IBC - Flood Flashcards
What are the preconditions for strong Flood Risk Management culture? (4)
- need FLOOD MAPS
- good INFRASTRUCTURE
- policyholder AWARENESS of risk, method of risk mitigation and financial management for flood
- INCENTIVE for individual risk management
What are the reasons for non-coverage of OVERLAND flooding? (3)
- fears of ADVERSE selection
- government UNDERINVESTMENT in risk planning and mitigation
- lack of effective flood hazard MAPS
List 4 examples of government underinvestment in risk planning.
- building codes are obsolete
- asset management is poor
- infrastructure is lacking
- land use planning is inadequate
Why do insurers often cover uninsured floods?
- multi-peril causes from sewer (which is covered) and overland flooding (which is not covered)
- difficult to separate the above, so insurers pay everything to avoid reputational damage and political pressure
How is the weather changing in Canada?
In the past 60 years:
- TEMPERATURE has increase by 1.3C, which double the global average
- RAINFALL has increased an average of 12%
What are some trends that are making financial management of floods difficult? (5)
- GROWTH of population, density, and asset values
- CONCENTRATED development in flood-prone areas
- severe WEATHER
- vulnerability due to obsolete BUILDING codes
- UNDERINVESTMENT
What is the availability of flood coverage?
Residential: - overland flooding: no - sewer: yes, but by endorsement Auto, commercial: overland flooding: yes
Why is overland flooding not insurable?
- insurability requires that there is randomness, uncertainty and uncorrelated risks
- floods are predictable and correlated, and a large # of properties are affected at the same time
What are the categories for international flood management approaches? (6) (hint: MPPPSG)
- Model: public or private
- Purchase: mandatory or voluntary
- Packaging: bundled or optional
- Pricing: set by the government, or risk-based pricing
- Subsidies: provided by other policyholders or through taxes
- Government’s role: insurer or enabler
Describe the flood insurance program in the UK with respect to the 6 variables.
- Model: private
- Purchase: voluntary
- Packaging: bundled with home insurance
- Pricing: risk-based pricing
- Subsidies: subsidized by policyholders
- Government’s Role: they are an enabler through risk mitigation, flood mapping, and zoning
The uptake of this program is ~95%
UK flood insurance - Purpose (3)
- sustainability
- maintain AA (affordability and availability)
- 25 years transition to full private risk-based pricing
UK flood insurance - How does it work? (2+2)
- target only high-risk properties (through risk-mapping)
- coverage for homes built after 2009 is excluded in order to discourage the building of homes in high-risk areas
IF insurer’s risk-based price is > price ceiling, then chage the ceiling price and cede the flood insurance
IF insurer’s risk-based price is <= ceiling, then insurer may retain the risk
UK flood insurance - How is affordability ensured?
Through price ceilings.
UK flood insurance - What is the role of the government?
They set the price ceilings, provide financial relief for CATs exceeding the pool capacity, and invest in infrastructure.
Why is having a flood program better than having a governmental disaster relief program? (2)
- Insurance INDEMNIFIES where the government provides basic relief only
- Insurance INCENTIVIZES through risk-based pricing whereas government relief is taxpayer funded, so no individual incentive for risk mitigation
