Tag Archives: FEMA

Why Long-term NFIP Reform Is a Must

In my recent article in Reactions entitled Why Long-term NFIP Reform is a Must, I looked back at the flood events of 2018 through the lens of the need to reform the National Flood Insurance Program (NFIP). I made the argument that the NFIP is not effectively covering communities at risk or supporting the development of a private market that support that same goal.

Looking at Hurricane Florence, its impacts exemplify the type of event from which our communities need to recover from by leveraging the NFIP and a more robust private market. Both North Carolina and South Carolina each broke records for the amount of rainfall caused by a tropical cyclone. While the flooding due to storm surge was significant in areas such as New Bern, the majority of the flood damage was driven by that record rainfall in the inland areas.

The areas most impacted had the lowest take-up rates for flood insurance – the take-up rate for NFIP policies is less than two percent in the inland counties of North Carolina and South Carolina, while take-up rates in most coastal counties generally range from 10 to 25 percent. As a result, RMS analysis found that Florence caused US$3 billion to US$6 billion in uninsured losses, or about 4-5 times the losses expected to be incurred by the NFIP.

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U.S. Flood Insurance: Top Five Things You Should Know From 2018

As we move full steam in to 2019, it is worth remembering that some good progress was made during 2018 with regards to advancing the private flood insurance market in the U.S. – even though Congress struggled with reform of the National Flood Insurance Program (NFIP).

Here’s five takeaway points from the past year:

1. Extending the Extension: The NFIP saw numerous extensions and a few short lapses. Just before the end of the year, Congress reauthorized the NFIP until May 31, 2019 right before the government shutdown commenced on December 22, 2018. But decisions by FEMA during the last week of the year brought uncertainty to the housing and insurance industry as it dealt with changing guidelines on whether policies could be sold or renewed during the shutdown. Ultimately, the NFIP is still operating, but the back and forth of 2018 did not bolster confidence in the stability of the program and left many asking … will 2019 be the breakthrough year?

2. FEMA Boosts the Private Flood Market: Although Congress struggled to act on the NFIP, FEMA did, with technical changes that came into force on October 1, 2018, to attract new private carriers and help existing carriers who participate in the NFIP “Write Your Own” (WYO) program.

First – removing a “non-compete” clause for carriers operating within WYO, now allows WYO carriers to offer their own private flood coverage as well as NFIP policies, with the condition that these businesses are kept separate. Second – policyholders can now cancel their NFIP policy mid-term, before its expiration date when a policyholder has obtained a duplicate policy. In combination, these steps removed hurdles that were hindering carriers from offering new flood products and making it difficult for consumers to purchase those products from the private market.

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What’s Happening with Flood? Ask an Expert

Flood risk is one of the most severe natural hazards in the United States, yet maybe it is one of the least well-managed, and least understood by insurers. It is not surprising that many insurers have chosen to stay on the sidelines of the U.S. flood insurance market, which has been dominated for more than 40 years by the state-backed National Flood Insurance Program (NFIP).

But slowly, the hurdles to private sector involvement are starting to clear, through the combined efforts of the industry, FEMA, and even private citizens. It will be an exciting time for private insurers and Americans if the new flood reform bill, H.R. 2874 passes through the Senate, as measures in the bill include increased acceptance of private flood insurance by mortgage providers, easing of fixed claims limits, and open source access to FEMA’s extensive claims database.

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The Mysterious Mitigation Multiple

You will certainly have heard this statement:

“Investing in mitigation action to reduce disaster consequences shows benefits relative to costs multiplied by a factor of X — where X maybe four or seven, or some other number as high as 15.”

As most simply expressed in 2011 by Tom Rooney, U.S. Congressman for Florida’s 17th District “For every US$1 spent on mitigation, US$4 in post-storm cleanup and rebuilding is saved.” And you may have thought — I wonder how they calculated that? But then life is too busy to go into the details, and the statement — that investment in actions to reduce risk shows a fourfold (or sevenfold) reduction in the cost of disasters is very compelling. It implies you could go out and raise the height of a flood wall or strengthen your house and after a few years you would reap a reward in significantly reduced losses.

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NFIP: An Opportunity for Reform

Time is tight for the National Flood Insurance Program (NFIP). A three-month extension of the NFIP signed by President Donald Trump to help devise a long-term financial solution for the program, expires on December 8. In the lower chamber of Congress, the 21st Century Flood Reform Act, which would update and reauthorize the NFIP, was passed (237-189) by the U.S. House of Representatives on Tuesday, November 14. The fate of the scheme now rests with the Senate, allowing just over three weeks in total to make a choice; adopt the House bill or a version of it; advance its own bill, or simply do nothing.

Congress has an opportunity to reform the NFIP; to build a public-private partnership and transfer risk to the private insurance sector. This bill both entices private insurance firms into flood underwriting, and provides more power to the consumer to quantify and manage their own flood risk.

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Flood Risk, NFIP and the Role of Reinsurance

Shortly after its landfall, my colleague, Ben Brookes, and I drew attention in the RMS live Harvey updates to the fact that the storm was “not a wind event.” Like Sandy, flood losses, we wrote, would quickly overtake wind losses.

We recalled how Dr. Robert Muir-Wood had insisted back in February 2014 that “water is the new wind.” Those with exposure in harm’s way, he argued, needed to “get to grips with the details of modeling and managing hurricane-driven flood risk.”

It was unsurprising, then, to hear Robert on BBC World News last week describing Hurricane Harvey’s destruction as absolutely avoidable. Yes, Harvey is an extreme event. There were, however, historical precedents for stalling rain storms — and there are clear business cases for investing in resilience before extreme events, rather than just responding after.

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NFIP Losses from Harvey Estimated to Reach US$7-10 Billion

Pete Dailey, vice president – Product Management, RMS

On Wednesday, RMS reported that, based on our modeling, the overall combined wind, surge, and inland flood losses from Hurricane Harvey will be US$70-90 billion. My colleague, Daniel Stander, had previously also pointed out that “economic losses from Harvey will outstrip insured losses by a considerable margin.” That’s because the uptake of private flood insurance in the U.S. is very limited.

RMS continues to refine its estimate of the insured losses from Harvey. In the meantime, I think it’s worth looking in more detail at the potential exposure of the National Flood Insurance Program (NFIP) to this major hurricane.

Last Monday, Daniel wrote that it was likely that “Harvey will produce at least US$4 billion in flood claims, triggering the NFIP reinsurance program.” With NFIP up next month for reauthorization and reform, this is an important point — and not just for the 25 reinsurers underwriting over US$1 billion of NFIP’s claims.

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New Storms, New Insights: Two Years After Hurricane Sandy

When people think about the power of hurricanes, they imagine strong winds and flying debris. Wind damage will always result from hurricanes, but Hurricane Sandy highlighted the growing threat of storm surge as sea levels rise.

While Sandy’s hurricane-force winds were not unusual, the storm delivered an unprecedented storm surge to parts of the Mid-Atlantic and Northeast U.S. In total, Sandy caused insured losses of nearly $20 billion in the U.S., 65 percent of which resulted from surge-driven coastal flooding.

Considering the hazard and severity of the event, we used Sandy as the first real opportunity to validate our hydrodynamic storm surge model, which we released in 2011 and embedded in the RMS U.S. Hurricane Model. We verified the model against more than 300 independent wind and flood observations, the Federal Emergency Management Agency’s (FEMA) 100-year flood zones, and the FEMA best surge inundation footprint for New York City. The model captured the extent and severity of Sandy’s coastal flooding exceptionally well.

We also conducted extensive analysis of claims data from Sandy, which involved reviewing nearly $3 billion in location-level claims and exposure data across seven lines of business, provided by several companies. The purpose of the study was to deepen our understanding of the impacts of flooding on coastal exposures, particularly for commercial and industrial structures.

What struck us was how vulnerable buildings are to below-ground flooding. In many cases, damage to ground- and basement-level property and contents contributed a much higher proportion of the overall losses than expected, particularly for commercial structures in New York’s central business districts.

This insight has prompted us to improve the flexibility of how losses are modeled for contents and business interruption, specifically for basements. Early next year, we will release an update to our flagship North Atlantic Hurricane Models to provide the most-up-to-date view of hurricane risk with new vulnerability modeling capabilities based on insights gained from Sandy.

The model update includes new location-specific content triggers to enable users to make business interruption loss projections dependent on either contents or building damage, rather than on building damage alone. The model also allows users to assess the impact of multiple basement levels in a building, as well as the total value of contents stored within.

The claims data analysis also highlighted the importance of using high-resolution data to model high-gradient perils, such as coastal flooding. Flood losses are extremely sensitive to the locations of coastal exposures, as well as the surrounding topographical and bathymetrical features. Using high quality data with location-level specificity across a variety of building characteristics, as well as a high-resolution storm surge model that can accurately capture the flow of water around complex coastlines and local terrain, minimizes uncertainty.

At this time, RMS remains the only catastrophe modeling firm to integrate a hydrodynamic, time-stepping storm surge model into its hurricane models to represent the complex interactions of wind and water throughout a hurricane’s life-cycle, and we continue to implement lessons learned from new storms.