In the wake of Hurricanes Harvey, Irma, and Maria, the property and casualty insurance and reinsurance markets are positioned to step in and provide perhaps the largest series of storm-related payouts in history. And for the first time, certain financial investors will contribute to insurance payouts as well, as providers of alternative capital to the reinsurance markets. For many participants in the alternative capital market—or equivalently, the insurance-linked securities market—2017 will represent the first major test of their risk selections and operational capabilities. Milliman consultant Aaron Koch offers perspective in this article.
In the aftermath of Hurricanes Harvey and Irma there’s been increased public attention to both government-sponsored flood insurance (the National Flood Insurance Program, offered through FEMA) and the potential rise of a private flood insurance market. In Florida, a recent analysis by the Associated Press found that of the state’s 38 coastal counties, only 42% of homes are covered by flood insurance. The same analysis found that of the roughly 2.5 million homes in Special Flood Hazard Areas, Florida’s overall flood insurance rate for hazard-zone homes is just 41%.
Flood risk continues to be one of the most difficult perils to price for the homeowners industry. More than any other catastrophic peril, flood risk varies over short distances; critical factors that contribute to flood risk include elevation, relative elevation, distance to coast, and distance to river. This spring, Milliman, along with risk modeling firm KatRisk, sought to independently model the feasibility of a private flood insurance market in Florida, Texas, and Louisiana. The infographic below provides some of our findings for all single-family homes in the state of Florida: