Bermuda has a role to play in closing a $40 billion gap in the flood insurance market, panellists at the Bermuda Climate Summit said.
“This island is going to be the generator for how these risks are covered out there,” Aon managing director Andy Neal said yesterday at a panel on the US federal flood programme and the reinsurance sector.
As an example of Bermuda’s involvement, Mr Neal, a former National Flood Insurance Programme actuary, pointed to 2018 when the organisation created a Bermuda-domiciled flood catastrophe bond.
“Bermuda played an excellent role,” he said.
Chris Brown, executive director of natural disaster mitigation advocacy group SmarterSafer, said NFIP reinsurance purchases in the past have saved US taxpayers considerable amounts of money.
“We need to be thinking about more opportunities along those lines,” he said. “Assuming there is willingness and capacity in the Bermuda reinsurance market, which I think there is, we should be looking to increase that. We should also look across other perils. We have talked about flooding, but is there more room to do reinsurance coverage on wildfires, or earthquake?”
Mr Brown said that while SmarterSafer is made up of diverse groups, including the Association of Bermuda Insurers and Reinsurers, it is united in its belief that there is a need for flood insurance reform and for investment in pre-disaster mitigation and resiliency.
Christopher Sykes, managing director of Guy Carpenter, said: “For every dollar we spend on loss mitigation, we save $9 within the next ten years.”
Facts on flooding
• In 2021, floods, droughts and storms triggered $224.2 billion in economic losses globally
• In the United States, just an estimated 15 per cent of American homes are insured against flooding
• The risk of a home being impacted by flooding is 27 times higher than the risk of fire over the course of a 30-year mortgage
• A single inch of flood water can cause $25,000 in damage
Panellist Chlora Lindley-Myers said many Americans do not know that flooding is not covered in the average homeowner’s insurance policy. It usually has to be purchased separately.
Ms Lindley-Myers is president of the US National Association of Insurance Commissioners and director of the Missouri Department of Commerce and Insurance.
“Many people suffer from apathy and ignorance,” she said. “People think that if something does happen the Government will take care of them.”
She said Missouri is working hard to educate consumers on their flood insurance coverage and risk. It is even putting up billboards to get people’s attention.
She said the US has to keep “nibbling around the edges” of the flood insurance gap.
Mr Brown said: “I would love it to be more than a nibble but given that the NFIP has just gone through its 25th reauthorisation, with zero reforms, I would take a nibble over nothing. If we can get six or seven nibbles, it starts to be more meaningful reform.”
Mr Brown said events such as the Bermuda Climate Summit are important to advancing the conversation.
“Creating the opportunity to link the US and Bermuda, particularly the reinsurance market, is incredible,” he said.
A study by the First Foundation, released this week, found that more than half of Americans are twice as likely to face a once-in-a-century precipitation event than previously modelled.
The data revealed that coastal areas in particular, including major population centres, are at much higher risk than estimated by the National Oceanic and Atmospheric Administration’s Atlas 14, a peer-reviewed record of precipitation frequency estimates for the US and affiliated territories.
Peter Giacone, global head of insurance at Kroll Bond Rating Agency, moderated the panel.
The two-day Bermuda Climate Summit, held at the Hamilton Princess & Beach Club, ended yesterday.