Swiss Re sponsors debate on new approaches to flood coverage in the US

Swiss Re sponsors a Best Review global webinar on the topic of New Approaches to Flood Coverage as the US Congress debates the reform and future of the National Flood Insurance Program (NFIP).

Swiss Re flood insurance experts, Zurich-based Dr. Jens Mehlhorn and US-based Andy Castaldi, with Nikhil da Victoria Lobo, from Swiss Re’s Global Partnerships team, were joined by a group of top experts for the 90-minute webinar to share ideas on how to best insure flood in the United States. They included:

  • Susan Voss, Iowa Insurance Commissioner and head of the National Association of Insurance Commissioners
  • Jeff Bauman, All Risk Underwriting Manager for FM Global Insurance Company
  • General Gerald Galloway, Professor, University of Maryland, and retired US Army Corps of Engineers
  • Dr. Howard Kunreuther, Professor, Wharton School, Co-Director, Wharton Risk Management and Decision Processes Center
  • Steve Ellis, Vice President, Taxpayers for Common Sense and Smarter, Safer Coalition.

Flood coverage is a timely topic in the US, not only because of the recertification of the NFIP, but also because of front page headlines and extensive losses from flood events throughout the US Midwest earlier this year and the recent major floods in the east following Hurricane Irene.

Re/insurers can help manage flood risk

The 15 September webinar was divided into two panel sessions, with the first focused on the current state of flood coverage and economic, social and environmental factors affecting this peril. The second panel session focused on fresh thinking and new approaches to better manage the peril.

Screenshot+of+AM+Best+webinar+panelIn the US, flood coverage has been historically provided by the federal government through the National Flood Insurance Act passed in 1968.  It’s been widely viewed in the US private sector that floods are uninsurable because of the potential for adverse selection, the catastrophic and wide-spread nature of the peril, issues of mutuality of limited populations exposed to flood, and the industry's inability to properly access the risk. 

However Swiss Re and others now believe there is a greater role for private re/insurance in managing flood risk.

Technological advancements bring progress

Recent advances in risk modeling, risk assessment and pricing capabilities have helped to overcome the early challenges of underwriting flood risks.  As Jens Mehlhorn pointed out, other countries have established successful private or private/public flood programs that the US can learn from. The advances in hydrological science, risk mapping accuracy, GPS precision, and satellite technology, along with refinements in modeling capabilities have contributed to greater understanding of the flood peril.

Most observers agree the NFIP requires a major overhaul. With a ballooning debt, low take up rates, an inefficient and unbalanced rating structure, and limited catastrophic risk management, the timing may be right for a private solution.

Re/insurance provides sustainable solutions

All panelists believe that a private insurance market that is allowed to operate with proper risk based pricing could be the most important component of any NFIP overhaul and would benefit the consumer and taxpayer alike.  Ths is similar to how the private re/insurance industry successfully provides flood coverage in the larger commercial risk space.

As Congress debates the reauthorization and pressure builds to find more sustainable ways to deal with flooding, Swiss Re and others advocate that private re/insurers should take on a greater role in handling flood.

The improvement in natural catastrophe models and a greater overall understanding of floods have turned a peril that historically has been viewed as uninsurable into one that the re/insurance industry can quantify and manage.  This is also an opportunity to reinforce the re/insurance industry’s role of providing security and sustainable solutions that help society.

Published 26 September 2011

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