BW-12 Impacts on Harris CountyJoshua Stuckey

Why is the Permit Guy talking about Flood Insurance?

Before we get to the study…..I want to say a few thing.

What is Insurance…And why do we buy it?

Fundamentals – Risk Aversion

Actuarial Rate

• Risk X Expected Loss• Bill has a 50% Chance of losing $100

dollars any given year.• Actuarial Rate = .5 X 100 = $50 Dollars

What Do You Prefer?

100% Risk of Losing $50

OR

50% Chance of Losing $100

What Do You Prefer?

100% Risk of Losing $20

OR

20% Chance of Losing $100

Pooling Risk – Bill and Bob

No InsuranceBob or Bill Probability Loss/PersonNo Loss 50% 0

Loss 50% $ 100.00

Bill & Bob Two Person PoolNo Loss, No Loss 25% 0

Loss, No Loss 25% $ 50.00

No Loss, Loss 25% $ 50.00

Loss, Loss 25% $ 100.00

Fundamentals – Law of Large Numbers

Where Is the Pool?

In 1,000s 2001 2002 2003 2004 2005 2006 2007 2008SFHA/Non-SFHA 542 299 613 264 880 306 696 291 529 320 635 664 542 432 487 407Tenure longer than:

1 year 73% 67% 77% 78% 76% 73% 74% 73%SFHA/Non-SFHA 74% 71% 67% 67% 78% 76% 77% 80% 75% 78% 74% 72% 74% 74% 75% 70%

2 years 49% 52% 65% 65% 63% 59% 58% 48% 52% 52% 50% 66% 64% 64% 67% 62% 64% 59% 60% 58% 59%

3 years 39% 44% 57% 55% 53% 48% 37% 41% 44% 43% 57% 56% 54% 57% 53% 54% 47% 49%

4 years 33% 38% 50% 48% 44% 32% 36% 39% 38% 50% 48% 47% 49% 43% 44%

5 years 29% 33% 44% 38% 28% 31% 34% 33% 44% 42% 38% 38%

6 years 25% 30% 33% 24% 28% 30% 29% 34% 32%

7 years 22% 26% 21% 25% 26% 25%

8 years 20% 18% 22%

Source – Insurance and Behavioral Economics – Kunreuther, Pauly, McMorrow

Subdivision A vs Subdivision BAdverse SelectionSubdivision A Subdivision B

Fundamentals– “Houston we have a problem.”

Okay…I’m done

Study Background• From the Start - 1968• Debt • BW-12• Politics

Slide By John Grounds, PE

Study Background• From the Start - 1968• Debt • BW-12• Politics• How bad is bad• The Perfect Storm

The Perfect Storm• IKE - 2008• BW-12 - 2012• New Coastal Maps – 20??

The Study• We will discuss:• Background• What was the intent• Where the data was taken• Who was in the study• How it was done• Results

• Where to get a copy: Email me at josh.stuckey@hcpid.org

• Who did the study:Commissioned by HCPID, managed by Norex Engineering

and executed by Quanticon LLC

What was the intent?

• Wealth Effect (Value)• Income Effect (Available Financial Resources)

Wealth Effect

• $200,000 Mortgage • 4.75% interest• 30 Year Term

= Monthly Payment - $1043• “Additional” Insurance Impact of $2400 yearly or

$200 monthly implies an equal home value of $161,700• Or… elsewhere without insurance I could have

purchased a home value of $238,000

Wealth Effect

• Said another way…• Based on a $200K home at 4.75%, for every

additional $261 of cost there is a perceived economic reduction of $50K in value compared to someone with the same loan not incurring the additional cost.

Income Effect

Simply…..

“If you give more money to the NFIP, you have less to spend elsewhere.”

Where We Studied

Who We Studied• 21,629 Properties• 15,489 Single Family• 1,794 Commercial• 4,346 Single Family (Non Primary Homes)

• Common Variables• Assumed Affected By BW-12 (Subsidized) • Within Map Revision Area

How was it done?

We hired Ph.Ds in Economic$

Results Summary

• Immediate:• $12,249,147 reduction in annual business

volume

• Fully Realized BW-12 • $43,127,257 reduction of annual business

volume• $270,269,940 reduction of property value (lets

talk about this)

Results – Interesting Findings

Properties in High-Risk Zones

Counts

Type TotalPrevious

MapCurrent

Map Change

All properties 159,391 26,748 31,414 4,666

Single-family homes 113,356 15,948 19,611 3,863

Commercial 8,809 1,644 1,772 128

Results – Interesting Findings

Value of Properties Below BFE

City Total Market Value % of TotalBaytown $52,170,542 1%La Porte $76,445,166 1.90%Morgan's Point $15,533,446 20.20%Nassau Bay $193,310,684 36%Pasadena $91,663,323 1%Seabrook $335,717,249 29.40%Shoreacres $80,608,001 88.20%Taylor Lake Village $97,157,747 28.20%

Results – Interesting Findings

Difference from BFE, By Selected City

FFE Relative to BFE

CityDatabase Properties % Under -2ft

Baytown 24,979 1.20%La Porte 14,436 3.70%Morgan's Point 354 4.50%Nassau Bay 1,591 28.20%Pasadena 40,509 0.30%Seabrook 5,195 18.20%Shoreacres 902 60.30%Taylor Lake Village 1,528 9.20%