Tag Archives: flooding

How Different Flood Types Affect Risk

For insurers to most effectively understand flood risk, they must have access to data that provides a full picture of the hazard, including the different flood types that might affect a property: fluvial, pluvial and storm surge. Although it may seem that flood is just flood, different types can produce various impacts on a property, causing different levels of damage.

Fluvial, pluvial and storm surge: Why it matters

Much of the U.S. is prone to both fluvial flooding (when rivers overtop their banks) and pluvial flooding (when water accumulates across the surface of the ground as a result of heavy rainfall). However, many coastal regions also experience storm surge flooding, which is a result of increased sea levels caused by weather events.

Storm surge flooding is extremely damaging due to the salinity of the water, while pluvial flooding is typically cleaner and quick to recede, likely resulting in lower-cost claims.

Without a view of these different drivers of flooding, insurers cannot understand the full exposure to their portfolios or fully engage with the private flood insurance market.

Use case: Jacksonville, Fla.

The need to understand all the drivers of flood can be illustrated using a residential property on 2nd Avenue, Jacksonville, Fla. Jacksonville is one of the five most vulnerable cities to hurricanes on the U.S. East Coast and at high risk from flooding, experiencing widespread storm surges and flooding during hurricanes Irma and Matthew.

The residential property shown in Figure 1 originally fell into a FEMA Zone X (designated as minimal flood risk).

Figure 1: Contains data from the FEMA National Flood Hazard Layer.

However, when we look at its location on the JBA flood map, we can see some differences in analysis. The JBA flood map identifies this location as at very severe risk to flood (Figure 2, below), from both fluvial and storm surge flooding, whereas using FEMA data alone would not account for either flood type or differentiate between fluvial and pluvial flood. Accessing data sources in addition to FEMA helps provide a more comprehensive understanding of the risk.

Figure 2

The complex interplay between flood types

The risk is particularly high for hurricane-prone areas like Jacksonville, where storm surges often coincide with inland flooding. It’s important to represent this complex interplay during the mapping process instead of tackling each flood type separately. JBA’s storm surge mapping has been developed in partnership with leading hurricane modelers Applied Research Associates, ensuring that hurricane activity is fully accounted for. Additionally, surge data has been used to modify JBA’s inland flood mapping process to reflect the fact that, during a hurricane, rivers can’t flow out to sea as they can in normal conditions. Flood waters then back up, exacerbating fluvial flooding. For insurers to obtain a complete understanding of the hazard, flood maps must fully represent this relationship.

Even with FEMA recently re-mapping the area as a FEMA A Zone, demonstrating that the area is at risk to flood, the drivers of the flood are not clear. As such, underwriting against the FEMA map alone could misrepresent the insurance coverage required.

See also: FEMA Flood Maps Aren’t Good Enough  

It’s clear that having a view of the different drivers of flood risk is vital for effectively understanding and underwriting the risk, especially in areas where hurricanes can be a major source of flood-driven losses.

Hard Lessons From the Louisiana Flooding

“It was the best of times, it was the worst of times…”  Charles Dickens, “A Tale of Two Cities”

On Aug. 12, 2016, it was the best of times in Denham Springs, (Livingston Parish) LA. By Monday, Aug. 15, 2015, it was the worst of times.

Denham Springs was a community of 10,000-plus people in a parish of 132,000. Driving your car through Main Street, you’d see small-town America. Driving through the suburbs, you’d discover a booming town. On Aug. 12, Denham Springs was a bedroom community for Baton Rouge, LA. It had it all — great schools, young families, new homes and commercial developments everywhere. You’d agree — it was the best of times.

After three days and 30 inches of rain, you could still drive through the town — by boat. It was the worst of times.

From the Livingston Parish News website: “The 30-inch downpour that has devastated nearly 90% of Denham Springs and flooded more than 70% of Livingston Parish has led NOAA [National Oceanic and Atmospheric Administration] to classify the rain event as a once-in-every 500-year flood.

For Livingston Parish, it may have exceeded the statistics of even the 500-year event.

In a parish in which an estimated 40,000 homes were flooded — and 90% of them considered possibly a “total loss” in Denham Springs — observers from NOAA believe the damage, based on population and statistics, could surpass the devastation New Orleans and the Mississippi Gulf Coast suffered in Hurricane Katrina.”

See also: Is Flood Map Due for a Big Data Make-Over?

If you can’t wrap your head around such devastation, remember the difference between New York City on Sept. 10, 2001, and on Sept. 11. Think about New Orleans, which was not destroyed by wind but rather by water. Think Flint, MI, where failed decision making and neglect resulted in destruction of the “water” and severe damage to the health and the future of her citizens. Drive through your town and imagine 70% of it wiped out. I could go on, but I won’t — I assume you get the picture.

Now let’s leave the flood waters of Louisiana and move back to your reality. You are a successful professional or a business owner. Things are going great or, at least, good enough. You are in your comfort zone.

If you’re in the business of risk or insurance, you talk constantly about risk management. In my simple mind, risk is uncertainty. Uncertainty is the difference between good things and bad things happening. Management is control. Risk management is control of uncertainty. This is all about maximizing the good and minimizing the bad in our clients’ lives.

Be selfish. Exercise this risk management process and discipline on your own shop and your own future. I’d ask you to do one thing differently: Over the next few paragraphs, measure your reality not as the wild-eyed, optimistic, successful entrepreneur you are but measure it in the hard reality of “misery.”

Consider what would happen if you and your agency failed to open today because (like in Denham Springs) water has risen to the ceiling of your office and to the ceiling of 70% of the homes and offices in your city. Consider what would happen if the city and the state is on lockdown because terrorists have set off a dirty bomb. You’re driving away but are hearing rumors of the community being uninhabitable for at least three years (think Chernobyl).

What do you do? How do you do it? Where’s your staff? Your future? Your value?

See also: How to Make Flood Insurance Affordable  

Draining the swamp is difficult when you’re up to your butt in alligators. Consider: “Job” and “job” are spelled the same way. Most often, when we think of “job” we are thinking of what we do (“a piece of work, especially a specific task done as part of the routine of one’s occupation or for an agreed price.”) When we are going through the worst of times, some think of the other “Job,” “the central figure in an Old Testament parable of the righteous sufferer.”

About 20 years ago, Dave Hamilton spoke at the IIAL convention. He was excellent. His theme was “No bad days.” His message was that we all have bad moments where bad stuff happens — but there are no bad days. He closed with the following, “The merchant of misery is either at your door, has just left or is soon to arrive. Still there are no bad days.” Dave is wise!

If you’re enjoying the “best of times,” thank God. If you’re suffering through the “worst of times,” pray to God. Remember: Life is a streaming video, not a snapshot. Even after a 1,000-year flood, the sun shines again. Be prepared.

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.”

Modeling Flood — the Peril of Inches

“Baseball is a game of inches” – Branch Rickey

Property damage because of flooding is quite different from any other catastrophic peril such as hurricane, tornado or earthquake. Unlike with those perils, estimating losses from flood requires a higher level of geospatial exactness. Not only do we need to know precisely where that property is located and the distance to the nearest potential flooding source, but we also need to know the elevation of the property in comparison to its nearby surroundings and the source of flooding. Underwriting flood insurance is a game of inches, not ZIP codes.

With flood, a couple feet can make the difference between being in a flood zone or not, and a few inches of elevation can increase or decrease loss estimates by orders of magnitude. This realization helps explain the current financial mess of the National Flood Insurance Program (NFIP). In hindsight, even if the NFIP had perfect actuarial knowledge about the risk of flood, its destiny was preordained simply because it lacked other necessary tools.

This might make the reader believe that insuring flood is essentially impossible. Until just a few years ago, you’d be right. But, since then, interesting stuff has happened.

In the past decade, technologies like data storage, processing, modeling and remote sensing (i.e. mapping) have improved incredibly. All of a sudden it is possible to measure and store all topographical features of the U.S. — it has been done. Throw in analytical servers able to process trillions of calculations in seconds, and all of a sudden processing massive amounts of data is relatively easy. Meanwhile, the science around flood modeling, including meteorology, hydrology and topology, has been developed in a way that the new geospatial information and processing power can be used to produce models that have real predictive capabilities. These are not your grandfather’s flood maps. There are now models and analytics that provide estimates for frequency AND severity of flood loss for a specific location, an incredible leap forward from zone or ZIP code averaging. Like baseball, flood insurance is also a game of inches. And now it’s also a game that can be played and profited from by astute insurance professionals.

For the underwriting of insurance, having dependable frequency and severity loss estimates at a location level is gold. There is no single flood model that will provide all the answers, but there is definitely enough data, models and information available to determine frequency and severity metrics for flood to enable underwriters to segment exposure effectively. Low-, moderate- and high-risk exposures can be discerned and segregated, which means risk–based, actuarial pricing can be confidently implemented. The available data and risk models can also drive the design of flood mitigation actions (with accurate credit incentives attached to them) and marketing campaigns.

With the new generation of models, all three types of flooding can be evaluated, either individually or as a composite, and have their risk segmented appropriately. The available geospatial datasets and analytics support estimations of flood levels, flood depths and the likelihood of water entering a property by knowing the elevation of the structure, floors of occupancy and the relationship between the two.

In the old days, if your home was in a FEMA A or V zone but you were possibly safe from their “base flood” (a hypothetical 1% annual probability flood), you’d have to spend hundreds of dollars to get an elevation certificate and then petition the NFIP, at further cost, hoping to get a re-designation of your home. Today, it’s not complicated to place the structure in a geospatial model and estimate flood likelihood and depths in a way that can be integrated with actuarial information to calculate rates – each building getting rated based on where it is, where the water is and the likelihood of the water inundating the building.

In fact, the new models have essentially made the FEMA flood maps irrelevant in flood loss analysis. We don’t need to evaluate what flood zone the property is in. We just need an address. Homeowners don’t need to spend hundreds of dollars for elevation certificates; the models already have that data stored. Indeed, much of the underwriting required to price flood risk can be handled with two to three additional questions on a standard homeowners insurance application, saving the homeowner, agent and carrier time and frustration. The process we envision would create a distinctive competitive advantage for the enterprising carrier and one that would create and capture real value throughout the distribution chain, if done correctly. This is what disruption looks like before it happens.

In summary, the tools are now available to measure and price flood risk. Capital is flooding (sorry, we couldn’t help ourselves) into the insurance sector, seeking opportunities to be put to work. While we understand the skepticism of the industry to handle flood, the risk can be understood well enough to create products that people desperately need. Insuring flood would be a shot in the arm to an industry that has become stale at offering anything new. Billions of dollars of premium are waiting for the industry to capitalize on. One thing the current data and analytics make clear is this: There are high-, medium- and low-risk locations waiting to be insured based on actuarial methods. As long as flood insurance is being rated by zone (whether it is FEMA zone or Zipcode), there is cherry-picking to be done.

Who wants to get their ladder up the cherry tree first? And who will be last?