Event: The Private Market for Flood Insurance

Link: https://www.rstreet.org/2022/07/20/event-the-private-market-for-flood-insurance/

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The private market for flood insurance in the United States measures approximately $300 million in annual premium. This is less than 10 percent of the $3.7 billion in flood insurance premium written by the federal government’s National Flood Insurance Program (NFIP). Private insurers offering flood insurance are not operating on the same playing field because many NFIP policies are subsidized and underpriced. The creativity of private insurers, guided by the dynamics of a free and competitive market, will eventually drive out inefficiency and false price signals, and make available to homeowners and businesses the flood insurance they need at the right cost.

We invite you to an online discussion examining the obstacles and opportunities for private insurers featuring flood insurance entrepreneur Trevor Burgess, and R Street’s Jerry Theodorou and Caroline Melear.

Author(s): Jerry Theodorou, Trevor Burgess, Caroline Melear

Publication Date: 20 Jul 2022

Publication Site: R Street

Flood-Prone Homes Could Lose Federal Insurance Under FEMA Plan

Link: https://www.wsj.com/articles/fema-urges-congress-to-drop-flood-insurance-for-highest-risk-areas-11655384400

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Mr. Toomey asked Jerry Theodorou of the R Street Institute, a conservative-leaning Washington-based think tank, how seriously Congress should look at paying repetitive loss claims. “Indeed, this is a very serious problem,” Mr. Theodorou said. “The numbers speak for themselves, to have such a small percentage of policyholders accounting for close to 40% of the claims dollars paid.”

The flood insurance program — which is the main provider of flood coverage in the U.S. and has issued more than five million policies — has paid out more money to property owners and other expenses than it has collected in premiums from policyholders since Congress created it in 1968. It collects about $4.6 billion in annual revenue from policyholders in premiums, fees and other charges, according to the Congressional Research Service.

Flooding ranks as the country’s most common natural disaster. Scientists predict floods will happen more frequently in neighborhoods that face new risk from rising sea levels and extreme rainstorms due to climate change.

Author(s): Katy Stech Ferek

Publication Date: 16 June 2022

Publication Site: Wall Street Journal

R Street Institute Testifies Before Senate Banking Committee on National Flood Insurance Program

Link: https://www.rstreet.org/2022/06/16/r-street-institute-testifies-before-senate-banking-committee-on-national-flood-insurance-program/

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Additional link: https://www.rstreet.org/2022/06/16/five-solutions-to-help-fix-the-national-flood-insurance-program-from-r-street-testimony-to-the-u-s-senate-banking-housing-and-urban-affairs-committee/

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Regarding the second objective, there is no equitable sharing of costs between the public and private sectors. The private sector is only peripherally involved in bearing flood risk. The involvement of the private insurance sector is restricted to administration of the program, for which insurers are remunerated by the NFIP. The participation of private insurers in flood insurance as a risk-bearer is de minimis, writing less than a tenth the premium collected by the NFIP.

Instead of attaining the overarching goal of reducing economic losses caused by flooding, flood-
related economic losses have increased. In the past decade, U.S. economic losses caused by flooding were $943 billion, close to five times more than the $211 billion cumulative flood-related losses in the prior decade. In this testimony, we highlight five issues standing in the way of the NFIP falling short of achieving its mission, and propose solutions to remedy those problem areas.

Author(s): Jerry Theodorou

Publication Date: 16 June 2022

Publication Site: R Street Institute

2021 Academy Legislative/Regulatory Review

Link: https://www.actuary.org/sites/default/files/members/alerts/pdf/2022/2022-CP-1.pdf

Excerpt:

The American Academy of Actuaries presents this summary of select significant regulatory and
legislative developments in 2021 at the state, federal, and international levels of interest to the U.S.
actuarial profession as a service to its members.

Introduction

The Academy focused on key policy debates in 2021 regarding pensions and retirement, health, life,
and property and casualty insurance, and risk management and financial reporting.


Responding to the COVID-19 pandemic, addressing ever-changing cyber risk concerns, and analyzing
the implications and actuarial impacts of data science modeling continued to be a focus in 2021.


Practice councils monitored and responded to numerous legislative developments at the state, federal,
and international level. The Academy also increased its focus on the varied impacts of climate risk and
public policy initiatives related to racial equity and unfair discrimination in 2021.


The Academy continues to track the progress of legislative and regulatory developments on actuarially
relevant issues that have carried over into the 2022 calendar year.

Publication Date: 15 Feb 2022

Publication Site: American Academy of Actuaries

“What If I Can’t Insure My Home At All?”

Link:https://www.dailyposter.com/what-if-i-cant-insure-my-home-at-all/

Excerpt:

Insurance giants Chubb, Liberty Mutual, and AIG are three of the biggest insurers of fossil fuel infrastructure around the world. But the companies have just announced plans to scale back their homeowner coverage in California, where they insist future climate-related losses will likely prevent them from turning a profit.

The coverage withdrawals may soon ignite a big money battle in the state’s legislature, pitting insurance giants against lawmakers trying to preserve coverage for their constituents. Meanwhile, climate campaigners are decrying what they say is a fundamental hypocrisy.

…..

Last year, Chubb’s chairman and CEO Evan Greenberg said the company was reducing its coverage in parts of the state that were “both highly exposed, and even moderately exposed, to wildfire” because it was unable to obtain an “adequate price for the risk, and not by a small amount” due to both the costs of wildfires and California’s regulatory climate.

…..

A main solution proposed by industry is that they be allowed to use “catastrophic modeling,” a method where rates are set based on predictions of future losses, rather than recorded past losses, as is currently the case. All other states allow the use of this technique in at least some cases.

Author(s): Sam Mellins

Publication Date: 7 Feb 2022

Publication Site: The Daily Poster

Flood-Threat Assessment Finds Danger Goes Far Beyond U.S. Homes

Link:https://www.bloomberg.com/graphics/2021-flood-risk-critical-infrastructure/

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Nearly a quarter of U.S. critical infrastructure—utilities, airports, police stations and more—is at risk of being inundated by flooding, according to a new report by First Street Foundation, a Brooklyn nonprofit dedicated to making climate risk more visible to the public.

Roughly 14% of Americans’ properties face direct risk from major storms, but the study shows danger extends far from those property lines.

The authors say the report provides the first holistic understanding of flood risk beyond individual property level. In addition to critical infrastructure, the report assesses commercial buildings, millions of miles of roads and socially important institutions such as schools and museums.

“Even if your home is far from the risk of flooding or forest fires, you may not so easily escape the systemic impacts from vulnerable critical infrastructure that sometimes extends hundreds of miles,” said Jesse Keenan, a climate-change and real-estate expert at Tulane University in New Orleans.

Author(s): Leslie Kaufman, Rachael Dottle, Mira Rojanasakul

Publication Date: 11 October 2021

Publication Site: Bloomberg

Insurance Futures: Global trends and issues reshaping the insurance landscape to 2035

Link: https://www.internationalinsurance.org/sites/default/files/2021-07/Milliman_Insurance_futures_compilation_7.2021_2.pdf

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The long-term security of coastal regions depends not simply on climate, oceans and geography,
but on multiple local factors, from the politics of foreign aid and investor confidence, to the
quality of resilience-oriented designs and ‘managed retreat’.


Take some examples. In 2017, the drought in Cape Town and lack of resilient water infrastructure
led to a downgrade by Moody’s. Wildfires in the Trinity Public Utilities District in California
led to similar downgrades in 2019. Moody’s have developed a ‘heat map’3 that shows the credit
exposure to environmental risk across sectors representing US$74.6 trillion in debt. In the short
term, the unregulated utilities and power companies are exposed to ‘elevated risk’. The risks to
automobile manufacturers, oil and gas independents and transport companies are growing.
Blackrock’s report from April 2019, focused primarily on physical climate risk, showed that
securities backed by commercial real estate mortgages could be confronted with losses of up
to 3.8 per cent due to storm and flood related cash flow shortages.4 Climate change has already
reduced local GDP, with Miami top of the list. The report was amongst the first to link high-level
climate risk to location analysis of assets such as plants, property and equipment.


In other words, adaptation and resilience options are also uniquely local. The outcomes hinge
on mapping long-term interdependencies to predict physical world changes and explore how
core economic and social systems transition to a sustainable world.

Publication Date: July 2021

Publication Site: International Insurance Society

We’re Going The Wrong Way

Link: https://www.dailyposter.com/were-going-the-wrong-way/

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Science has provided America with a decent idea of which areas of our country will be most devastated by climate change, and which areas will be most insulated from the worst effects. Unfortunately, it seems that population flows are going in the wrong direction — today’s new Census data shows a nation moving out of the safer areas and into some of the most dangerous places of all.

…..

Some of the examples are genuinely mind-boggling. For instance, upstate New York is considered one of the country’s most insulated regions in the climate crisis — and yet almost all of upstate New York saw population either nearly flat or declining. At the same time, there were big population increases in and around the Texas gulf coast, which is threatened by extreme heat and coastal flooding.

Similarly, the city of Philadelphia is comparatively well situated in the climate crisis — but it saw only modest population growth of 5 percent. It was surpassed on the list of biggest cities by Phoenix, which saw an 11 percent population growth, despite that city facing some of the worst forms of extreme heat and drought in the entire country.

Author(s): David Sirota, Julia Rock

Publication Date: 12 August 2021

Publication Site: The Daily Poster

Wealth and Insurance Choices: Evidence from US Households

Link: http://public.kenan-flagler.unc.edu/faculty/kuhnenc/RESEARCH/gropper_kuhnen.pdf

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Abstract:

Theoretically, wealthier people should buy less insurance, and should self-insure through saving instead, as insurance entails monitoring costs. Here, we use administrative data for 63,000 individuals and, contrary to theory, find that the wealthier have better life and property insurance coverage. Wealth-related differences in background risk, legal risk, liquidity constraints, financial literacy, and pricing explain only a small
fraction of the positive wealth-insurance correlation. This puzzling correlation persists in individual fixed-effects models estimated using 2,500,000 person-month observations. The fact that the less wealthy have less coverage, though intuitively they benefit more from insurance, might increase financial health disparities among households.

Author(s): Michael Gropper, Camelia M. Kuhnen

Publication Date: 16 July 2021

Publication Site: University of North Carolina

Skip the fireworks this record-dry 4th of July, over 150 wildfire scientists urge the US West

Link: https://theconversation.com/skip-the-fireworks-this-record-dry-4th-of-july-over-150-wildfire-scientists-urge-the-us-west-163561

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For decades, one of the most striking and predictable patterns of human behavior in the western U.S. has been people accidentally starting fires on the Fourth of July. From 1992 to 2015, more than 7,000 wildfires started in the U.S. on July 4 – the most wildfires ignited on any day during the year. And most of these are near homes.

Author(s): Philip Higuera, Alexander L. Metcalf, Dave McWethy, Jennifer Balch

Publication Date: 1 July 2021

Publication Site: The Conversation

The flood insurance debate returns. Here’s what to expect

Link: https://www.eenews.net/stories/1063731009

Excerpt:

The most comprehensive proposal being floated so far is one from House Financial Services Chairwoman Maxine Waters (D-Calif.).

That discussion draft would extend the program for an additional five years and limit the government’s ability to raise the price of flood insurance amid growing concerns about affordability (E&E Daily, April 14). Current authorization for the National Flood Insurance Program (NFIP) is set to expire in five months.

….

Jerry Theodorou, director of the finance, insurance and trade program at the R Street Institute, said subsidies mask the real costs of building and living in flood-prone areas and that the Peters-Barr bill would ensure that policyholders aren’t “undercharged.”

Theodorou said the Waters bill instead would kick the can down the road, and he criticized the measure for seeking to cancel the program’s historic $20.5 billion debt.

Author(s): Hannah Northey

Publication Date: 27 April 2021

Publication Site: E&E News

Insuring Another Disaster

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Leave it to California lawmakers, however, to cast aside thousands of years of complex commercial history in a misguided attempt to fix an admittedly legitimate insurance problem. Thanks to Proposition 103, a 1988 ballot measure, California already has a distorted insurance market that gives the insurance commissioner czar-like powers to approve rate increases and impose rate decreases.

Because of that law, insurers have a tough time adjusting rates to manage their risks. It’s a long, cumbersome, and antagonistic government process to adjust rates. Their other lever for ensuring solvency is to reduce their underwriting risks by, say, not writing fire-insurance policies to homeowners who live in high fire-risk areas or car insurance policies to drivers with multiple DUIs.

….

Instead, California Assemblymember Marc Levine, D-Marin County, has introduced Assembly Bill 1522, which would prohibit insurers from canceling insurance policies solely because a home or business is located in a high-risk wildfire area. It epitomizes California’s economically illiterate edict approach.

Author(s): Steven Greenhut

Publication Date: 29 April 2021

Publication Site: The American Spectator