and three major hurricanes.

The 2023 season produced 20 named storms and seven hurricanes. Three reached “major hurricane” intensity. Major hurricanes are defined as those with wind speeds reaching Category 3, 4 or 5 on the Saffir-Simpson Hurricane Wind Scale.

“We anticipate a well above-average probability for major hurricanes making landfall along the continental United States coastline and in the Caribbean this season,” Klotzbach said. “Current El Niño conditions are likely to transition to La Niña conditions this summer/fall, leading to hurricane-favorable wind-shear conditions. Sea surface temperatures in the eastern and central Atlantic are currently at record-warm levels and are anticipated to remain well above average for the upcoming hurricane season. A warmer-than-normal tropical Atlantic provides a more conducive dynamic and thermodynamic environment for hurricane formation and intensification.”

One hurricane and two tropical storms made continental U.S. landfalls last year. Category 3 Hurricane Idalia struck Florida’s Big Bend region near Keaton Beach on Aug. 30 with wind speeds of 115 mph. It was the third hurricane, and second major hurricane, to make a Florida landfall over the past two seasons. Idalia caused storm surge inundation of 7 to 12 feet and widespread flooding in Florida and throughout the Southeast. 

“The widespread damage incurred from Idalia last year highlighted the importance of being financially protected from catastrophic losses – and that includes having adequate levels of property insurance and flood coverage,” said Triple-I CEO Sean Kevelighan. “Beyond Florida, we saw significant impacts from Idalia in southern Georgia and the Carolinas. All it takes is one storm to make it an active season for you and your family, so it is time to prepare as the 2024 Atlantic hurricane season’s start nears.”

With this forecast in mind, now is ideal time for homeowners and business owners to review their policies with an insurance professional to ensure they have the right amount and types of coverage. That includes exploring whether they need flood coverage, which is not part of a standard homeowners, condo, renters or business insurance policy.

Flood policies are offered through FEMA’s National Flood Insurance Program (NFIP) and dozens of private insurers.

Homeowners also can make their residences more resilient to windstorms and torrential rain by installing roof tie-downs and a good drainage system. Installation of a wind-rated garage door and storm shutters also boost a home’s resilience to a hurricane’s damaging winds and may generate savings on a homeowner’s insurance premium.

Private-passenger vehicles damaged or destroyed by either wind or flooding are covered under the optional comprehensive portion of an auto insurance policy.

Learn More:

Triple-I “State of the Risk” Issues Brief: Hurricanes

Triple-I “State of the Risk” Issues Brief: Flood

FEMA Highlights Role of Modern Roofs in Preventing Hurricane Damage

Hurricanes Drive Louisiana Insured Losses, Insurer Insolvencies

INFOGRAPHICS

What are Hurricane Deductibles?

How to Prepare for Hurricane Season

How to File a Flood Insurance Claim

Is Your Business Ready for Peak Hurricane Season?

Coastal Property, Disaster Resilience, Flood Insurance, Floods

Lee County, Fla., Towns Could Lose NFIP Flood Insurance Discounts

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Property owners in Lee County, Fla., could lose their flood insurance premium discounts under the National Flood Insurance Program (NFIP) Community Rating System (CRS), according to a recent announcement by FEMA.

CRS is a voluntary program that recognizes and encourages community floodplain management practices that exceed NFIP minimum requirements.  Over 1,500 communities participate nationwide.

FEMA informed leaders in the affected communities – which include Cape Coral, Bonita Springs, Estero, Fort Myers Beach, and unincorporated Lee County – that they would begin losing their discounts starting October 1. Under CRS, these communities currently receive discounts of up to 25 percent. Unincorporated Lee County and the City of Cape Coral get the biggest benefit due to their Class 5 ratings. Rates will increase by approximately $300 annually for the 115,000 homeowners impacted by FEMA’s decision.

“This retrograde is due to the large amount of unpermitted work, lack of documentation, and failure to properly monitor activity in special flood hazard areas, including substantial damage compliance,” FEMA said in a statement. 

FEMA officials told the Miami Herald that the problems began shortly after Hurricane Ian in 2022, when federal teams visited the communities hit the hardest and looked at the properties they thought were most likely to be substantially damaged, including older homes built in flood zones, some with previous flood damage.

“What the team found, unfortunately, is there was a lot of unpermitted work, lack of documentation,” said Robert Samaan, the regional administrator for FEMA’s Region 4, including Florida. “It was just a failure to properly monitor the activity in the special flood hazard area.”

FEMA shared with the Herald three letters it sent Lee County in 2023 — one in February, one in June and one in December — asking for information on the number of damaged homes and warning that not providing the information could result in the county losing its flood insurance discounts.

In recent months, a number of Florida communities, including Miami-Dade County, have benefited from lower flood insurance premiums as a result of improved CRS scores that reflect resilience-related investment. CRS has become particularly beneficial as NFIP pricing reforms – known as Risk Rating 2.0 –that more closely align premium rates with property-specific risks – have contributed to rising premiums for some property owners. Before these reforms, it was not uncommon for lower-risk owners to be subsidizing higher-risk ones through their premium rates.

Rising NFIP rates have been accompanied by another trend: increased involvement by private insurers in the flood insurance market.

“Florida has the most robust private flood insurance market in the United States, which provides consumers with numerous options for coverage,” said Mark Friedlander, director of corporate communications for Triple-I. “Nearly a third of Florida flood policies are written by private carriers, and many private flood insurers offer better pricing and more robust policies than NFIP. It’s worth taking the time to shop for coverage and obtain multiple quotes.”

As recently as 2018, private insurers provided only 3 percent of flood coverage in Florida.

This growth mirrors a national trend. Between 2016 and 2022 the total flood market grew 24 percent – from $3.29 billion in direct premiums written to $4.09 billion – with 77 private companies writing 32.1 percent of the business, up from 18 companies writing 12.5 percent. Private insurers are accounting for a bigger piece of a growing pie.

Florida’s Office of Insurance Regulation has heavily promoted the availability of private flood insurance in the state over the past several years, and many private flood insurers are domiciled in the state, Friedlander said.

“We are committed to helping these communities take appropriate remediation actions to participate in the Community Rating System again and work towards future policy discounts,” FEMA said in its statement.

Earlier this year, Sea Isle City, N.J., had its Class 3 rating restored after a brief demotion in 2023. Sea Isle City and Avalon are the only towns in the state to have Class 3 ratings.

Learn More:

Coastal New Jersey Town Regains Class 3 NFIP Rating

FEMA Reauthorization Session Highlights Importance of Risk Transfer and Reduction

Miami-Dade, Fla., Sees Flood Insurance Rate Cuts Thanks to Resilience Investment, Thanks to Resilience Investment

Attacking the Risk Crisis: Roadmap to Investment in Flood Resilience

Triple-I “State of the Risk” Issues Brief: Flood

Coastal Property, Disaster Preparedness, Disaster Resilience, Flood Insurance

Coastal New Jersey Town Regains Class 3 NFIP Rating

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Sea Isle City, N.J., has regained its Class 3 rating under FEMA’s National Flood Insurance Program (NFIP) Community Rating System (CRS) after a brief demotion last year. Being rated Class 3 enables the coastal town’s property owners to receive a 35 percent discount on their federal flood insurance.

CRS is a voluntary incentive-based program designed to encourage strong floodplain management. Class 1 is the highest rating, enabling residents to obtain a 45 percent reduction in their premiums. Class 10 indicates that a community doesn’t participate in CRS. To date, only two of the 1,500 participating communities nationwide have achieved the highest rating: Tulsa, Okla., and Roseville, Calif.

High ratings are not easy to obtain or maintain. Sea Isle City first reached Class 3 in 2018, and the rating was briefly lowered to Class 4 last year after points awarded to communities after Superstorm Sandy expired. The city quickly regained Class 3 status through additional flood-management activities.

In the mid-1990s, conditions were so bad for Sea Isle City that it was nearly ejected from the NFIP. If this had happened, property owners wouldn’t have had access to federal flood insurance. Neil Byrne, the city’s floodplain manager, construction official, building sub-code official, and zoning officer, attributes the improvement to strengthened zoning ordinances that require structures to be elevated higher than FEMA recommends, as well as investment in berms and bulkheads.

“The history of Sea Isle City going from facing expulsion from the NFIP to now leading the charge in the CRS in New Jersey is truly inspirational,” said Thomas Song, FEMA resiliency specialist.  “What does not get enough attention is that success in the CRS program has to start with a strong understanding of the day-to-day compliance with NFIP requirements. It is extremely difficult to advance in CRS status without a strong foundation in floodplain-management practices.”

Achieving higher CRS rankings has become something of a friendly competition among coastal New Jersey towns, and only one other New Jersey community – Avalon – has a Class 3.

“Both Sea Isle City and Avalon have demonstrated their commitment in planning for future flooding, implementing higher building standards, and engaging in extensive public outreach,” Song said. “These efforts create an environment geared towards reducing flood damage and enhancing the safety and well-being of residents.”

As NFIP – through its Risk Rating 2.0 reforms – attempts to better align premium rates with risk, CRS discounts become even more significant to owners in flood-prone communities.

Last year, 17 Florida jurisdictions achieved Class 3 ratings. In Cutler Bay – a town on Miami’s southern flank with about 45,000 residents – the average premium dropped by $338. Citywide, that represented a savings of $2.3 million. In January 2024, Miami-Dade County became the latest municipality in the flood- and hurricane-prone state to achieve Class 3, leapfrogging from Class 5 due to the county’s flood-mitigation investments.

Meanwhile, back in New Jersey, Byrne says Sea Isle City hopes to become the state’s first Class 2 community.

“It’s very hard to get to the next level,” he said, but adds that flood pumps could help the city over the hump.

“Ninety-nine percent of our flooding is tidal flooding,” Byrne said, referring to inundation that happens during high tide events. “A lot of it goes away on its own, but we have little areas that need help getting the water out.”

About 90 percent of all U.S. natural disasters involve flooding. For decades, NFIP was practically the only available option for homeowners to obtain flood coverage. Before Risk Rating 2.0, however, coverage for higher-risk properties was often unfairly subsidized by lower-risk property owners.

In recent years, improved data, analysis, and modeling have helped drive increased private-sector interest in flood risk. This, combined with the NFIP reforms, should foster a more competitive flood insurance market in which coverage is both more available and more fairly priced.

“Collective responsibility and multi-disciplinary collaboration are necessary to build resilience around climate-related perils like flood,” said Triple-I CEO Sean Kevelighan. “FEMA’s CRS program is just one example of how communities can make themselves safer and save money through targeted investments that reduce the likelihood and size of catastrophic losses.”

 Learn More:

Triple-I “State of the Risk” Issues Brief: Flood

FEMA Reauthorization Session Highlights Importance of Risk Transfer and Reduction

Miami-Dade, Fla., Sees Flood-Insurance Rate Cuts, Thanks to Resilience Investment

FEMA Incentive Program Helps Communities Reduce Flood Insurance Rates for Their Citizens

Proposed Flood Zone Expansion Would Increase Need for Private Insurance

Catastrophes, Disaster Preparedness, Disaster Resilience, Flood Insurance, Floods, Homeowners Insurance, Legal Environment, Regulation, Risk Management

Evolving Risks Demand Integrated Approaches

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Even as the Smokehouse Creek Fire – the largest wildfire ever to burn across Texas – was declared “nearly contained” this week, the Texas A&M Service warned that conditions are such that the remaining blazes could spread and even more might break out.

“Today, the fire environment will support the potential for multiple, high impact, large wildfires that are highly resistant to control” in the Texas Panhandle, the service said.

This year’s historic Texas fires – like the state’s 2021 anomalous winter storms, California’s recent flooding after years of drought, and a surge in insured losses due to severe convective storms across the United States – underscore the variability of climate-related perils and the need for insurers to be able to adapt their underwriting and pricing to reflect this dynamic environment. It also highlights the importance of using advanced data capabilities to help risk managers better understand the sources and behaviors of these events in order to predict and prevent losses.

For example, Whisker Labs – a company whose advanced sensor network helps monitor home fire perils, as well as tracking faults in the U.S. power grid – recorded about 50 such faults in Texas ahead of the Smokehouse Creek fires.

Bob Marshall, Whisker Labs founder and chief executive, told the Wall Street Journal that evidence suggests Xcel Energy’s equipment was not durable enough to withstand the kind of extreme weather the nation and world increasingly face. Xcel – a major utility with operations in Texas and other states — has acknowledged that its power lines and equipment “appear to have been involved in an ignition of the Smokehouse Creek fire.”

“We know from many recent wildfires that the consequences of poor grid resilience can be catastrophic,” said Marshall, noting that his company’s sensor network recorded similar malfunctions in Maui before last year’s deadly blaze that ripped across the town of Lahaina.

Role of government

Government has a critical role to play in addressing the risk crisis. Modernizing building and land-use codes; revising statutes that facilitate fraud and legal system abuse that drive up claim costs; investing in infrastructure to reduce costly damage related to storms – these and other avenues exist for state and federal government to aid disaster mitigation and resilience.

Too often, however, the public discussion frames the current situation as an “insurance crisis” – confusing cause with effect. Legislators, spurred by calls from their constituents for lower premiums, often propose measures that would tend to worsen the problem because they fail to reflect the importance of accurately valuing risk when pricing coverage.

The federal “reinsurance” proposal put forth in January by U.S. Rep. Adam Schiff of California is a case in point. If enacted, it would dismantle the National Flood Insurance Program (NFIP) and create a “catastrophic property loss reinsurance program” that, among other things, would set coverage thresholds and dictate rating factors based on input from a board in which the insurance industry is only nominally represented.

U.S. Rep. Maxine Waters (also of California) has proposed a Wildfire Insurance Coverage Study Act to research issues around insurance availability and affordability in wildfire-prone communities. During  House Financial Services Committee deliberations, Waters compared current challenges in these communities to conditions related to flood risk that led to the establishment of NFIP in 1968. She said there is a precedent for the federal government to step in when there is a “private market failure.”

However, flood risk in 1968 and wildfire risk in 2024 could not be more different. Before FEMA established the NFIP, private insurers were generally unwilling to underwrite flood risk because the peril was considered too unpredictable. The rise of sophisticated computer modeling has since given private insurers much greater confidence covering flood (see chart).

In California, some insurers have begun rethinking their appetite for writing homeowners insurance – not because wildfire losses make properties in the state uninsurable but because policy and regulatory decisions made over 30 years ago have made it hard to write the coverage profitably. Specifically, Proposition 103 and its regulatory implementation have blocked the use of modeling to inform underwriting and pricing and restricted insurers’ ability to incorporate reinsurance costs into their premium pricing.

California’s Insurance Commissioner Ricardo Lara last year announced a Sustainable Insurance Strategy for the state that includes allowing insurers to use forward-looking risk models that prioritize wildfire safety and mitigation and include reinsurance costs into their pricing. It is reasonable to expect that Lara’s modernization plan will lead to insurers increasing their business in the state.

It’s understandable that California legislators are eager to act on climate risk, given their long history with drought, fire, landslides and more recent experience with flooding due to “atmospheric rivers.” But it’s important that any such measures be well thought out and not exacerbate existing problems.

Partners in resilience

Insurers have been addressing climate-related risks for decades, using advanced data and analytical tools to inform underwriting and pricing to ensure sufficient funds exist to pay claims. They also have a natural stake in predicting and preventing losses, rather than just continuing to assess and pay for mounting claims.

As such, they are ideal partners for businesses, communities, governments, and nonprofits – anyone with a stake in climate risk and resilience. Triple-I is engaged in numerous projects aimed at uniting diverse parties in this effort. If you represent an organization that is working to address the risk crisis and your efforts would benefit from involvement with the insurance industry, we’d love to hear from you. Please contact us with a brief description of your work and how the insurance industry might help.

Learn More:

Triple-I “State of the Risk” Issues Brief: Wildfire

Triple-I “State of the Risk” Issues Brief: Flood

Triple-I “Trends and Insights” Issues Brief: California’s Risk Crisis

Triple-I “Trends and Insights” Issues Brief: Risk-Based Pricing of Insurance

Stemming a Rising Tide: How Insurers Can Close the Flood Protection Gap

Tamping Down Wildfire Threats

Catastrophes, Disaster Resilience, Flood Insurance, Insurers and the Economy

FEMA Reauthorization Session Highlights Importance of Risk Transfer and Reduction

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If there was a recurring theme in last week’s Senate Banking Committee hearing on reauthorization of FEMA’s National Flood Insurance Program (NFIP), it was the need for:

  • Congress to reauthorize NFIP, and
  • Communities, businesses, and government at all levels to invest in mitigating flood risk and in improving resilience.

It’s important to amplify this message, especially in light of a recent proposal by Rep. Adam Schiff that would, among other things, disband NFIP and require property/casualty insurers to provide “all-risk policies” based on coverage thresholds and rating factors dictated by a board in which the insurance industry is only nominally represented. Last year’s budget uncertainty – in which a potential government shutdown was threatened – left open the very real possibility of funding for NFIP expiring if Congress failed to reach a deal.

“Federal policies and programs, including NFIP, are essential,” said Daniel Kaniewski, managing director, public sector, for Marsh McLennan in his testimony. “But all disasters are local, and so too are resilience investment decisions.”

Before joining Marsh McLennan, Kaniewski was the second-ranking official at FEMA, where he was the agency’s first deputy administrator for resilience.

“To increase the resilience of communities against the pervasive risk of flooding,” Kaniewski testified, “we believe that risk transfer— including from the NFIP, private flood insurance, reinsurance, and parametric insurance — should be paired with risk reduction.”

In this regard, Kaniewski emphasized NFIP’s Community Rating System (CRS), which encourages and rewards community floodplain management practices that exceed the NFIP’s minimum requirements. He cited Tulsa, Okla., as one of two U.S. communities to have achieved the highest CRS rating (the other is Roseville, Calif.), making residents eligible for the program’s greatest flood insurance discount of 45 percent.

Even without achieving the maximum rating, citizens save on flood insurance when their communities invest in resilience. For example, Miami-Dade County, Fla., recently became the latest jurisdiction in the hurricane- and flood-prone state to benefit from CRS program. The county’s new Class 3 rating will result in an estimated $12 million savings annually by giving qualifying residents and business owners in unincorporated parts of the county a 35 percent discount on flood insurance premiums.  

Last year, 17 other Florida jurisdictions achieved Class 3 ratings. In Cutler Bay – a town on Miami’s southern flank with about 45,000 residents – the average premium dropped by $338. Citywide, that represented a savings of $2.3 million.

Unfortunately, only 1,500 communities nationwide participate in CRS, underscoring the importance of awareness-building, education, and collaboration.

Kaniewski also highlighted the opportunity presented by community-based catastrophe insurance (CBCI), which uses parametric insurance to provide coverage to local government entities that wish to cover a group of properties. Such programs enhance financial resilience by simultaneously providing affordable coverage and creating incentives for risk reduction.

“Our recent CBCI pilot in New York City was developed in partnership with the City of New York and several nonprofit and insurance industry partners and funded by the National Science Foundation,” Kaniewski said. “It provides a level of financial protection for low-to-moderate-income households that previously lacked flood insurance.”

Kaniewski called on other industries – such as finance and real estate – to encourage flood resilience investments, along with the insurance industry and all levels of government. He cited the recent roadmap for resilience incentives issued by the National Institute of Building Sciences (NIBS) – funded by Fannie Mae and co-authored by representatives of a cross-section of “co-beneficiary industries” – that focused on residential structures prone to flooding. Triple-I subject-matter experts were co-authors on the NIBS project.

Sen. Tim Scott of South Carolina, committee co-chair – along with Sen. Sherrod Brown of Ohio – spoke from the perspective of a former insurance professional who has sold flood insurance about his state’s recent investment in mitigation.

“In 2023, the state’s budget included significant funding for mitigation efforts that would reduce flood damage from future storms,” Scott said.“Backing up that investment, the South Carolina Office of Resilience released a nationally praised Statewide Risk Reduction Plan, identifying the communities most vulnerable to floods and targeting mitigation resources to protect those residents. These are local solutions to local challenges – and they will make a huge difference in the lives of South Carolinians.”

While solutions that work in South Carolina might not work in other states, Scott said, “I’m confident that similar, locally based solutions and approaches could make a huge difference.”

Sen. Katie Britt of Alabama invited Kaniewski to elaborate on her state’s Strengthen Alabama Homes program, which provides grants and insurance discounts to homeowners who make qualifying retrofits to their houses. Britt cited research that found the program had “directly resulted in lower insurance premiums and higher home resale values.”

Kaniewski spoke in detail about Alabama’s efforts, including Strengthen Alabama Homes – which, he pointed out, is now being emulated by other states, including hurricane- and flood-prone Louisiana. He also cited by name the author of the research Britt referenced – Dr. Lars Powell, executive director of the Alabama Center for Insurance Information and Research at the University of Alabama and a Triple-I Non-resident Scholar – for producing “the first study that I’ve seen that gives empirical data — real evidence that mitigation pays.”

Steve Patterson, mayor of Athens, Ohio, described a range of nature-based solutions his city has taken – from rerouting the Hocking River, which runs through the middle of the city, to removing invasive plants and restoring native trees along the bank.

“That’s been very effective in reducing flooding in different neighborhoods throughout the city,” Patterson said. “There are a lot of things cities and villages can do.”

The work done by Athens – like green infrastructure work by the Milwaukee Metropolitan Sewerage District in Wisconsin and municipal entities – offers opportunities to reduce flood risk while improving quality of life for citizens. But, as Patterson points out, not all municipalities have the financial capacity to engage in such projects.

That is where the engagement of co-beneficiaries of resilience investment as partners becomes so crucial.

Learn More:

Triple-I Issues Brief: Flood

Miami-Dade, Fla., Sees Flood Insurance Rate Cuts, Thanks to Resilience Investment

Milwaukee District Eyes Expanding Nature-Based Flood-Mitigation Plan

Attacking the Risk Crisis: Roadmap to Investment in Flood Resilience

Proposed Flood Zone Expansion Would Increase Need for Private Insurance

FEMA Incentive Program Helps Communities Reduce Flood Insurance Rates for Their Citizens

FEMA Names Disaster Resilience Zones, Targeting At-Risk Communities for Investment

Shutdown Threat Looms Over U.S. Flood Insurance