Lack of flood coverage will change market
The recent hurricanes and the resulting
damage they’ve caused are making people
think again when it comes to buying flood
insurance, Alan Levin, vice chair at law firm
Locke Lord, told PCI Today.
Levin said that given the sheer amount of
capacity in the market, there is an opportunity
for both standard reinsurance and the
insurance-linked securities (ILS) market to
step in and provide reassurance to the primary
industry, helping them take on this risk. The
issue of underinsurance on flood was brought
to the fore in the wake of hurricanes Harvey,
Irma, Maria and Nate.
“One of the things we’re seeing after these
cat events is that a minimal percentage of people
had flood insurance. The question is whether we
can develop an alternative market on the primary
side that can offer coverage at a proper rate and
get people to take it up,” Levin said.
“That lack of coverage adds a huge financial
burden to communities and to people’s lives,
when they have no flood cover and most of the
damage was from flooding.”
According to Levin, the rise in flood damage
has been partly because of urban development,
with a great deal of building in recent decades
along the coast of Florida and inland.
“If you look at the developments in Houston
and the loss of wetlands there, and at the number
of huge apartment buildings next to waterways,
that’s a phenomenon of the past 30 to 40 years.
There’s been massive development in flood-prone
areas over the past few decades,” Levin said.
An additional question is whether the market
can price flood insurance properly and whether
people will take it up. Flood as a peril was
removed from many insurance policies decades
ago, with the National Flood Insurance Program
being established in 1968 as a consequence.
Levin added that in the wake of the recent
storm activity, the ILS market is likely to continue
to grow and expand to meet the demand of
investors and the market for cover.
“We should feel good about that—there are
alternative markets that are able to reinsure the
risk,” he said. “We should feel positive that the
ILS market is not likely to see disputes and that
investors are stepping up and paying.
“Those are all positive signs at a very difficult
time, because how are we going to get personal
lines and small commercial coverage for people
in flood zones? That’s the political challenge and
also the pricing challenge,” he concluded. n
Innovation now key for commercial insurance
Increasingly innovative risk transfer solutions
are becoming available to cover the constantly
evolving range of exposures that commercial
insurers face, according to the latest Sigma study
from Swiss Re.
Titled Commercial insurance: innovation to expand
the scope of insurability, the study looks at how
product development and innovation around
data and data analytics have expanded the
scope of insurance solutions to a wider range of
threats and perils, and made risk transfer more
According to the study, companies are using
novel insurance solutions to protect earnings,
reduce cash flow volatility and support business
strategy and growth.
Swiss Re points out that technological, economic,
demographic, societal and geopolitical macro
trends are driving deep changes in the business
environment and that these structural changes
create new opportunities, but also new risks.
At the same time, the corporate sector has
changed from being dominated by physical assets
to deriving more value from intangible assets,
such as intellectual property, networks, platforms,
data and customer relationships.
The study also claims that these
transformations and the associated exposures
they create are mirrored by surveys of risk
perception by companies. For example, business
interruption due to cyber and supply chain risks
is the key corporate risk concern, according to
surveys of risk experts across the globe.
“New types of solutions are providing
protection against a wider range of perils, and
extending insurance cover from tangible to
intangible assets,” said Kurt Karl, Swiss Re’s
“For example, holistic covers combine multiple
risks and/or interdependent triggers, and allow
better alignment to the specific risk transfer needs
of an insurance buyer.
“In addition to offering coverage for multiple
risks, holistic solutions offer efficient risk transfer
given their focus on the joint distribution of all
The Sigma study also claims that insurance
solutions are increasingly being used to protect
earnings and cash flow risks. Some previously
uninsurable non-core business risks can now be
insured to some degree, due to the evolution
of triggers, indemnity structures, and data and
Examples of perils that can be covered in
more innovative ways include non-physical
damage business interruption, cyber, product
recall, weather and energy price risks. n
6 | PCI TODAY | DAY 1: Sunday October 15 2017 www.intelligentinsurer.com | www.bermudareinsurancemagazine.com