Florence needs to be met by a latter-day Cuthbert Heath
As those living along the Carolina seaboard anxiously braced for the impact of Hurricane Florence, London market insurance executives returned from Monte Carlo breathing a sigh of relief as the hurricane was downgrading to category 2.
But is relief at having dodged a bullet the right response from the insurance industry? After all, the flooding in the wake of the hurricane still caused huge damage and destruction to a wide area along the coast and some distance inland. Is it enough to accept that the commercial insurance market cannot find a solution to covering flood risk in the world’s richest country?
After all, this is not a new conundrum thrown up by the specific circumstances of Florence, requiring years of research to get to grips with, rather it’s a known problem most recently manifesting itself 12 months ago, when Houston was left underwater by hurricane Harvey and with just the most meagre flood insurance cover available to aid the clean-up.
There have been few concrete efforts to bridge this gaping hole in US hurricane insurance cover and even the innovators in the catastrophe bond market seem unwilling to try, given its almost exclusive focus on wind speed parametric triggers that offer no solution when the real problem is water depth.
Whilst the Lloyd’s and London markets’ track record of paying the claims, in the wake of 2017’s HIM event is outstanding, the failure to address flooding does not demonstrate the creative leadership that the Lloyd’s brand has become known for in the United States.
These are the circumstances that need a latter-day Cuthbert Heath.
Following the San Francisco earthquake Heath showed that by promptly paying clients that suffered damage, not as result of the earthquake, but the devastating fire that followed it, he would be trusted by them. In turn, they repaid him with loyalty to the Lloyd’s brand. His entrepreneurial instincts demonstrated that turning an intangible promise to pay into reality makes sound business sense. As a result, new classes of property cover were developed, and Lloyd’s reputation was cemented in the United States. Since 1906, fire resulting from an earthquake has been included in the majority of US property policies. And Lloyd’s role in the US insurance and reinsurance market has grown exponentially.
In the aftermath of Harvey and now Florence, the market has the chance to do the same thing for flood risk following hurricane.
There will be naysayers that claim it can’t be done, but the innovation and entrepreneurism, that London has long been known for has proved itself before and continues today rewarding the brands that deliver on their promise.