Trends in Coastal Property Risk
in the Post-Katrina Decade
National Hurricane Conference
Austin, TX
April 1, 2015
Steven N. Weisbart, Ph.D., CLU, Senior Vice President & Chief Economist
Insurance Information Institute  110 William Street  New York, NY 10038
Tel: 212.346.5540  Cell: 917.494.5945  stevenw@iii.org  www.iii.org
2005-2014: A Bust for
Hurricane-Force Winds…
…but a BOOM in Catastrophe
Exposure
2
In 2012, Total Value of Insured Atlantic
& Gulf Coastal Exposure: $10.6 Trillion
(2012, $ Billions)
New York
Florida
Texas
$1,175.3
Massachusetts
$849.6
$713.9
New Jersey
Connecticut
$567.8
Louisiana
$293.5
$239.3
S. Carolina
Virginia
$182.3
Maine
$164.6
$163.5
North Carolina
Alabama
$118.2
Georgia
$106.7
$81.9
Delaware
New Hampshire $64.0
Mississippi $60.6
Rhode Island $58.3
Maryland $17.3
$0
$500
$1,000
$1,500
$2,923.1
$2,862.3
In terms of exposed value, over
half is in Florida + New York.
Unlike Florida, the
insured coastal
exposure in northeast
states is concentrated
in a very small area
$2,000
$2,500
$3,000
$3,500
The insured value of all coastal property was estimated at $10.6 trillion
in 2012 , up 48% from $7.2 trillion in 2004.
Source: AIR Worldwide
3
Total Potential Home Value Exposure
to Storm Surge Risk in 2014*
Extreme
Florida
New York
Louisiana
New Jersey
Virginia
Texas
S. Carolina
Massachusetts
N. Carolina
Maryland
Connecticut
Georgia
Mississippi
Pennsylvania
Delaware
Alabama
Rhode Island
Maine
New Hampshire
($ Billions)
$0
Very High
High
Florida’s “extreme”
exposure is greater than any
other state’s “extreme,”
“very high,” and “high”
exposure combined
CoreLogic estimated the reconstruction value of
homes exposed to Storm Surge along the Atlantic
and Gulf Coasts as $1.496 trillion in 2014
(assuming total losses). Only a fraction of this is
insured for flood, hence the huge demand for
federal aid following major coastal flooding events.
$50
$100
$150
*Insured and uninsured property, assuming total loss of the home.
Source: Storm Surge Report 2014, Table 2, CoreLogic, published July 2014.
$200
$250
$300
$350
4
Post-Katrina P/C Industry Homeowners
Claim Frequency, US, 2006-2013
Claims Paid per
100 Exposures
CAT-related claims
Non-CAT-related claims
5
4
3.77
3.94
4.01
4.12
4.14
4.21
3.78
3.70
3.42
3.53
3
2.73
2.39
2.28
2.34
2
1.50
1.32
1
Frequency is up in years with greater CAT
activity, but otherwise no obvious trend here
0
2006
2007
2008
2009
2010
2011
2012
Sources: Insurance Research Council, “Trends in Homeowners Insurance Claims,” p.41; Insurance Information Institute
2013
P/C Industry Homeowners Average Claim
Severity, Inflation-adjusted, 2006-2013
non-cat claims
2013 dollars
$9,500
$9,000
$9,051
$8,500
$8,718
$8,527
$8,541
$8,772
$8,823
$8,222
$8,000
$7,500
$8,633
cat claims
$7,849
$7,383
$7,665
$7,614
$7,331
$7,332
$7,000
$6,829
$6,679
$6,500
2006
2007
2008
2009
2010
2011
2012
2013
Sources: Insurance Research Council, “Trends in Homeowners Insurance Claims,” 2015 edition, p. 41; BLS inflation calculator,
with Insurance Information Institute calculations
Pct. Change in Population, Forecast for 2010-2020,
for Coastal Shoreline/Watershed Counties, by State
Shoreline
25%
20%
Watershed
23%
19%
18%18%
17%
19%
16%
17%
16%
15%
11%
10%
10%
9%
8%
10%
9%
8%
8%
5%
5%
0%
Virginia
North
Carolina
South
Carolina
Georgia
Florida
Alabama Mississippi Louisiana
Texas
This population growth means not only more homes but more
businesses, and more public buildings (schools, hospitals, etc.)
and infrastructure in “harm’s way”
Source: http://stateofthecoast.noaa.gov/features/coastal-population-report.pdf Table 5 and Table 10
9
Post-Katrina
U.S. Insured Catastrophe Losses
($ Billions, $ 2013)
Privately-insured
Pvt Ins. Annual Data
Mean: $19.1B
Median: $14.6B
NFIP
$40
$34.1
$35
$35.5
NFIP Annual Data
Mean: $2.24B
Median: $0.75B
$29.6
$30
$25
$20
$15
$14.6
$11.6
$10.7
$3.5
$0.6
$15.3
$8.8
$7.6
$10
$5
$12.9
$0.8
$0.6
$0.8
$2.4
$0.4
$0
2006
2007
2008
2009
2010
2011
2012
2013
2014E
These numbers are national, not coastal, but are often largely
coastal in origin. The volatility is obvious.
Sources: Property Claims Service/ISO; https://www.fema.gov/statistics-calendar-year/loss-dollars-paid-calendar-year
Insurance Information Institute.
12
12
10 Costliest Coastal Storms
in U.S. History
(Insured Losses,
2013 Dollars, $ Billions)
Hurricane Ike and Superstorm
Sandy (3rd and 4th costliest ever)
occurred post-Katrina
$60
$50
$49.4
$40
$25.9
$30
$19.0
$20
$10
$5.7
$6.8
$7.9
$8.8
$9.3
Frances
(2004)
Rita
(2005)
Hugo
(1989)
Ivan
(2004)
Charley
(2004)
$11.2
$13.6
$0
Wilma
(2005)
Ike
(2008)
Sandy
(2012)
Andrew
(1992)
Katrina
(2005)
2 of the 4 most expensive coastal storms in U.S. history
have occurred in the decade after Katrina (and Rita and Wilma).
A $15 or $20 billion storm isn’t that unusual anymore.
Sources: PCS; Insurance Information Institute inflation adjustments to 2013 dollars using the CPI.
14
Public Attitudes
About Flood Insurance
Too Many People
Are in Denial About the Risk
15
Residential NFIP Flood Take-Up Rates
in NY, CT (2010) & Sandy Storm Surge
Flood
coverage
penetration
rates were
extremely low
in many very
vulnerable
areas of NY
and CT, with
take-up rates
far below 50%
in many areas
Source: Wharton Center for Risk Management and Decision Processes, Issue Brief, Nov. 2012; Insurance Information Institute.
16
Share of Flood Damaged Structures
with Flood Insurance: Long Island
Only 37.5% of flood damaged buildings in Nassau
County were insured for flood, 62.5% uninsured
Number of
buildings
80,000
$15.0
74,736
70,000
60,000
43,106
27.6% of flood damaged buildings
in Suffolk County were insured for
flood, 73.4% uninsured
50,000
Insured
Uninsured
40,000
30,000
20,000
20,798
52,428
10,000
5,747
$2.2
15,051
0
Nassau
Suffolk
The Maximum FEMA Grant is $31,900. The Average Grant Award to
Homeowners and Renters on Long Island is About $7,300
Source: Newsday, 1/14/13 from FEMA and Small Business Administration.
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Claims Management
Following KRW*, the P/C Insurance Industry
learned that it needed more claims adjusters
*Hurricanes Katrina, Rita, and Wilma in 2005
18
Number of NFIP Claims Paid, Yearly,
2005-2013*
How many adjusters are needed each year to handle flood claims?
Three times since 2005 NFIP has paid 75,000 claims in a calendar
year; that never happened before. (And this excludes claims closed
without payment.)
250,000
Average for
1997-2004:
39,100
Average for
2006-2013:
53,200
213,290
200,000
148,448
150,000
100,000
74,727
57,352
55,856
47,245
43,589
36,849
50,000 30,338
25,314
16,362
24,62023,169
77,801
30,99629,111
16,864
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
*calendar years
Source: http://www.fema.gov/statistics-calendar-year/number-losses-paid-calendar-year ; Insurance Information Institute
19
U.S. Employment in Claims Adjusting,
1990–2015*
Thousands
58
56
54
This is independent claims adjusting
employment, not carrier-employed
claims adjustment
52
50
48
46
44
42
Hurricane
Andrew
Hurricanes
Katrina,
Rita, Wilma
Hurricanes
Bertha,
Gustav, Ike
40
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
*As of January, 2015; not seasonally adjusted.
Note: Recessions indicated by gray shaded columns.
Sources: U.S. Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.
20
Post-Katrina P/C Industry Homeowners
Claim Frequency, TX vs. US, 2006-2013
Claims Paid per
100 Exposures
CAT-related claims TX
14
12.53
CAT-related claims, US
The number of claims adjusters
needed in Texas in 2008 in a
short time was hard to meet;
some storm victims would have
to wait.
12
10
8
6.06
6
4.74
3.48
4
2.49
2
2.20
2.54
3.42
2.39
2.28
2.69
3.78
2.73
2.34
1.50
1.32
0
2006
2007
2008
2009
2010
2011
2012
Sources: Insurance Research Council, “Trends in Homeowners Insurance Claims,” p.41; Insurance Information Institute
2013
Capital/Capacity
Storm-Free Years Helped Insurers
Build Financial Resources
for the Next Big One
25
$671.6
$673.9
14:Q3
$624.4
14:Q2
$586.9
$583.5
$567.8
$570.7
$550.3
$538.6
$559.1
$544.8
$530.5
$540.7
$511.5
$490.8
14:Q1
13:Q4
13:Q3
13:Q2
13:Q1
12:Q4
12:Q3
12:Q2
12:Q1
11:Q4
11:Q3
11:Q2
11:Q1
10:Q4
10:Q3
10:Q2
10:Q1
09:Q4
Surplus as of 9/30/14 stood at
a record high $673.9B
09:Q3
$437.1
$463.0
09:Q2
08:Q4
08:Q3
08:Q2
08:Q1
07:Q4
07:Q3
07:Q2
07:Q1
$400
06:Q4
$450
09:Q1
$455.6
$478.5
$505.0
$515.6
$517.9
$521.8
$496.6
$500
$487.1
$550
$512.8
$600
$559.2
$566.5
$650
$614.0
2007:Q3
Pre-Crisis Peak
$700
$607.7
Drop due to near-record
2011 CAT losses
$662.0
($ Billions)
$653.3
Policyholder Surplus,
2006:Q4–2014:Q3
The industry now has $1 of surplus for every $0.73 of Net Premiums
Written, close to the strongest claims-paying status in its history.
2010:Q1 data includes $22.5B of
paid-in capital from a holding
company parent for one insurer’s
investment in a non-insurance
business .
Sources: ISO, A.M .Best.
The P/C insurance industry entered 2015
in very strong financial condition.
26
Global Reinsurance Capital (Traditional
and Alternative), 2006 - 2014
Total reinsurance capital reached a
record $570B in 2013, up 68% from
2008.
But alternative capacity has grown 210% since 2008, to $50B. It has more
than doubled in the past three years.
2014 data is as of June 30, 2014.
Source: Aon Benfield Analytics; Insurance Information Institute.
Growth of Alternative Capital Structures,
2002 - 2014
Collateralized Re’s Growth
Has Accelerated in the
Past Three Years.
Rapid Growth of Alternative Capital puts downward pressure
on Rates Charged by Traditional Reinsurers
2014 data is as of June 30, 2014.
Source: Aon Benfield Analytics; Insurance Information Institute.
Latest Developments
Just a little more than “60 Minutes”
30
The Role of Engineers:
New Lawsuits and NFIP Shake-up
When flood claims are adjusted, sometimes an
engineer is assigned to help determine the cause of
loss
Recently in New York lawsuits were filed alleging
that engineering reports were fraudulently rewritten to deny NFIP claims
The story got a big media boost when it was
featured on CBS’ “60 Minutes”
NFIP subsequently announced significant
personnel and structural changes, particularly
regarding oversight of the claims process
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Insurance Information Institute Online:
www.iii.org
Thank you for your time
and your attention!
32