I have been watching some of the videos published by AM Best from the RIMS annual convention in New Orleans last month. The city hosted the event to mark 10 years since Katrina and Rita devastated the region. I couldn’t make it to the show, so I wanted to catch up on some of the current thought leadership surrounding natural catastrophe risk.
This particular video really caught my attention. The interviewees are James Donelon (Insurance Commissioner for Louisiana), Kevin Kelley (CEO, Ironshore), and Mike Foley (CEO, Zurich N.A. Commercial). The segment is almost 14 minutes, and they fill that time with several insights that really resonated with me — particularly because they are right in line with many of the topics we discuss here on the Risks of Hazard blog. Click here to watch the full video.
Here are some highlights, with time markers noted for ease of viewing:
1:55 – 2:45: Mr. Donelon discusses Louisiana’s now thriving flood/wind insurance market, with the coverage coming from a small group of regional private insurers who collectively have strong backing from the international reinsurance market. The international reinsurance is the key ingredient, as the enormous risk in coastal Louisiana needs to be spread beyond their state, and indeed the American, borders. For this to be possible, the risks must be well understood on a location-by-location basis, because uncertainty is too expensive in a competitive market like Louisiana.
5:40: Mr. Foley addresses the challenges facing the insurance industry by stating “we really need to make sure we are making money on our underwriting decisions.” This is another way of stating they need to reduce their underwriting leakage (we’ve explored this here).
6:50 – 8:25: Mr. Donelon talks about how the NFIP is now (potentially) on a 5-year glide path toward actuarial rates, and how that will enable private insurance to drive the flood insurance market. Private flood insurance will depend, then as now, on accurate and dependable risk information for each location underwritten, as we explored here and here.
8:55 – 9:16: Mr. Foley makes a quick point about the need for better data and analytics to get the root cause of risk, kind of like this.
10:23: Mr. Donelon explores the need for U.S. insurers to not only have access to the international insurance market, but to be competitive overseas. For this, they’ll need analytics that go beyond borders.
11:00 - 12:04: Mr. Donelon recaps the state of the market in Louisiana post-Katrina, reemphasizing the competitive market being served by two dozen regional carriers who clearly understand the risks and handle them effectively.
Hearing these gentlemen validate the ideas and thoughts we’ve been pursuing here at Intermap is very reassuring. It just makes sense that insurers who follow sound actuarial guidelines and endeavor to underwrite risk based on the best available information, all backed by a well-informed international reinsurance pool, can create a competitive market that ultimately drives success for the carriers and benefits the consumers with affordable coverage that truly does cover them.
This all starts with understanding the location-based risk as well as possible, because in a risky and competitive market like Louisiana, the expense of uncertainty can make or break a carrier.