The tens of thousands of homes in the U.S.’s fourth-largest city of Houston that were semi-submerged by Harvey floods highlighted the lack of take-up for flood risk and with the NFIP on shaky grounds with no viable reauthorization bill ready for bipartisan support, industry experts believe its time for the global reinsurance industry to make headway into flood risk.
JLT Re Chief Executive Officer, Keith Harrison, said the re/insurance industry’s correct and prompt handling of claims from recent catastrophic events could increase insurance penetration in risk-prone areas.
Just 10% of households in Houston have flood insurance, and this figure drops to 1% in the city’s outer regions.
With economic losses from Harvey being over five times the insured loss figure, the protection gap “should be something that the insurance industry and regulators alike are focusing on,” Harrison said.
There is a natural instinct from the re/insurance industry to recoup losses by re-evaluating pricing and to mitigate future losses by tightening coverage.
However, the opposite response is needed to make inroads into the insurance protection gap and deliver innovative re/insurance flood risk solutions, Harrison said this can be achieved; “if the re/insurance industry responds in a positive, ‘can-do’ way.”
Despite receiving emergency funding, the NFIP “will remain under the microscope of Congress for the foreseeable future.
“Even before the two storms struck, it was already some $24.6 billion in debt, and Harvey and Irma are expected to push the NFIP further into the red.
“The programme can borrow a maximum of $30.4 billion from the U.S. Treasury, leaving it with only $5.8 billion to pay all Harvey and Irma losses. Yet Harvey alone is expected to cost the programme as much as $11 billion,” JLT Re explained.
One of challenges re/insurers faced in the past when attempting to enter the flood risk market, was the difficulty of competing against the NFIP – due to it being in part subsidised by the federal government.
However, NFIP reform is expected to include a push for the private flood market to develop, and re/insurers are advised to prepare to offer viable flood risk solutions in preparation for a market without the NFIP in its current form.