Tag Archives: flood maps

Need for Context in Assessing Flood Risk

Florida is the highest-risk state for storm surge, with an estimated 2.8 million single family homes at risk and a replacement value of $581 billion, according to the 2019 Private Flood Insurance Report. Yet, in Florida, there are only 1.7 million NFIP policies reported in force, suggesting a huge opportunity for private insurers.

Even so, total direct written premium in Florida actually declined from $84 million in 2017 to $79 million in 2018, largely within the residential market. So what’s holding insurers back from engaging in the obvious latent opportunities in markets like Florida? Answer: The inability to fully contextualize individual risks, as well as their subsequent impact on an existing portfolio.

Why is the ability to contextualize risk so critical to evaluating flood risk?

To ensure accurate and confident risk selection, underwriting and pricing decisions, insurers must be able to fully understand flood risk in terms of their own portfolio. However, this is only possible when using high-resolution, granular flood data, which provides details of flood type, severity and extent, such as JBA flood maps. Without the ability to assess the full granularity of the risk, other flood map providers, such as FEMA, fail to account for all the nuances required in setting premiums and providing coverage.

See also: Using High-Resolution Data for Flood Risk  

Using granular flood data alongside a geospatial analytics solution, like SpatialKey, further enables insurers to assess flood risk in line with their own decision-making. JBA flood assessments within SpatialKey provide a risk score and overall flood rating. The weighted score methodology provides a normalized measure by which insurers can consistently benchmark the risk and use it to inform their rating. Upon review in SpatialKey, and after consulting with JBA where necessary, an insurer can decide whether to write the risk and ensure that it is applying an appropriate deductible.

Use case: Sherwood Park, Palm Shores, Florida

Using a residential property in Palm Shores, FL, as an example, we can see the importance of contextualizing the flood risk in portfolio terms.

Figure 1: JBA location report within SpatialKey for Palm Shores property across fluvial, pluvial, and coastal flood.

The overall JBA flood rating for the property is medium, based on the likely depth of each flood type at different return periods or probabilities of occurrence. It’s weighted to reflect the fact that different sources of flooding will lead to different amounts of damage; coastal flooding is often more damaging due to the salinity of the water (and therefore has a higher score), whereas pluvial flooding is often cleaner and quick to recede.

The location report in Figure 1 shows that the property under the orange pin has only a 1-in-500-year fluvial flood hazard. This indicates that riverine flooding is likely to be infrequent in the area. There is also minimal coastal (or storm surge) flood hazard. However, there is a pluvial hazard at the 1-in-20-year return period, indicating that flooding from heavy rainfall may be frequent here, to depths of up to nine inches. The flood rating is medium rather than high because pluvial flooding is typically less damaging than the other flood types.

Understanding flood risk in the context of a wider portfolio

To make an informed decision on a policy, the impact of an additional flood risk to an in-force portfolio must also be considered. Decisions cannot be made in isolation. And, while information on the individual hazard is extremely beneficial, accumulations at that location should also drive the decision-making process.

Figure 2: SpatialKey helps inform underwriting decision-making with a view of nearby risks (3 black dots) within this half-mile radius.

In Figure 2, three other risks (black dots) can be seen within a half-mile radius of the chosen location (grey pin). As insurers intelligently grow their flood business, an underwriting rule may dictate that, for example, residential flood should not exceed $1 million in a half-mile radius. Based on that underwriting rule, this particular property could prompt the agent to refer this policy to the home office for additional consideration and underwriting.

See also: How Tech Improves Flood Modeling  

It’s clear that granularity is an asset, especially when selecting and pricing flood risk in the U.S. market. Any data source can be misleading or incomplete when used in isolation. The ability to compare multiple data points and multiple data sources in one place is increasingly important with complex events like hurricanes, for example, which involve multiple perils (i.e. wind, surge, flood).

By leveraging flood data within an advanced analytics platform, you can contextualize risk on a whole new level—helping you make more confident decisions, expand your foothold in the flood market and build a strong market reputation as a champion for superior flood coverage.

FEMA Flood Maps Aren’t Good Enough

FEMA flood maps are not particularly glamorous or technologically exciting. They have done their work for many years and, provided that they are up to date, are an effective way of communicating a generalized level of flood risk. FEMA flood maps have been the primary, flood insurance underwriting tool for the National Flood Insurance Program (NFIP). That program is currently billions of dollars in debt to the U.S. Treasury due to premium subsidization.

Also, FEMA flood maps have been used extensively by local governments in their efforts to keep development out of the floodiest areas of the U.S. That has not worked out so well, either, as coastal and riverine developments in the most flood-prone areas have abounded over the past 30-years. As we saw with the Hurricane Harvey disaster in 2017, FEMA flood maps are far from perfect. Nearly a hundred thousand homeowners in the FEMA X Zone (500-year, or 0.2% annual risk) in Houston, who were told that they did not need or were not required to purchase flood insurance, had their homes severely damaged by Harvey’s heavy rainfall flooding.

In 2016, we at Coastal Risk Consulting observed that FEMA flood maps did not provide comprehensive enough flood risk assessments to allow individuals and businesses to make accurate “buy, sell, protect and insure” decisions at the property level. So, Coastal Risk identified a number of improvements that could be made to the FEMA flood maps, including downscaling risk mapping to the individual property level, and made them publicly available for purchase at www.floodscores.com for any property in the U.S.

FEMA flood maps don’t tell the whole story about your risk of flooding.

First, as was seen with Hurricane Harvey flooding in Houston, FEMA flood maps don’t include heavy rainfall flooding risks to your home or business. Properties in FEMA X Zones, which don’t require flood insurance for federally insured mortgages, may definitely need to be insured to protect them from heavy rainfall flooding. Coastal Risk models heavy rainfall flood risk for every property in the U.S.; FEMA flood maps do not.

See also: Emerging Market for Flood Insurance  

FEMA flood maps also don’t include coastal tidal flooding risks to your home or business. Tidal flooding is a property damage “threat multiplier.” When hurricanes come ashore at high tide or even a King Tide, which often occurs in the fall on the Atlantic Coast of the U.S., properties with existing tide flooding are at much greater risk of damage and loss than those that don’t experience tidal flooding. FEMA flood maps do not take this type of flooding into account, now and into the future as sea levels rise. King Tides occurs during the height of hurricane season. Because King Tides are due to astronomy and not weather, scientists know precisely when they will occur.

FEMA flood maps also underestimate the height of hurricane storm surge, as compared with NOAA models. NOAA surge models typically show higher water heights than the FEMA Base Flood Elevations (BFEs), which are a key component of the FEMA flood maps. The higher the surge, the greater the economic damage and loss to properties, and the greater the risk of injury and death to those who don’t evacuate in advance of these storms.

A ‘Perfect Storm’ of Opportunity (Part 3)

This is the third of three parts in a series. The first part is here, and the second is here. 

Change isn’t always easy. If you’re an insurance agent or Write Your Own (WYO) dealing with the April 1, 2016, regulatory changes to the National Flood Insurance Program (NFIP), you know this all too well. As the Federal Emergency Management Agency (FEMA) continues to phase out various rate subsidies, agents are dealing with increasing policyholder concerns around rate increases and affordability.

These regulatory changes inject new complexities into an already complex program. For agents trying to serve their customers in this space, it’s challenging to stay ahead of the NFIP changes around eligibility, pricing and flood zone determination — all while making time to absorb periodic, substantive modifications. Furthermore, increased regulatory scrutiny creates greater demands on agents because producers must invest additional time to ensure compliance. These dynamics generate new frictional costs that leave many agents feeling like there’s less return for their efforts.

Homeowners have also felt the impact of the rapidly evolving flood insurance environment by means of increased costs and added requirements. Those interested in buying flood insurance or in maintaining existing flood insurance are faced with shifting price points and new steps in the application process. Just recently, pockets of homeowners in South Carolina were newly mapped into mandatory purchase areas, forcing some mortgaged properties to purchase flood insurance for the first time. Such changes can impose significant burdens on homeowners, particularly those on fixed incomes.

See also: Why Flood Is the New Fire (Insurance)

Strategies for Managing Through Change

While regulatory changes to the NFIP may make it difficult for agents to sell flood insurance, emerging options can offer relief. Previously, if a prospective consumer rejected flood insurance because of price, agents often did not have an alternative. Today, this is not the case.

Keith Brown, the president and CEO of Aon National Flood Services, said, “The NFIP offers a widespread product, and that has significant application in today’s environment. … However, agents will find that there are some customers who may not be an appropriate fit for the NFIP. Now, agents can present options for policyholders who struggle with affordability issues if charged full-risk rate premiums. These agents are able to present coverage options more tailored to individual homeowner needs in terms of lifestyle, financial planning and risk exposure.”

There are some strategies for flood risks that agents can adopt to help manage change through an evolving regulatory environment and shifting consumer appetite. First, it is important that agents are mindful of map revisions and the fluidity of the geographic risk associated with flood. Mapping changes drive pricing and surcharges applied to individual risks. For instance, a customer who wasn’t required to have flood insurance yesterday may be required to have it today.

Innovations and opportunities in this business do not follow a set schedule, and agents seeking means of differentiation must be vigilant. With the proper education and tools, flood insurance offers a means for agents to help customers better protect themselves and their investments. Talk to your WYO; familiarize yourself with product choices your customers may find attractive if they’re struggling with the impact of regulatory changes.

When looking at the newly mapped areas as defined by the NFIP, there is a distinct line that defines the area where homeowners must have flood insurance as a condition of having a federally backed mortgage. On the other side of that line, homeowners are not required to have flood insurance to mortgage their home; however, floods do not recognize these lines. In many cases, the homes sitting on the non-insurance-required flood zone lines have just as much of a chance of falling victim to a flood catastrophe. So, as an agent, understanding flood maps and knowing how properties may move in and out of different flood zones is invaluable in educating your customers and helping them determine what insurance they may or may not need.

There’s no doubt that, in today’s ever-changing environment, a long-term strategy is difficult for agents. A basic understanding of the requirements surrounding floods will get you by. But if you want to have the opportunity to be more successful and be viewed as a valued business adviser and resource for homeowners in your community, you have to be able to look beyond the basics of flood.

By taking on a more holistic view of flood, recognizing how floods can affect communities and having the ability to articulate all flood options (including private solutions), you can set yourself apart from others adrift in a sea of change.

For an overview on the NFIP changes, check out a handy visual guide NFS has put together: “Making Sense of NFIP Regulatory Changes.”