Flood Insurance Study Documents

Flood Insurance Presented by: Dr. Franziska Arnold- Dwyer Date: 03 May 2022 Flooding - Different types of flooding: 1. Coastal flooding: normally dry land is flooded by seawater usually as a result of storm surges that create waves that can overtop natural and engineered coastal protection structures 2. Inland flooding: heavy rainfall and snowmelt can cause (a) rivers to swell and burst their banks; and (b) dams to break - Recent examples: 1. South Africa April 2022: flooding in KwaZulu-Natal province due to heavy rain and storms; over 400 people killed; huge infrastructure and housing damage 2. England February 2022: River Severn flooding following heavy rain during three consecutive storms; numerous households and business evacuated; property damage in Emillion Flood Risks And Flood Insurance - At risk: 1. People's life and health 2. Residential property 3. Business property and infrastructure 4. Loss of profits due to business interruption 5. Livestock 6. Habitats - Flood insurance is concerned with indemnifying for loss or damage to property caused by floods - In England, 5.2 million properties are at risk of flooding (National Flood and Coastal Erosion Risk Management Strategy for England, Environment Agency, 2020) Insurability Issues With Flood Risks  In the UK, severe flooding occurs relatively infrequently but, when it does, it causes a lot of damage  Empirical studies show that individuals tend not to buy insurance cover for relatively rare risks: 1. If the risk does occur governments have to step in with disaster relief from tax payers funds 2. There is usually a surge in insurance take up after a catastrophic event  Adverse selection: 1. Only individuals with a high risk of flooding likely to buy flood insurance 2. Insurers cannot 'pool' with low risks 3. Difficult for insurers to buy reinsurance  Individuals with past claims may become uninsurable: 1. High excess and premium 2. Flood insurance will not be available to those who need it most (at affordable premium)  Yet, 94% of UK property insurers offer flood insurance and the majority of homeowners in the UK have flood insurance... WHY? UK: "Bundled" Flood Insurance Model  Reasons for high penetration of flood cover in the UK: 1. Bundled flood insurance cover 2. Flood insurance cover required by mortgage lenders 3. Since introduction of Flood Re (see below), availability and affordability of flood cover to all households  What is bundled flood insurance cover? 1. Flood insurance cover is automatically included in homeowner property insurance 2. Not separately priced and no opt-out available Example: Aviva Home Insurance Policy BUILDINGS SECTION: Your policy does not cover wear and tear. Please refer to page 2 "Helpful and Important information about your insurance for more information This section only applies when shown on your schedule. What is not covered Under the BUILDINGS SECTION we will not CONANY 1. the excess(es) shown on your schedule (no excess applies to Emergency access and Liability to the public 2. damage by wet or dry tot arising from any cause, except as a direct result of a claim we have already paid, and when repair or preventative action was carried out by tradesperson we have approved 3. anything set out in the GENERAL EXCLUSIONS section of these policy bucket The Buildings We will provide cover for loss of or damage to the buildings caused by any of the following 1. Fire, explosion, lightning or earthquake. a. Smoke 2. Storm or Flood Under (b) we will not cover loss or damage that happens gradually. We will not cover loss or damage caused by frost to tenses, gates and hedges, that happens gradually