A study due to be released later this year suggests that thanks to rising sea levels the area of flood plains in the U.S. is likely to increase by as much as 45% over the next 90 years. The three year study looks at the possible impacts of a changing climate on the federal flood insurance scheme and concurs that there will be a huge increase to the amount of land that could be covered by water during floods.
FEMA are overseeing the study which is trying to assess the impact to the National Flood Insurance Program (NFIP) from a predicted rise in sea levels of between 0.75 and 1.9 metres by 2100. They conclude that the huge increase in the nations flood plains could bring millions of new homes under the NFIP’s remit for federal flood insurance. By 2100 the study suggests that the number of flood insurance policies issued by the NFIP may have to double to account for the increasing flood plain area.
The results of the study are bound to stir up some controversy when released due to the debate over climate change and how/when the impacts will be felt. However the risk of flooding looks set to rise significantly meaning that it is important for the reinsurance and risk transfer sector to be prepared to assist in offering coverage.
With all the issues and debate surrounding the NFIP, many of which we’ve covered here before, and the opportunity for risk transfer techniques to be applied to the problem if it is indeed privatised, it seems likely that the skills of the risk transfer market will be needed to help tackle this growing risk.
It’s also possible, if the studies projections are correct, that hurricane coverage will need to take coastal flooding much more seriously if sea level rises and flood plain growth is as expected. Risk models will need to be updated to account for an increased risk of storm surge causing devastating coastal flooding. U.S. hurricane catastrophe bonds may have to place much higher risk weighting on coastal flooding in future as they threaten to contribute much larger portions of the losses suffered.
More details and commentary on the forthcoming study can be found in this NY Times article.
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