Rising to the Challenge Private insurers cautiously pursue one of the world’s least-covered risks. PRIVATE FLOOD INSURANCE SUPPLEMENT INSIDE: CatIQ: $479.1 Million in Industry Losses in Canada From Hurricane Fiona Page 02 Australia Floods Declared an Insurance Catastrophe With 6,350 Claims So Far Page 03 Insurers Writing Private and Federal Flood Insurance Pages 21-45 ...AND MOREPrivate Flood Insurance Supplement 2 COPYRIGHT © 2022 A.M. BEST COMPANY, INC. AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. CatIQ: $479.1 Million in Industry Losses in Canada From Hurricane Fiona HALIFAX, Nova Scotia - Canadian insurers incurred an estimated C$660 million ($479.1 million) in losses from Hurricane Fiona, making it the second record-setting event for carriers this year, according to Catastrophe Indices and Quantification Inc., under license to the Insurance Bureau of Canada. Fiona is most-costly extreme weather event ever recorded in Atlantic Canada and the 10th-largest event for carriers in Canada, CatIQ and the IBC said in a statement. CatIQ said insured damages were greatest in Nova Scotia, with initial estimated damages exceeding C$385 million after numerous large trees fell on cars and buildings and extensive flooding, roof wind damage, storm surge and power outages occurred. Fiona on Sept. 24 extensively impacted all of Prince Edward Island, it said, which saw C$220 million in insured losses. Large losses were estimated in New Brunswick, with more than C$30 million; Quebec, more than C$11 million; Newfoundland and Labrador, more than C$7 million. Southwestern Newfoundland was particularly hard hit, CatIQ and the IBC said, with at least 20 houses washed into the ocean, primarily in Port aux Basques. Fiona caused losses in the Caribbean and Canada and is one of three cat events in September that Cresta is investigating with potential losses in excess of $1 billion. The other events were typhoons Hinnamnor and Nanmadol in Asia (BestWire, Oct. 4, 2022). Insurance claims from severe weather have more than quadrupled across Canada since 2008, the IBC said, with annual losses from catastrophes reaching C$2 billion. Eight of the country’s largest losses for insurers have taken place since 2013. Of that total two hit the country this year – Fiona and a deadly derecho that traveled across Ontario and Quebec on May 21. CatIQ estimated Canadian insurers likely incurred more than C$875 million in losses from the derecho, or the sixth-largest loss for the industry (BestWire, June 16, 2022). The IBC said it continues to advocate for governments to “act on the urgent need to do more to prioritize investments that build resilience and better protect families and communities from a changing climate. Fiona impacted many residents in high-risk flood areas and floodplains where residential flood insurance coverage is not available, the IBC said, therefore the overwhelming majority of costs will fall to the government. By Renee Kiriluk-Hill, associate editor, BestWire Photo by Drew Angerer/Getty ImagesPrivate Flood Insurance Supplement 3 COPYRIGHT © 2022 A.M. BEST COMPANY, INC. AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. Australia Floods Declared an Insurance Catastrophe With 6,350 Claims So Far SYDNEY - Ongoing flooding in Australia’s Victoria, Tasmania and New South Wales regions was upgraded to an insurance catastrophe from a significant event, said the Insurance Council of Australia. As of Oct. 19, insurers received 6,350 claims related to floods across Victoria, New South Wales and Tasmania, the ICA said in a statement. The new declaration to an insurance catastrophe comes as the three regions are hit by severe weather and flooding that has occurred since Oct. 12, the ICA said. The declaration reflects the growing severity of the floods and further extreme weather expected. Insurance Australia Group Ltd. received 1,546 claims due to the heavy rain and floods, with the majority of claims received from Rochester, Seymour, Maribyrnong, Nagambie and Heathcote in Victoria, it said in an Oct. 18 statement. As of Oct. 17, Suncorp Group Ltd. received about 1,000 claims, the majority in Victoria, as a result of widespread rain and flooding, the insurer said in a statement (BestWire, Oct. 17, 2022). The numbers are expected to increase over the coming days as the situation continues to unfold, it said at the time. Floodwaters are expected to peak across three river systems in Victoria on Oct. 19 – the Murray, Goulburn and Campaspe, putting thousands of homes and businesses at risk, the ICA said. Citing forecasters, it said areas in northern Tasmania and in western New South Wales are also at risk of further flooding in the coming days. Photo by PATRICK HAMILTON/AFP /AFP via Getty ImagesPrivate Flood Insurance Supplement 4 COPYRIGHT © 2022 A.M. BEST COMPANY, INC. AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. The impact of the flooding has been most significant in Victoria but the declaration covers all claims related to the ongoing severe weather and flooding across the three impacted states, the ICA said. It said its catastrophe declaration escalates and prioritizes the insurance industry’s response for affected policyholders. Under the catastrophe declaration, claims from affected policyholders will be given priority by insurers; claims will be triaged to direct urgent assistance to the worst-affected property owners; ICA representatives will be mobilized to work with local agencies and services and affected policyholders as soon as emergency services say it is safe to do so; and insurers will mobilize disaster response specialists to assist affected customers with claims and assessments as soon as emergency services say it is safe. An industry task force has been established to identify and address issues arising from this catastrophe, the ICA said It has been a week since the severe weather hit the south-eastern states of Australia and the severity of that rainfall continues to impact river systems which are now beyond capacity, the ground is soaked and there is nowhere for the flood waters to go,” said ICA Chief Executive Officer Andrew Hall in a statement. By David Pilla, news editor, BestWire Florida Risk Professor Suggests State/Federal Insurance Programs to Stabilize Troubled Homeowners Market Battered by storms and fraud, Florida might need state or federal insurance programs to stabilize its homeowners market, according to Florida State University Associate Professor of Risk Management Chuck Nyce. One option could be a federal backup akin to the federal Terrorism Risk Insurance Act, he said. Another way to address homeowners rates that are triple the national average would be to adopt a means-testing program to subsidize the cost for working-class residents in high-hazard, but not beachfront areas, said Nyce. Or the state could assume all wind risk until insurance fraud can be brought under control, a role he said insurer-of-last-resort Citizens Property Insurance Corp. is increasingly filling. “The short answer is there is no simple solution” to market conditions that saw six insolvencies pre-Hurricane Ian and is likely to see more in the wake of the powerful storm, Nyce said. Karen Clark & Co. on Oct. 3 estimated the industry has incurred $63 billion in losses from Ian (BestWire, Oct. 3, 2022). The Insurance Information Institute estimates that $10 billion to $20 billion of the cost to insurers will come from litigation expenses, in part because of the low rate of homes insured against flood losses, said spokesman Mark Friedlander. In a state wrapped on three sides by “two of the largest bodies of water in the world,” he said the take-up Private Flood Insurance Supplement 5 COPYRIGHT © 2022 A.M. BEST COMPANY, INC. AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. rate for residential flood insurance – primarily through the National Flood Insurance Program – is just 18%. (BestWire, Oct. 7, 2022). Erin Collins, National Association of Mutual Insurance Companies senior vice president of state and policy affairs, said any solutions in Florida most need to address risk reduction and the removal of “reckless costs from the system.” “On top of the actual catastrophe risk, scams, fraud and litigation are not ancillary problems in Florida,” said Collins, citing III homeowners statistics showing that 9% of U.S. homeowners claims are filed in Florida but 81% of litigated claims originate in the state. Citizens will likely exceed its projected enrollment of 1.5 million next year, which would exceed the enrollment record of 1.48 million set at Citizens in 2012. With 1.1 million policies currently on the books – an increase from a low of 419,475 in November 2019 – Citizens estimates it currently writes about 13% of the Florida homeowners market. “As our policy count grows and our exposure grows, the risk of having to levy assessments and surcharges increases following a major storm,” said Citizens spokesman Michael Peltier. Nyce said enrollment could pass 2 million within the next two years, giving it a 20% or even 25% market share, particularly because in some areas of the state Citizens is less expensive than private coverage. If Citizens took on all homeowners risk coverage, it would have better leverage in the reinsurance market. “We’re headed that way anyway” with Citizens enrollment climbing for all-risk, said Nyce. However, he suggests the move as a short-term solution only. Peltier said any changes to Citizens structure would fall to state legislators or the state Office of Insurance Regulation. Photo by PATRICK HAMILTON/AFP /AFP via Getty ImagesPrivate Flood Insurance Supplement 6 COPYRIGHT © 2022 A.M. BEST COMPANY, INC. AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. In the interim, Nyce said would like to see legislators and regulators address the abusive claims practices in Florida. Policyholders should retain the ability to sue an insurer, but he said the one-way attorney fees statutes in Florida need restrictions that would disincentivize attorneys from getting involved in claims, maybe by capping fees at a certain percentage. Nyce acknowledged political impediments. “The plaintiff’s bar is a very powerful lobby,” he said, and many homeowners have come to view high premiums as a roof replacement plan. And the idea of a backstop wind insurer could prove unpopular: “It’s not a free option. There’s a political risk,” Nyce said. Earlier this year, then-U.S. Rep. Charlie Crist, a Democrat who seeks to reclaim his earlier role as Florida’s governor, filed H.R. 7643, the Fueling Affordable Insurance for Homeowners Act. It would provide a federal solution for catastrophic losses by issuing loans to state insurance commissioners for insurance costs over a pre-specified threshold. The goal is similar to the TRIA: to stabilize the homeowners insurance market in Florida and other areas where reinsurance costs have risen (BestWire, May 6, 2022). Nyce noted when Crist was governor in 2007, he rolled back Citizens rates and set in motion a system that still affects the market in Florida. To stem the growth of exposure, Nyce said he thinks Florida could require anyone constructing a home to show proof of insurability by a private insurer prior to receiving a building permit. Then he admits public entities don’t want to stifle growth because it’s their economic engine. Nor do they want to rezone at-risk property, because it would reduce wealth. “Making increasingly smarter decisions about how and where to build is essential,” Collins said at NAMIC. “This means leveraging science and experience by adopting up-to-date Source: Exhibit 5 Flood Insurance Market Share by State, by DPW, 2021 VT0.2 NH 0.2 MA 2.2 CT1.4 RI0.5 NJ5.6 DE0.5 MD 1.1 DC0.1 26.0 13.1 0.1 Market Share (%) 1.0 1.0 0.7 5.9 0.1 0.7 0.2 0.3 0.2 0.1 0.1 0.7 0.3 12.6 0.4 0.3 0.3 0.1 0.2 0.3 0.4 0.7 0.5 0.4 7.5 1.2 26.0 1.6 3.0 0.9 2.6 2.0 0.4 1.2 0.8 1.4 0.5 0.7 2.2 6.3 0.3 HI 2.5Private Flood Insurance Supplement 7 COPYRIGHT © 2022 A.M. BEST COMPANY, INC. AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. building codes as well as taking a serious look at avoiding especially vulnerable locations for building and rebuilding.” “There will be a time to look at the public policy issues to improve the state’s property insurance market and rebuild more resilient homes and communities” but those conversations will on hold until carriers deal with the immediacy of Ian claims, said Logan McFaddin, American Property Casualty Insurance Association vice president of state government relations. “Even without fraud we still have a wind problem Florida is a peninsula sticking out into the wind” and people keep moving there, Nyce said. For now the absence of a state income tax has made the higher insurance bills a wash. But if the average bill doubles to about $10,000 a year, perceptions could change, he added. An insurance professor from Indiana proposed an expansion of TRIA when the COVID-19 pandemic struck in 2020. Zachary S. Finn, then-clinical professor and director at the Davey Risk Management & Insurance Program, Lacy School of Business, Butler University, said the combination of two uncorrelated perils in a risk pool should reduce the standard deviation around future projected losses, ultimately providing a more efficient risk relief valve for the economy (BestWire, March 20, 2020). The top five writers of homeowners multiperil insurance in Florida in 2021, based on direct premiums written, were: Universal Insurance Holdings Group, with a 10.48% market share; Citizens Property Insurance Corp., 10.16%; State Farm Group, 6.67%; Tower Hill Group, 5.18%; and Progressive Insurance Group, 4.36%, according to BestLink. By Renée Kiriluk-Hill, associate editor, BestWire Best’s Commentary: Hurricane Fiona-Related Insured Losses Depend on Recovery and Resilience AM Best expects insured losses from Hurricane Fiona in the countries hit hardest to date– Puerto Rico and the Dominican Republic–to be influenced by the duration of business interruptions due to power losses, but ultimately manageable for affected carriers. According to the Best’s Commentary, “Hurricane Fiona Insured Losses Depend on Recovery and Resilience,” the top 10 insurers in Puerto Rico account for more than 90% of the market share for the auto, fire and allied lines, homeowners/farmowners and commercial multi-peril (property) lines. Two of these groups are extremely well-diversified, multinational insurers, but six of those top 10 companies are insurers with 100% of their exposure concentrated in Puerto Rico, representing approximately 43% of the market share for the aforementioned lines of coverage most at risk for sizable claim activity. “It could take some time for claims adjusters in Puerto Rico to assess and estimate damages,” said David Blades, associate director, industry research and analytics. “However, since Hurricane Maria in 2017, insurance companies on the island have taken significant action to manage their risk profiles better by tightening underwriting guidelines, sharpening risk management techniques, improving pricing and getting significant rate increases. Furthermore, most losses will be flood-related and not covered by a standard homeowner policy. Those losses would fall under the National Flood Insurance Program.”Private Flood Insurance Supplement 8 COPYRIGHT © 2022 A.M. BEST COMPANY, INC. AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. The Dominican Republic experienced widespread flooding and property damage, with popular tourist destinations left without electricity. However, a large part of the insurance portfolio is concentrated near Santo Domingo, the country’s capital, with less distribution in the regions where a greater impact from the hurricane is expected. California Governor Signs Bills Promoting Heat, Flood and Fire Risk Mitigation SACRAMENTO, Calif. - California Gov. Gavin Newsom has signed bills co-sponsored by Insurance Commissioner Ricardo Lara that promote climate-change resilience and a better warning system for residents affected by prolonged heat waves. Newsom signed S.B. 852, led by state Sen. Bill Dodd, that will allow cities, counties or special districts, either alone or in combination, to establish climate resilience financing districts. Through those districts, communities can undertake projects to address climate change including wildfire, sea level rise, extreme heat and cold, drought, flooding, and related matters, Dodd said. The districts will be able to raise revenue through tax increment funding, voter-approved supplemental property taxes, property benefit assessments or fees. The law requires that no more than 5% of the project revenues be used for administration, and annual audits that are open to public inspection. “Today we take a significant step toward confronting the numerous challenges posed by our rapidly changing climate,” Dodd said in a statement. “This new law will make our state safer and more resilient because it helps communities take direct action on problems most relevant to their region.” Lara said in a statement the measure represents “a major step towards reducing community-wide risks” by mitigating the impact of catastrophes before they occur. SB 852 grew from a recommendation from the California Insurance Department’s first-ever climate insurance report that he led, Lara said. Also emerging from the report was AB 2238, which will create the nation’s first statewide ranking and early warning system for heat waves. The idea of ranking heat waves was first proposed by Lara and the California Climate Insurance Working Group. “I represent communities that are disproportionately bearing the brunt of extreme heat weather events,” said Assembly member Luz Rivas, an author of the new law, in a statement. “Climate change is impacting all Californians in different ways. Gov. Gavin Newsom CaliforniaPrivate Flood Insurance Supplement 9 COPYRIGHT © 2022 A.M. BEST COMPANY, INC. AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. While climate change is escalating sea level rise along our wealthier and cooler coastal communities, it is also driving extreme heat in our lower income inland communities.” Heat waves are responsible for more deaths than all other extreme weather events, and disproportionately impact communities of color, persons with disabilities, seniors, and low-income communities, AB 2238 said. Insurance companies must be one element in the battle against climate change, and all parties must put low-income and isolated communities – those most vulnerable to the effects of extreme weather events caused by climate change – at the center of solutions, members of the climate insurance working group said (BestWire, July 1, 2022). The new measure directs the CDI to study the costs of extreme heat waves and the insured and uninsured costs related to past extreme heat waves to identify insurance gaps and promote more effective risk communication and planning, it said. The statewide heat wave ranking system will be in place by Jan. 1, 2025, it said. Attempts to obtain comment from property/casualty insurance trade groups were not immediately successful. The top five writers of homeowners multiperil insurance in California in 2021, based on direct written premiums, were: State Farm Group, 19.41% market share; Farmers Insurance Group, 14.8%; Allstate Insurance Group, 6.41%; CSAA Insurance Group, 6.35%; and Liberty Mutual Insurance Cos., 6.19%, according to BestLink. By Timothy Darragh, associate editor, BestWire WSIA Flood Panel: Climate Change, Delayed Infrastructure Create New Flood Risks A panel of industry experts at the 2022 WSIA Annual Marketplace in San Diego discussed rising frequency of flooding, underwriting and pricing, changing distribution, communication and an overview of FEMA’s Risk Rating 2.0. John Weber: FEMA overhauled its Flood Insurance Program last year, hoping to get more homeowners to purchase flood insurance, but has that happened? I’m John Weber for AM Best TV, and we’re at the WSIA conference in San Diego. We have a terrific panel today who will be discussing that and other flood insurance topics. They are John Dickson, president, Aon Edge, Craig Poulton, CEO, Poulton Associates, and Christa Nadler, area executive vice president, RPS. Christa, let’s start with you. How is flood risk changing? Christa Nadler: That’s a big question. The easiest answer is we’re seeing changes in the climate. It’s hard to turn on the TV these days and not see some sort of flooding happening across the country. Certainly, that has caused some changes. The frequency of flooding feels like it’s certainly ramped up a little bit. Flood risk is also changing due to outside factors. What we’ve seen a lot is there are cities, or towns, or villages that are delaying infrastructure changes. Some of these delays in Next >