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Catastrophic Loss in Mississippi The Aftermath of Katrina Ole Miss Insurance Symposium University of Catastrophic Loss in Mississippi The Aftermath of Katrina Ole Miss Insurance Symposium University of Mississippi Oxford, MS March 26, 2008 Robert P. Hartwig, Ph. D. , CPCU, President Insurance Information Institute 110 William Street New York, NY 10038 Tel: (212) 346 -5520 Fax: (212) 732 -1916 [email protected] org www. iii. org

CATASTROPHE LOSS REVIEW A Decade of Disaster, With Mississippi in the Crosshairs CATASTROPHE LOSS REVIEW A Decade of Disaster, With Mississippi in the Crosshairs

Most of US Population & Property Has Major CAT Exposure Is Anyplace Safe? Source: Most of US Population & Property Has Major CAT Exposure Is Anyplace Safe? Source: RMS

U. S. Insured Catastrophe Losses* $ Billions 2006/07 were welcome respites. 2005 was by U. S. Insured Catastrophe Losses* $ Billions 2006/07 were welcome respites. 2005 was by far the worst year ever for insured catastrophe losses in the US, but the worst has yet to come. $100 Billion CAT year is coming soon *Excludes $4 B-$6 b offshore energy losses from Hurricanes Katrina & Rita. Note: 2001 figure includes $20. 3 B for 9/11 losses reported through 12/31/01. Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12. 2 B. Source: Property Claims Service/ISO; Insurance Information Institute

States With Largest Insured Catastrophe Losses in 2007 CAT STATS • 1. 18 million States With Largest Insured Catastrophe Losses in 2007 CAT STATS • 1. 18 million CAT claims across 41 states arising • 23 catastrophic events Source: PCS/ISO; Insurance Information Institute.

Distribution of 2007 US CAT Losses, by Type and Insured Loss $ Billions Personal Distribution of 2007 US CAT Losses, by Type and Insured Loss $ Billions Personal (home, condo, rental, contents etc. ) accounted for 68% of all US insured CAT losses paid in 2007. CAT claim count was 1. 18 million. Source: PCS division of ISO.

Distribution of 2007 US CAT Losses, by Type and Claim Count Thousands of Claims Distribution of 2007 US CAT Losses, by Type and Claim Count Thousands of Claims Personal (home, condo, rental, contents etc. ) accounted for 61% of all US insured CAT claims in 2007, but 68% of loss dollars paid. Source: PCS division of ISO.

Top Catastrophic Wildland Fires In The United States, 1970 -2007 Insured Losses (Millions 2007 Top Catastrophic Wildland Fires In The United States, 1970 -2007 Insured Losses (Millions 2007 $) Fourteen of the top 17 catastrophic wildfires since 1970 occurred in California *Estimate from CA Insurance Dept. , Jan. 10, 2008. Source: ISO's Property Claim Services Unit; California Department of Insurance; Insurance Information Institute.

Inflation-Adjusted U. S. Insured Catastrophe Losses By Cause of Loss, 1987 -2006¹ Insured disaster Inflation-Adjusted U. S. Insured Catastrophe Losses By Cause of Loss, 1987 -2006¹ Insured disaster losses totaled $297. 3 billion from 1987 -2006 (in 2006 dollars). Wildfires accounted for approximately $6. 6 billion of these— 2. 2% of the total. Catastrophes are all events causing direct insured losses to property of $25 million or more in 2006 dollars. Catastrophe threshold changed from $5 million to $25 million beginning in 1997. Adjusted for inflation by the III. 2 Excludes snow. 3 Includes hurricanes and tropical storms. 4 Includes other geologic events such as volcanic eruptions and other earth movement. 5 Does not include flood damage covered by the federally administered National Flood Insurance Program. 6 Includes wildland fires. 1 Source: Insurance Services Office (ISO). .

Global Insured Catastrophe Losses by Region, 2001 -2007 $ Billions North America accounted for Global Insured Catastrophe Losses by Region, 2001 -2007 $ Billions North America accounted for 70% of global catastrophe losses 2001 -2007 Notes: 2001 -03 figures for N. America include US only. 2001 figure includes only property losses from 9/11. Source: Insurance Information Institute compiled from Swiss Re sigma issues.

HURRICANE KATRINA A Review of Mississippi Insured Losses HURRICANE KATRINA A Review of Mississippi Insured Losses

Top 10 Most Costly Hurricanes in US History, (Insured Losses, $2005) Seven of the Top 10 Most Costly Hurricanes in US History, (Insured Losses, $2005) Seven of the 10 most expensive hurricanes in US history occurred in the 14 months from Aug. 2004 – Oct. 2005: Katrina, Rita, Wilma, Charley, Ivan, Frances & Jeanne Sources: ISO/PCS; Insurance Information Institute.

Insured Loss & Claim Count for Major Storms of 2005* Hurricanes Katrina, Rita, Wilma Insured Loss & Claim Count for Major Storms of 2005* Hurricanes Katrina, Rita, Wilma & Dennis produced a record 3. 3 million claims *Property and business interruption losses only. Excludes offshore energy & marine losses. Source: ISO/PCS as of June 8, 2006; Insurance Information Institute.

Hurricane Katrina Claim Status st Anniversary* on Storm’s 1 95% of the 1. 2 Hurricane Katrina Claim Status st Anniversary* on Storm’s 1 95% of the 1. 2 million homeowners insurance claims in Louisiana & Mississippi are settled, with just 2% in dispute *Hurricane Katrina made its north Gulf coast landfall August 29, 2005. Source: Insurance Information Institute survey, August 2006.

Hurricane Katrina Claim Status nd Anniversary* on Storm’s 2 99% of the 1. 2 Hurricane Katrina Claim Status nd Anniversary* on Storm’s 2 99% of the 1. 2 million homeowners insurance claims in Louisiana & Mississippi were settled as of the storm’s second anniversary in 2007 *Hurricane Katrina made its north Gulf coast landfall August 29, 2005. **Unsettled implies that the claim is in the process of settlement, involved in mediation or litigated. Source: Insurance Information Institute survey, August 2007.

Hurricane Katrina Insured Loss Distribution by State ($ Millions)* Total Insured Losses = $40. Hurricane Katrina Insured Loss Distribution by State ($ Millions)* Total Insured Losses = $40. 579 Billion *As of June 8, 2006 Source: PCS division of ISO. Mississippi accounted for 33. 5% of the insured losses paid and 29. 5% of the claims filed

Hurricane Katrina Claim Count Distribution by State* Total # Claims = 1, 743, 800 Hurricane Katrina Claim Count Distribution by State* Total # Claims = 1, 743, 800 *As of June 8, 2006 Source: PCS division of ISO. MS accounted for 33. 5% of the insured losses paid and 29. 5% of the claims filed

Hurricane Katrina Loss Distribution by Line ($ Millions)* Total insured losses are estimated at Hurricane Katrina Loss Distribution by Line ($ Millions)* Total insured losses are estimated at $40. 579 billion from 1. 7438 million claims. Excludes $2$3 B in offshore energy losses *As of June 8, 2006 Source: PCS division of ISO. Katrina had a disproportionate impact on businesses, decimating the economy and making recovery more difficult

Mississippi: Katrina Loss Distribution by Line ($ Millions)* Mississippi insured losses are estimated at Mississippi: Katrina Loss Distribution by Line ($ Millions)* Mississippi insured losses are estimated at $13. 6 billion from 515, 000 claims. Excludes $2$3 B in offshore energy losses *As of June 8, 2006 Source: PCS division of ISO.

Mississippi: Katrina Claim Count Distribution by Line* Commercial (business) claims accounted for 11% of Mississippi: Katrina Claim Count Distribution by Line* Commercial (business) claims accounted for 11% of the claims filed but 55% of the insured losses. Homeowners claims accounted for 69% of claims and 40% of losses. *As of June 8, 2006 Source: PCS division of ISO.

MS: Average Cost per Claim by Type of Claim* Commercial (business) claims were 9 MS: Average Cost per Claim by Type of Claim* Commercial (business) claims were 9 -10 times more expensive than homeowners claims on average for Hurricane Katrina, but accounted for just 11% of the total number of claims *As of June 8, 2006 Source: PCS division of ISO.

Growth in Mississippi Construction Component of GDP Pre/Post-Katrina Insurance dollars helped construction spending surge Growth in Mississippi Construction Component of GDP Pre/Post-Katrina Insurance dollars helped construction spending surge in MS Sources: US Bureau of Economic Analysis; Insurance Information Inst.

Mississippi Windstorm Plan: Exposure to Loss ($ Mill) Total exposure to loss in the Mississippi Windstorm Plan: Exposure to Loss ($ Mill) Total exposure to loss in the Mississippi Windstorm Underwriting Association (MWUA) jumped to $5. 4 billion in 2006 from $1. 9 billion in 2005, an increase of 187%. The total number of policies in the Plan more than doubled between 2005 and 2006. Source: PIPSO; Insurance Information Institute

Louisiana: Katrina Loss Distribution by Line ($ Millions)* Louisiana insured losses are estimated at Louisiana: Katrina Loss Distribution by Line ($ Millions)* Louisiana insured losses are estimated at $25. 275 billion from 975, 000 claims. Excludes $2$3 B in offshore energy losses *As of June 8, 2006 Source: PCS division of ISO.

Hurricane Rita Claim Count Distribution by State* Mississippi accounted for 1. 8% of the Hurricane Rita Claim Count Distribution by State* Mississippi accounted for 1. 8% of the insured losses on 7, 000 claims. Total # Claims = 383, 000 *As of June 8, 2006 Source: PCS division of ISO. Excludes offshore energy losses of $2 -3 B

Hurricane Rita Loss Distribution, by Line ($ Millions)* Total insured losses are estimated at Hurricane Rita Loss Distribution, by Line ($ Millions)* Total insured losses are estimated at $5. 0 billion (excl. offshore energy of $2 -$3 B) from 383, 000 claims. *As of June 8, 2006 Source: PCS division of ISO.

Louisiana: Rita Loss Distribution, by Line ($ Millions)* Total insured losses are estimated at Louisiana: Rita Loss Distribution, by Line ($ Millions)* Total insured losses are estimated at $2. 9125 billion from 185, 000 claims. *As of June 8, 2006 Source: PCS division of ISO.

Katrina’s Path of Destruction Through the Offshore Energy Industry Katrina (& Rita) tore through Katrina’s Path of Destruction Through the Offshore Energy Industry Katrina (& Rita) tore through offshore facilities Source: “Hurricane Katrina: Profile of a Super Cat, ” RMS, October 2005.

Insured Offshore Energy Losses for Recent Major Gulf Storms Hurricanes Katrina, Rita and Ivan Insured Offshore Energy Losses for Recent Major Gulf Storms Hurricanes Katrina, Rita and Ivan cost energy insurers at least $7 billion Sources: Insurance Information Institute research estimates. *Midpoint of estimated range for $2. 0 to $2. 5 billion)

HURRICANES: INSURED LOSS POTENTIAL Katrina: Just the Beginning? HURRICANES: INSURED LOSS POTENTIAL Katrina: Just the Beginning?

Total Value of Insured Coastal Exposure (2004, $ Billions) Mississippi had $45 billion in Total Value of Insured Coastal Exposure (2004, $ Billions) Mississippi had $45 billion in insured coastal property exposure in 2004 compared to $209 billion in Louisiana and nearly $2 trillion in Florida Source: AIR Worldwide

Value of Insured Residential Coastal Exposure (2004, $ Billions) Mississippi had $21 billion in Value of Insured Residential Coastal Exposure (2004, $ Billions) Mississippi had $21 billion in insured residential coastal property exposure in 2004 (47% of all MS coastal exposure) Source: AIR

Value of Insured Commercial Coastal Exposure (2004, $ Billions) Mississippi had $24 billion in Value of Insured Commercial Coastal Exposure (2004, $ Billions) Mississippi had $24 billion in insured commercial coastal property exposure in 2004 (53% of all MS coastal exposure) Source: AIR

Insured Coastal Exposure as a % of Statewid Insured Exposure (2004, $ Billions) Mississippi Insured Coastal Exposure as a % of Statewid Insured Exposure (2004, $ Billions) Mississippi coastal exposure accounts for 13. 5% of all insured exposure statewide Source: AIR Worldwide

Historical Hurricane Strikes in Hancock County, MS, 1900 -2007 Population of Hancock County has Historical Hurricane Strikes in Hancock County, MS, 1900 -2007 Population of Hancock County has soared (4 -fold since 1950) as has its vulnerability Source: NOAA Coastal Services Center, http: //maps. csc. noaa. gov/hurricanes/pop. jsp; Insurance Info. Institute.

Historical Hurricane Strikes in Harrison County, MS, 1900 -2007 Population of Harrison County has Historical Hurricane Strikes in Harrison County, MS, 1900 -2007 Population of Harrison County has soared (4 -fold since 1940) as has its vulnerability Source: NOAA Coastal Services Center, http: //maps. csc. noaa. gov/hurricanes/pop. jsp; Insurance Info. Institute.

Historical Hurricane Strikes in Jackson County, MS, 1900 -2007 Population of Jackson County has Historical Hurricane Strikes in Jackson County, MS, 1900 -2007 Population of Jackson County has soared (4 -fold since 1950) as has its vulnerability Source: NOAA Coastal Services Center, http: //maps. csc. noaa. gov/hurricanes/pop. jsp; Insurance Info. Institute.

The 2008 Hurricane Season: Preview to Disaster? The 2008 Hurricane Season: Preview to Disaster?

2005 Was a Busy, Destructive, Deadly & Expensive Hurricane Season All 21 names were 2005 Was a Busy, Destructive, Deadly & Expensive Hurricane Season All 21 names were used for the first time ever, so Greek letters were used for the final storms Source: Weather. Underground. com, January 18, 2006. 2005 set a new record for the number of hurricanes & tropical storms at 28, breaking the old record set in 1933.

2007 Hurricane Season: No Big Hits Once Again A Sigh of Relief The 2007 2007 Hurricane Season: No Big Hits Once Again A Sigh of Relief The 2007 season saw 15 named storms (same as devastating 2004 season) including two rare Category 5 storms, but the US escaped this year with very little loss Source: www. wunderground. com, accessed 1/11/08; Insurance Information Institute

Outlook for 2008 Hurricane Season: 25% Worse Than Average* 2005 2008 F Named Storms Outlook for 2008 Hurricane Season: 25% Worse Than Average* 2005 2008 F Named Storms Named Storm Days Hurricane Days Intense Hurricanes 9. 6 49. 1 5. 9 24. 5 2. 3 28 115. 5 14 47. 5 7 13 60 7 30 3 Intense Hurricane Days Accumulated Cyclone Energy Net Tropical Cyclone Activity 5 96. 2 100% 7 NA 275% 6 115 125% *Average over the period 1950 -2000. Source: Philip Klotzbach and Dr. William Gray, Colorado State University, December 7, 2007.

Landfall Probabilities for 2008 Hurricane Season: Above Average* Entire US East & Gulf Coasts Landfall Probabilities for 2008 Hurricane Season: Above Average* Entire US East & Gulf Coasts US East Coast Including Florida Peninsula Gulf Coast from Florida Panhandle to Brownsville Caribbean 2008 F 52% 31% 60% 37% 30% 36% NA Above Average *Average over the past century. Source: Philip Klotzbach and Dr. William Gray, Colorado State University, December 7, 2007.

Mississippi Insurance Market Overview Mississippi Insurance Market Overview

Mississippi Insurance Market Facts • MS P/C insurance premium volume in 2005 was $3. Mississippi Insurance Market Facts • MS P/C insurance premium volume in 2005 was $3. 76 billion, or 0. 8% of the US total of $478. 5 billion Ø LA Homeowners insurance premium volume in 2005 was $580 million, or 1. 0% of the US total of $57. 5 bill. • Insured Katrina & Rita homeowners losses of $5. 5 billion in MS were more than 9 times the 2005 homeowners premiums of $580 million • The 2005 hurricane losses in MS homeowners insurance wiped out 17 years of premium and every dollar of profit ever made in the history of the state in this line Source: Insurance Information Inst. from National Underwriter Highline annual statement database; PCS.

Mississippi & Louisiana Market Shares, All Lines & Homeowners ALL LINES HOMEOWNERS ($ Billions) Mississippi & Louisiana Market Shares, All Lines & Homeowners ALL LINES HOMEOWNERS ($ Billions) ($ Millions) MS accounts for less than 1% of the US insurance market but 34% of 2005 hurricane losses Source: Insurance Information Institute from National Underwriter Highline annual statement database.

Source: NAIC, Insurance Information Institute +71. 8% +102. 1% +68. 3% +71. 8% +60. Source: NAIC, Insurance Information Institute +71. 8% +102. 1% +68. 3% +71. 8% +60. 5% +67. 9% Average Expenditures on Home Insurance, 2005 vs. 1997

Average Expenditures on HO Insurance, LA vs. U. S. , 1997 -2004* Change: 1997 Average Expenditures on HO Insurance, LA vs. U. S. , 1997 -2004* Change: 1997 -2004* Louisiana: +61. 3% US: +60. 2% *Latest available from NAIC. Source: NAIC, Insurance Information Institute

ACTS OF GOD & THE BOTTOM (AND TOP) LINES Catastrophic Loss & Insurer Financial ACTS OF GOD & THE BOTTOM (AND TOP) LINES Catastrophic Loss & Insurer Financial Performance

ROE: P/C vs. All Industries 1987– 2008 E P/C profitability is cyclical, volatile and ROE: P/C vs. All Industries 1987– 2008 E P/C profitability is cyclical, volatile and vulnerable Sept. 11 Hugo Andrew Lowest CAT losses in 15 years Northridge *2007 is actual 9 -month ROAS of 13. 1%. 2008 P/C insurer ROE is I. I. I. estimate. Source: Insurance Information Institute; Fortune Katrina, Rita, Wilma 4 Hurricanes

Strength of Recent Hard Markets by NWP Growth* 1975 -78 1984 -87 2001 -04 Strength of Recent Hard Markets by NWP Growth* 1975 -78 1984 -87 2001 -04 Post-Katrina period resembles 1993 -97 (post-Andrew) 2008: Projected -0. 3% premium growth would be the first decline since 1943 Note: Shaded areas denote hard market periods. Source: A. M. Best, Insurance Information Institute *2007 figure is actual 9 -month figure.

REINSURANCE MARKETS Reinsurance Prices are Falling in Non-Coastal Zones, Casualty Lines REINSURANCE MARKETS Reinsurance Prices are Falling in Non-Coastal Zones, Casualty Lines

Share of Losses Paid by Reinsurers, by Disaster* Reinsurance is playing an increasingly important Share of Losses Paid by Reinsurers, by Disaster* Reinsurance is playing an increasingly important role in the financing of mega. CATs; Reins. Costs are skyrocketing *Excludes losses paid by the Florida Hurricane Catastrophe Fund, a FL-only windstorm reinsurer, which was established in 1994 after Hurricane Andrew. FHCF payments to insurers are estimated at $3. 85 billion for 2004 and $4. 5 billion for 2005. Sources: Wharton Risk Center, Disaster Insurance Project; Insurance Information Institute.

US Reinsurer Net Income & ROE, 1985 -2007* Reinsurer profitability rebounded post-Katrina but is US Reinsurer Net Income & ROE, 1985 -2007* Reinsurer profitability rebounded post-Katrina but is now falling Source: Reinsurance Association of America. *2007 ROE figure is III estimate based return on average 2007 surplus.

Regional Distribution of Reinsurers by NWP, 2006 International reinsurers from Germany, Switzerland France account Regional Distribution of Reinsurers by NWP, 2006 International reinsurers from Germany, Switzerland France account for 40 percent of global reinsurance volume. Bermuda is a growing market, with a 10 percent share. Lloyd’s and London-based reinsurers account for 6 percent of the world market. Eight countries account for 89 percent of global reinsurance volume. Source: Standard & Poor’s, Global Reinsurance Highlights, 2007 Edition

Reinsurer Market Share Comparison: 1990 vs. 2006 1990 2006 U. S. Reinsurer market share Reinsurer Market Share Comparison: 1990 vs. 2006 1990 2006 U. S. Reinsurer market share fell precipitously between 1990 and 2006 Sources: Reinsurance Association of America; Insurance Information Institute.

The Flood Insurance Purchase & Retention Decision Flood Insurance is a Tough Sell The Flood Insurance Purchase & Retention Decision Flood Insurance is a Tough Sell

Hurricane Katrina NFIP Flood Claim Count and Closed Claim Losses Paid* 85% of the Hurricane Katrina NFIP Flood Claim Count and Closed Claim Losses Paid* 85% of the $18. 3 billion in NFIP flood losses paid from Katrina were in Louisiana. MS accounted for 13%. *As of 12/8/06, 98. 7% of all Katrina claims had been closed. Paid amounts displayed are for closed claims only. Source: National Flood Insurance Program as of December 8, 2006; Insurance Information Institute.

Total Claim Payments by State (Top 11) Jan 1, 1978 - Feb. 2006 Louisiana Total Claim Payments by State (Top 11) Jan 1, 1978 - Feb. 2006 Louisiana and Mississippi rank 1 st and 4 th respectively in terms of total claims payments (up from 3 rd and 11 th pre-Katrina). Florida ranks 2 nd and Texas 3 rd. Source: FEMA, National Flood Insurance Program (NFIP)

Flood Insurance Penetration Rates: Top 25 Counties/Parishes in US* LA parishes have among the Flood Insurance Penetration Rates: Top 25 Counties/Parishes in US* LA parishes have among the highest flood coverage penetration rates in the US (12 of the top 75) *As of 12/31/05. Source: New Orleans Times-Picayune, 3/19/06, from NFIP and US Census Bureau data.

Flood Insurance Penetration Rates: Counties/Parishes Ranked 26 -50* Mid-Atlantic/Northeast Counties are underrepresented People along Flood Insurance Penetration Rates: Counties/Parishes Ranked 26 -50* Mid-Atlantic/Northeast Counties are underrepresented People along the eastern seaboard have not gotten the message *As of 12/31/05. Source: New Orleans Times-Picayune, 3/19/06, from NFIP and US Census Bureau data.

Flood Insurance Penetration Rates: Counties/Parishes Ranked 51 -75* MS coastal counties rank abysmally low Flood Insurance Penetration Rates: Counties/Parishes Ranked 51 -75* MS coastal counties rank abysmally low Barnstable is only county in all of New England among Top 75 *As of 12/31/05. Source: New Orleans Times-Picayune, 3/19/06, from NFIP and US Census Bureau data.

Flood Insurance Analysis of Flood Policy Purchase and Lapse Rates Since Katrina in Florida Flood Insurance Analysis of Flood Policy Purchase and Lapse Rates Since Katrina in Florida

NFIP Flood Policy Growth in Gulf States Since Katrina* The number of flood insurance NFIP Flood Policy Growth in Gulf States Since Katrina* The number of flood insurance policies sold in the Gulf states in the 2 years following Katrina increased by 21. 6% *Change from July 2005 through August 2007. Sources: NFIP ; Insurance Information Institute.

Percentage of NFIP Flood Policies Issued Since Katrina That Are Not Renewed* Flood policy Percentage of NFIP Flood Policies Issued Since Katrina That Are Not Renewed* Flood policy nonrenewal rates in Gulf states are surprisingly high *Policies issued since July 2005 as of August 2007. **US figure is nonrenewal rate for all policies in force, average over 12 month period ending August 2007. Sources: NFIP ; Insurance Information Institute.

NFIP Flood Policy Penetration Rates, by Region Flood is more commonly purchased in the NFIP Flood Policy Penetration Rates, by Region Flood is more commonly purchased in the South, but many still forego coverage *Special Flood Hazard Areas. Source: The National Flood Insurance Program’s Market Penetration Rate: Estimates and Policy Implications, RAND, 2006.

Proportion of Homes Buying Flood Insurance by No. of Homes in SFHA* Communities with Proportion of Homes Buying Flood Insurance by No. of Homes in SFHA* Communities with few SFHAs are the most likely to not buy flood insurance *Special Flood Hazard Areas. Source: The National Flood Insurance Program’s Market Penetration Rate: Estimates and Policy Implications, RAND, 2006.

Factors Influencing NFIP Flood Penetration Rates • Price • Change in Price • Number Factors Influencing NFIP Flood Penetration Rates • Price • Change in Price • Number of Homes in a Community’s Special Flood Hazard Area (SFHA) Ø Mandatory purchase requirements less vigorously enforced in communities with fewer structures in SFHAs Ø Questions about enthusiasm in selling or knowledge of agents regarding program • Coastal Flooding Potential Ø Penetration rate much higher for coastal communities subject to flooding versus those that are not (63% vs. 35%) • Mandatory Purchase Requirement Source: The National Flood Insurance Program’s Market Penetration Rate: Estimates and Policy Implications, RAND, 2006.

Reasons Why People Buy Flood Insurance Risk aversion and compulsion are the two most Reasons Why People Buy Flood Insurance Risk aversion and compulsion are the two most important direct factors influencing the purchase decision. Educational attainment & income are also factors. Source: Poll of 700 conducted by Opinion Research Corporation by Chubb Group of Insurance Companies, summarized in March 2006 press release “Katrina Doesn’t Motivate Many Homeowners to Protect Their Investment. ”

Additional Factors Influencing NFIP Flood Penetration Rates • Education/Income of Homeowner • Tendency to Additional Factors Influencing NFIP Flood Penetration Rates • Education/Income of Homeowner • Tendency to Decline Most Optional Coverages Ø Only 13% of CA homeowners buy earthquake insurance • Lack of Understanding of Actual Risk Ø Most people do not understand the meaning or implications of 1 -in-100 year flood risk Ø Most people have never looked at a flood map • Coverage Limits (e. g. , $250 K cap) • Expectation of Post-Event Aid Ø Potentially a more important factor future events • Litigation Suggesting that Flood is Covered Under Standard Homeowners Insurance Policies Source: Insurance Information Institute

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