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Are We Doing Enough to Address Flood Risk?

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In the wake of last year’s destructive storms, this track explores how flood risk is measured in today’s deals, and whether we as an industry are doing enough to advocate for property owners. Leading experts will tackle why the real estate finance world, including both debt and equity investors, has largely ignored the long-term impact of increased flood risk and what risk management tools make sense in today’s underwriting.

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Are We Doing Enough to Address Flood Risk?

  1. 1. 1Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018 EPIC STORMS OF 2017 ARE WE DOING ENOUGH TO ADDRESS FLOOD RISK? Pete Dailey, Ph.D. VP, Model Product Management
  2. 2. 2Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018 AGENDA  The RMS U.S. Inland Flood Model  Flood risk and the 2017 hurricane season – Hurricane Irma – Hurricane Harvey  Flood vulnerability and mitigation  Takeaways
  3. 3. 3Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018 33Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018 U.S. INLAND FLOOD HD MODEL
  4. 4. 4Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018Copyright © 2018 Risk Management Solutions, Inc.. • Flood is the most frequent U.S. Natural Disaster • Most U.S. counties are subject to flood risk yet may be outside FEMA zones • Most U.S. flood losses are under or uninsured • NFIP dominates residential market, commercial covered by private insurance The U.S. Flood Market
  5. 5. 5Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018Copyright © 2018 Risk Management Solutions, Inc. . OVERVIEW U.S. INLAND FLOOD MODEL Contiguous U.S. coverage  19m spatial resolution  Fluvial & pluvial  50,000 years of continuous hourly simulation  Explicit calibration to USGS flood depth data  Linked to tides  TC & non-TC, fully linked to N.A. Hurricane Model  Dynamic antecedent conditions  Detailed accounting for BFE/FFHs, basements  Stochastic disaggregation and full-fledged financial model (e.g., dynamic HC, per risk terms)
  6. 6. 6Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018 Precipitation Rainfall runoff Major river Minor river Riverine defenses Urban drainage Inundation Catastrophe Models Allow for Realistic Extrapolation to Extremes Time: 50,000 years, 1 hour resolution, ~1.1 million events Space: lower 48 states, 19m resolution
  7. 7. RMS U.S. INLAND FLOOD HD MODEL AT A GLANCE Some key differentiators • Explicit modeling of all major flood sub-perils - Tropical Cyclone rainfall - Non-Tropical rainfall events • Explicit flood protection scenarios (defended and undefended) • Validation leverages 25-year NFIP claims history • Robust vulnerability module • Benefits of HD technology
  8. 8. 8Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018 88Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018 HURRICANE IRMA
  9. 9. 9Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018Copyright © 2018 Risk Management Solutions, Inc.. Strongest storm that has ever existed in the Atlantic Substantial wind risk to entire Florida peninsula
  10. 10. 10Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018 MODELED STORM SURGE WITH NOAA TIDAL GAUGE PEAK STORM SURGE AND RMS RECONNAISSANCE OBSERVATIONS NAPLES MIAMI SAVANNAH
  11. 11. 11Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018Copyright © 2018 Risk Management Solutions, Inc.. RAINFALL ADDED TO ALREADY ELEVATED RIVER LEVELS BROKE RECORDS IN JACKSONVILLE
  12. 12. 12Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018 1212Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018 HURRICANE HARVEY
  13. 13. 13Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018 HURRICANE FORCE WINDS IMPACTED TEXAS COASTLINE Ensemble footprint of average 3-sec peak gust wind
  14. 14. 14Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018Copyright © 2018 Risk Management Solutions, Inc. . Storm surge along barrier island Corpus Christi Bay
  15. 15. 15Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018Copyright © 2016 Risk Management Solutions, Inc..Copyright © 2017 Risk Management Solutions, Inc.. Houston Metro region inundated by relentless rainfall over an extended period
  16. 16. 16Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018 RMS U.S. Inland Flood Model Used to Estimate Inundation Depth
  17. 17. 17Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018 3-D VALIDATION OF HARVEY FLOOD FOOTPRINT MODELED OBSERVED
  18. 18. 18Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018Copyright © 2018 Risk Management Solutions, Inc. . Hurricane Katrina combined damage from wind and coastal storm surge: • Levy failures caused extensive flooding exacerbated by New Orleans elevation below sea level Hurricane Harvey combined damage from wind with all sources of flooding: • Storm surge • Fluvial (river flooding) • Pluvial (surface flooding) SURGE FLOOD WIND WIND + SURGE HARVEY KATRINA HARVEY RECONNAISSANCE SHOWS DAMAGE FOOTPRINT DOMINATED BY FLOOD HAZARD
  19. 19. 19Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018 “Hurricane Harvey proved we need more flood insurance competition.” www.time.com
  20. 20. 20Copyright © 2017 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018 2020Copyright © 2017 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018 FLOOD VULNERABILITY AND MITIGATION
  21. 21. 21Copyright © 2017 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018 Understand the contribution to damage from all sources of risk Updated wind model, including extra-tropical transitioning http://www.ibtimes.co.uk/japan-afterm ath-tsunam i-like-floods-that- left-least-3- dead-23-mis sing-photos -1519373 New comprehensive inland flood modeling approach Unique hydrodynamic storm surge model
  22. 22. 22Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018 CONSISTENT VULNERABILITY: INLAND FLOOD AND STORM SURGE  Basement vulnerability modeled explicitly  Foundation Type as secondary modifier  Users can override model default – Input First Floor Height or First Floor Elevation – Input Base Flood Elevation and/or Ground Elevation using Elevation Certificates – Input Foundation Type  If info unknown, pre-compiled First Floor Height or Elevation will be used – Varies by Foundation type, ZIP/State, FEMA zone Flood Depth (ft) FFH Foundation Pile Crawlspace Slab on grade Short Pier/Stem wall Structure Occupancy Number of stories Construction Basement
  23. 23. 23Copyright © 2015 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018Copyright © 2015 Risk Management Solutions, Inc. . WHY ARE BASEMENTS IMPORTANT? • RMS underestimated commercial losses in Sandy flooding • Contents and BI dominated losses, particularly in NYC Basement Flooding & Resultant BI in Manhattan Source: RMS Field Recon HU Sandy Flooding 2012
  24. 24. 24Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018 2424Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018 TAKEAWAYS
  25. 25. 25Copyright © 2018 Risk Management Solutions, Inc. All Rights Reserved. May 17, 2018 SOME TAKEAWAYS  The RMS U.S. Inland Flood Model provides a robust and comprehensive view of flood risk to the (re)insurance and capital markets  The 2017 hurricane season demonstrated the importance of three sub-perils – Wind – Storm surge – Inland flood  Special data and modeling considerations are required to properly account for flood vulnerability and credits for mitigation  As interest around flood risk grows in the commercial market, detailed exposure data and robust modeling tools will become increasingly important to stakeholders combined flood risk

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