Flood underwriting solutions can close US protection gap
The capabilities to underwrite floods in the US and reduce the protection gap are now available and in place, Edouard Schmid, Swiss Re’s chief underwriting officer, told Monte Carlo Today.
Flood damage in Texas from 2017’s Hurricane Harvey is estimated at between $40 billion and $59 billion. Approximately 75 percent of the flood damage to residential properties from Harvey was uninsured.
“Only one in six people in the US has flood coverage,” Schmid said. But the market is preparing to change this situation as the data and tools needed to price the risk adequately are now in place.
“We are now much better equipped to do it,” he said.
Flood insurance has not been widely available in the past because insurers were hesitant to offer cover, as flood data needed more granularity to allow for an adequate risk assessment, said Schmid. Satellite data and digital elevation models now enable a better risk assessment.
Swiss Re has developed a flood toolkit which allows cedants to access a flood model enabling pricing of flood policies and to offer affordable flood policies in the US, he said.
Swiss Re has partnered with local players to bring flood products to the US market. “The volumes are not huge yet but it is picking up,” he noted.
The US represents a large part of the global protection gap, Schmid said.
Technology can achieve some efficiency that helps the affordability of the product. However, if a property is in a high-risk area that will be reflected in the price. That is where a national flood insurance programme such as NFIP in the US or Flood Re in the UK has to come in to subsidise high-risk property, he explained.
The reduction of the protection gap often needs the support of the government to set in place such programmes.
A big opportunity for the re/insurance sector may lie in China.
“Finding ways to mitigate natural catastrophe risk is very high on the agenda of the Chinese government,” Schmid said.
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