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Stakeholders advocate for disaster resilience ahead of NFIP expiry

Posted On: May. 30, 2019 2:23 PM CST


Disaster experts urged businesses and individuals to prepare for the upcoming hurricane season and other potentially catastrophic events as a group of trade associations advocated for an extension of the National Flood Insurance Program ahead of its scheduled expiration on Friday.

Tornadoes have devastated the U.S. Midwest in the past week and hurricane season officially begins Saturday, experts noted at a briefing hosted by the American Property Casualty Insurance Association in Washington, D.C., on Thursday.

“Setting aside the cause, the reality is we’ve had a period of more active weather,” said Barry Franklin, head of risk, Zurich North America in Schaumburg, Illinois. “People have a false sense of security. I think the biggest thing we can do is increase the awareness around the risk and the reality of it because … whether it’s two major hurricanes or six major hurricanes or eight named storms, it only takes one. The other component is that as we continue to build in areas that were not previously exposed, there may have been events, but they didn’t hit anything. There was nothing in the way of the water. But we have built infrastructure now in places that weren’t exposed 50 years ago so we should expect more impact from these big cats.”

Tornados are “more perplexing than hurricanes,” said Debra Ballen, general counsel and chief risk officer, Insurance Institute for Business & Home Safety in Tampa, Florida. “The thing about hurricanes is that for the most part they stay within their season and notwithstanding what we said about how quickly a tropical storm can intensify, there is a bit more warning and we do know actions that can be taken, should be taken, to reduce loss.”

Building and rebuilding to the strongest possible building codes is a critical preventive measure, she said. “Building codes are an important part of what we do and it’s important to constantly update them because as the building science comes into play, you can make them better.”

Zurich North America has conducted several post-event reviews, including one examining the impact of Hurricane Florence on North Carolina, “because severe weather isn’t going away and while the hazards are natural, our position is disasters are not natural,” Mr. Franklin said. “We make it a disaster if we’re not prepared, if we build things in the way of weather. We know prevention is a better risk management strategy than recovery alone.”

For example, Florence, which was the third major hurricane to impact North Carolina in 19 years, resulted in catastrophic flooding related to riverine floods and storm surge.

“Florence highlighted the limitations of what I would call hard engineering solutions alone,” he said. “Just building something in terms of a seawall or a levee or a bridge – it might be good, but it needs other things to make it work effectively. It also illustrated pretty well the limitations of the Saffir-Simpson hurricane wind scale … because it’s really a one-dimensional metric. It talks about wind speed and as it turns out, a slow-moving wet tropical storm can be every bit as devastating and do as much damage as a Category 4 or 5 hurricane making landfall at 150 mph, so the water is very important.”

The National Oceanic and Atmospheric Administration predicted a 30% chance of an above-normal hurricane season, a 40% chance of a near-normal season and a 30% chance of a below-normal season in 2019, including two to four major hurricanes that are defined as Category 3, 4 or 5 with winds of 111 mph or higher.

Water accounts for 90% of direct deaths occurring in storm events, storm surge accounting for 49% of those deaths, according to NOAA data presented by Michelle Hawkins, branch chief, National Weather Service in Silver Spring, Maryland. “Know your risk,” she said.

More than 5 million policyholders depend on the NFIP to insure their home or business against flooding, the most common and costly natural disaster in the United States, according to a letter sent to Congressional leaders on Thursday by the APCIA, the Council of Insurance Agents and Brokers, the Independent Insurance Agents and Brokers of America Inc., the Mortgage Bankers Association, the National Association of Home Builders, the National Association of Mutual Insurance Companies and the National Association of Realtors.

“Developers of both residential and commercial/multi-family properties will face challenges obtaining financing for projects, not to mention the impact on construction workers who depend on these projects for their livelihood,” the groups stated in the letter. “Insurance companies and agents will have to explain to their neighbors why they have no way to insure their homes and small businesses when the Atlantic hurricane season begins this weekend.”

The U.S. House of Representatives passed a bipartisan stand-alone bill more than two weeks ago that would extend the NFIP until Sept. 30, in addition to a similar extension included in the Disaster Supplemental Appropriations bill also passed by the House. Meanwhile, the U.S. Senate adopted a version of the Disaster Supplemental Appropriations bill that also included an NFIP extension until Sept. 30 and passed a stand-alone, 2-week extension to ensure the NFIP did not lapse prior to the enactment of the supplemental disaster legislation, the groups noted.

“Both chambers of Congress have made their position clear: the NFIP should be extended,” the letter said. “These were all broad bipartisan if not unanimous votes. We are extremely disappointed that a few are now objecting to moving forward either of these standalone bills because of process issues when the full Congress has spoken clearly on the matter.” 

“There will be disruption in the marketplace, disruption for the real estate markets,” said Tom Santos, vice president, policy, research and international, APCIA. “There is the potential for confusion from the insurance side of the house.”

In October 2018, President Trump signed the Disaster Recovery Reform Act of 2018 into law as part of the Federal Aviation Administration Reauthorization Act of 2018.

“The passage of the DRRA last year will provide unprecedented amounts of money that states can use for pre-disaster mitigation so the idea is, yes, lots of money goes in after the disaster, but with this money going in before the disaster we can reduce that over the long term,” Ms. Ballen said.

But the NFIP is “knowingly subsidized to encourage people to purchase it so it’s not pure risk-based pricing so it’s probably not as strong a disincentive” and officials likely need to look to zoning and other measures to discourage building additional properties in cat-prone areas, Mr. Franklin said. For example, commercial insurers can offer more discounts and surcharges for commercial companies and can perform risk engineering studies and decide not to insure certain properties.

“On the commercial side, it’s much more risk-based pricing because it’s seen as an insurable peril for commercial enterprises because they have the ability to pay the premiums and the flexibility to put their business locations where they choose,” he said. “I think there is much more ability to incentivize and disincentivize behaviors that way.”