Flood, Insurance, and Inland Marine Andrew Castaldi Swiss Re IMUA Annual Meeting May 20, 2104
Thinking about Flood (Too many Tedious Slides) Audience interactive part Flood and Inland Marine Flood the hot topic Our two key Speakers - David Rogers, Core Logic; and Gerry Galloway University of MD Summary, Questions, and Answers
Audience Participation Part What percentage of your Inland Marine Portfolio includes flood? 0% - 20% 21%-40% 41%-60% 61%-100% The no mistakes way that the IMUA does it Have you ever had a flood claim under one of the policies written by you? Yes No Was it an expected loss or not expected? Yes No The way most of the today's industry conferences do it
Flood Loss Trends and Challeneges 4
Flood losses are on the rise! insured loss in m USD at 2013 price source: Swiss Re Sigma database
Flood exposure is everywhere! Exposure is growing, especially in high hazardous areas close to rivers and coastlines
Flood risks information is very scarce Comprehensive flood risk information is only available for a few countries Swiss Re Global Flood Zones close this gap
Types of Flooding River flooding banks overtopping due to debris/ice jams, excessive rain Flash flooding large amounts of precipitation in very short periods of time; can cause landslides in wildfire-affected areas Inland flooding large amounts of precipitation over long periods of time; can be coupled with river flooding and/or drainage problems Coastal flooding high tide coupled with heavy rains, lakes overfilling Storm surge coastal flooding above high tide caused by high winds, low pressure, and high precipitation; can be coupled with high or low tide 8
Contractor s Equipment
Builder s Risk World Cities Netwrok
Transit
1000 y flood 5-y flood zone 75-y flood zone 100-y flood zone 50-y flood zone 500-y flood zone Based on extended FEMA 100-y flood zone
Long Island Storm Surge Potential Much of Long Island is exposed to the types of flooding associated with storm surge. Here are the areas identified by the National Hurricane Canter's SLOSH model that could be at risk due to a category 2-3 storm. SLOSH (Sea, Lake and Overland Surges from Hurricanes) A category 4 storm surge inundates the entire towns of: Amityville, Lindenhurst, Babylon, West Islip, East Islip, Bayshore, Gilgo Beach, Cedar Beach, Great South Beach, Fair Harbor, Cherry Grove, Cupsogue,, Westhampton Beach, Watermill Beach, Wainscott Beach, Plum Island, Gardiner's Island, Orient, Shelter Island (except for a few high points), Greenport, North Haven, Amagansett Beach, Napeague Beach, Montauk, Woodmere, Valley Stream, Linbrook, Long Beach, Atlantic Beach, Freeport, Merrick, Wantagh, Lido Beach, Jones Beach, and Tobay Beach
Concentration of Risk A = 210 Rooftops A B= 66 occupied squares (approx 4 sq miles) 13.860 Rooftops Residential Flood Cover Freeport (13,819) 2705 policies Rockville Centre (9,421) 104 policies Baldwin (2,718) 19 policies Slide 14
A bit about the NFIP and what is going on NFIP Federal Policy Makers Biggert-Waters Consumers Realtors N F I P Federal Policy Makers (2) Environmentalists Reinsurers Technology (models) Insurers Builders Local Government Policy Makers State Regulators Banks Slide 15
Looking Back $60 $50 $40 $30 $20 Data Source: National Weather Service, http://www.nws.noaa.gov/hic/ Adjusted to 2012 USD Storm surge not included OH Flood 1913 Great MS Flood 1927 Hurricane Connie Hurricane Diane Great Flood 1951 in Kansas 1938 Storm Costly losses for governments Flood Control Act of 1936 Private insurers reluctant to enter market (1950-1960's) Solution needed: birth of NFIP $10 $0 1900 1910 1920 1930 1940 1950 1960 Winsted, CT after Connie and Diane Source: National Weather Service, http://www.erh.noaa.gov/nerfc/historical/aug1955.htm 16
Beginnings of National Flood Policy National Flood Insurance Act 1968 Flood Insurance Protection Act 1973 Reduce flood damage through floodplain mapping and management Provide cover for flood-prone buildings constructed without prior knowledge of risk Coverage prohibitively expensive subsidized (Pre-FIRM) 70% Pre-FIRM in 1978 Self-supporting Policies sold by National Flood Insurers Association (NFIA) Created Flood Insurance Administrator Limits aid to communities not participating in NFIP Communities notified by Flood Hazard Boundary Map and had 1 year to opt in Mandatory for lenders to require flood insurance in Zone A Increased policy limits NFIA/FIA Dispute 1977 FIA opted for all-federal program using industry resources Beginning of tension w/private insurers 17
Claims Paid to Premiums NFIP Premium and Payout History 1000% 900% 800% Data Source: FEMA, http://www.fema.gov/statistics-calendar-year Adjusted to 2014 USD Includes storm surge 700% 600% 500% 400% 300% 200% 100% 0% 1975 1980 1985 1990 1995 2000 2005 2010 2015 * 18
Contributing Factors to Poor Loss Ratio Pre-FIRM subsidized rates (26% of policyholders) Small share (1%) contribute to 30% of claims Rate structure biased toward high risk and deterrent to low risk Hurricane-related flooding caused most significant losses NFIP structure too generic One rate per zone (e.g. A, V, etc.) Rate based on limit rather than values at site $250,000 max for residential building/$100,000 for contents $500,000 max for commercial building/$500,000 for contents Cannot deny coverage 19
After severe losses from Katrina, Ike, and Sandy 20
http://www.fema.gov/media-library-data/41ecfedd3b889396440c30d34b9b91ea/agent_quick_refguide_september_2013.pdf 21
Impact to Consumers?!?!?!?! 22
After severe losses from Katrina, Ike, and Sandy 23
Current Situation: $24B Debt H.R. 3370 Homeowner Flood Insurance Affordability Act March 4 Prohibits increase of premiums to reflect current flood risk Prohibits reducing subsidies for properties insured prior to July 6 2012 Must restore subsidies for pre-firm FEMA must submit report on flood insurance affordability framework Authorizes FEMA to reimburse homeowners for map appeals 24
Thank you
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