Flood Risk Flashcards
(34 cards)
Why was the Task Force on Flood Insurance and Relocation established?
To explore solutions for high-risk areas and potential relocation strategies (note that the task force prioritized engagement with Indigenous communities)
Identify 5 priority areas for action under EMS (Emergency Management Strategy)
1) Enhance whole-of-society collaboration and governance to strengthen resilience
2) Improve understanding of disaster risks in all sectors of society
3) Increase focus on whole-of-society disaster prevention and mitigation activities
4) Enhance disaster response capacity and coordination and foster the development of new capabilities
5) Strengthen recovery efforts by building back better to minimize the impacts of future disasters
What does Priority 3 include as a priority outcome?
FPT = priority 3
FPT governments assist in the development of options for sharing the financial risks of disasters
- could include engaging the private sector to develop an affordable private flood insurance model for the entire population, including clear incentives for mitigation of flood risks
Define the term “risk” in the context of disasters
likelihood + the consequence of a specified hazard being realized
Identify 3 problems pertaining to flood insurance in Canada
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 contribute to moral hazard (because people may rely on that instead of buying insurance)
Fully describe 3 problems due to low risk awareness of Canadians in high-risk areas
Moral hazard
(Homeowners, communities, regional/national)
In general:
- A moral hazard is the expectation that governments will provide post-DFA (regardless of poor decisions by individuals and communities on where to build)
In particular:
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 & tax revenues, but flood recovery costs fall largerly on other levels of government
Regional & national: Cost-sharing of disaster recovery reduces incentives for risk reduction (which may include expensive infrastructure)
Fully describe 3 problems due to low risk awareness of Canadians in high-risk areas
May not purchase ❌
When and where flood insurance is available, Canadians may not purchase it due to a lack of awareness of their level of flood risk, or they may erroneously assume flood risk is covered by standard home insurance.
Insufficient protection 😷
Homeowners who have purchased optional flood coverage may not have sufficient protection for the amount of risk they face
- Unfortunately, only after an event that homeowners discover they are under/un-insured.
Less likely risk reduction 🛠️
Low-risk awareness means homeowners are less likely to make investments in property-level protections for flooding, whether or not they have insurance.
Briefly describe the concept of FRM (Flood Risk Management) (4)
- 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
Describe the concept of strategic relocation (4)
1) Buy a high-risk property (government if often the buyer)
2) Remove assets from high-risk property
3) Restore site to undeveloped state
4) Repurpose site as green infrastructure to better absorb floodwater (further reduces flood risk)
Identify the inputs for the PS (Public Safety) approach for estimating flood damages (3)
Flood hazard:
- Refers to extent, magnitude (such as water depth or flow velocity) and probability of occurrence
Flood Exposure:
- Refers to the people, property, infrastructure and other social or economic assets which may become affected by flood hazard
Consequence (Flood Damages):
- How much damage floodwater is likely to cause to particular exposured people or assets
Identify the design characteristics of flood insurance programs (4)
Administration: Role of Government vs Role of Private Insurers
Choice: Voluntary or Compulsory
Packaging: Standalone Product or Bundled with Other Perils
Premiums: Risk-based or Uniform Pricing
Describe the flood insurance program in: Australia
Administration: government regulates the industry with minimum financial burden
- Promotes private partnerships for risk management
Choice: Voluntary (both offering and uptake)
- Varied availability based on flood risk levels
Packaging: often bundled with other perils
- Coverage and specific flood-related perils vary by insurer
Premiums: Risk-based
- Not regulated or subsidized by the government
- Potentially high for highest risk properties
- Retrofits recognized in premium calculations (& encouraged)
Desribe the flood insurance program in: France
Administration: government oversees CatNat scheme
- CatNat is supported by state-owned CCR (that reinsures insurers)
- Local governments are encouraged to adopt risk reduction plans
Choice: depends
- Home insurance (including CatNat) compulsory for property owners with a mortgage
- Voluntary otherwise
Packaging: Bundled
- CatNat, covering flood and other natural disasters, is added to all property insurance contracts
Premiums: Uniform pricing
- 12% surcharge on home insurance policies for natural disasters
- No incentive for property-level mitigation
Note: CCR = Caisse Centrale de Reassurance
Describe the flood insurance program in: UK
Administration: Flood Re manages the flood insurance system
- The Flood Re pool is a private sector entity accountable to the government
Choice: depends
- Not compulsory by law but often required by mortgage lenders for high-risk properties
- Voluntary for properties without a mortgage or for low-risk properties
- Availability for high-risk properties limited to those built prior to 2009
Packaging: Bundled with homeowner’s policies
- Ceded to Flood Re when premiums exceed an affordability cap
Premiums: reflect home values rather than risk level
- Affordability is priortized
- Supplemented by a levy on all residential properties
- A criticism is that high-value properties (wealthy homeowners) are effectively subsidized
Describe the flood insurance program in: US
Administration: NFIP (National Flood Insurance Program) administered through FEMA (Federal Emergency Management Agency)
- Some involvement from private insurers (roles of varying degree and are paid a fee)
Choice: Depends
- Compulsory for homeowners with federally-backed mortgage in flood-prone areas
- Voluntary elsewhere
Packaging: standalone
Premiums: risk based
- Some older government-subsidized policies will transition to risk-based
- Discounts for communities implementing risk-reduction measures
Identify the 4 themes identified to help guide the development of policy options in Canada
Uncertainty (want to minimize this)
Market Penetration, adverse selection and mutuality (want to maximize this)
Affordability (design for this or uptake of flood insurance will be low, especially for high risk areas)
Moral Hazard (want to minimize this)
Briefly describe the policy goals/objectives of Canada’s Task Force on Flood Insurance
- Provide adequate and predictable financial compensation for residents in high-risk areas
- Key themes: adequate coverage, reliability/consistency/clarity of coverage - Incorporate risk-informed price signals and other levers that promote risk-appropriate land use, mitigation, and improved flood resilience
- Key themes: Improve risk awareness for people, communities, and governments, Reduce perverse incentives that sustain/increase residential flood risk - Be affordable to residents of high-risk areas, with specific considerations for marginalized, vulnerable, and/or diverse populations
- Key themes: Inclusive, equitable access to insurance - Provide coverage that is widely available for those at high-risk across all regions
- Key themes: availability (fluvial, pluvial, coastal) in all geographic regions, incorporating dynamic changes to risk over time. Coverage should be available in practical ways for people to access - **Maximize participation88 of residents in high-risk areas
- Key themes: Ensure that within any option selected, uptake is maximized - Provide value for money for governments and taxpayers
- Key themes: Flood insurance solution should (over time) reduce burden on public DFA for flooding, shifting expenditures from recovery to mitigation and adaptation. Should be cost-effective and sustainable
Assumptions used in Flood Risk Models
Total Flood Risk: 2.9B annual residential flood damage
Organizational start-up costs: not included (but on-going operational and maintance expenses are included)
Lifespan of Model: 25 yrs
Climate Change: Not considered (levels of risk are set to flood hazard models as of 2020)
Inflation: Not considered (difficult to predict but all models should be affected the same way anyway)
How are the highest-risk homeowners for flood risk identified (top 10%)?
If AAL or premiums ≥ 0.1% of coverage (for ex: $300 premium for a $300K coverage)
What are the 8 design features considered in the 4 insurance models from the Task Force on flood insurance
Threshold for “high risk homeowners”
Affordability
Premium Loading Factors
Cross Subsidization
Deductibles
Participation
Standardization of Flood Insurance Policies
Automatic Ceding of Flood policies
Identify strategies for increasing affordability of flood insurance (2)
1) Premium caps
2) Subsidies based on income
What is cross-subsidization?
A a way to redistribute the total amount of premiums paid by high-risk homeowners.
Low risk homeowners would pay a higher premium than if it were fully risk-adjusted, with the objective to reduce, at least in part, the premium paid by high-risk homeowners.
How can low participation rates be improved in Canada where flood insurance is not mandatory? (2)
1) Awareness of risk through education
2) Incorporation of affordability supports / lowering premiums
Flat Cap High Risk Pool model
General:
- A high-risk pool
- With minimal intervention by government
- But with low premium cap & significant support from government
Who is included?
- Households at high-risk of flooding
Income-based subsidies:
- None (because premium cap is only 500$)
Cross-Subsidization:
- 20$ levy on all policies
Participation Assumptions
- Mandatory offer
- Optional purchase
- Leads to only 50% participation for high-risks
Premium Loading Factor:
- 96% of AAL (predominantly as a result of additional living expenses, claims, and claims admin)
