Property Claim Services (PCS), a division of Verisk Analytics, is to publish aggregate flood loss data supplied by the National Flood Insurance Program (NFIP), starting with hurricane Harvey, in a push to provide a more comprehensive view of national catastrophe losses.
In the past, NFIP losses have been excluded from insurance industry loss estimates provided by PCS. However, a collaborative effort between PCS and the NFIP seeks to improve the risk and capital management of flood exposure in the U.S.
Following the devastating impacts of hurricanes Harvey and Irma, the lack of flood protection in the U.S. was again highlighted, with the NFIP facing losses of over $834.8 million from losses incurred in Texas, Florida, Georgia, and South Carolina, so far.
The majority of this, over $819 million from more than 87,000 claims, relates to hurricane Harvey, as at September 26th, 2017. With NFIP claims of 23,000 and incurred losses of $15.8 million, so far, in Florida, Georgia, and South Carolina.
PCS explains that for these storms and future events, the NFIP will report claim totals and incurred losses, rather than loss projections, in line with the PCS reporting cycle, with PCS only publishing NFIP losses for PCS-Designated events.
Roy E. Wright, Director of FEMA’s NFIP, said; “We see this as an opportunity to better integrate with the insurance industry. This better understanding of flood losses is in the interest of FEMA and our private sector partners. It can deepen the understanding of flood risk as the industry explores broader use of private lines in this space.”
Tom Johansmeyer, Assistant Vice President (AVP), PCS, added; “We appreciate the opportunity to work on this important initiative with the NFIP. The combined effort is the direct result of requests from our clients around the world to report NFIP losses, particularly in light of the program’s recent engagement with the global reinsurance community. Improved reinsurer risk and capital management should benefit both the NFIP and the policyholders it protects.”
Both PCS and the NFIP feel the new collaborative effort is a positive step in the right direction at managing the U.S. flood risk, especially in light of the NFIP’s adoption of reinsurance protection earlier in 2017.
Ted Gregory, Director, PCS, said; “The benefits of our combined effort reach beyond risk transfer. With Hurricanes Harvey, Irma, and Maria, flood losses are expected to be a significant portion of the insured losses from these events. Both insurers and independent adjusters can serve claimants more effectively when they have access to more event-specific data. With demand for claims-related services escalating rapidly because of the three storms, I’m proud that PCS is in an immediate position to help.”
PCS says it’s in the process of developing a database for catastrophe loss data provided by the NFIP, which will be separate from PCS’ existing database for insured losses from cat events, for at least a year.
The decision to separate NFIP data from PCS’ existing database is to ensure in-force reinsurance protection, such as industry loss warranties (ILWs), is not affected, but after 12 months NFIP losses will be added to the U.S. database as a new category.
“The ILW market provides an important source of capacity for insurers and reinsurers worldwide, and we want to respect the careful efforts made for the risk-transfer transactions currently in force. With this in mind, we encourage companies planning new ILWs or catastrophe bonds to contact us with any questions,” continued Johansmeyer.
Johansmeyer also explained to Artemis how the new partnership provides clients with more flexibility in ILW trading, something that will benefit the insurance-linked securities (ILS) space and its increasing interest in U.S. flood risk.
“Our clients specifically asked for PCS to provide NFIP data. Now, they’ll have more flexibility in ILW trading for the United States. The ILS market has shown a particular interest in U.S. flood risk, and the availability of an index should make it easier for them to trade this risk. Additionally, our approach to NFIP data addresses the entry of flood risk into the commercial reinsurance market while also providing a broad view of the underlying event,” said Johansmeyer.