Insurance brokers Marsh and Guy Carpenter have jointly announced a new initiative called Project Noah which will launch in mid-2012. Project Noah promises to be a UK flood risk reinsurance pool which will enable home insurance in flood-prone areas to be more widely available and fairly priced by ensuring that reinsurance capacity is available for insurers taking on flood risk. Marsh and Guy Carpenter, have teamed up with mapping and land data intelligence firm Landmark Information Group to launch the new initiative.
Project Noah incorporates a new flood risk pricing model which the press release says will enable insurers to transfer residential flood risk in the UK, less a small retention, into the global reinsurance market. The flood risk pricing model developed for Project Noah is said to be able to identify and calculate the flood risk of every residential property in the UK. They hope this will also lead to better, more targeted investment in flood defences.
The aim is to reduce the flood risk element of home insurance policies by spreading the risk within the reinsurance pool meaning that areas with high flood risk should be able to have more competitively priced cover for consumers.
“The provision of cost-effective home insurance for homes in areas exposed to flooding is a major challenge for the UK’s insurance industry,” commented Hutton Swinglehurst, Head of Flood Risk for Marsh UK. “We have tested Project Noah with some of the UK’s largest insurers, as well as leading global reinsurers, who believe that this state-of-the-art model provides an innovative solution to an intractable problem. For many years, insurers have been wanting to compete for the business of consumers who would otherwise be attractive were it not for the flood risk to their homes. Project Noah will allow them to do so.”
Donald Macdonald, Head of UK Property at Guy Carpenter, added; “Project Noah creates a virtuous circle: the more units in the pool, the more predictable the risk and the lower the price to policyholders. This has far-reaching benefits, from ensuring that flood insurance remains widely available to higher risk properties without the need for government intervention, to protecting property values for homeowners in at-risk areas.”
This is an interesting move by the two large brokers as historically flood risk insurance pricing has been a very difficult problem to solve. It’s also interesting to see the efforts to pool reinsurance capacity for flood risk in the UK rather than to try to set up other ways to transfer the risks to reinsurers or even the capital markets. Perhaps the Project Noah reinsurance pool might become a customer of PERILS AG and seek to offload some of the flood risk via industry loss warranty or catastrophe bond using PERILS new exposure data (which we wrote about yesterday)? Or maybe the new flood risk pricing model could be utilised in conjunction with weather data such as rainfall or river depths to allow of index based re/insurance or parametric triggers? Whatever happens, UK flood risk is a hot topic right now and the size of the exposures are sufficiently large that the capital markets will likely be called on at some point in the future.