Canadian Underwriter

Common Anomaly

November 1, 2013   by Angela Stelmakowich, Editor

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It has been a year since Sandy – an angry lady that slowed a bustling powerhouse of a region to a crawl before inspiring some quick rethinking about how best to prepare for hurricanes and the damaging water they inevitably bring.”Sandy’s vast size, in combination with its slow offshore movement, low pressure and its timing of landfall during a full moon – one of the highest tides of the month -made tides 20% higher than normal,” Crawford & Company notes in a new situation paper.

The primary mode of damage was widespread moderate to severe flooding of the first storey or below of both residential and commercial buildings, reports Guy Carpenter & Company, LLC, which released a damage assessment to mark Sandy’s one-year anniversary.

Without changes, the future may hold much of the same. In mid-October, geologist Andrew Kemp, an assistant professor at Tufts University, pointed to the effect of rising sea levels. “It’s like playing basketball and raising the level of the court so that shorter and shorter people can dunk. It makes low-lying property and infrastructure more vulnerable at a time when developers are pumping money into coastal cities and towns.”

Notes Crawford & Company, “Sandy was an anomaly, and the nature of an anomaly is that it is not subject to a precise schedule or prediction.”

Sandy was an anomaly, true, but perhaps there is a need to rethink the view of what that means in light of the frequency of severe weather events, value of property and contents in close proximity to bodies of water (ocean or not) and locations of homes and businesses in areas at risk from rising water or flooding.

Closer to home, one need look no further than the devastating flooding this year in southern Alberta and the jaw-dropping volume of rain the Toronto area witnessed in scant hours. Estimates of insured losses for these two events already are at about $2.5 billion… and rising.

What happened in Calgary and other areas of southern Alberta may be considered an anomaly as well – by some, although certainly not all.

On October 28, Alberta tabled legislative amendments to enshrine in law measures such as banning municipalities from approving new developments in floodways, and ensuring homebuyers are informed if a property in a flood hazard area is eligible for future disaster assistance.

Recent media reports out of Alberta show less than 10% of the 250 eligible Albertans in a flood-prone zone who lost their homes have accepted a buy-out offer from government. Should homeowners opt to stay, they will not be eligible for disaster money in the event of another flood.

Some established homes and businesses will not move; they will sit… and wait.

Waiting will eventually make them witness to another flood event, to be sure. How costly that will ultimately prove for stakeholders from insurers to reinsurers to governments will depend on the protective steps taken in the interim.

Insurance will certainly need to be part of the mix. Someone will need to pay.

How to bank the money needed to pay is contemplated in a recent bill introduced by Republican Dennis Ross (Florida) south of the border. The Disaster Savings Account Act of 2013 proposes allowing eligible individuals to establish tax-preferred disaster savings accounts of as much as $5,000 a year to be spent on mitigation expenses for future hazards. This would include earthquake, flood, hail, hurricane, lightning, power outage, tornado and wildfire.

The act has gained the support of the Reinsurance Association of America (RAA). “The RAA has long supported proactive mitigation efforts to harden homes and businesses, thereby reducing the human and economic loss from disasters, particularly in geographic regions prone to repeated events,” says association president Frank Nutter.

“As an ultimate risk-taker, the insurance industry has a vested interest in new infrastructure investments, upgrades to aging infrastructure and adaptation measures,” Swiss Re noted in releasing a report this fall that found “floods endanger more city residents than any other natural peril, followed by earthquakes and storms.”