IBC Flood

1. Lead on national issues
2. Forecast and respond to industry issues;
3. Anticipate opportunities to influence change supporting companies’ business needs
4. Lobby fed and prov for changes in public policy to benefit insurers and customers

• Risk base rates (actuarially sound) to have enough fund for compensations (and not subsidize)
• Deductibles to encourage preventive behavior/awareness of the risk by public
• Exclude flood prone areas (not eligible) to maintain premiums affordable for low level risks

1. adverse selection: only high risks would purchase coverage
2. Underinvestment in infrastructure by the government
3. Flood maps not up to date

1. Accurate and up-to-date flood maps
2. Investment in flood defences
3. Public awareness and understanding of financial impact and how to mitigate flood losses
4. Limited recourse to gov revenue to compensate for losses

• Growth in population and asset values
• Concentration of urban development in flood-prone areas
• More violent weather patterns
• Increase in vulnerability of infrastructure due to obsolete building codes and under-investment in flood defense

• Require houses in high risk zones to have a flood protection system in place
• Large deductible for high risk zones to encourage loss control

1. overland flood usually comes with SBU. hard to determine which caused loss
2. for major flood, insurers often pay to avoid reputational damage and political pressures.

1. Private vs. publicly administered programs
2. Voluntary vs. mandatory ins take-up
3. Optional vs. bundled coverage
4. Risk-based vs. gov mandated pricing
5. Policyholder-funded vs. taxpayer-funded subsidization of high-risk properties (or neither)
6. Gov as insurer vs. enabler of ins

• Private:
  • market-based,
  • risk-based pricing
  • gov intervention limited to investment in risk assessment and mitigation.
• Public:
  • strong gov involvement in provision, funding and design of flood insurance.
  • gov set prices and terms of coverage (similar social assistance)

• optional as endorsement to standard HO
  • bundled into package with other optional perils (EQ)
  • bundled into standard HO
• moral hazard:
  • optional: only high risks will buy and not enough incentive for risk mgt
  • bundled mandatory: reduces adverse selection as mandatory
• allocation of costs:
  • optional: difficult since only high risks buy.
  • bundled mandatory: spread cost among all insured

• private market-based system, largely deregulated, no backing from gov, reinsurance from international market
• bundled with other natural perils; optional
• take up rate 30%
• adeq risk-based pricing made possible by gov thru
  1. restrict dev in flood-prone areas
  2. nationwide flood mapping tool
  3. 4 risk zones used by all insurers
     • Very low = > 200; Insurable
     • Low = 50-200; / Moderate = 10-50; insurable, if mitigation measures taken
     • High = < 10, Uninsurable

• private market; optional & bundled with EQ
• take-up low (<10%); due to overall property insurance take-up low (35%) and cultural reasons (gov responsible for natural disaster losses)

• private market; optional coverage
• expensive; low take-up (low take up on overall insurance)

• gov-sponsored flood risk mgt initiative / investment in risk mitigation to enable private offering
• private;
• part of a standard HO; co-insurance (insurers cover up to 70%) to maintain incentives for risk reduction
• take-up rates low

• private; mandatory as part of standard HO
• Insurers:
  • UW and price policies
  • handle claims
• gov:
  • flood mapping
  • restrict development in flood‐prone area
• p.h.:
  • pay premiums invest
  • participate in risk mitigation (to reduce own losses)

despite the effort, still unsustainable and being reformed, given worsening of weather and insufficient investment in infrastructure

• risk sharing pool; gov to backstop excess losses,
• operated by insurers as not-for-profit fund to subsidize coverage for high risks to enable transition to risk-based pricing over 25 years
• Insurers required to insure high risks. If risk-based premium > cap, consumer pays cap and insurer can cede it (cap premium and the risk) to Flood Re

1. Set price ceilings, anticipated to increase over time
2. financial support in extraordinary CATs > capacity of pool
3. Investing in new and improved flood defenses

• National Flood Insurance Program; joint by private and gov
• HO can purchase NFIP coverage if in approved areas (1-in-100 year floodplains annd must satisfy floodplain mgt req'ts
• Fed (thru FEMA) sets prems based on flood maps
• Private write and service NFIP policies under own brand without retaining risk
• Not sustainable

1. Pool for bad risks and heavily subsidized coverage
2. Backstop guarantee by the federal government, using public funds and not reinsurance
3. Flood maps out of date
4. Floodplain management often not enforced
5. "Actuarial rates"often not actuarially sound

• Bundled with other natural disasters,
• CCR is a state-owned reinsurer that private insurers can buy reinsurance from
• Cat Nat premiums of CCR are set at a uniform rate, no differentiation based on risk exposure
• Reinsurance with CCR not compulsory, but:
  1. Reinsurance premiums are low
  2. Unlimited coverage with low solvency risk due to government's backstop

1. Public rate setting: set by government rather than based on risk.
   1. No incentive for risk mitigation investment
   2. Forces subsidization
2. Public risk transfer means CCR rates are artificially low
   1. Strong incentive for primary insurers to reduce their retention rate
   2. Stresses CCR and taxpayers.

1. gov programs reduces hardship thru basic financial support; insurance seeks to fully compensate consumers
2. gov programs encourage risky behaviour; insurance prems risk-based -> incentive for consumers to reduce risk

• Invest in infrastructure
• accurate flood maps
• Restrict developments in high risk areas
• Increase public awareness to ensure HO understand risk and know how to mitigate
• Address issue of high-risks thru subsidies

1. Already covered water damage, incl SBU and overland flood thru auto and comm prop
2. Simply having a flood program is not enough. Need one that works and many international models don't work

1. Many schemes not sustainable and can lead to large public debt
2. Other schemes enable compensation but premiums unaffordable to some.
   1. Financially sound flood program needs to price coverage based on actualrisk.
   2. Means high-risk consumers will pay high premiums.

• risk-based pricing
• Encourage risk mitigation
• reduce adverse selection
• don't need to differentiate SBU and overland
• avoid reputation risk

• Bundled approach
• Risk based pricing
• Deductibles: to encourage risk mitigation
• Gov involvement: infrastructure and flood map
• eligibility: exclude highest risks