Monthly Archives: September 2020

Catastrophes, Disaster Preparedness, Disaster Resilience, Flood Insurance

Mudslides Often Follow Wildfire; Prepare, Know Insurance Implications

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As wildfires continue to burn in California, Oregon, Colorado, and elsewhere – and people pray for precipitation to help firefighters in their efforts – another threat looms: mudslides.  

Wet weather is in Oregon’s forecast, and the Marion County Sheriff’s Office warned that mudslides and falling trees will be a big concern with so much burned land in the county. Areas that could be seriously affected include Mill City and Gates, where much of the towns have been destroyed by wildfires. 

The sheriff’s office said people need to pay attention to what happens around them and listen to alerts from local authorities. 

“We’re really concerned about as those high winds pick up, some of those coming down and creating more hazards along the roadway, more than we would see in a typical windstorm,” Sgt. Jeremy Landers with the Marion County Sheriff’s Office said.  

He added that it’s important that people have a plan in place in case the weather becomes dangerous. 

Santa Cruz County, Calif., also is preparing for mudslides in the aftermath of the CZU Lighting Complex fire in August. Carolyn Burke, senior civil engineer, said during a special meeting of the Santa Cruz County Board of Supervisors,  “The only effective means of protection” is early warning and evacuation. 

The fire in the Santa Cruz Mountains burned 86,509 acres – and while Cal Fire on September 22 said it was 100% contained, risk remains of fires igniting and the subsequent danger of mudslides when rain comes. Rainy season there has a history of starting from September to November. 

In Colorado, cooler temperatures, rain, and snow have helped suppress the fires that have been  raging across that state. Alaska Incident Management Team Incident Commander Norm McDonald wrote, regarding his team’s work on the Grizzly Creek Fire, “While our assignment ends with the Grizzly Creek Fire at 91% containment, we realize there is still much work to be done and the ramifications of this fire will be long-lived with the potential for mudslides and flooding.”  

For insurance purposes, it’s important to understand the difference between “mudslides” and “mudflow.” 

Mudslides occur when a mass of earth or rock moves downhill, propelled by gravity. They typically don’t contain enough liquid to seep into your home, and they aren’t eligible for flood insurance coverage.  In fact, mudslides are not covered by any policy. 

Mudflow is covered by flood insurance, which is available from FEMA’s National Flood Insurance Program (NFIP) and a growing number of private insurers. Like flood, mudflow is excluded from standard homeowners and business insurance policies—you must buy the coverage separately. 

Business Insurance, Insurance Industry, Regulation

Assessing Financial Support for Businesses During the Pandemic

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On September 29, the American Action Forum (AAF) hosted an event convening experts to discuss the urgency of government-backed financial relief for businesses whose incomes have suffered under the coronavirus pandemic conditions and what challenges lie ahead.
 
Entitled “Assessing Financial Support for Businesses During the Pandemic,” the discussion was centered on the following key topics:

  • The impact and success of the Paycheck Protection Program and the Federal Reserve’s emergency lending programs, particularly the Main Street Lending Program
  • Pandemic business interruption insurance and the potential for a federal pandemic program
  • Protecting businesses from shouldering excessive costs due to the new field of coronavirus litigation

Among the event participants was Insurance Information Institute (Triple-I) CEO Sean Kevelighan. In a discussion with AAF’s Director of Financial Services Policy Thomas Wade, Kevelighan provided an overview of the business interruption (BI) insurance landscape in the context of the pandemic. Key highlights included:

  • Global pandemics are largely uninsurable. “Compared to other covered catastrophes—hurricanes, wildfires, vandalism from civil unrest—a pandemic is not limited to time or geography. What we’re seeing now with COVID-19 is impacting every community, every economy, and all at the same time. And with this, from an industry that relies on the law of large numbers, you simply can’t price risk in a way that would be efficient.”
     
  • Standard business interruption (BI) insurance necessitates direct physical damage. “Beyond the enormity of a pandemic catastrophe, a virus does not cause direct physical damage, which is nearly always needed to trigger a property insurance policy, particularly for businesses insurance and business interruption insurance policies.”
     
  • The lack of a federal system to provide the critical financial relief businesses has created an opportunity for trial attorneys to capitalize on business owners’ desperation. “Sensing [business owners’] desperation, trial attorneys have unfortunately dusted off their playbooks and seized on the opportunity. They’re selling a false sense of hope to consumers; they’re filling court houses with litigation that is attempting to retroactively rewrite contracts by manipulation of language and interpretations.”
     
  • As insurers work to meet promises for policyholders facing covered events such as wildfires, forcing insurers to retroactively cover pandemic-related losses is detrimental to the insurance industry—a backbone of the economy. “The insurance industry is concerned about these misguided and costly attempts—mainly by trial attorneys—to take capital away that we’ve set aside for claims that are actively being paid right now as we are in the midst of extreme seasons of hurricanes and wildfires. We’ve also seen incidents of rioting and civil unrest. To be clear, our own economic analysis at Triple-I shows that any attempt to retroactively pay business interruption claims would put systemic strain on the insurance industry. Notably, this industry was one of the financial services industries that weathered our previous recession well because of how safely we manage our capital. But in this case, it would only take a matter of months to bankrupt the industry.”

More about this discussion and the broader state-of-play for business relief is available from a companion report released by Thomas Wade. For more information on the ongoing business interruption debate, visit fairinsure.org

A recording of the event can be viewed below.

Health & Safety

Is COVID-19 covered by disability insurance?

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Getty Images

Many people are wondering if disability insurance will cover them if they come down with COVID-19. The answer, as is often the case, is a qualified yes.

There are basically three types of disability income insurance: Employer-paid disability insurance, Social Security disability benefits and individual disability income insurance policies.

Short-term disability insurance may cover coronavirus if your illness requires medical quarantine that leaves you unable to complete your work.

For disability coverage to apply “there has to be a medical reason you can’t work” according to Nicholas Mancuso, manager of the disability and advanced planning team at Policygenius. Social quarantines, such as when states mandate that people work from home, do not qualify you for disability benefits.

Some survivors of COVID-19 are reporting lingering symptoms, including fatigue, joint pain, and shortness of breath. These people may be eligible for long-term disability.

“It’s generally more difficult to qualify for long-term disability benefits with the coronavirus because of elimination periods for long-term policies,” said Mancuso.

The elimination period of a disability insurance policy is how long you must be unable to work — for medical reasons — before you can start receiving benefits. Long-term disability policies have elimination periods of at least 90 days.

Employer-paid disability insurance is required in most states, and so is the most common. Most employers provide some short-term sick leave. Many larger employers provide short-term and long-term disability coverage as well, typically with benefits of up to 60 percent of salary lasting from five years to age 65. In some cases, long-term disability insurance is extended for life. Disability benefits from employer paid policies are subject to income tax.

However, individual disability income insurance policies are the best way to ensure adequate income in the event of disability for most workers, even those with some employer-paid coverage. When you buy a private disability income policy, you can expect to replace from 50 percent to 70 percent of income. Insurers won’t replace all your income because they want you to have an incentive to return to work. However, when you pay the premiums yourself, disability benefits are not taxed.

But unfortunately not many people have individual disability income insurance. More than half of U.S. workers forego disability coverage, according to a recent study. And baby boomers, who are more likely to get injured or sick, are even more likely to forego the coverage (7 out of 10).

If you are 40 years old, you have about a 40 percent chance that between now and age 65 you’ll be disabled for 90 days or more for any reason. Injury accounts for 10-15 percent of the reasons why people have long-term disability. Illness is the other 85-90 percent. And if you are disabled for 90 days or more, there is about a 50 percent chance that you’ll continue to be disabled for up to two years, according to Triple-I’s chief economist Dr. Steven Weisbart.

Health & Safety, Workers Compensation

New CDC Numbers Raise Concern for Health, Workers Comp Insurers

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Between June and August, the CDC says, COVID-19 was most prevalent in people between the ages of 20 and 29.

The Centers for Disease Control and Prevention this week provided new data on the spread of COVID-19 that diverges sharply from past reports and is something health and workers  compensation insurance providers will want to incorporate into their claims projections.

In its Morbidity and Mortality Weekly Report, the CDC says that between June and August the virus was most prevalent in people between the ages of 20 and 29, accounting for more than 20 percent of all confirmed cases. It went on to say that “across the southern United States in June 2020, increases in percentage of positive [COVID-19] test results among adults aged 20-39 years preceded increases among those aged ≥60 years” by between four and 15 days.

Most of the workforce

“This has profound implications for claims made against health insurance and workers comp,” says Dr. Steven N. Weisbart, CLU, Triple-I’s senior vice president and chief economist. “Early in the pandemic, COVID-19 was most common among adults age 70 or older – people who are mostly retired. Now, the CDC says, more than 50 percent of confirmed cases during the referenced period were among people between 20 and 49. This is the segment of the population that makes up most of the workforce and tends to have health and life insurance.”

They also are the most mobile portion of the population, more likely than the elderly and infirm to spread the infection to co-workers, friends, and family before they know they have it.

Indicating how significant the shift has been, Weisbart points out that in May the most affected age group was still 80 and older, with a case incidence of 4.04 per 1,000 population. In August the most affected age group was 20-29 (case incidence: 4.17 per 1,000).

“By August,” Weisbart says, “the case incidence of the 80-plus group was down to 2.61 per 1,000.”

Expanded workers comp coverage

The ultimate impact of the pandemic on workers compensation is still not clear. It generally doesn’t cover illnesses like a cold or flu because they can’t be tied to the workplace. Before the pandemic, the National Council on Compensation Insurance (NCCI) says, at least 18 states had policies that presumed firefighters’ and other first responders’ chronic lung or respiratory illnesses are work-related and therefore covered.

Since the pandemic, some states have extended coverage to include health care workers and other essential employees. A common approach is to amend state policy so COVID-19 infections in certain workers are presumed to be work related. This puts the burden on the employer and insurer to prove the infection was not work-related, making it easier for workers to file successful claims.

Industry Financials, Insurers and the Economy

Fed’s Rate Move Portends Long-Term Challenges for P/C Insurers

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Dr. Steven N. Weisbart, CLU, Triple-I Senior Vice President and Chief Economist

“The FOMC’s action will likely keep longer-term rates exceptionally low for several years more.”

The Federal Open Market Committee (FOMC) of the Federal Reserve Board  recently spelled out its objectives and strategies for at least the next several years—describing a financial framework they will maintain longer than the timeframe they typically describe. The length and parameters of this framework will have significant impact on the property/casualty industry.

The FOMC says it will hold short-term interest rates near zero, likely for several years—perhaps to 2023, quite possibly longer. Insurers don’t invest much in short-term instruments – to the extent that they do, it’s to have cash available to pay claims. They primarily invest in intermediate- and longer-term bonds and similar fixed-rate interest-paying instruments that provide steady income, which, together with premiums, covers claims and operating expenses. Insurers raise and lower premiums – partly in response to changes in investment income – to sustain profitable operations.

Because yields on these investments generally track short-term rates, the FOMC’s action will likely keep longer-term rates exceptionally low for several years more.

One signpost the Fed will use to decide when to raise rates is when inflation, as measured by the Personal Consumption Expenditure (PCE) deflator, is sustained at over 2 percent such that the average inflation rate including recent years equals 2 percent. To appreciate what this means, consider Figure 1. It shows that, since 2012, the PCE deflator has been below 2% (vs. same month, prior year) most of the time. The average over this span was 1.40%. But the Fed might not go back that far to calculate its long-run average. For example, since 2017 the PCE deflator averaged 1.69%. If the deflator averages 2.4% from now through 2023, the average from 2017 through 2023 will be 2.01%.

Figure 1

Rates falling since the 1980s

Based on the FOMC’s new framework, intermediate- and longer-term interest rates will, at best, remain at their current historically depressed levels for several years. One consequence of this is that bonds insurers hold to maturity and roll over will be reinvested at lower rates than they currently yield.

Prevailing interest rates have been generally falling since the early 1980s. Figure 2 shows this decline since 2002, as proxied by the yield on constant-maturity 10-year U.S. Treasury notes (the blue line), and its effect on the portfolio yield for the P/C insurance industry over the last two decades (the gold bars).

Figure 2

P/C insurers invest mainly in bonds, but not just U.S. Treasury securities. They also invest in corporate and municipal bonds, both of which generally yield higher rates than U.S. Treasury bonds because they are riskier. Yields on corporate and municipal bonds will likely loosely track Treasury yields.

P/C insurers also receive investment income from dividends on common and preferred stock they hold. These dividends are likely to be affected by corporate profits, which might be depressed for at least as long as the current recession lasts.

A shift to shorter maturities?

How will the insurers respond to these persistent conditions? If recent behavior is any guide, they are likely to shift to shorter-maturity bonds to retain the flexibility to switch back to longer-term, higher-yielding investments when rates eventually rise again. Figure 3 shows this pattern of shortening maturities during the years since 2009 as prevailing rates fell. From 2009 to 2019, the percent of bonds with one-to-five-year maturities rose from 36% to 41%, but those with 10 or more years of maturity fell from 19% to 11%.

Figure 3

What’s notable about this strategy is that – since shorter-term bonds yield less than longer-term bonds – the shift results in an even lower portfolio yield than the industry would have achieved if maturities were unchanged over this time span. It sacrifices near-term opportunities for the flexibility to eventually seize longer-term gains.

If the insurers continue this strategy, the shift to shorter-term bonds, combined with continued low interest rates, could lead to a scenario over the next five years that looks like Figure 4, which includes 2015-2019 yields for historical context.

Figure 4

Of course, future portfolio yields might be different from this scenario. For example, insurers might realize significant capital gains or losses. The portfolio yield in 2012, for example, was nearly two percentage points above the U.S. Treasury 10-year yield that year due to realized capital gains.

On the other hand, if interest rates rise, low-yielding bonds that are available for sale would suffer unrealized capital losses, which would be a direct reduction in policyholder’s surplus.

In a typical year the industry posts capital gains of $5 billion to $10 billion, but any number outside this range would affect the portfolio yield for that year. Capital losses also could result from investments affected by bankruptcies or other business setbacks caused by the recession. Impaired bonds would have to be accounted for on the balance sheet.

Business Insurance, Business Risk, Legal Environment

U.K. Ruling’s Impacton U.S. Insurance Cases: Little to None

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The U.K. High Court last week issued a ruling involving business-interruption claims against policies issued by eight insurers. Jason Schupp of the Centers for Better Insurance says the ruling is a “mixed bag” for U.K. insurers and policyholders and has little relevance for their U.S. counterparts.

In the U.K. case, Schupp writes, “the fundamental theme running through the insurers’ defense was that the policies only covered localized outbreaks, not global pandemics.”

“More to the point for U.S. property/casualty insurers,” says Michael Menapace, a professor of insurance law at Quinnipiac University School of Law and a Triple-I non-resident scholar, the U.K. case involved disease coverage – “an affirmative coverage not included in most U.S. commercial property policies.”

 U.S. business interruption disputes so far have turned on two key policy features:

  • U.S. business-interruption coverage almost always requires property damage to trigger a payout.
  • Nearly all U.S. COVID-19-related court cases have involved policies that specifically exclude viruses.

“The U.K. court did not address either the question of property damage or the applicability of a virus exclusion,” Schupp writes.

As Menapace put it in a recent blog post about U.S. business-interruption cases, “Policy language controls whether COVID-19 interruptions are covered…. The threshold issue [for U.S. insurers] will be whether the insureds can prove their business losses are caused by ‘physical damage to property’.”

Disaster Resilience, Technology

Virtual Discussion: Responding to Disaster During a Crisis

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On September 24 a virtual discussion hosted by the Department of Homeland Security’s Science and Technology Advisory Committee will inform community leaders about how new science and technology applications are enhancing resilience and protecting lifeline systems and networks.

During the discussion experts will describe how technologies can inform risk-based decision-making in areas of neighborhood health monitoring, supply chains, evacuation planning, crisis communications, and information sharing among frontline responders. Innovation in predictive analytics, modeling and simulation, and mobility offer new solutions to tackle immediate challenges and prepare for emerging threats.

The panel will also cover how new public-private partnerships are accelerating new solutions and business models to prepare for day-to-day emergencies.

The discussion will include Michel Léonard, PhD, CBE, Vice President & Senior Economist, Insurance Information Institute; and Richard Seline, Managing Director, ResilientH20Partners.

About the virtual discussion:

September 24, 2020. 1:00 – 2:30 p.m. ET

Click here to register.

Speakers:

David Maurstad, Deputy Associate Administrator, FEMA

Duane Caneva, Chief Medical Officer, DHS Countering WMD Office

Ted Smith, Ph.D., Wastewater Based Epidemiology, Professor of Environmental Medicine, University of Louisville and Advisor to Louisville Mayor, Greg Fischer

Catherine Cross, Deputy Under Secretary, DHS Science and Technology Directorate (S&T)

David Corman, Program Director, Cyber-Physical Systems and Smart and Connected Communities, National Science Foundation

Richard Seline, Executive Director, Accelerate H2O, Houston, Texas

Michel Léonard, Vice President and Senior Economist, Insurance Information Institute

Moderator: David Alexander, Director of Resilience Research and Partnerships, DHS S&T

The Insurance Information Institute’s Resilience Accelerator was created to build awareness and adoption of insurance as a frontline defense against the impact of extreme weather events on households, businesses and communities.

Business Insurance, Business Risk, Disaster Preparedness, Insurance Industry

Small businesses share how they prep for and successfully recover from disaster

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September is National Preparedness Month, and this years’ theme of “Disasters Don’t Wait. Make Your Plan Today” could not be more timely as many areas of the country experience record-breaking wildfires and storms.

On September 16, the Insurance Institute for Business & Home Safety (IBHS), the Small Business Administration (SBA), and the Insurance Information Institute (Triple-I) conducted a live webinar on how to prepare for severe weather, COVID-19 interruptions, and other forms of disaster that can have significant impacts on small businesses.

A recording of the webinar is available here.

The webinar showcased two small businesses’ stories of preparation and recovery from disaster. The webinar also covered small business loans that are available after a disaster, tools are available to help businesses prepare, and what you need to know about insurance coverage.

Alex Contreras, Director of the Office of Preparedness, Communication and Coordination in the SBA’s Office of Disaster Assistance (ODA), was the first speaker. The SBA offers low-interest disaster loans to businesses of all sizes, as well as to homeowners and renters. These loans are the primary source of federal assistance to help private property owners pay for disaster losses not covered by insurance.  Borrowers are required to obtain and maintain appropriate insurance as a condition of most loans.

The SBA can also fund disaster mitigation efforts, such as installing fire-rated roofs, elevating structures to protect from flooding or relocating out of flood zones.

Janice Jucker, co-owner at Three Brothers Bakery in Houston, TX is the  2018 Phoenix Award Winner for Outstanding Small Business Disaster Recovery. After Hurricane Harvey, the bakery had five feet of water. Thanks to a business recovery plan, the business was fully operational after six weeks.

According to Jucker, part of an effective recovery plan is building a recovery team that includes a restoration company (find one now, don’t wait) an accountant, a contractor, an SBA loan officer and an insurance agent. Another important recovery team member is your local lawmaker – know who they are and make sure they know you, regardless of whether you agree with their politics. They can play a key part in making sure you get what you need to recover from a disaster.

Gail Moraton, business resiliency manager at IBHS, talked about the free business continuity planning tool called OFB-EZ (Open for Business E-Z) available from the IBHS.  The first step to planning is to know your risk – both the likelihood of each type of disaster for your location and the amount of damage it could cause your business. Another step is having an up-to-date list of all your employees, vendors and other important contacts. A training exercise is also included with the planning tool.

Alison Bishop, internal operations manager at Spry Health Inc., talked about her company’s use of OFB-EZ. “It takes an overwhelming concept and makes it accessible and achievable,” she said.

Loretta Worters – vice president, media relations at Triple-I, went over different business insurance coverages that are available and pointed out that having the right coverage is a crucial part of disaster recovery, as well as an essential element of an overall business plan.

Like the other speakers, Ms. Worters said having a thorough inventory of all your business assets is of paramount importance. She listed different types of business policies that are available, including: property, business income interruption, extra expense, flood and civil authority. Separate coverage is also available for items that are frequently damaged in a storm, such as fences and awnings.

Click here to listen to a recording of the webinar, which offers many more useful tips for seeing your business through a disaster.

Floods, Insurance Industry

Tropical Storm Beta Moves Toward Texas Coast

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The outer bands of Tropical Storm Beta are lashing the Texas coast but official landfall is forecast to be late this evening. Beta is also bringing tropical storm conditions to parts of the southwestern Louisiana coast where 2 to 4 feet of storm surge is possible.

The storm is going to bring heavy rainfall to areas that were hit by Hurricane Laura.

High tide on Tuesday could bring “life-threatening storm surge” in areas of Texas and Louisiana, according to the National Hurricane Center (NHC). “Persons located within these areas should take all necessary actions to protect life and property from rising water and the potential for other dangerous conditions,” NHC said. “Promptly follow evacuation and other instructions from local officials.”

The storm could also create tornadoes near the middle-to-upper Texas coast or the southwestern Louisiana coast, NHC said.

Please click on the links below for Triple-I’s hurricane preparedness guides:

Disaster Preparedness, Earthquakes

Earthquake Country Alliance’s Minimize Financial Hardship Webinar

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The Earthquake Country Alliance will host a webinar on how to be financially prepared for an earthquake as part of its Seven Steps to Earthquake Safety series.

The webinar will focus on Step 4 – Minimize Financial Hardship. It will include tips on organizing important documents, strengthening your property and insurance. Experts listed below will discuss each of these elements, along with “live” demonstrations.

Date:   Wednesday, September 23, 2020 Time: 11am – 12pm PDT 

Presenters:

  • Janet Ruiz (Director – Strategic Communications, Insurance Information Institute)
  • Dante Randazzo (Federal Preparedness Coordinator, FEMA Region 9)
  • Janiele Maffei (Chief Mitigation Officer, California Earthquake Authority)
  • Glenn Pomeroy (Chief Executive Officer, California Earthquake Authority)
  • Randy Braverman (Project Manager Earthquake Brace + Bolt Program, Safe-T-Proof)
  • Tim Kaucher (Engineering Manager Southwestern U.S., Simpson Strong-Tie)

Register to attend

You can view recordings, presentations, and other resources for previous webinars:

Step 1 – Secure Your Space

Step 2 – Plan to Be Safe

Step 3 – Organize Disaster Supplies