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Will Hurricane Michael speed the development of flood risk solutions?

Hurricane Michael is an exceptional weather event, but those affected will have to wait to find out how much, if any of their damage will be covered by their catastrophe insurance.

Hurricane Michael

Hurricane Michael is proving to be an outlier. Unusually high sea temperatures in the Gulf, saw what emerged as a tropical storm on 7th October, rapidly morph into the ferocious hurricane that smashed into the Florida Panhandle on 10th October. The speed of its appearance, late date in the season, and rarely experienced track, are almost unprecedented. To find any kind of parallel, we have to go back to 1954’s Hurricane Hazel. Some modellers suggest there hasn’t been an event like this since 1900.

Outstanding bills for Florence

While at the same time as the market is digesting this unusual hurricane, numbers are starting to come through on last month’s Hurricane Florence. RMS estimates that the insured loss will be between $2.5 billion and $5 billion, a relatively digestible figure for the global insurance market. However, the economic loss is likely to be more than double that at $6 billion to $11 billion. Most starkly of all, RMS estimates that 70% of all flood damage caused by Florence is not insured.

This is a protection gap that can only alarm if not surprise. The question for the market is how, and by whom or what, the gap will be filled.

Will new players step up?

Just this week we’ve heard how Amazon has taken yet another step towards the US domestic property market in a deal with Travellers. And it’s no exaggeration to say that barely a day goes by without the announcement of a new InsurTech start-up or of major investments flowing to these businesses.

These new developments may turn out to be excellent news for homeowners in Florida in years to come. However, any workable answer to this problem will also need insurers and brokers and the intellectual and entrepreneurial skills of the global insurance industry and probably a drive from government, if a comprehensive and sustainable catastrophe insurance solution that offers protection for flood damage is to be found.

Hurricane Michael – a game changer?

The entity or multiple entities that discover how to leverage the necessary innovation, efficiency, new technology and modelling techniques to profitably provide catastrophe insurance that covers the flooding associated with hurricanes are likely to be the winners of the illusive prize of growing a profitable business in a mature insurance market. Who those winners will be remains to be seen. As we’ve argued in an earlier blog it is in solving these types of conundrums that the Lloyd’s and London market has traditionally excelled. Now is the moment to revive that entrepreneurial spirit.

Winner Marketing and PR team of the Year at the Reactions 2019 London Market Awards.