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CAS EXAM 6C SPRING 2023 > GOVT.FLOODSOLUTIONS > Flashcards

GOVT.FLOODSOLUTIONS Flashcards

1
Q

Why was the Task Force on Flood Insurance and Relocation established?

A

to explore solutions for high-risk areas and potential relocation strategies

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2
Q

Identify 5 priority areas for action under EMS (Emergency Management Strategy)

A
  • Enhance whole-of-society collaboration
  • Improve understanding of disaster risks
  • Increase focus on whole-of-society prevention and mitigation
  • Enhance disaster response capacity
  • Strengthen recovery efforts by building back better to minimize the impacts of future disasters
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3
Q

Define the term “risk” in the context of disasters

A

disaster risk is the combination of the likelihood and the consequence of a specified hazard being realized

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4
Q

Identify and briefly describe the key drivers of Canada’s flood risk.

2 key drivers: UU - [HEAR]

A

Population growth and urban development:
- urban densification in flood-prone areas contributes to flood risk (70% of Canada’s population)
- urban centers are more prone to flood risks due to their location on or near floodplains and coastlines
Climate change: [HEAR]
- Heat-induced Risks - heat promotes wildfires and droughts, destroying vegetation and increasing runoff
- Extreme Precipitation - due to warmer temperatures
- Accelerated Warming - Canada’s climate is warming twice as fast as the global rate.
- Rising Sea Levels - coastal flooding

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5
Q

Identify 3 problems pertaining to flood insurance in Canada

A
  • high cost (especially for low-income households): recent flood events cause increased premiums and possibly withdrawal of coverage altogether
  • low risk awareness: information about floods, including flood maps, may be unavailable
  • misaligned incentives: taxpayer-funded DFA programs contributes to a moral hazard because people may rely on that instead of buying insurance
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6
Q

Fully describe the implications of low risk awareness of flood risks in Canada

A
  • people may not purchase flood insurance if they are not aware of the risk
  • people may think their standard homeowner’s policy covers floods when it doesn’t
  • people who do buy optional flood coverage may have insufficient protection
  • people may be less likely to invest in property-level flood protection
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7
Q

Fully describe the moral hazards associated with misaligned incentives regarding flood risks in Canada

A

The moral hazards relate to the expectation that governments will provide post-disaster financial assistance regardless of poor decisions by individuals and communities on where to build.
- homeowners: At the homeowner level, DFA doesn’t encourage risk reduction or insurance purchase.
- communities: At the community level, local governments & developers, benefit from property sales and tax revenues, but flood recovery costs fall largely on other levels of government.
- regional & national: Cost-sharing of disaster recovery reduces incentivize for risk reduction (which may include expensive infrastructure)

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8
Q

Briefly describe the concept of FRM (Flood Risk Management)

A
  • an alternative approach to conventional flood control measures
  • promotes the use of non-structural mitigation measures to complement and enhance other types of mitigation
  • stakeholders include: government, industry, communities, non-government organizations, individuals
  • an iterative process of: acting, monitoring, reviewing, adapting
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9
Q

Role and Responsibility of Federal Government

A

Role: support provincial/local efforts to mitigate/manage flood emergencies
Responsibility: financial assistance

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10
Q

Roles of Provincial/Territorial Government

A

Roles:
- regulate insurers
- make infrastructure investments

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11
Q

Role and Responsibility of Municipal Government

A

Role: lead local response and recovery during emergencies
Responsibility: invest in structural and non-structural flood mitigation

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12
Q

Role and Responsibility of Indigenous communities (da)

A

Role: develop community emergency management plans
Responsibility: address unique challenges (geography, social/cultural) particularly in northern and remote communities

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13
Q

Role and Responsibility of Insurance Industry

A

Role: provide flood insurance
Responsibility: incentivize policyholders to engage in risk reduction

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14
Q

Role and Responsibility of Non-Governmental Organizations

A

Role: act as initial responders during flood incidents
Responsibility: coordinate volunteers in recovery efforts

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15
Q

Role and Responsibility of Communities & Individuals

A

Role: seek information to understand their property’s flood risk
Responsibility: purchase flood insurance

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16
Q

Identify the necessary preconditions for success of a private flood insurance market. [Hint: PAIL]

A
  • Public awareness of flood risk
  • Accurate & up-to-date flood mapping
  • Investments in public and private flood defenses
  • Limit post-disaster financial assistance from the government to encourage flood mitigation investments
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17
Q

Identify prevention and mitigation measures an individual household can implement (2)

A
  • installing a backwater valve
  • having a basement sump pump
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18
Q

Identify prevention and mitigation measures a community can implement
(Aui)

A
  • adopt climate-resilient best practices for: regulations, land use, urban planning, development
  • upgrade infrastructure
  • invest in natural infrastructure
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19
Q

Identify prevention and mitigation measures that can be implemented on a national level (sii)

A
  • stricter building codes
  • improved flood risk information
  • investments in climate resilience (Ex: infrastructure resilience, environmental resilience)
  • funding for watershed level mitigation projects
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20
Q

Describe the concept of strategic relocation. [Hint: BRRR - cold - the opposite of global warming 😏]

A
  • Buy a high-risk property (government is often the buyer)
  • Remove assets from high-risk property
  • Restore site to undeveloped state
  • Repurpose site as green infrastructure to better absorb floodwater (further reduces flood risk)
21
Q

PS stands for Public Safety of Canada, and the methodology for estimating flood damages is called the “PS Approach”. In broad terms, the model has 3 inputs and 1 output:

A

Inputs:
flood hazard
→ extent / magnitude / probability of occurrence
exposure
→ people / infrastructure / property
consequence
→ floodwater damage

Outputs:
risk
→ predicted loss of people / infrastructure / property
→ average annual loss (AAL) from flooding
→ return-period level losses for residential properties in Canada

22
Q

Canada has 2 types of flood hazard information:

A

→ local regulatory flood mapping
→ broad-coverage models mainly used by insurance firms

23
Q

Briefly discuss the methodology for estimating flood exposure

A
  • requires a comprehensive residential properties database (on the “block” level of 20-30 properties)
  • requires building attributes, informed risk and flood susceptibility
  • dataset was further broken down to individual households for consequence estimation
24
Q

Briefly discuss the methodology for estimating consequences (or flood damages)

A
  • relate flood depths in the models to estimated flood losses of residential properties
  • this is done using depth-damage models
25
Q

Describe Australia flood insurance program in regard to Administration, Choice, Packaging and Premiums

A

Administration: government takes on regulatory role
Choice: voluntary
Packaging: comprehensiveness of flood coverage vary by insurer
Premiums: risk-adjusted, not regulated or subsidized by government

26
Q

Describe France flood insurance program in regard to Administration, Choice, Packaging and Premiums

A

Administration: Catastrophe Naturelle scheme (+CCR reinsures insurers)
Choice: mandatory for property owners with a mortgage
Packaging: CatNat is an extension to private insurance and added to all property insurance contracts (covers a range a natural disasters)
Premiums: uniform 12% surcharge

27
Q

Describe United Kingdom flood insurance program in regard to Administration, Choice, Packaging and Premiums

A

Administration: Flood Re (private sector pool accountable to government (caps))
Choice: available to most high risk properties (excl. those build after 2009), automatic bundling in HO policies
Packaging: bundled with HO policies and provided by private insurer, flood portion is cedd to the high-risk reinsurance pool when premiums exceed a predetermined cap
Premiums: premium caps tied to home values, levy on all residential policies

28
Q

Describe United States flood insurance program in regard to Administration, Choice, Packaging and Premiums

A

Administration: NFIP operated by FEMA, federal government underwrites the risks, private insurers are intermediaries
Choice: mandatory for individuals with a federally-backed mortgage in flood-prone areas
Packaging: sold as a standalone product
Premiums: risk-based

29
Q

Name the four themes and one considerations for each theme that were identified to help guide the development of policy options for Canada

A

Theme 1: Uncertainty ← minimize this
invest in risk reduction in high-risk areas to expand insurability

Theme 2: Market penetration, adverse selection and mutuality ← MAXIMIZE market penetration & minimize adverse selection
incentivize (or require) the purchase of flood insurance through bundling of flood coverage with other perils

Theme 3: Affordability ← design for affordability (or uptake of flood insurance will be low, especially for high-risk areas)
prioritize means-testing to guide any public subsidy to households for flood insurance affordability
but eventual goal is risk-based rates for everyone (by diverting land-use development away from high-risk locations)

Theme 4: Moral Hazard ← minimize this
implement minimum deductibles and avoid incentivizing new development in high-risk areas

30
Q

Public Policy Objectives for flood insurance
[MAVARA]

A
  • Adequate & predictable financial compensation
  • Affordable is obvious as a desired characteristic, and it dovetails with maximizing Participation (a lower price means more people will buy it)
  • Available for all types of floods (fluvial, pluvial, coastal) and in all geographic areas for all risk-levels
  • Risk-based pricing is also obvious because this incentives risk reduction and minimizes moral hazards
  • Value for money is also obvious – we don’t want people not buying insurance and not taking steps to mitigate risk, which might happen if they think they can always rely on DFA (Disaster Financial Assistance) to compensate them after a big flood
31
Q

Assumptions for each insurance models proposed for Canada (5)

A
32
Q

How are the highest-risk homeowners for flood risk identified (top10%)?

A
  • AAL or premiums ≥ 0.1% of coverage
33
Q

Would a flood premium of $250 for $500,000 of coverage be considered high-risk?

A

No, because $250 is less than 0.1% of 500,000 (which is $500)

34
Q

Identify strategies for increasing affordability of flood insurance (2)

A
  • premiums caps
  • subsidies based on income
35
Q

Identify 2 items that are covered by “premium load factors” in flood insurance

A

Any 2 of:
* administrative & operational costs
* risk buffers
* living expenses

36
Q

What is cross-subsidization?

A
  • a transfer of some premium costs from HIGH-risk to low-risk homeowners
37
Q

Do HIGH deductibles reduce participation?

A

YES!!! (But HIGH deductibles also encourage risk mitigation by homeowners)

38
Q

Define ‘residual risk’

A

Residual Risk is the amount of financial risk left in the system once insurance options have been applied.

39
Q

Who pays the cost of ‘residual risk’ in the context of residential flood insurance?

A

uninsured and underinsured homeowners

40
Q

How can low participation rates be improved in Canada where flood insurance is not mandatory? (2)

A
  • Awareness of risk through education
  • Lower premiums
41
Q

Identify 1 benefit of standardization of flood policies.

A

Any 1 of:
* simplified policy language
* unified coverage types
* bundling of perils for clarity

42
Q

Describe the Flat Cap High Risk Pool model for flood insurance.

A

General:
* a high-risk pool
* with minimal intervention by government
* but with low premium cap & significant support from government
Who is included?
* households at high-risk of flooding
Income-Based Subsidies:
* none (because premium cap is only $500)
Cross-Subsidization:
* $20 levy (on all policies)
Participation Assumptions
* manadatory offer
* optional purchase

43
Q

Describe the Tiered High-risk Pool model for flood insurance.

A

General:
* high-risk pool
* with ADDED intervention by government
* 5 levels of cap (based on quintiles of reconstruction costs)
Who is included?
* households at high-risk of flooding
Income-Based Subsidies:
* none (because tiered premium caps)
Cross-Subsidization:
* $40 levy (on all policies)
Participation Assumptions
* manadatory offer
* mandatory purchase with mortgage
* optional without mortgage

44
Q

Describe the Public Insurer model for flood insurance.

A

General:
* a Crown Corporation (a corporation owned by the government)
* underwrites flood insurance with private insurance as the intermediary
* higher premium cap ($3,000) with automatic government backstop
Who is included?
* all households (low, medium, and high risk)
Income-Based Subsidies:
* sliding scale
Cross-Subsidization:
* $45 levy (on all policies)
Participation Assumptions
* manadatory offer
* mandatory purchase (via bundling with homeowner’s policy)

45
Q

Describe the Public Reinsurer model for flood insurance.

A

General:
* a layered (using both public and private-based elements of previous models)
* 1st layer: optional purchase from private market at risk-based rates at modest limit
* 2nd layer: mandatory purchase above modest limit but subsidized by Crown corporation
* no premium cap for 1st layer: / premium cap of $3,000 for 2nd layer:
Who is included?
* all households (low, medium, and high risk)
Income-Based Subsidies:
* none for 1st layer: / sliding scale for 2nd layer:
Cross-Subsidization:
* $20 levy (on all policies)
Participation Assumptions
* mandatory offer, optional purchase for 1st layer:
* mandatory offer & mandatory purchase for 2nd layer: (via bundling with homeowner’s policy)

46
Q

Briefly describe 2 potential flood de-risking measures.

A

[1] restrict eligibility for the highest-risk homeowners
* reduces costs
* but leaves many homeowners unprotected → requires significant government spending in a catastrophe
[2] strategic relocation
* reduces costs
* but is potentially disruptive & lengthy

47
Q

Read table for weak and strong categories for each flood insurance models

A
48
Q

Briefly describe 4 key findings of the Task Force on Flood Insurance and Relocation

A

Relocation Considerations
* Relocation is a powerful but potentially disruptive risk removal tool.

Insurance Considerations
* Maximizing participation in an insurance program is key because it spreads the risk

Current Flood Risk
* About 1/3 of total flod risk is in the top 1% riskiest homes
Equity Considerations
&bulll; Affordability is key for equitable access among disadvantaged groups requiring support.

49
Q

Disadvantage of regulatory mapping and advantage of broad coverage models

A
  • Regulatory mapping is very accurate but available only in select areas
  • Broad-coverage models provide nationwide data (including flood depths for standard return periods and diverse flood types)

CAS EXAM 6C SPRING 2023 (46 decks)

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