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Ensure minimal financial loss: Insure now, expert says

Banking & Finance
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By Marc Rapport

If it isn’t the heat, it’s the humidity that will vex homeowners and businesses alike in the years ahead, says a national authority on insurance risk management.

Changing weather patterns increase the likelihood of events like the once-in-a-millennium rainfall that hit the state last October or the current onslaught of Hurricane Matthew, said Bob Hartwig, co-director of the Risk and Uncertainty Management Center at the Darla Moore School of Business.

“Don’t be confused by the term ‘1,000-year flood,’ ” said Hartwig, a Ph.D. economist who came to the University of South Carolina this summer after a decade as president of the Insurance Information Institute (I.I.I.). “That gives the impression there won’t be another one for 999 years. And that interpretation is completely incorrect.”

HartwigA 1,000-year flood simply is one that had a 0.1% chance of occurring in any given year. Last fall’s deluge in South Carolina, this summer’s savage soaking of West Virginia and Louisiana, and tropical systems of unprecedented intensity around the world are part of a pattern of increasingly severe weather events long predicted by climate scientists. Rising sea levels, too, increase the risk of damage and displacement.

“Irrespective of the cause – whether it’s man-made climate change or natural oscillations in climate –

the risk is real and people need to protect themselves and their property and their businesses how they can,” Hartwig said.

Homeowner and business property and casualty policies don’t typically come with flood insurance. Such coverage is available through the National Flood Insurance Program. The NFIP offers commercial coverage of up to $500,000 each for building property and personal property. Larger policies are available in the private market.

The NFIP – part of FEMA – is currently operating at a $23 billion deficit, mostly from the effects of hurricanes Katrina in 2005 and Sandy in 2012, Hartwig said. There have been efforts to “try to move rates to something more closely approximating a sound actuarial basis, but it could be quite some time before the program gets there,” he said.

Meanwhile, there have been some reforms that could push up NFIP rates, which right now range from a few hundred dollars to thousands of dollars a year depending on the size of the business and its location.

Hartwig advised going to www.floodsmart.gov for full details on residential and commercial coverage. The site allows users to enter an address and ZIP code to determine flood risk in the government’s eyes. Prices vary depending on risk, and Hartwig said risk often lies where it’s not expected.

Just consider what happened in Columbia last October. “You may not think you’re vulnerable because you’re far inland and not on a river, but because of urban development, floodwaters can come up quickly,” Hartwig said. Weak dams and levee systems only exacerbate the risk, especially when rain falls at an unprecedented rate.

That rate was 16.61 inches along Gills Creek between midnight and 10 p.m. on Oct. 4, 2015, while other rainfall totals for the week ranged from 12.85 inches in Little Mountain to 27.15 inches in Mount Pleasant, according to the National Weather Service and weather.com.

That deluge was predicted a few days in advance, another example of the advancing ability of computing power and Big Data analytics to understand the possible severity and location of severe weather events, and, in the case of insurers, their potential claim payouts. Over time, Hartwig said, he thinks more private insurers may offer flood coverage.

Hartwig also noted that it takes 30 days for coverage to go into effect. “So if you took out a policy today, it wouldn’t protect you if a hurricane came ashore next week,” said Hartwig, whose office was in Manhattan when Sandy turned subway tunnels into storm drains.

His job with the I.I.I. also took him to Tuscaloosa, Ala., and Moore, Okla., after devastating tornadoes in 2011 and 2013, respectively. He knows well the effects of disastrous weather. To insure against it, he said, “There’s no time like the present.” 

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