Insurers Begin to Include Rising Sea Levels into Rates

Rising sea levels threaten coastal properties.

Damage from Hurricane Matthew

Insurers are beginning to introduce rising sea levels into rates, according to my latest article, “The SLR Factor: As sea levels rise, the flood risk equation changes.” It was published recently in the Casualty Actuarial Society’s Actuarial Review magazine.

The National Flood Insurance Program (NFIP), the nation’s largest insurer of homeowners’ flood insurance, is beginning to factor in sea level rise. So are excess insurers and reinsurers. However, rising sea levels could also affect the appetite for private homeowners insurers looking to compete with the NFIP. 

While the “21st Century Flood Reform Act” is yet to pass, the omnibus budget bill signed by president Trump last Friday allows NFIP’s reauthorization. The controversial budget bill gives the Federal Emergency Management Agency (FEMA) a necessary financial boost for mapping and mitigating flood risk.

Rising Sea Levels: The Reality

For the scoffers who do not take rising sea levels seriously, consider places such as New Orleans where land is subsiding. Or Norfolk, Va. where rising king tides flow onto nearby streets. A single drop of rain, by the way, does not cause these tides. Instead, they happen when the earth makes its predictable pull with the sun.

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“too many properties not covered for weather-related flood damage.”
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What are the implications for rising sea levels?

  • Covering homes and businesses near the East and Gulf coasts will become more expensive.
  • Some owners will likely have to abandon their property to the tides. This has already happened in New Orleans.
  • Flood exposure will spread, affecting properties once believed to be lower risk. It also means changing weather patterns that will introduce more potential catastrophic weather events.

    Beyond that, rising sea levels will affect governmental entities that need to pony up for expensive flood mitigation. As I write in the article, however, “It is difficult to convince politicians and voters to invest money into problems that are decades away, especially when rising sea levels are too often mired in the politics of global warming.”

Vulnerable Property Owners

Even if sea levels remain stable, there are still too many properties not covered for weather-related flood damage.

Why? Because many homeowners fail to realize that their insurance generally covers flooding caused by something inside the house, such as a leaking pipe. People believe they do not need flood coverage from the NFIP until it is too late. And some irresponsible residents count on FEMA to bail them out instead of buying coverage from NFIP.

And don’t think your property is safe because a FEMA map says so. As I explain in a previous article covering the NFIP, many maps are out-of-date. Further, specific property details can be more critical than zone location.

Rising sea levels will affect more property owners. Insurers are preparing, shouldn’t you?

 

 




Claim Prevention Tips Can Upgrade Customer Experience and Mitigate Losses

Claim prevention tips can improve customer experience and prevent losses.

Claim prevention tips can improve customer experience and prevent losses.

Claim prevention tips give personal lines insurers ample opportunities to upgrade customer experience and mitigate losses. Catastrophic (CAT) events such as hurricanes Harvey and Irma are reminders of why providing critical information to policyholders will quickly become a best practice.

As I explain in my blog for SPLICE Software, directly delivering useful safety and loss prevention information to customers via their communication channel of choice — such as text messages — allow insurers to tangibly demonstrate their commitment to policyholder protection.

Further, arming customers with critical information allows them to take positive steps to decrease the frequency and severity of claims. These tips can also build customer loyalty and provide a new way to reinforce marketing strategy.

My blog explains other reasons why insurers should use claim prevention tips. Happy reading!

 

 




Flood Insurance Requires Vision by Congress

Encouraging private carriers to offer flood insurance requires vision.

Encouraging private carriers to offer flood insurance requires vision.

Creating a public/private partnership for flood insurance requires vision by Congress.

That’s my conclusion after writing my latest Actuarial Review article, Legislative Levee.

Unfortunately, there is little time for overall vision when Congress must approve the reauthorization of the National Flood Insurance Program (NFIP) by September 30th. Since my article crystallizes many of the issues concerning flood insurance, my hope is it will encourage greater public policy discussion.

Right now, most homeowners and small businesses can obtain flood insurance only through NFIP. That’s because, in general, private insurers could not profitably offer flood insurance when the NFIP got started in 1969.

Congress began the NFIP not only to provide flood insurance, but to meet specific congressional objectives that are sometimes contradictory. The idea behind the NFIP is to make coverage for weather-related flooding both affordable and available for homeowners, renters and small businesses. Public policy objectives also include reducing the taxpayer burden when the federal government needs to help victims suffering from flood losses.

While criticism of the NFIP abounds, keep in mind that for the past five decades, the NFIP has been better than nothing. Private insurers were also kept out of the market starting in the 1970s. That’s because federally backed home mortgages require purchasing flood insurance from the NFIP when these properties are in a flood zone.

New Developments Inspire Insurers

But now, there is a sizable amount of homeowners insurers that want to offer flood insurance again. The inspiration stems from significant recent developments. Not only do new weather and insurance models show promise of revealing profitable customers, but can also improve upon the NFIP’s more general approach to developing premiums. Reinsurers looking to diversify their portfolios are also willing to back insurance companies.

The implications of introducing private insurers into a market dominated by the NFIP are vast. That’s why changing how consumers can obtain flood insurance requires vision. The potential of Americans being able to have coverage for flooding regardless of cause in and of itself would be a big advantage. Too many Americans simply do not realize they need flood insurance. (This fails a congressional objective of ensuring as many Americans as possible are covered for external flooding.)

One major reason for misunderstanding stems from the maps the Federal Emergency Management Agency (FEMA) produces. (FEMA is the NFIP’s governing agency.) Too many Americans falsely believe their properties are safe if they are not in a FEMA flood zone. However, most homes can fall victim to external flooding for a myriad of reasons. For example, while not in a FEMA flood zone, my first home’s basement flooded when too much rain saturated the ground around my house.

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Too many Americans simply do not realize they need flood insurance.
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In the United States, flood insurance requires vision because entry of the private market would likely change the NFIP’s role. In short, the NFIP could become the market of last resort, thus limiting the agency’s ability to meet congressional mandates.

Currently, the NFIP relies on “profitable” policyholders to help subsidize other customers and reduce the NFIP’s $24+ billion debt to the United States Treasury. If the NFIP losses enough of those policyholders to private insurers, the agency would be hard pressed to meet its congressional mandates.

At the same time, the benefits to customers, including paying rates truer to their actual risk of flooding and being fully covered for flood damage, are too tempting to ignore. The private insurance market could also expand the population of covered property owners. That would help meet the congressional directive of making sure Americans who need flood insurance would have it.

If the NFIP cannot meet its mandates, taxpayers are likely to pick up the costs of paying down the debt to the United States Treasury. (That would kill one congressional directive.) The insurance industry has made it clear it has no interest in subsidizing rates as they do in some states for auto insurance.

Flood Insurance Requires Vision

These are just some reasons why developing a private/public partnership for flood insurance requires vision. My article digs deeper into the public policy objectives for the NFIP, which also must be understood when contemplating a great infusion of private insurers into the external flood market.

There are also several unknowns pertaining to private insurers offering flood coverage. For starters, the profit margins are unclear. Potentially subsidizing risks could mean lowering the profit incentive. The new weather models are largely untested by homeowners and renters insurers in the United States. If major flooding events continue, it could turn out that private insurers will have to raise rates to a point where insurance becomes unavailable once again for too many consumers.

There is also the regulatory conflict. Congress primarily controls the NFIP. Allowing politics to affect the NFIP has led to premium inequities and delay for meeting financial goals. The NFIP could also more greatly benefit from the new weather and insurance models to compete against private insurance companies. However, the agency lacks the agility that private insurers enjoy because it is dependent on congressional timing. Private insurers would be regulated by state insurance regulators, who have much more insurance experience than Congress.

Simply supporting private insurers to compete against the NFIP is does not answer all the public policy considerations that led to to the agency’s existence the first place. The NFIP and insurers would be playing the market game with different rules and requirements.

That’s why flood insurance requires vision to ensure public policy objectives are met as private insurers enter the market. Unfortunately, given the September 30th deadline to reauthorize the NFIP, there is little time for big picture conversations. The nation will likely witness a wait-and-see approach that supports an experiment to realize how private insurers benefit policyholders and taxpayers.

This promises to be messy, but the flood insurance situation is already that way.

To read my article on Hurricane Sandy’s effect on the NFIP, please click here.

 




Sending Omnichannel Appointment Reminders Offers Multifold Benefits

Appointment reminders are a customer experience enhancing opportunity.

Appointment reminders are a customer experience enhancing opportunity.

Sending omnichannel appointment reminders can help personal lines insurers save money, encourage efficiency and improve customer experience.

Using omnichannel tools is a more effective approach than traditional methods. That’s because claimants can decide how they want to receive and respond to notifications.

To find out how technology is improving the transmission of appointment reminders, please check out my blog for SPLICE Software.




The Difference Between Customer Service and Customer Experience

 

SPLICESoftware

What’s the difference between customer service and customer experience for personal lines insurers?
I tackle that question in a blog for one of my clients, the award-winning SPLICE Software. The fact-based blog includes research that demonstrates why customer service and customer experience is different — and why it matters. I hope you will check it out.




Staying Afloat: Flood Insurance Is A Taxpayer Burden

Screen Shot 2013-07-01 at 3.58.35 PMThe National Flood Insurance Program (NFIP) is in debt. About $24 billion in debt to be exact. It’s part of the larger debt we taxpayers are carrying because the program cannot collect what it needs to pay flood claims.

But before you get bent out of shape about another tax burden, consider this. The program is in trouble because most Americans are not buying flood insurance or paying premiums as they should. To make matters worse, more major weather events are predicted this year and in the future.

I cover this in my latest article, The Perilous State of Flood Insurance, in Contingencies magazine. Published by the American Academy of Actuaries, it provides a detailed account of the NFIP since Superstorm Sandy and reform signed into law by President Obama last year.

Here’s some highlights.

  • The NFIP, which is part of the Federal Emergency Management Assistance program (FEMA), which is under the Department of Homeland Security, is just one major CAT event away from hitting the debt ceiling that President Obama and Congress extended last January. That CAT could easily happen this hurricane season, weather experts predict.
  • The 45-year-old NFIP exists because the private insurance market cannot afford to offer flood coverage. Private insurers (your State Farms, Allstates and Progressives of the world) would need to double premiums currently paid by NFIP policyholders due to state solvency requirements.
  • Flood damage is way underinsured. Just ask the folks in New York and New Jersey who did not have NFIP coverage. For their policyholders, NFIP covered about $7.2 billion in losses. The insurance industry as a whole picked up even more for commercial property and business interruption coverage. Those who were not covered, did not get a FEMA grant or charitable help were out of luck. Some people are still homeless because they missed the boat on having flood coverage.
  • People do not buy flood insurance for many reasons. They either assume flood protection is covered through homeowners and renters insurance or say they cannot afford to buy it. (My grandmother used to say that if you cannot afford to take care of soemthing, you shouldn’t have it.) Some even hold out hope that they will get FEMA grant money, which of course, are more federal tax dollars at work.
  • FEMA is releasing new flood maps that might be putting your home or commercial building into a flood zone. That’s because climate change means sea levels and major weather events are rising, which puts more of the U.S. population at risk for flood damage. Better measuring instruments are making maps much more accurate as well.I hope you will enjoy my article. Even if you do not read it, I hope you will call your insurance agent and make sure you are covered. It’s the right thing to do.

For more information on insurance and deciding what kind of insurance you need, check out the Insurance Information Institute. They exist to keep consumers informed.

The Perilous State of Flood Insurance can also be found under “Work Samples.”