USA - Offsetting Rising Flood Insurance Costs After Record Storm Season
The 2020 Atlantic hurricane season came to a close on November 30 after breaking the record (previously held by 2005) for the most named storms.
The National Oceanic and Atmospheric Administration (NOAA)’s prediction of an above-normal season came true, with 2020 producing 30 named storms, of which 13 became hurricanes, including six major hurricanes with top winds of 111mph or greater.
It was the fifth consecutive year with an above-normal Atlantic Hurricane season, surpassing the average of 12 named storms, six hurricanes, and three major hurricanes. The monetary damages were equally significant. The 2020 Atlantic Hurricane season caused around $30 billion in losses associated with flood damage alone, which is well above the historical average.
What has become clear, especially with the assistance of catastrophic risk modeling, is that really anybody with Atlantic coastal exposure in the eastern United States is vulnerable to storm-triggered flooding. After years of increased storm activity, driven partly by the impacts of climate change, reinsurers are starting to scrutinize flood risk more carefully, and plan for greater losses than seen historically. As Jim Albert, founder and chairman of Neptune Flood, put it: “The historical averages get thrown out the window when you have this increasing trend of intensity and damage associated with storms.”
If the cost of reinsurance goes up, the cost of all flood insurance goes up. This is clear via the cost increases in the government-backed National Flood Insurance Program (NFIP). While the NFIP rate hikes are capped by statute as far as how much the price can inflate each year, they are still not capturing the actual underlying flood losses across the country.