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NJ Future Forum 2012 Flooding Linkin

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The dramatic increase in the number of recent flooding incidents in New Jersey raises important questions about where development should occur and how to plan and prepare for these events. As floodplain maps change, so do regulatory and design considerations, not to mention the added insurance risks to redeveloping in these locations. This session will look at current weather trends and how they will affect redeveloping communities, as well as explore innovative approaches to stormwater management, with a spotlight on Philadelphia’s Green Infrastructure Plan.

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NJ Future Forum 2012 Flooding Linkin

  1. 1. Flood Risk in New Jersey:Thoughts from an Insurance ExpertMegan E. Linkin, Ph.D.Allianz Risk TransferMarch 9th, 2012
  2. 2. DisclaimerThe information contained in this presentation is of a general nature and is intended for the recipient onlyas generalized information. This presentation is not intended as, and shall not be interpreted as, (i) anincentive or offer to buy or sell (re)insurance products or other financial instruments in any jurisdictionwhere, or to any party to whom, the offer or distribution of such products is not allowed, (ii) an offer toenter into the relationship of principal/intermediary or similar structure, whereby the recipient wouldrepresent an Allianz SE entity or any of its products or services, (iii) financial product advice, or (iv) anyoffer or solicitation to make or offer any investment product or security or enter into any transaction forany purpose whatsoever. Each party contemplating participating in any eventual transaction arisingfrom this presentation and discussion must make its own investigations, analyses and assessments ofthe terms of such transaction, including (without limitation) the merits and risks involved. ART makes nostatement or representation regarding the permissibility and suitability of participating in anytransaction, and each party considering any eventual transaction should consult its ownlegal, tax, accounting and other professional advisors.The presentation has been prepared as of the date hereof and is subject to change or amendmentswithout notice. Allianz Risk Transfer Group makes no representation, warranty or undertaking, expressor implied (including, without limitation, any warranty of suitability or advisability for any particularpurpose), as to the accuracy or completeness of the information provided in this presentation, and noliability or responsibility is accepted by ART in connection herewith.© Copyright Allianz 3/15/2012 2 Name of the presentation
  3. 3. Weather and its Economic ImpactUnited States  All 11 non-governmental sectors of US economy are sensitive to weather variability  US economic output varies as much as 3.4% of the 2008 gross domestic product (GDP; $485 billion) as a direct result of weather variability  NOAA estimates $2.65 trillion, or 25% of the US GDP, is impacted by weather  Economic sensitivity of New Jersey is 8-10% of gross state product (GSP) due to weather Source: Lazo et al (2011) variability© Copyright Allianz 3/15/2012
  4. 4. New Jersey Floods A Brief History © Copyright Allianz 3/15/2012Source: NWS, the Star Ledger, and the Associated Press
  5. 5. New Jersey Floods By the Numbers  On average, 1.5 flood events occur in New Jersey per year and the annual average insured loss from flood events is $138 million (2012 USD), based on PCS data between 1950 and 2012.  The return period for a $100 million (2012 USD) insured loss is 3 years.  Annual average loss since 1990 is $240 million (2012 USD), over $100 million more than the long term mean. New Jersey Flood Losses - 2012 as-if 2.00 Billions 2012 As-if Loss 1.60 2012 as-if loss (USD) 1.20 0.80 0.40 0.00 © Copyright Allianz 3/15/2012 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010Source: ISO PCS Year
  6. 6. The Current State of Flood InsuranceThe National Flood Insurance Program  Most private insurers do not cover flood losses due to the concern of adverse selection.  In 1968, the US government created the National Flood Insurance Program to help property owners obtain flood insurance to offset requests for disaster funding after large events.  Homeowners can participate in NFIP if the community adopts a floodplain management program.  Since 1978, the NFIP has paid out over $38 million in claims, mostly in the state of Louisiana.  Premiums are based on regularly updated flood insurance rate maps (FIRMs), showing the 100-year flood boundary and the 500-year flood boundary.© Copyright Allianz 3/15/2012
  7. 7. Vulnerability of the New York/New Jersey MetroRegion  Top 10 in population vulnerable to coastal flooding  Second only to Miami in assets exposed to coastal flooding  Second only to Tokyo, Japan for assets exposed to wind damage  BAU scenario: $2.5 trillion in assets exposed to sea level rise© Copyright Allianz 3/15/2012 Source: OCED
  8. 8.  Nightmare scenario: Borderline Category 3/4 making landfall in southern Ocean County  Economic/insured loss potential 2-3 times Hurricane Katrina Source: AIR/III© Copyright Allianz 3/15/2012
  9. 9. Weather Events and Climate Change Impossible to determine impact ofclimate change on individual events Recent publications suggestdecrease in overall hurricanefrequency and an increase in majorhurricane frequency Source: GFDL© Copyright Allianz 3/15/2012
  10. 10. Future Projections Risk Baseline 2020s 2050s 2080sSLR -- +2-5 in +7-12 in +12-23 inRapid ice -- +5-10 in +19-29 in +41-55 inmelt © Copyright Allianz 3/15/2012 Source: NPCC
  11. 11. Flood Insurance and Climate ChangeConsiderations in the Future  NFIP must begin to increase spatial resolution of FIRMs to develop more accurate premium calculations.  Climate change scenarios should be included in FIRMs, even if the scenarios do not immediately affect rate calculation.  Active participation by the private market to avoid exhausting NFIP reserves.  The private insurance industry, in addition to providing traditional insurance, must develop alternative risk transfer products which can allow municipalities and states to transfer flood risk to the financial markets.  To engage private sector, the government must deter development in highly exposed areas, such as barrier islands and wetlands.  A real public-private partnership is necessary to prepare the state of New Jersey economically for climate change.© Copyright Allianz 3/15/2012
  12. 12. Flood Insurance and Climate ChangeConsiderations in the Future  NFIP must begin to increase spatial resolution of FIRMs to develop more accurate premium calculations.  Climate change scenarios should be included in FIRMs, even if the scenarios do not immediately affect rate calculation.  Active participation by the private market to avoid exhausting NFIP reserves.  The private insurance industry, in addition to providing traditional insurance, must develop alternative risk transfer products which can allow municipalities and states to transfer flood risk to the financial markets.  To engage private sector, the government must deter development in highly exposed areas, such as barrier islands and wetlands.  A real public-private partnership is necessary to prepare the state of New Jersey economically for climate change.© Copyright Allianz 3/15/2012
  13. 13. Alternative Risk Transfer Products Excessive Rainfall Cover Index-based weather cover is a Historical Payout - KEWR Seasonal Precipitation Call Option 4.50 simple and transparent financial Millions 4.00 solution which allows for quick 3.50 settlement. 3.00 Station based weather Payout (USD) 2.50 observations from a National Weather Service weather station 2.00 Payout are used to both price and settle 1.50 the contract. 1.00 Rainfall cover, using a monthly or 0.50 seasonal trigger, can provide - 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1995 1997 1999 2001 2003 2005 2007 2009 2011 1977 1979 1981 1983 1985 1987 1989 1991 1993 near-term financing to cope with Year the economic stress of flooding. Precedents exist (Alabama Weather Station Newark-Liberty International Airport SIF, CCRIF) where the public Dates Covered May 1 - September 30 Weather Variable Precipitation sector has purchased alternative Trigger (inches) 25.4 risk transfer solutions to receive Tick ($/inch) 375,000 quick funds during a post-disaster Limit 5,000,000 period. Rate on Line 10.01% © Copyright Allianz 3/15/2012
  14. 14. Alternative Risk Transfer Products Cat-in-the-Box Transaction A “cat-in-the-box” parametric cover pays out after a natural catastrophe exceeds a pre- determined intensity in a defined area. Simple intensity measurements, such as Saffir- Simpson Scale for hurricanes or the Modified Mercalli Intensity Scale for earthquakes, are used as triggers. A third party, such as the National Hurricane Center or United States Geologic Survey, reports intensity Source: NHC measures, keeping the transaction transparent. Region Within 50 miles of New Jersey state borders Intensity Trigger (Saffir-Simpson Scale) Category 1 Provides post-event financing Payout 10,000,000 almost immediately after event. Event Probability 6.17% Rate on Line 12.35% © Copyright Allianz 3/15/2012
  15. 15. Conclusions Flooding is a significant driver of insured and economic loss in NewJersey. The most recent two decades have experienced above average floodlosses when compared to the long term The current state of flood insurance is not fiscally responsible, anddoes not delineate enough risk zones. Climate change adds new challenges, by both altering the shape of thecoast line and impacting the frequency and severity of individual weatherevents which cause severe flooding.© Copyright Allianz 3/15/2012 15 Name of the presentation

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