GRC – AR!SE Insurance Climate Change Roundtable Session: How can state insurance policies advance climate resilience in the property sector? September 17, 2015 1 CONFIDENTIAL
Agenda NFIP limitations Privatization: • Potential benefits • Potential barriers to entry 2 Source: http://www.naplia.com/resources/pdf/admitted%20vs%20non-admitted%20insurance%20coverage.pdf CONFIDENTIAL
NYC flood insurance market understanding 86% of NFIP policies are for 1-4 family homes Property owners think homeowners insurance covers them Flood insurance take-up ~3x higher for homes required to buy it • 55% of 1-4 family homes buy flood coverage in high risk floodplain • 65% of ~20,000 homes with a mortgage mandated to carry insurance have policies • 20% of those without a mortgage have coverage Current premiums for structures built pre-1983 (“pre-FIRM”) are nearly 2x those built post-1983 (“post-FIRM”) • “Pre-FIRM” average premiums $1,800 vs. $1,000 for “post-FIRM” Annual premium increases are expected to be as high as $10,000 Very difficult to assess flood insurance for multi-family buildings, which account for ~80% of residential units, and determine the right policy response. 3 CONFIDENTIAL
NFIP limitations: narrow mitigation options These building types reflect the diversity of dense urban environments. Elevation challenges Expensive – and can often be hard to finance Challenging site conditions – attached structures or narrow lots Loss of units – economically infeasible for many commercial or multi- family buildings 4 CONFIDENTIAL
NFIP limitations: flood insurance product What’s not covered by NFIP: • Personal property coverage limited to actual cash value rather than replacement value • Paneling, bookcases, and window treatments such as curtains and blinds • Carpeting, area carpets, and other floor coverings such as tile • Drywall for walls and ceilings (below the lowest elevated floor) • Most personal property such as clothing, electronic equipment, kitchen supplies, and furniture • Property value above $250,000 • Contents value $250,000 • Limited basement coverage • Etc 5 CONFIDENTIAL
NFIP limitations: customer experience A-zone mystery shopping results show inconsistent premium quotes. WYO Premium WYO Premium Fillmore Agency $3,577 Gold Standard $400 or $8000 Sheepshead Bay $1,858 (elevation) Agency Finnegan (Allstate) $1900 Allstate $845-959 Insurance Agents lack training and create confusion for homeowners 6 CONFIDENTIAL
NFIP limitations: agent training Training is not tailored to dense urban settings. Source: FEMA Basic Agent Training Powerpoint 1 7 7 CONFIDENTIAL
NFIP limitations: agent training 8 8 CONFIDENTIAL
NFIP limitations: rating urban buildings NAS report suggests ways to more accurately determine rates for low-lying structures. Example recommendations to improve rate setting: 1. Better define water surface elevations for frequent floods 2. Use local rather than national flood data 3. Research drivers of flood damage beyond inundation depth, such as flood duration, water contamination, and debris content 4. Build a large set of flood damage reports from relevant agencies Current rate-setting poses many questions for older building stock 9 Source: http://www.nap.edu/catalog/21720/tying-flood-insurance-to-flood-risk-for-low-lying-structures-in-the-floodplains CONFIDENTIAL
NFIP limitations: operational efficiency “FEMA cannot answer basic questions about customers, claims, and WYOs due to antiquated IT or lack of processes to capture and report info in real time.” Our Just and Our Growing, Equitable Thriving City City Our Sustainable Our Resilient City City 10 10 10 CONFIDENTIAL
NFIP limitations: addressing affordability Premiums are projected to increase to unaffordable levels. Four Feet Below BFE At BFE Three Feet Above BFE Even annual increases pose a challenge for residents on a fixed income 11 RAND Table 5.1. Source: Census Data. CONFIDENTIAL
Privatization: potential benefits NFIP versus hypothetical private premiums show more competitive pricing. St. Petersburg, FL Our Just and Our Growing, Equitable Thriving City City Our Sustainable Our Resilient City City 12 Source: Milliman 12 12 CONFIDENTIAL
Privatization: potential benefits Quick, transparent quotes would enhance the customer experience. Our Just and Our Growing, Equitable Thriving City City Our Sustainable Our Resilient City City 13 13 13 CONFIDENTIAL
Privatization: entry barriers Various stakeholders may get in the way of new private entrants. Key questions need to be addressed: • Will banks accept it? • Will state insurance regulators allow it? • Are WYOs permitted to sell it? 14 Source: http://www.naplia.com/resources/pdf/admitted%20vs%20non-admitted%20insurance%20coverage.pdf CONFIDENTIAL
nyc.gov/resiliency @NYClimate 15 CONFIDENTIAL
Hurricane Sandy Insured Losses by State 16 16 CONFIDENTIAL
Hurricane Sandy Insured Losses by Line 17 17 CONFIDENTIAL
Hurricane Sandy Claims by Line 18 18 CONFIDENTIAL
Hurricane Sandy Claims - Private/Public 19 19 CONFIDENTIAL
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