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The power of storm surges are well documented, from Hurricane Katrina in 2005 to Superstorm Sandy in 2012, when we all saw the destruction that the water caused to businesses and homes.​Sandy firmly put a spotlight on flood insurance and coverage issues we are still dealing with today. Currently a number of U.S. government agencies are trying to solve the problem of the rising cost of flood risk, including the National Flood Insurance Program (NFIP), the federally-guaranteed program protecting millions of American properties.​And the start of hurricane season on June 1 once again is bringing this risk to the forefront.​While weather predictions are mainly crystal-ball gazing exercises, most forecasters agree the dwindling El Niño weather phenomenon in the Pacific Ocean may increase the chances of hurricanes forming in the Atlantic.​Colorado State University’s Tropical Meteorology Project  says this year’s hurricane activity will be about average. This comes after two years of below average named storms forming in the Atlantic on top of a 10-year period during which Florida has not seen a single hurricane come ashore.​Last year’s El Niño is weakening, according to Colorado State, and is likely to transition to either neutral or La Niña conditions - a cooling of the Pacific - by the peak of the hurricane season.​The insurance and reinsurance markets will never become complacent about the potential impact of hurricane and windstorm given the magnitude of destruction they can leave behind, but flooding is now one of the biggest challenges facing the industry.​Historically, flood risk has been considered smaller than wind in terms of catastrophe exposure; however it has proven to be a major risk for U.S. policyholders. The NFIP is set to expire in September 2017. Since its inception in 1968, the NFIP has seen many revisions. This time around, however, many private insurers and reinsurers appear more prepared to get involved and share a greater portion of the risk. This is at the core of Congress’ plans to reform the current program. The U.S. House of Representatives unanimously passed the Flood Insurance Market Parity and Modernization Act (H.R. 2901). The legislation offers consumers a choice between the NFIP and the private insurance market. The next step is U.S. Senate to consider the bill.  As the current NFIP has a nearly $24 billion deficit, many are eager to find an alternative for US taxpayers to this costly program.​This new legislation may also provide an opportunity for XL Catlin’s Reinsurance operation to assist our Excess and Surplus Lines (E&S) clients meet the potential demand for privatized flood insurance. Those seeking to reform NFIP see potential in tapping into the current reinsurance market’s abundant capital as well as alternative capital options. The pathway into this capacity may come through the non-admitted market. XL Catlin’s reinsurance operation in the U.S. provides coverage to E&S companies on both the commercial and personal lines segments.

 

flooding is now one of the biggest challenges facing the industry.

Additionally, the opening of private markets may lead to more risk management service available to insureds with flood exposures.  The NFIP program does not have the capacity to offer loss prevention services as part of its offering.  A privatized market may create a better environment for investing in and finding innovative ways to avoid or reduce loss impact.  One of our senior underwriters, Sheila Kelly, is working both internally and on the Reinsurance Association of America’s (RAA) Extreme Events Committee Flood Task Force to ensure we stay at the forefront of this changing landscape and are prepared to work with our clients.Flood, along with other perils such as cyber and terrorism, continues to be one of the most challenging risks facing the industry. This is because modeling is difficult and data is often inadequate, making it a particularly difficult risk to quantify and price. Progress is, however, being made by modeling companies, which are working alongside the insurance and reinsurance markets and other stakeholders.  The reinsurance industry has proven to be remarkably adept over the years at finding solutions to even the most complex of risks. Our strong track record in understanding property and casualty risks and overcoming obstacles puts us in position to address the topic of flood and broadening coverage. Our success, as with other reinsured perils, will rely on our ability to identify strong insurance partners and work with them to provide capacity to the marketplace. Our clients will identify the opportunities to provide coverage and we need to work with them to deliver appropriate solutions to their insureds.As storms become more unpredictable, we need to change the way we approach flood insurance. With enhanced modeling, data and analytics, and continued flexibility in our underwriting approach, we’re boosting our preparedness and looking for more solutions for our customers. ​

Bud Lockwood is head of XL Catlin’s Property Treaty business in North America. XL Catlin offers property treaty reinsurance written on either a proportional or non-proportional basis for most classes and structures.

 

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Global Asset Protection Services, LLC, and its affiliates (“AXA XL Risk Consulting”) provides risk assessment reports and other loss prevention services, as requested. This document shall not be construed as indicating the existence or availability under any policy of coverage for any particular type of loss or damage. AXA XL Risk. We specifically disclaim any warranty or representation that compliance with any advice or recommendation in any publication will make a facility or operation safe or healthful, or put it in compliance with any standard, code, law, rule or regulation. Save where expressly agreed in writing, AXA XL Risk Consulting and its related and affiliated companies disclaim all liability for loss or damage suffered by any party arising out of or in connection with this publication, including indirect or consequential loss or damage, howsoever arising. Any party who chooses to rely in any way on the contents of this document does so at their own risk.

US- and Canada-Issued Insurance Policies

In the US, the AXA XL insurance companies are: AXA Insurance Company, Catlin Insurance Company, Inc., Greenwich Insurance Company, Indian Harbor Insurance Company, XL Insurance America, Inc., XL Specialty Insurance Company and T.H.E. Insurance Company. In Canada, coverages are underwritten by XL Specialty Insurance Company - Canadian Branch and AXA Insurance Company - Canadian branch. Coverages may also be underwritten by Lloyd’s Syndicate #2003. Coverages underwritten by Lloyd’s Syndicate #2003 are placed on behalf of the member of Syndicate #2003 by Catlin Canada Inc. Lloyd’s ratings are independent of AXA XL.
US domiciled insurance policies can be written by the following AXA XL surplus lines insurers: XL Catlin Insurance Company UK Limited, Syndicates managed by Catlin Underwriting Agencies Limited and Indian Harbor Insurance Company. Enquires from US residents should be directed to a local insurance agent or broker permitted to write business in the relevant state.