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“Vast majority” of Midwest flood damage to go uninsured: A.M. Best

5th April 2019 - Author: Matt Sheehan

According to A.M. Best, the “vast majority” of the damages to property from the ongoing flooding in Nebraska and other states along the Missouri River, which is expected to exceed $3 billion, will be uninsured.

Flooding in Darlington, Wisconsin on 14 March. Source: Dave Kettering/AP

Flooding in Darlington, Wisconsin on 14 March. Source: Dave Kettering/AP

The Midwestern U.S has experienced major floods since mid-March 2019, partly caused by a blizzard early in the month that melted snow and helped dissipate heavy rainfall across a wide area.

However, analysts at A.M. Best noted that in the states hardest hit by these floods – including Missouri, Iowa, Kansas and South Dakota – take up of National Flood Insurance Program (NFIP) insurance rates is less than 1%.

For example, fewer than 10,000 policies are in force in Nebraska, which has a population of almost 2 million.

Due to the low NFIP take up rates and low penetration of flood insurance, it seems unlikely that the NFIP’s reinsurance program will be troubled at this time.

Property and casualty (P&C) insurers will bear the cost of certain claims from the floods, such as submerged vehicles, lost livestock, and damages to farm equipment, but will face low exposure to claims from damage to homes and personal property, A.M. Best said.

The rating agency believes that most damage costs will again be absorbed by residents and business-owners, with state and local authorities likely bearing a portion of the cost to rebuild communities.

National and multinational insurers whose portfolios are diversified geographically should not be subject to losses that result in pressure on their capitalisation, therefore A.M. Best does not expect rating pressure on those carriers.

Smaller, single state, or regionally focused insurers whose portfolios feature a concentration of risks in the affected states however, could suffer proportionately larger losses.

Less diversified companies could also be affected materially, not only from a profit and loss perspective, but in terms of balance sheet strength as well.

Analysts said that flood losses to business and vehicles, including business interruption claims, will generate most of the insurable losses from the storm, while claims for onshore commercial and industrial properties and their contents, along with insured commercial automobiles, could also be substantial.

Business interruption claims for commercial enterprises and, to a lesser extent, additional living expenses for covered residential property owners could also drive up the loss total for which primary insurance companies and their reinsurers, A.M. Best said.

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