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FOR IMMEDIATE RELEASE
OLDWICK - APRIL 03, 2019 01:16 PM (EDT)
While heavy rains and rapid snowmelt have caused catastrophic flooding in Nebraska and other states along the Missouri River, a new AM Best commentary identifies those companies with the greatest exposure to this Midwest flooding.
The Best’s Commentary, “Blizzards, Heavy Rains and Melting Ice Produce Catastrophic Midwest Flooding,” also breaks down the state level of participation in the National Flood Insurance Program (NFIP). Unfortunately, for example, fewer than 10,000 policies are in force in Nebraska for its nearly 2 million residents. The reports also notes that early published estimates of damage to infrastructure, private property and agriculture have exceeded $1 billion and have since been increased to as much as $3 billion, with that figure expected to increase even further.
National and multinational insurers whose portfolios are diversified geographically should not be subject to losses that result in pressure on their capitalization, therefore AM Best does not expect rating pressure on those carriers. Smaller, single state, or regionally focused insurers whose portfolios feature a concentration of risks in the affected states however, could suffer proportionately larger losses. Less diversified companies could be affected materially, not only from a profit and loss perspective, but in terms of balance sheet strength as well.
While property/casualty insurers will bear the cost of certain claims—submerged automobiles, lost livestock (cattle), and damages to heavy farm equipment—the vast majority of the damage to homes and personal property is expected to be uninsured. In all likelihood, the damage costs will again be absorbed by residents and business-owners, with state and local authorities likely bearing a portion of the cost to rebuild communities.
The states hit hardest by these floods—such as Missouri, Iowa, Kansas and South Dakota—generally have NFIP insured rates of less than 1%, another reminder of the massive insured “protection gap” in the United States and the ineffectiveness of the current flood program. Federal flood maps are outdated in many cases so it is likely that prospective insureds did not have a true idea of their susceptibility to potential flood losses.
Flood losses to business and vehicles, including business interruption claims, will likely generate the lion’s share of the insurable losses from the storms. Losses to onshore commercial and industrial properties and their contents, along with insured commercial automobiles, are expected to be substantial, especially for companies with geographic concentrations in the affected states. Business interruption claims for commercial enterprises and, to a lesser extent, additional living expenses for covered residential property owners could also drive up the loss total for which primary insurance companies, and their reinsurers, will be liable.
AM Best will continue its ongoing dialogue with rated insurers and monitor developments as the situation evolves.
To access the full copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=284280 .
AM Best is a global rating agency and information provider with a unique focus on the insurance industry.