The story of Alberto Castañeda of Katy, Texas, is a cautionary tale. He dropped his flood insurance last year so he could invest more in his growing restaurant business. Then Hurricane Harvey hit. With no coverage, Alberto had to pull $135,000 back out of his business to rebuild his home.
The tragedy and pain of Harvey has yielded an expensive and harsh economic lesson. One year later, sales of residential flood insurance have picked up in Texas and other hurricane prone areas. Yet we can’t get complacent, because too many people historically have let their policies lapse in quiet years.
Still, I’m feeling hopeful because it’s a new day for flood insurance. Call it a breakthrough: the private market is open for business as more insurers are stepping up to sell policies. Why? Because they’re confident like never before in their ability to model and price accurately.
Thanks to increasingly sophisticated tools and analytics, companies like Security First Insurance in Florida are offering flood coverage as part of a Homeowners policy. Security First uses a model developed by Swiss Re, which generates a quote based on the unique characteristics of the exposure – such as location of the structure, type of construction and insured value.
This level of granularity is necessary because water is fickle. It fills every available crack and crevice with alarming ferocity, and concrete only exacerbates the problem. It’s little wonder residents of Houston and the Gulf Coast weren’t prepared for the torrential downpour – up to 50 inches in some areas at a rate of two feet in two days.
It takes more than a rating table to adequately underwrite a high-resolution peril like flood. But now we have technology that’s equal to the task and that’s welcome news for all stakeholders:
- Residents: It’s a matter of affordability and availability. More carriers underwriting to the new models creates healthy competition and risk diversification so people like Alberto Castañeda can protect their homes at a fair price and won’t have to take out a loan to rebuild or worse, lose their homes altogether.
- Insurance industry: The flood insurance market may still be in its infancy but is showing positive growth as the threat from flooding continues to rise. Projections of global sea level rise by 2100, the year upon which climate modelers typically focus, vary widely depending on modeling methods and on assumptions— with the Intergovernmental Panel on Climate Change (IPCC) estimating 0.66 to 6.6 feet. Meanwhile, AIR Worldwide says rising sea levels and storm surge will likely expand areas at risk of coastal flooding by 55% in this century. Consider that about 80 percent of Houston-area homes didn’t have flood insurance after Harvey and a protection gap of $55 billion, and it’s obvious there’s a significant demand to be filled.
- Government: An increase in private market penetration will take pressure off of the National Flood Insurance Program (NFIP), which is $20.5 billion in debt. Increased penetration of private flood insurance will also make local communities more resilient as more homeowners secure their ability to recover and rebuild.
Harvey was the third major flooding event in as many years for the Houston area, and we can expect more events of similar magnitude in the future because in last year’s trio of hurricanes scientists saw all the signs of a changing climate. If there’s a silver lining in these storm clouds, however, it’s our industry’s readiness to protect more homeowners from the economic devastation of flooding.
 The Coastline at Risk: 2016 Update to the Estimated Insured Value of U.S. Coastal Properties, AIR Worldwide
Category: Climate/natural disasters: Climate change, Disaster risk, Floods/storms, Resilience
Location: Houston, TX, USA