10 September 2017 Insurance

Hurricane Harvey shows lack of awareness of flood risk

Unless there is an appreciation of looking at flood risk more holistically and using some of the science-driven solutions available, the industry will continue to be surprised by increasingly intense rainfall episodes such as those seen with Hurricane Harvey, Jay Guin, chief research officer at AIR Worldwide, told Monte Carlo Today.

“From a flood point of view the insurance industry in the US has largely ignored this peril because most of it is not insured and the level of awareness has not been at the same level as other perils,” Guin said.

The extent of insurance coverage is still limited, and most companies tend to limit the amount of protection they provide, so that might mitigate some of the losses for the insurance industry, he explained.

Hurricane Harvey’s record-breaking rainfall is expected to cost between $65 billion and $75 billion, according to estimates by AIR Worldwide.

The hurricane exceeded expectations, surpassing all records of rainfall for that region, including tropical storm Alison in 2001.

AIR estimates that industry insured losses from wind, flood, and storm surge combined are expected to exceed $10 billion, with approximately $3 billion of the losses resulting from winds and storm surge. These estimates do not include losses to the National Flood Insurance Program (NFIP).

One of the key issues Guin highlighted is the lack of awareness and lack of planning for these type of events.

While a direct association cannot be made between Hurricane Harvey and climate change, Guin noted that these recent storms—Harvey and Irma—are consistent with what the climate is expected to do.

Furthermore, climate change exacerbates the severity of the floods, Guin argued. “From a basic physics point of view, with a warming climate it is expected that rainfall episodes are going to get more intense.”

Of all the natural perils AIR models cover, large investments have been made to better understand flood risk. The company already has flood models for the US, the UK and Europe, and it is producing one for Japan. It is also developing a series of flood hazard solutions for China, Brazil, India and Canada.

“That’s our area of focus and investment. Flood will continue to be a problem for the entire world, in particular the insurance industry. Solutions do exist today, and flood is going to be the peril that will be in all of our lives for the next decade,” Guin said.

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