Category Archives: Floods

Disaster Resilience, Flood Insurance, Floods

Expanded Triple-I Flood Risk Maps Provide Richer Perspective

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The Triple-I Resilience Accelerator’s flood risk visualization tool is being enhanced with:

  • National Flood Insurance Program (NFIP) data on “take-up rates” by U.S. county from 2010 to 2021,
  • Differences between take-up rates inside and outside of flood zones, and in different proximities to flood zones.

These additions will expand the Accelerator’s visualization from covering only the current year to providing an historical perspective on how take-up rates have changed over time. 

Take-up rates and resilience

Insurance take-up rates represent the percentage of people eligible for a particular coverage who take advantage of it. In the case of flood insurance, they are calculated as the number of insurance policies in force in a certain geography over the total number of eligible properties for which insurance can be bought.

Understanding flood insurance take-up rates is essential to assessing and improving communities’ ability to rebound from damaging events. About 90 percent of natural disasters in the United States involve flooding, the NFIP says, and much has been written about the flood protection gap.

“On average nationwide, only 30 percent of homes in the highest risk areas have flood coverage,” according to the Risk Management and Decision Processes Center of the Wharton School at the University of Pennsylvania, a Triple-I Resilience Accelerator partner. “Less than 25 percent of the buildings flooded by Hurricanes Harvey, Sandy, and Irma had insurance. Indeed, repeatedly after floods there is evidence of the United States’ large and persistent flood insurance gap.”

But understanding that gap to a degree that will support meaningful action requires comprehensive, granular data only NFIP can provide. It also requires the data to be available in easy-to-use formats. This is where the Triple-I/NFIP collaboration comes into play.

Key considerations to keep in mind when looking at take-up rates are year-over-year changes; whether the rates are by city, county, or state; and whether they are for all homes or homes in flood zones alone. During the first quarter of 2021, Triple-I’s Resilience Accelerator’s flood map will be updated with four options for users to visualize:

  • Annual take-up rates from 2010 to 2018,
  • 2019 take-up rates based on 2018 renewals only,
  • County-wide and flood-zones-only take-up rates estimates for 2020, and
  • County-wide share of dwellings in close proximity to flood zones.

Historical perspective

In 2019, NFIP started publishing historical data on NFIP insurance coverage, policies, and claims. NFIP’s decision to publish this data was a transformative point for industry practitioners, academics and those involved with flood insurance analysis. The Triple-I’s visualizations use NFIP’s full- and part-year data from 2010 to 2019 and our own estimates, based on this data, for 2020.

Dr. Michel Léonard, CBE, Triple-I vice president and senior economist says: “We’ve worked closely with NFIP to ensure that our visualizations reflect the most current, accurate information available on flood insurance take-up rates. In addition, we wanted to add to the discussion surrounding NFIP take-up rates by providing less common yet insightful ways to understand and visualize take-up rates, such as take-up rates for properties in flood zones only or the share of a country’s property in different proximities to flood zones.”

Flood coverage, as opposed to water damage from mechanical breakdown inside a house, isn’t included in most homeowners insurance policies, so many homeowners may not realize they don’t have it if their bank didn’t require them to buy it before providing a mortgage. Until recently, flood insurance was considered an “untouchable” risk for private insurers to write, so the NFIP was the only game in town.

In recent years, however, Congress adopted new laws to support the emergence of a robust domestic private flood insurance market.  Last year, regulators provided rules that allowed private carriers to offer flood policies outside of NFIP and to qualify for the mortgage flood insurance requirement. Carriers and reinsurers are expanding their use of sophisticated models to underwrite flood risk, driving the growth of private sector flood insurance.

 “We want to acknowledge and stress how significant the NFIP Policy and Claims data is to increasing our understanding of flood risk,” Léonard said. “Good data takes a lot of work, and NFIP’s commitment to making this data available is a perfect example of public-private partnerships delivering concrete value.”  

Floods

Mangrove Insurance: Parametric + Indemnity May Aid Coastal Resilience

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Earlier this year, I wrote about the role mangrove forests and coral reefs play in mitigating tropical storm damage and how insurance might help protect these critical resources. A recent Nature Conservancy study looks specifically at opportunities in mangrove protection and restoration and identifies where insurance could be used to support their resilience benefits.

In many places, mangroves are the first line of defense, their aerial roots helping to reduce erosion and dissipate storm surge. In Florida, one study found, mangroves alone prevented $1.5 billion in direct flood damages and protected over half a million people during Hurricane Irma in 2017, reducing damages by nearly 25% in counties with mangroves. Another study found mangroves actively prevent more than $65 billion in property damage and protect over 15 million people every year worldwide.  

Unfortunately, they frequently fall victim to development that creates the greatest potential for storm-related losses.

The Nature Conservancy study describes the implementation of a coral reef insurance product in Quintana Roo, Mexico, and explores how the model could be adapted for mangrove preservation. In Quintana Roo, a trust fund accepts money from public, private and philanthropic sources, as well as a federal fee collected from beachfront property owners who wish to use the beach for commercial purposes. It uses those funds to buy the insurance – a parametric product that is triggered if wind speeds in a designated area exceed 100 knots.

Parametric policies cover risks without the complications of sending adjusters to assess damage after a catastrophe. Instead of paying for damage that has occurred, it pays out if certain agreed-upon conditions are met – for example, a specific wind speed or earthquake magnitude in a particular area. If coverage is triggered, a payment is made, regardless of damage. Speed of payment and reduced administration costs can ease the burden on both insurers and policyholders.

“Unlike coral reefs, however, mangroves do not usually require rapid post-storm interventions in order to survive,” the study says. This means an indemnity insurance policy might be created that delivers payments based on post-catastrophe assessments of mangrove damage. “There are a variety of insurance products available that can be tailored to meet the specific needs of mangroves, with initial payouts made quickly through parametric covers and assessed payouts made through indemnity cover at a later stage.”

Before a mangrove insurance policy can be developed and deployed, a full feasibility study would need to be conducted.  The Nature Conservancy report recommends that this include “higher-resolution flood-risk models, estimation of the wind-reduction benefits of mangroves, and the construction of fragility curves to show the relationship between damage to a mangrove forest and some component of a storm event, such as storm surge or wind speed.”

Disaster Preparedness, Floods

Hurricane Delta Surges Closer to Gulf Coast

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Hurricane Delta is surging closer to the U.S. Gulf Coast and is expected to land on the evening of October 9 somewhere on Louisiana’s southwest coast. Dr. Phil Klotzbach, CSU research scientist and Triple-I non-resident scholar gives an update on Delta in the video clip above.

The hurricane has grown in size since yesterday and a large area of the country will see impacts from the storm. Hurricane warnings are in place from High Island, TX to Morgan City, LA, and storm surge warnings extend from High Island, TX to the mouth of the Pearl River.

In addition to strong winds Delta is expected to bring storm surge as high as 7 to 11 feet along the coast of central LA, rainfall totals are forecast to be from 5 to 10 inches from southwest to central LA, with isolated totals of up to 15 inches.

Delta is on track to hit the same area of Louisiana where Hurricane Laura landed only six weeks ago. New Orleans, which will likely miss the storm, was still preparing for the possibility of tornadoes. Louisiana Gov. John Bel Edwards declared a state of emergency.  Mississippi Gov. Tate Reeves also declared a state of emergency, with forecasters saying southern Mississippi could see heavy rain and flash flooding.

Floods, Insurance Industry

Tropical Storm Beta Moves Toward Texas Coast

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The outer bands of Tropical Storm Beta are lashing the Texas coast but official landfall is forecast to be late this evening. Beta is also bringing tropical storm conditions to parts of the southwestern Louisiana coast where 2 to 4 feet of storm surge is possible.

The storm is going to bring heavy rainfall to areas that were hit by Hurricane Laura.

High tide on Tuesday could bring “life-threatening storm surge” in areas of Texas and Louisiana, according to the National Hurricane Center (NHC). “Persons located within these areas should take all necessary actions to protect life and property from rising water and the potential for other dangerous conditions,” NHC said. “Promptly follow evacuation and other instructions from local officials.”

The storm could also create tornadoes near the middle-to-upper Texas coast or the southwestern Louisiana coast, NHC said.

Please click on the links below for Triple-I’s hurricane preparedness guides:

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

If It Can Rain, It Can Flood: Buy Flood Insurance

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Rivers swollen by Hurricane Sally’s rains have devastated parts of the Florida Panhandle and south Alabama, and the storm’s remnants are forecast to spread the flooding to Georgia and the Carolinas.

Many of the properties damaged will doubtless be found to be uninsured, compounding homeowners’ misery.

A well-known coverage gap

The flood insurance protection gap has been well documented. A recent Triple-I paper –  Hurricane Season: More Than Just Wind and Water – states that “about 90 percent of all natural disasters in the United States involve flooding” and cites experts strenuously urging everyone to buy flood insurance.

“Any home can flood,” says Dan Kaniewski — managing director for public sector innovation at Marsh & McLennan and former deputy administrator for resilience at the Federal Emergency Management Agency (FEMA). “Even if you’re well outside a floodplain…. Get flood insurance. Whether you’re a homeowner or a renter or a business — get flood insurance.”

Dr. Rick Knabb — on-air hurricane expert for the Weather Channel, speaking at Triple-I’s 2019 Joint Industry Forum — is similarly emphatic.

“If it can rain where you live,” he said, “it can flood where you live.”

Despite such warnings, even in designated flood zones, the protection gap remains large. A McKinsey & Co. analysis of flood insurance purchase rates in areas most affected by three Category 4 hurricanes that made landfall in the United States — Harvey, Irma, and Maria — found that as many as 80 percent of homeowners in Texas, 60 percent in Florida, and 99 percent in Puerto Rico lacked flood insurance.

To make matters worse, a recent analysis by the nonprofit First Street Foundation found the United States to be woefully underprepared for damaging floods. The report identified “around 1.7 times the number of properties as having substantial risk,” compared with FEMA’s designation.

“This equates to a total of 14.6 million properties across the country at substantial risk, of which 5.9 million property owners are currently unaware of or underestimating the risk they face,” the foundation says.

A more recent Triple-I analysis, conducted in advance of Hurricane Sally, found that flood insurance purchase rates in the counties most likely to be affected by the storm were “remarkably low.”

“In Taylor County, Ga., for example, just 0.09 percent of properties are insured against flooding,” Triple-I wrote.

NOT covered by homeowners insurance

Flood damage is excluded under standard homeowners and renters insurance policies. However, flood coverage is available as a separate policy from the National Flood Insurance Program (NFIP), administered by FEMA, and from a growing number of private insurers, thanks to sophisticated flood models that have made insurers more comfortable writing this once “untouchable” risk.

Invest in resilience

If it seems as if you’ve heard me beat this drum before, you’re right.  I take flood and flood insurance very personally.

After Hurricane Irene flooded my inland New Jersey basement in August 2011, destroying many irreplaceable items, it was my flood insurance that enabled me to have a French drain and two powerful pumps installed that have since kept my historically damp basement bone dry – even during Superstorm Sandy the following year.   

Floods

Hurricane Sally Makes Landfall as Category 2 Storm

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Hurricane Sally made landfall this morning near Gulf Shores, Alabama, as a Category 2 storm with sustained winds of 105 mph and higher gusts.  The storm threatens extremely heavy rainfall and catastrophic floods for miles. Dr. Philip Klotzbach, Triple-I non-resident scholar and Colorado State University atmospheric scientist, gives an update on the storm in the video above.

For safety tips click here.

Disaster Preparedness, Floods

Hurricane Sally Update: 09/15/20

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Hurricane Sally looks to be a very significant hurricane for the northern Gulf Coast according to Triple-I non-resident scholar and Colorado State University atmospheric scientist Dr. Philip Klotzbach.

While the Category 1 storm doesn’t look to intensify much today given relatively strong wind shear and cooler sea surface temperatures (since the storm is moving very slowly and consequently churning up colder water beneath the surface), we’re likely to have a long duration storm event unfolding over the next several days.

Wind impacts will be moderate, but the storm will be moving very slowly, so a prolonged period of high winds can be expected.  The very slow-moving hurricane is going produce tremendous amounts of rain along the northern Gulf Coast.  Large regions will likely experience 10+” of rainfall, with isolated storm totals approaching 30″, said Dr. Klotzbach.

Emergency declarations for parts of Florida, Louisiana, Mississippi and Alabama have been issued and residents are urged to listen to local officials.

Business Insurance, Business Risk, Catastrophes, Disaster Preparedness, Disaster Resilience, Floods, Insurers and the Economy, Legal Environment

Policyholder Surplus Matters: Here’s Why

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Perhaps the most emotionally compelling data point invoked by those who would compel insurers – through litigation and legislation – to pay business-interruption claims explicitly excluded from the policies they wrote is the property/casualty insurance industry’s nearly $800 billion policyholder surplus.

 Many Americans hear “surplus” and think of a bit of cash they have stashed away for emergencies. And when you consider that nearly 40 percent of Americans surveyed by the Federal Reserve said they would either have to borrow or sell something to cover an unexpected $400 expense – or couldn’t pay it at all – that number may sound like overkill. 

Not as much as you think

But policyholder surplus isn’t a “rainy day fund.” It’s an essential part of the industry’s ability to keep the promises it makes to policyholders. And although a number like $800 billion may raise eyebrows, when we look more closely at its components, the amount available to cover claims turns out to be considerably less.

Insurers are regulated on a state-by-state basis. Regulators require them to hold a certain amount in reserve to pay claims based on each insurer’s own risk profile. The aggregation of these reserves – required by every state for every insurer doing business in those states – accounts for about half the oft-cited industry surplus.

Call it $400 billion, for simplicity’s sake.

Each company’s regulator-required surplus can be thought of as that company’s “running on empty” mark – the point at which alarms go off and regulators start talking about requiring it to set even more aside to make sure no policyholders are left in a lurch.

By extension, $400 billion is where alarms begin going off for the entire industry.

It gets worse – or better, depending on your perspective.

In addition to state regulators’ requirements, the private rating agencies that gauge insurers’ financial strength and claims-paying ability don’t want to see reserves get anywhere near “Empty.” To get a strong rating from A.M. Best, Fitch, S&P, or Moody’s, insurers have to keep even more in reserve. 

Why do private agency ratings matter? Consumers and businesses use them to determine what insurer they’ll buy coverage from. Also, stronger ratings can contribute to lower borrowing expenses, which can help keep insurers’ operating costs – and, in turn, policyholders’ premiums – at reasonable levels. 

So, let’s say these additional reserves amount to about $200 billion for the industry. The nearly $800 billion surplus we started with now falls to about $200 billion.

To cover claims by all personal and commercial policyholders in a given year without prompting regulatory and rating agency actions that could drive up insurers’ costs and policyholders’ premiums.

Which brings us to today.

Losses ordinary and extraordinary

In the first quarter of 2020, the industry experienced its largest-ever quarterly decline in surplus, to $771.9 billion. This decline was due, in large part, to declines in stock value related to the economic recession sparked by the coronavirus pandemic.

Nevertheless, the industry remains financially strong, in large part because the bulk of insurers’ investments are in investment-grade corporate and governmental bonds. And it’s a good thing, too, because the conditions underlying that surplus decline preceded an extremely active hurricane season, atypical wildfire activity, and damages related to civil unrest approaching levels not seen since 1992 – involving losses that are not yet reflected in the surplus.

Insured losses from this year’s Hurricane Isaias are estimated in the vicinity of $5 billion. Hurricane Laura’s losses could, by some estimates, be as “small” as $4 billion or as large as $13 billion.

And the Atlantic hurricane season has not yet peaked.

The 2020 wildfire season is off to a horrific start. From January 1 to September 8, 2020, there were 41,051 wildfires, compared with 35,386 in the same period in 2019, according to the National Interagency Fire Center. About 4.7 million acres were burned in the 2020 period, compared with 4.2 million acres in 2019.

In California alone, wildfires have already burned 2.2 million acres in 2020 — more than any year on record. For context, insured losses for California’s November 2018 fires were estimated at more than $11 billion.

And the 2020 wildfire season still has a way to go.

All this is on top of routine claims for property and casualty losses.

Four billion here, 11 billion there – pretty soon we’re talking about “real money,” against available reserves that are far smaller than they at first appear.

No end in sight

Oh, yeah – and the pandemic-fueled recession isn’t expected to reverse any time soon. Economic growth worldwide remains depressed, with nearly every country experiencing declines in gross domestic product (GDP) – the total value of goods and services produced. GDP growth for the world’s 10 largest insurance markets is expected to decrease by 6.99 percent in 2020, compared to Triple-I’s previous estimate of a 4.9 percent decrease. 

If insurers were required to pay business-interruption claims they never agreed to cover – and, therefore, didn’t reserve for – the cost to the industry related to small businesses alone could be as high as $383 billion per month.

This would bankrupt the industry, leaving many policyholders uninsured and insurance itself an untenable business proposition.

Fortunately, Americans seem to be beginning to get this.  A recent poll by Future of American Insurance and Reinsurance (FAIR) found the majority of Americans believe the federal government should bear the financial responsibility for helping businesses stay afloat during the coronavirus pandemic. Only 16 percent of respondents said insurers should bear the responsibility, and only 8 percent said they believe lawsuits against insurers are the best path for businesses to secure financial relief.

Further Reading:

POLL: GOVERNMENT SHOULD PROVIDE BUSINESS INTERRUPTION SUPPORT

TRIPLE-I GLOBAL OUTLOOK: CONTINUED PRESSURE ON INVESTMENTS & PREMIUMS

BATTLING FIRES, CALIFORNIA ALSO STRUGGLES TO KEEP HOMEOWNERS INSURED

LAURA LOSS ESTIMATES: $4 BILLION TO $13 BILLION

ATYPICAL WILDFIRE ACTIVITY? OF COURSE — IT’S 2020

SWISS RE: A KATRINA-LIKE HURRICANE COULD CAUSE UP TO $200 BILLION IN DAMAGE TODAY

U.K. BUSINESS INTERRUPTION LITIGATION SEEMS UNLIKELY TO AFFECT U.S. INSURERS

RECESSION, PANDEMIC TO IMPACT P/C UNDERWRITING RESULTS, NEW REPORT SHOWS

BUSINESS INTERRUPTION VS. EVENT CANCELLATION: WHAT’S THE BIG DIFFERENCE?

CHUBB CEO SAYS BUSINESS INTERRUPTION POLICIES ARE A GOOD VALUE AND WORK AS THEY SHOULD

TRIPLE-I CHIEF ECONOMIST: P/C INDUSTRY STRONG, DESPITE SURPLUS DROP

INSURED LOSSES DUE TO CIVIL UNREST SEEN NEARING 1992 LEVELS

COVID-19 AND SHIPPING RISK

BUSINESS INTERRUPTION COVERAGE: POLICY LANGUAGE RULES

Disaster Preparedness, Floods

Hurricane Hanna leaves wind damage and flooding in its wake

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Hurricane Hanna, 2020’s first Atlantic basin hurricane, made landfall during the late afternoon of Saturday July 25 as a Category 1 storm on the Corpus Christi, Texas, coast. It struck Padre Island with winds of 90 mph.

The Corpus Christi area dodged the hurricane’s heavier rain bands, but the storm still caused significant flooding and damage. Thousands were without power late July 26 as crews worked overtime to make repairs and Texas Governor Greg Abbott issued an emergency declaration for 32 counties.

By Sunday evening, the storm was downgraded to a tropical depression, with maximum sustained winds of 35 mph, and was slowly dying over the mountains of northern Mexico.

CoreLogic, a real estate data analytics provider, estimated that over 14,000 homes are at risk from Hurricane Hanna’s storm surge.

Flood damage to a home, a renter’s possessions, or a business is generally covered under FEMA National Flood Insurance Program (NFIP) policies, if the homeowner, renter, or business has purchased one. Several private insurers also offer flood insurance.

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

Mangroves and Reefs: Insurance Can Help Protect Our Protectors

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Hurricanes and storm-related flooding are responsible for the bulk of damage from disasters in the United States, accounting for annual economic losses of about $54 billion, according to the Congressional Budget Office (CBO).  

These losses have been on the rise, due, in large part, to increased coastal development. More, bigger homes, more valuables inside them, more cars and infrastructure – these all can contribute to bigger losses. The CBO estimates that a combination of private insurance for wind damage, federal flood insurance, and federal disaster assistance would cover about 50 percent of losses to the residential sector and 40 percent of  commercial sector losses. 

Recent research illustrates the benefits provided by mangroves, barrier islands, and coral reefs – natural features that frequently fall victim to development – in terms of limiting storm damage. In many places, mangroves are the first line of defense, their aerial roots helping to reduce erosion and dissipate storm surge. A healthy coral reef can reduce up to 97 percent of a wave’s energy before it hits the shore. Reefs — especially those that have been weakened by pollution, disease, overfishing, and ocean acidification — can be damaged by severe storms, reducing the protection they offer for coastal communities. 

In Florida, a recent study found, mangroves alone prevented $1.5 billion in direct flood damages and protected over half a million people during Hurricane Irma in 2017, reducing damages by nearly 25% in counties with mangroves. Another study found that mangroves actively prevent more than $65 billion in property damage and protect over 15 million people every year worldwide.  

A separate study quantified the global flood-prevention benefits of coral reefs at $4.3 billion.  

Such estimates invite debate, but even if these endangered systems provided a fraction of the loss prevention estimated, wouldn’t you think coastal communities and the insurance industry would be investing in protecting them? 

Well, they’re beginning to.  

The Mexican state of Quintana Roo has partnered with hotel owners, the Nature Conservancy, and the National Parks Commission to pilot a conservation strategy that involves coral reef insurance. The insurance component – a one-year parametric policy – pays out if wind speeds in excess of 100 knots hit a predefined area. Unlike traditional insurance, which pays for damage if it occurs, parametric insurance pays claims when specific conditions are met – regardless of whether damage is incurred. Without the need for claims adjustment, policyholders quickly get their benefit and can begin their recovery. In the case of the coral reef coverage, the swift payout will allow for quick damage assessments, debris removal, and initial repairs to be carried out.  

Similar approaches could be applied to protecting mangroves, commercial fish stocks that can be harmed by overfishing or habitat loss, or other intrinsically valuable assets that are hard to insure with traditional approaches.