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Flood
Definitions
Flood
An overflowing of a body of water onto normally dry land or an unusual
rise in the level of inland or tidal waters.
Flood Insurance is available on commercial risks, depending on the location of the property, but is usually not available on homeowners risks. If a peril such as flood, for example, cannot be insured against, that's usually because such damage is inevitable. A house built in an area which can be flooded eventually will be flooded.
Canada
From IBC position paper
A Statement of Principles Regarding Insurance and Natural Hazards - February 1994
Part I - Climatic Hazards
Canada is exposed to many natural hazards including climatic hazards such as extremes of temperature, precipitation and high winds. Canadians have, over the years, adapted themselves and their surroundings to deal with most climatic hazards. A standard property insurance policy, for example, generally provides coverage against perils such as strong winds, tornadoes, hurricanes, hail and freezing rain. Coverage for additional perils such as torrential rain, sewer back-up and damage caused by the weight of snow are also generally available as endorsements, or additions, to the standard property policy.
Some climatic-related hazards, however, are not generally covered by standard insurance policies or endorsements because such hazards do not satisfy usual underwriting requirements. Damage caused by flooding from lakes, rivers and streams, as well as waves, tides and tidal waves are examples of localized risks which violate basic underwriting principles, and thus are not covered by standard insurance policies.
In order to operate effectively as a risk-spreading mechanism, insurance requires that a relatively large population is exposed to a risk, and thus interested in purchasing insurance; and that only a small percentage of this population is likely to sustain a loss at any given time. As a result, the losses of the few can be paid from the premiums of the many. In the case of flooding, for example, the population at risk tends to be small, and localized -- only those living in flood-prone areas will have an economic interest in purchasing flood insurance; furthermore, with each event a large percentage, or indeed the entire exposed population, is likely to sustain a loss.
Another underwriting principle which generally must be satisfied for
effective risk-spreading is random occurrence of losses. Flood losses
are not always random occurrences. Typically such losses occur at fairly
regular, and in some parts of Canada, fairly frequent intervals. What
should be considered in these instances is not an insurance, or
risk-spreading mechanism, but rather a savings vehicle for the exposed
population to shore up reserves to pay for relatively well-known future
expenses. Alternatively, the preferred approach of the property and
casualty insurance industry is to discourage development in known flood
plains, and to provide incentives for development in these regions to
relocate to less hazardous areas.
In sum, three key principles should be satisfied when underwriting
insurance:
- a relatively large population exposed to a risk,
- a relatively small share of the exposed population likely to incur a loss at any particular time, and
- random occurrence of losses.
These requirements are usually not met in the hazard of localized flooding and waves. As a result, accurate risk assessment is not possible and exposure to these risks may give rise to solvency concerns. Preventative actions, such as improved land-use planning, flood controls, and the development of local savings vehicles are possible alternatives.
U.S.
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Flood Hazard Boundary Map (U.S.)
A
flood map published by the Federal Insurance Administration for a
specific community which indicates areas within the community that are
subject to severe flooding. These maps are the basis for requiring a
community to join the National Flood Insurance Program. If a community
does not join the program, it may lose federal disaster relief in the
event of flooding. Each community map is assigned an identification
number which must be used when applying for flood insurance in that
community.
Flood insurance
Insurance that reimburses the policyholder for damage to property caused
by the peril of flood.
Flood Insurance Manual (U.S.)
A
manual published by the National Flood Insurance Program that includes
the program's eligibility and policy writing rules, as well as rating
information.
Flood insurance rate map (FIRM) (U.S.)
A flood map
published by the Federal Insurance Administration developed from a
community flood study and used to produce actuarial rates. Once this map
is complete, a community is eligible for the National Flood Insurance
Program. Rates developed from this map are termed pre-FIRM or post-FIRM,
depending on when a building is constructed.
Emergency
National Flood Insurance Program (U.S.)
One of two
National Flood Insurance Programs available to communities. This one
provides coverage until the requirements for the Regular National Flood
Insurance Program are met. Amounts of coverage available under this
program are: for single family dwellings, $35,000 on the structure and
$10,000 on contents; for small businesses, $100,000 on the structure and
$100,000 on contents.
Regular
National Flood Insurance Program (U.S.)
One of two
national flood insurance programs. It requires the completion of a flood
study of the community by the Federal Insurance Administration and
publication of a Flood Insurance Rate Map. Once a community is approved,
residents may purchase flood coverage in excess of the limits of the
Emergency National Flood Insurance Program. The available coverages are:
for a single family dwelling, $150,000 on the structure and $50,000 on
contents; for a small business, $150,000 on the structure and $200,000
on contents.
National Flood Insurance Program (NFIP)
(U.S.)
A
program administered by the Federal Insurance Administration that
provides flood insurance under the National Flood Insurance Act of 1968.
A number of private insurers are under contract to the NFIP to
administer the program. These insurers issue the program's Standard
Flood Insurance Policy, they are reinsured for 100% of any flood losses
by the federal government, they collect the premium, and they adjust the
losses. They receive a percentage of the premium for commissions, taxes,
and allocated loss adjustment expenses.
Resources and Markets
- Dartmouth Flood Observatory
- EQECat - The mission of EQECAT is to be the worldwide leader in providing state-of-the-art catastrophe risk management, information, software, and consulting services to property/casualty insurers and reinsurers, financial institutions, and large corporations with significant property values. EQECAT meets the needs of its customers by offering specialized catastrophe management insight through risk management software and consulting services that incorporate science, engineering, insurance, financial, and computer science expertise.
- Flood Risk Information - Alberta
- Floodwatch - U.S.
- Manitoba Floodway Authority
- National Flood Insurance Program - U.S.
- National Flood Insurance Program (NFIP). Library
