Every $1 invested in disaster resilience and preparedness saves $13 in economic impact, property damage and cleanup costs, emphasizing the value of proactive measures in mitigating the financial toll of natural disasters on U.S. communities and businesses, according to a new report from Allstate, the U.S. Chamber of Commerce, and the U.S. Chamber of Commerce Foundation.

The research, based on an analysis of 25 disaster scenarios, shows the return on investment (ROI) in resiliency programs includes economic benefits like saving jobs, preserving workforces, and reducing losses to production and income.

The U.S. has faced a growing toll from costly disasters in recent decades. From 1980 to the present, the nation experienced 383 climate-related events that each caused more than $1 billion in damage (adjusted for inflation to 2023 dollars). Cumulatively, these events have resulted in a total cost exceeding $2.7 trillion. To put this figure into perspective, the U.S. gross domestic product (GDP) was $22.4 trillion in 2023, the report noted.

The scale and location of disasters significantly impact the overall costs incurred. Larger disasters that strike urban centers tend to have far greater financial consequences compared to smaller events or those affecting rural areas, the research shows. However, regardless of the size or setting, the mounting costs of disasters present policymakers and citizens with difficult decisions about how to allocate limited resources, according to the report.

Economic Benefits of Investing in Resilience and Preparedness

A widely accepted ratio of the ROI of resilience, based on National Institute of Building Sciences research, is that $1 invested in resilience and disaster preparedness reduces damage and cleanup costs by $6. But the economic benefits extend far beyond that: The same $1 investment also reduces a community’s economic costs by an additional $7, the research found.

The potential savings are substantial across a range of disaster scenarios.

For example, $10.8 billion of investments to prepare Miami for a Category 4 major hurricane would prevent the loss of about 184,000 jobs and save $26 billion in production and $17 billion in income. In San Diego, $833 million invested to mitigate against a major earthquake would save about 38,000 jobs, $5.8 billion in production, and $3.3 billion in income.

Even in smaller cities, the economic savings are substantial. Investing $83 million in resilience and preparedness for a destructive tornado hitting Nashville would save more than 5,300 jobs, $683 million in production, and $464 million in income. The same $83 million investment to prepare Santa Fe for a major wildfire would save 388 jobs and preserve $45 million in output and $20 million in income.

Resilience and Preparedness Investment Options

“Doing nothing to prepare your community, business, or home for natural hazards is—without understatement—a recipe for disaster,” the report’s authors stated.

The report captured various resilience and preparedness efforts, organized into the following categories:

• For Communities: Investing in Infrastructure
  Community-based disaster risk reduction focuses on preventive action before a disaster strikes, including measures such as poverty alleviation, asset redistribution plans, and providing basic services like education and health care. Early warning systems are also crucial for alerting community members of impending disasters. Additionally, adopting zoning, land-use practices, and building codes through mitigation planning can help prevent or reduce damage from hazards.

• For Businesses: Mitigating Risk and Fostering Resilience
  Businesses can invest in hazard mitigation measures, such as structural improvements, adjustments based on professional hazard audits, accessibility updates, and employee training for emergency response. Applying disaster risk reduction practices is also essential. Five essentials practices outlined by the United Nations Office of Disaster Risk Reduction are: promoting public-private partnerships, leveraging private sector expertise, fostering collaborative data exchange, supporting risk assessments, and strengthening laws and regulations. 

• For Families: Awareness, Planning, and Home Improvements
  Families play a crucial role in building resilience and preparedness. The first step is to understand the types of disasters that could occur in your area and learn how to stay safe. Creating a family disaster plan that includes meeting places in case family members are separated is also essential. Home improvements, such as elevating electrical appliances, using flood-resistant materials, and maintaining or upgrading roofs, can help protect your home and loved ones during a disaster.

To view the complete report, visit the Allstate website.

The global insurance industry is grappling with significant challenges in claims resolution, as supply chain disruptions, rising inflation, and geopolitical tensions hinder the ability to process claims efficiently, according to a recent survey by Gallagher Bassett.

To navigate these obstacles, insurers are increasingly embracing digital solutions such as AI chatbots, data analytics, and streamlined digital claims processing to optimize operations and enhance decision-making capabilities, the survey found.

As insurers adapt to the evolving landscape, the adoption of cutting-edge technologies is becoming a critical strategy for insurers seeking to remain competitive and provide superior customer experiences, Gallagher Bassett noted.

“One of the key opportunities for insurers lies in the advancements in data analytics and AI. These technologies can help improve underwriting precision, streamline operations, and provide personalized customer experiences. By embracing digital transformation, insurers can increase efficiency and cost savings, benefiting themselves and their policyholders,” Gordon Vater, managing direct of GB Technical for Gallagher Bassett, wrote in the report.

The global supply chain has faced significant challenges in recent years, including rising inflation, geopolitical tensions, and energy prices. These challenges have had a substantial impact on insurers’ ability to resolve claims promptly and efficiently, the survey found. Over half of all global insurers have reported a moderate (43%) to significant (19%) impact on their ability to manage end-to-end claims resolution processes due to supply chain disruptions.

In response to these challenges, insurers have implemented various strategies to mitigate delays in claims resolutions. A majority (54%) of insurers have focused on implementing digital claims processing, which streamlines the claims process and reduces a reliance on physical documentation. Additionally, 45% of insurers have adjusted their claims processing timelines to account for potential delays, while 36% have expanded their repair vendor networks to ensure timely access to necessary resources.

The adoption of technology solutions has become a priority for insurers worldwide, with 57% investing in digital tools to improve claims resolution times in the face of supply chain challenges. Insurers are also emphasizing cost-saving measures (53%), diversifying supplier bases (44%), and making changes in vendor management (30%) to navigate the current landscape effectively.

Leveraging Technology and AI for Claims Resolution

AI chatbots and generative AI are proving instrumental in optimizing operations across the insurance industry, with 67% of insurers utilizing these technologies for customer service and 45% for claims processing. Risk assessment (31%) and underwriting processes (25%) are also benefiting from AI integration, the survey showed.

The adoption of AI in claims resolution is well underway, with 44% of insurers currently in the process of integrating AI chatbots or generative AI, and 42% having already successfully incorporated these technologies. Only 10% of insurers said they would not adopt AI for claims resolution.

Nearly all insurers, 95%, said speed and operational efficiency are the expected benefits of AI adoption, followed by lower costs/headcount, 74%, better customer service, 68%, and enhanced claims outcomes, 49%, according to the survey.

Challenges and Best Practices for AI Integration

As insurers increasingly adopt AI technologies to streamline operations and improve claims processing, they face several challenges in implementation. According to the survey, 39% of insurers struggle with seamlessly integrating AI into their business operations, while 26% grapple with ensuring compliance. Data privacy and security concerns are also a significant hurdle for 20% of insurers.

However, despite the perceived benefits of AI, only 37% of insurers are incorporating new technologies for disaster assessment and claims resolution following severe weather events. Among those insurers, notable best practices include utilizing satellite imagery, 3D technology, and predictive modeling to analyze historical weather patterns and claims data, facilitating swift and comprehensive damage assessments, according to the report.

While AI-enabled decision-support tools offer valuable insights, combining them with human expertise yields the best claims outcomes. By integrating AI tools at specific points along the claims lifecycle and leveraging human intervention to uncover hidden patterns and contextual factors, insurers can enhance decision-making and achieve better results.

The gap between liability loss trends and median liability insurance limits is growing, continuing the trend of the last 10 years, according to research from Chubb.

The “16th annual Liability Limit Benchmark & Large Loss Profile” report from Chubb provides data to help businesses determine appropriate liability insurance limits in today’s risky environment, fueled in part by the rise of nuclear verdicts and increasing punitive damages.

“This information is critical for building adequate liability towers that can adequately protect clients and their businesses, especially in the face of economic and social inflation, litigation funding, and nuclear verdicts, all of which continue to drive elevated liability-related loss costs,” the report stated. “The number of nuclear jury verdicts – that is, verdicts for awards of more than $10 million – is rising rapidly as cases that had been pending due to the pandemic continued making their way back into court.”

In 2022, nuclear verdicts totaled more than $18.3 billion, a significant jump from $4.9 billion in 2020, the report noted, citing Verisk data.

The Chubb report analyzed 11 industry sectors to help companies benchmark their liability insurance limits against others in their field, and highlight loss trends and significant losses in each sector.

Median liability insurance limits purchased nearly a decade ago declined across nine out of the 11 sectors analyzed, Chubb found. For example, median limits purchased in 2023 were 44% lower than in 2014 for the construction sector; nearly 31% lower for health care companies; and 28% lower for consumer products companies. Only the utilities sector had more coverage last year than 2014 with a 9% increase in the median limits purchased.

Liability Trends Across Industry Sectors

Here’s a closer look at the median liability limits purchased and loss cost trends in 2023 for 11 key sectors.

Life Sciences: In the life sciences sector, median insurance limits reached $241 million in 2023, a slight increase from $237 million in 2022 and $236 million in 2021. However, loss costs for this sector have  consistently outpaced median limits, reaching $600 million in 2023.

Health Care: Health care companies saw median insurance limits of $168 million in 2023, a decrease from $180 million in 2022 and $170 million in 2021. Over the past decade, median limits purchased by healthcare companies have declined by 30%, while loss costs continue to rise, hitting $450 million in 2023.

Consumer Products: The consumer products sector experienced a drop in median limits purchased, with $263 million in 2023, down from $300 million, which remained unchanged from 2016 to 2022. Meanwhile loss costs exceeded $800 million in 2023.

Real Estate/Hospitality: Median insurance limits purchased in the real estate/hospitality sector were $298 million in 2023, a slight decrease from $300 million in 2022 but an increase from $265 million in 2021. Loss costs, however, reached $700 million in 2023.

Transportation/Road: In the transportation/road sector, median limits purchased were $170 million in 2023, down from $175 million in 2022 and $183 million in 2021. Loss costs surpassed $450 million in 2023.

Transportation/Rail: The transportation/rail sector saw median limits of $323 million in 2023, a decrease from $348 million in 2022 and on par with median limits in 2021. Loss costs for this sector, however, reached $1.5 billion in 2023.

Construction: Median insurance limits purchased in the construction sector remained at $250 million, unchanged from 2022 and down from $260 million in 2021. Loss costs were nearly $700 million in 2023.

Manufacturing: The manufacturing sector experienced a decline in median insurance limits, with $340 million in 2023, down from $350 million in 2022 and $355 million in 2021. Loss costs were nearly double, approaching $700 million in 2023.

Oil/Gas: Oil/gas companies saw median limits purchased of $498 million, an increase from $469 million in 2022 and $475 million in 2021. The loss costs for the sector exceeded $1.2 billion in 2023.

Utilities: In the utilities sector, median limits were $375 million, a decrease from $385 million in 2022 but a slight increase from $371 million in 2021. Loss costs exceeded $700 million.

Chemical: The chemical sector saw median insurance limits purchased of $350 million, unchanged from 2022 and down from $400 million in 2021. Loss costs topped $1 billion in 2023.

Rise in Nuclear Verdicts and Punitive Damages

In recent years, there has been a notable increase in liability loss trends as a result of juries awarding punitive damages, Chubb noted. This trend is driven by several factors, including increased social consciousness and desire to punish corporations for perceived negligent behavior. Additionally, ideological divides and desensitization to awards in the billions of dollars have contributed to this trend, the report stated.

As a result of these factors, the risk, prevalence and quantum of punitive damage awards continue to rise, Chubb said, citing a 2022 report on punitive damages liability. The objective measures that dictate the amount of compensatory damages awarded to a plaintiff, such as actual medical costs and lost wages, are non-existent in the assessment of punitive damages, leading to a greater potential for large awards, according to Chubb.

Many organizations and businesses are seeking to mitigate the risk of punitive damages through insurance coverage. However, in several states, including California, Colorado, New York, Rhode Island and Utah, purchasing insurance that protects against punitive damages is restricted, Chubb said, noting that these states also happen to be where the majority of U.S. economic activity occurs and where nearly all punitive damage awards are made.

Despite the restrictions on punitive damage insurance in certain states, there are insurance solutions available for organizations looking to mitigate this risk, the insurer said. One such solution is seeking out punitive damage wrap (puni-wrap) policies, which are separate, standalone policies procured and issued outside of the U.S.

Industry Expert Insights on Factors Contributing to Punitive Damages

Different market segments have their own unique exposures and risk factors that contribute to the risk of nuclear verdicts and punitive damages. Three Chubb experts weighed in on the factors impacting their industries.

In the construction industry, Lyndsey Christofer, Construction and Real Estate & Hospitality Practice Leader at Chubb, noted, “One of the factors driving nuclear verdicts in the construction industry is the sheer size of the projects. They just keep getting bigger….When jurors see the amount that goes into a project, that can color the amount that they believe a plaintiff is entitled to.”

Caroline Clouser, Healthcare Industry Practice Leader at Chubb, highlighted the increasing sophistication of plaintiffs in bringing complex medical cases. “Plaintiffs used to shy away from the complexities of medical malpractice cases, but over the past several years have become very practiced in bringing complex medical cases and explaining the care and treatment in such a way that inflames the jurors, opening a potential for very large awards.”

“In the life sciences industry, it is especially important that jurors receive the full, factual scientific picture when it comes to product liability cases,” said Lee Farrow, Life Sciences Industry Practice Leader at Chubb. “In many instances, it is difficult for judges to decide what should be admissible, and that could lead to the admissibility of junk science. In those cases, jurors could be taking a paid expert’s opinion as fact, leading to excessive jury verdicts.”

To view the full report, visit Chubb website.

A new Trusted Choice survey revealed that many consumers do not fully understand the details of their insurance coverage, despite 86% saying they have a strong grasp of their policies.

The survey, conducted in advance of National Insurance Awareness Day on June 28, exposes significant insurance knowledge gaps that can be addressed by consulting with independent insurance agents to ensure consumers have the right coverage and understand what is and is not included in their policies, Trusted Choice stated.

“Because insurance protects people’s most important assets, it’s crucial that policyholders understand their coverage. But unfortunately, our survey shows there is a considerable insurance knowledge gap among consumers,” said Charles Symington, president and CEO of the Independent Insurance Agents of America (Big “I”).

Key Findings from the Survey

The survey found that 56% of Americans are unaware that a standard homeowners policy does not cover flood damage. This lack of knowledge can lead to significant financial losses in the event of a flood, as homeowners may assume they are protected when they are not.

In addition, 70% of respondents do not know that materials or fixtures intended for installation during renovations are not covered by a standard homeowners policy. Also, 46% of respondents do not have or are unsure if they have a home inventory of major household items in case they need to file a claim, the survey found.

The survey also revealed misconceptions about vehicle coverage.

Over half, or 55%, of respondents do not realize that a standard auto policy does not cover business use of a vehicle. Additionally, 44% incorrectly believe that personal items stolen from their car are covered by their auto insurance, when in fact, it is typically a standard home or renters insurance policy that covers such theft, the survey noted.

In addition, 57% do not know that parking tickets generally do not impact auto insurance premiums.

The Role of Independent Agents

Independent agents serve as an unbiased resource to help consumers better understand their coverage needs and navigate policies, according to Trusted Choice.

Kevin Brandt, executive director of Trusted Choice, explained, “An independent agent is best equipped to walk consumers through the entire process–from shopping for coverage to purchasing a plan and filing a claim. With their unbiased guidance and personalized approach, they empower individuals to navigate policies with clarity and confidence, ensuring they truly understand their coverage and make informed decisions.”

Learn about Triple-I’s Independent Agent Pro™ subscription, exclusively for independent insurance agents.