“The first challenge is the market itself. Because of the U.S. Government’s heavy involvement, the private flood insurance market has not been attractive to insurance innovators and pioneers. The market still has to fully embrace flood as a peril that can be insured in a profitable way—an opportunity that AIR’s new flood model can help realize.
A second challenge is the very size of the U.S. AIR has overcome this challenge with a state-of-the-art precipitation model that couples a global circulation model with a regional numerical weather prediction model to produce realistic precipitation patterns.”
As I wrote previously, the National Academies Press released its book Mapping the Zone, a key recommendation was the acquiring high resolution elevation data (e.g. LIDAR). AIR Worldwide is adding to the conversation by taking a forward looking approach and doing it’s best to predict likely precipitation regimes.
The dynamic here is rather interesting. FEMA has changed its flood insurance premium policy in 2012 due to the Biggert-Waters act. In some case, flood insurance premiums are skyrocketing, such as in some coastal areas that were hit by Hurricane Sandy. Properties located within floodplains are also affected by this policy. Obviously, no one has a crystal ball, but I am interested in hearing what people think some trends could be with respect to existing home and new homes being built within floodplains. Historically, I would completely agree that FEMA has been heavily involved in the private insurance market. With Biggert-Waters now in affect, subsidies being eliminated and premiums going up, it’s not clear to me how large FEMA’s involvement with distorting price will be with respect to influencing flood insurance premiums. Not only will Biggert-Waters have a large effect on the private insurance market, but it seems as though there will have to be some real on the ground changes in land use. I suspect many homeowners and businesses located within a floodplain will now be motivated to take a harder look at various flood proofing measures. FEMA’s list of retrofitting measures includes raising a property’s elevation, wet and dry floodproofing, relocation, constructing levees and floodwalls and demolition. Now that premiums are increasing substantially, I’m curious to know if demolition or abandonment might become more prevalent.
The property casualty insurance market isn’t an area I’ve covered too much on this blog, but given the damage that floods induce on people and fluvial and riparian ecosystems, it seems like a topic worth some review. Currently, the Property Casualty Insurance Association of America is having their annual meeting in Boston. For Twitter followers, the #PCIAM20123 hashtag might be of some interest.