2.2.7 Underwriting and Assessment Tools
As mentioned above, in an effective flood insurance system there should be mechanisms by which the
system is able to incentivise people to take flood mitigation and adaptation measures. This, however,
requires detailed research and modeling of flood-prone regions at risk. Through a traditional underwriting
process, insurers use this information to correctly calculate risk and avoid the problem of adverse
selection. Without adequate information about the risk or reliable assessment tools, it is hard or even
impossible, for underwriters to calculate appropriate risk-based premiums. This is why extremely low-
frequency events like flooding have been considered by some as being barely insurable or even
uninsurable. Advances in ICT such as remote sensing and better computer modeling systems have
given underwriters access to many more accurate assessment tools. The flood data that are input to
these models are costly to gather. Often there are arrangements between government and industry to
exchange these types of data and to share costs. Flood assessment tools and data exchange are,
therefore, essential components of national flood insurance systems.
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