Insurers must find a way to plug the flood protection gap
Insurers and reinsurers must find a way to plug the protection gap in the US, revealed so starkly in the aftermath of recent hurricanes and especially relating to flood risk, David Sampson, chief executive of the Property Casualty Insurers Association of America (PCI), told PCI Today.
Sampson said that while initiatives are under way designed to solve this problem, more must be done—and more quickly.
“We need to find a way of bridging the protection gap; after some of these events around 80 percent of the flooded properties had no flood insurance. That is unacceptable, and the industry has a responsibility to solve this issue,” he said.
Some of this can be achieved by the long-term reauthorisation of the National Flood Insurance Program (NFIP), he explained, with some key amendments including clarifying the ability of mortgage lenders to accept flood insurance policies underwritten by private sector companies.
The NFIP is set to expire on November 30, and PCI is encouraging Congress to reauthorise the programme to avoid a lapse that, Sampson said, could cause uncertainty for consumers and disruption in the real estate market.
“A long-term reauthorisation and reforms that expand consumers’ flood insurance options will provide greater stability and reliability for consumers.
“We are also advocating clarity with regard to the ability of lenders to accept private flood when consumers are purchasing a home with federally-backed mortgages; and reforms that will provide consumers with information about their risk from flood loss,” Sampson explained.
“We think that would go some way towards raising more awareness that flood insurance is available and create a more competitive landscape at the same time,” he said.
“This represents a big hole in risk management within communities, as well as the personal finances of individuals. We need to solve it.”
Looking ahead
This will be one of the themes discussed at PCI’s annual conference in Miami this week, Sampson predicted, from both a high-level perspective and, potentially, in terms of the detail of how this is achieved.
The theme of this year’s conference is ‘Looking Ahead’, a topic that Sampson believes encapsulates the many challenges facing the industry.
“We have always been good at looking in the rear-view mirror and learning lessons from the past, but more than ever we need to look at the future and how things will change,” he said.
The conference will have four broad focuses around this theme, the first being the future global economic outlook.
“The US economy has led the way for some 18 months now but there are cross-currents such as the Fed starting to raise rates. The future outlook is far from clear,” Sampson said.
The second theme will be the rapidly changing requirements of insurers’ customers, both individual and commercial clients.
“As the economy changes, so do their behaviours, risks and needs and what they want from financial services,” he said.
Third, the conference will examine the many complex geopolitical factors impacting insurers globally. “As the saying goes, ‘no man is an island’ and we must accept that we are all interconnected now. From Brexit to tariffs on trade and the potential of a new trade war, these are all concerns of our members that we must consider and plan for where possible,” Sampson said.
He noted in particular that the Treasury’s Federal Insurance Office intends to negotiate a new Covered Agreement with the UK, similar to the one between the US and the EU, which the National Association of Insurance Commissioners (NAIC) is in the process of implementing.
He said the Treasury believes a new agreement is necessary to accommodate the UK once it leaves the EU and hopes negotiations can be concluded in December to allow time for the required congressional notice and layover period to run before Brexit occurs in March 2019.
He added that the mid-term elections in the US could also influence the domestic environment in which US insurers operate.
Finally, Sampson said, the industry is becoming much more dependent on data and technology with many companies investing in, forming or partnering with insurtech companies.
“This will change the nature of the industry and, potentially, its workforce and is something we will consider under the theme of Looking Ahead,” he said.
The speakers and agenda at this year’s conference reflect all these topics in different ways. Sampson highlighted keynote speeches by Mohamed El-Erian, chief economic adviser to Allianz, who will offer an economic outlook; William McRaven, a retired four-star US Navy Admiral, who will speak on leadership and developing agile and responsive teams; and Robert Kagan, author of The Jungle Grows Back: America and Our Imperilled World, who will speak on the geopolitical outlook.
“We will help C-suite executives open their eyes to see the bigger picture and the wider horizon, and then narrow the focus back down to help them tackle specific challenges,” Sampson said.
“The industry is in great health from a financial perspective but there are challenges in the future that need to be overcome.”
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