B - IBC Flood Flashcards
IBC FLOOD
3 reasons why overland flooding has historically not been available in Canada
(ie)
3 specific reasons for non-coverage of overland flooding
1) adverse selection, (would be too expensive if offered)
2) gov’t under-invests in risk planning and mitigation
3) lacks of effective flood hazard maps
IBC FLOOD
4 pre-conditions essential to establish a strong flood risk management culture
1) UP-TO-DATE FLOOD HAZARD MAPS for planning and risk mgmt
2) INVEST IN INFRASTRUCTURE (sewers, levies)
3) POLICYHOLDERS AWARENESS OF RISK, mitigation methods, and financial management of floods
4) LIMIT USE OF TAXES to compensate after disaster (individuals should have risk-mitigation incentives and taxpayers should have minimized burden)
IBC FLOOD
4 trends making the financial management of flood risk increasingly problematic
1) growth in population and asset values
2) concentration of urban development in flood-prone areas
3) increase in violent weather patterns
4) increase in vulnerability of infrastructures due to under-investment in risk mitigation.
IBC FLOOD
5 types of flood based on CAUSES
1) SPRING SNOW-MELT RUNOFF
melting of accumulated snow
2) STORM RAINFALL
extreme rainfall causing extreme storm-water runoff
3) TIDAL FLOODING
low-pressure weather systems and high tide raising water levels
4) NATURAL DAM FAILURE
sudden release of water due to failure of a natural dam (cause by ice jams, landslides)
5) STRUCTURAL FAILURE
failure of man-made flood defences (dams, dikes and levees)
IBC FLOOD
3 types of flood based on LOCATIONS
1) FLUVIAL (riverine) flooding
2) URBAN (pluvial) flooding
3) COASTAL flooding (flood surge)
IBC FLOOD
Describe the offering of water-related risk in Canada
Overland Flooding : covered through auto and commercial property policies, not yet available for residential.
End’t for SBU damages are available (in Qc, this end’t also include seepage and rising of the water table)
IBC FLOOD
2 reasons why insurers often end up paying for a significant portion of flood losses
1) 2 different perils (one included -SBU-, one excluded -overland flooding-) caused the loss and its difficult to determine how much results from one or the other.
2) to avoid reputational damage and political pressures.
IBC FLOOD
Arithmetic example showing why flood insurance premium is expensive
Explain.
Property Value = 500K
1-in-50 year flood frequency = 2%
avg severity = 25% of property value = 125K
——-
avg LC = 2% * 125K = 2500$
——-
Owner would have to pay 2500$ at a minimum (not including expenses or profit) for the base flood coverage
——-
When flood occurs, all properties are affected at the same time, reducing the diversification benefit that could have led to reduction in premium
IBC FLOOD
GERMANY Flood Insurance program
Private
Voluntary purchase
Optional end’t, take-up rate of 30%
Financial impact to policyholders
Risk-Based Pricing
Gov’t action to forbid floodplain development in risk zones and to create flood maps
IBC FLOOD
ITALY Flood Insurance Program
Private
Voluntary purchase
Financial impact to taxpayers
Optional end’t (bundled w EQ coverage)
low insurance take-up (LT 35%) due to belief that its govt responsibility to compensate losses due to natural disaster
Flood take up rate even lower, LT 10%
Risk-based pricing
IBC FLOOD
RUSSIA Flood Insurance Program
Private
Voluntary purchase
Optional end’t
take-up rate LT 5%
Risk-based Pricing
IBC FLOOD
JAPAN Flood Insurance Program
Private
As part of home policy (with significant co-insurance)
yet Voluntary
40% take-up rate
Risk-based pricing
financial impact to policyholders
gov’t invested largely in risk mitigation measures to bring flood risk under control.
IBC FLOOD
UK Flood Insurance Program
Private
As part of Home Policy
virtually mandatory
95% take-up rate
Risk-based Pricing
Financial impact to policyholder
Both insurer and gov’t have clear role to play
- Gov’t : flood mapping, infrastructure, and zoning
- Consumers: Risk-Based Premium and risk mitigation measures to maintain insurability
IBC FLOOD
2 reasons why UK flood insurance program is unsustainable and need review.
1) existing insurers were required to retain high-risk properties while not required for new entrants.
2) govt under invested in mitigation
IBC FLOOD
Discuss Insurers and Govt NEW AGREEMENT about Flood Risk Insurance in UK
Creation of FLOOD RE
RSP financed by insurers as a non-for-profit fund to subsidize high-risk properties
levy charged to all other policyholders
always operates at a loss
- to ensure availability/affordability to high-risk properties
- to help the transition to risk-based pricing
Gov’t roles are:
- setting price ceiling for flood coverage
- responsible for extraordinary cat losses
- investing in new flood defences
IBC FLOOD
Which High-Risk Properties is eligible to Flood Re, in U.K
Properties in high-risk areas, excluding homes built after 2009, to avoid encouraging building in those areas.
IBC FLOOD
US Flood Insurance Program
Public
Optional End’t
Voluntary
20-30% take-up rate
gov’t set pricing (based on Flood Insurance Rate Maps (FIRMs)
federal program - NFIP (National Flood Insurance Program)
Homeowners can buy coverage only if living in SFHA (Special Flood Hazard Areas)
NFIP system cannot be financially sound by design.
financial impact to taxpayers
IBC FLOOD
FRANCE Flood Insurance Program
Public
Mandatory bundle with other CATs (CAT NAT)
100% take-up rate
Gov’t set pricing (uniform rate across country)
both national and local gov’t must declare state of emergency for a claim to be eligible to CAT NAT
Financial impact on taxpayers
IBC FLOOD
3 Main disadvantages of the FRANCE Flood insurance Program
Premium NOT RISK-BASED, removing incentive for risk mitigation from individuals and local govt
low-risk consumers SUBSIDIZE those at higher risk
More a WELFARE program than an insurance program
IBC FLOOD
Main reason for failure of many of the international flood models
ADVERSE SELECTION
risk-based premium not affordable since only high-risk wants to purchase it.
IBC FLOOD
Advantage and disadvantage of bundling flood risks with other perils
A : Adverse selection is greatly reduced
D : forces low-risk consumers to subsidize high-risk ones
IBC FLOOD
3 roles of government for Flood Insurance
1) invest in infrastructure, zoning, floodplain development regulation, up-to-date flood maps for land-use planning
2) increase public education
3) address the issue of high-risk properties
IBC FLOOD
4 examples of gov’t under-investment in risk planning
BUILDING codes (obsolete)
ASSETS mgmt (poor)
INFRASTRUCTURE (lack of)
LAND-USE PLANNING (inadequate)
