All posts by Jeff Dunsavage

Auto Insurance, Business Insurance, Business Risk, Emerging Risks, Legal Environment, Regulation, Workers Compensation

Cannabis Industry Prospects Brighten;Risks, Challenges Remain

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The future looks brighter every day for the cannabis industry.

From recent findings that cannabis components may lead to treatment or even prevention of coronavirus infection in lung cells to yesterday’s vote by the House of Representatives in favor of the Safe Banking Act, barricades to full legalization just keep falling.

This isn’t the first time the act – which would protect banks from federal penalties for doing business with cannabis-related businesses that comply with state laws – has made it through the House. It was first introduced in March 2019, and the House has approved it three times, only to have the Senate Banking Committee block its progress. But with the current Democrat majority, apparent bipartisan support, and growing public and state-government support for cannabis legalization, the fourth time just might be the charm.

Similar federal “safe harbor” legislation for the insurance industry – the Clarifying Law Around Insurance of Marijuana Act (CLAIM Act) – was introduced last month.

“More optimism”

The Drug Enforcement Agency characterizes cannabis as a Schedule I drug, defined as having “no currently accepted medical use and a high potential for abuse.” Without legislative change, banks and insurers can’t do business with business without risking running afoul of federal drug laws.

“There’s more optimism now and an assumption that they’re going to work to pass some of these bills that have been in motion for a while now, but never hit the point of actually moving forward,” said Max Meade, cannabis insurance advisor at Brown & Brown Insurance. “I’m also seeing more conversations around working to bundle some of these bills that they’ve been talking about and do a larger cannabis reform.”

As states continue to decriminalize marijuana to different degrees, one of the biggest issues facing cannabis businesses is the 280E federal tax burden, which means cannabis businesses can’t expense the normal cost of goods or anything a normal business can during the course of operation, from utilities to payroll and rent. This means marijuana businesses often pay federal income tax rates in the 65–75 percent range, compared to 15-30 percent  for other businesses. They are taxed on their gross revenues, unlike all regular businesses, which pay tax only on income after their expenses.

The Small Business Tax Equity Act would provide an exception into the Internal Revenue Code to let cannabis operators – as long as they’re in compliance with state laws – make the same deductions as any other business.

Easier to operate

Passage of these laws would make it easier for cannabis-related businesses to operate. The CLAIM Act would let these businesses obtain insurance to cover the same risks of theft, damage, injury, loss, and liability as all other businesses.  

“There are upwards of 30 surplus lines carriers and several managing general underwriters that currently service the cannabis industry across many lines of coverage,” the National Law Review reports. “There also is a small handful of admitted carriers that operate in California, and most recently in Arizona.”

While market capacity for property, commercial general liability, product liability and workers’ compensation coverage has expanded – these policies remain more expensive than the same coverage purchased by similar companies in other industries. Passage of the CLAIM Act would open the doors for more insurers and should bring the cost of insuring marijuana-related businesses much less expensive.

THC persistence a challenge

But challenges will remain – particularly with respect to the workplace. When marijuana was illegal under both state and federal law, employers would typically prohibit employees or employment candidates from using marijuana off-duty as a condition of employment. But as states have begun to permit medical marijuana, things have gotten a bit hazier.

No state requires companies to accommodate on-duty marijuana use. As with recreational marijuana, no state that permits medical marijuana requires employers to accommodate on-duty marijuana use, possession, or impairment. States will often explicitly state that medical marijuana laws don’t affect an employer’s drug-free workplace policy.

Does workers compensation cover a workplace accident in which the injured employee tested positive for marijuana? Persistence of THC – the main psychoactive compound in marijuana – complicates this question, and state courts have differed on this issue, depending on the individual details of each case.

THC persistence also complicates issues around impaired driving.

Insurers and the Economy

Insurance Is a Key Part of Financial Literacy

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Many people think of financial literacy primarily in terms of saving and investing – which is understandable, since watching your wealth grow is the most rewarding aspect.

While fiscal discipline and the magic of compound interest are foundational, it’s important not to overlook wealth protection. Insurance plays a critical – and widely misunderstood – role in ensuring that your wealth-building efforts won’t be overtaken by a costly event or accident.

April is Financial Literacy Month, during which organizations across the United States conduct events and carry out initiatives to improve financial literacy – especially among the nation’s youth. While such awareness-building initiatives are important, financial literacy is a year-round, long-term concern — and the COVID-19 pandemic appears to have added urgency.

Two dozen states are now considering legislation on financial literacy. Proponents say student debt and heightened interest in economic inequality are behind the efforts. As of early 2020, high school students in 21 states were required to take a personal finance course to graduate, according to the Council for Economic Education.  That was a net gain of four states since the council’s previous count two years earlier.

“I do think the pandemic is bringing more attention to the topic,” said Billy J. Hensley, president and chief executive of the National Endowment for Financial Education. He noted that after the financial crisis more than a decade ago there was also a flurry of financial literacy proposals in state legislatures.

Nearly half of respondents to a survey from financial planning firm D.A. Davidson said having more financial literacy education would have helped them manage their money better through the pandemic. The study, which surveyed 1,047 U.S. adults, found that 21 percent felt insurance was the subject they understood least – second only to investments. 

Triple-I provides information and insights individuals and businesses need to make educated decisions, manage risk, and appreciate the essential value of insurance. Our website, blog, and social media channels offer a wealth of data-driven studies, videos, articles, infographics and other resources dedicated to explaining insurance. 

Health & Safety, Legal Environment

Detained in Dubaifor Getting HighLegally in Las Vegas

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A U.S. citizen is reported to have been detained in Dubai for having smoked marijuana.

In Las Vegas.

Where it’s legal.

Peter Clark, 51, had been in Dubai for one day when he fell ill with pancreatitis and was rushed to the hospital, according to the Daily Mail. Nurses took a urine sample that showed traces of the drug. As required by Dubai law, they informed the police of the results.

Clark had last smoked marijuana days before flying from his home in Las Vegas on a business trip in the United Arab Emirates. Since being released from the hospital he has been required to stay in his hotel while awaiting a decision as to whether prosecutors will charge him.

“I was absolutely stunned to learn that I was being charged due to residual marijuana in my system,” he told the Mail. “I smoked it legally back in America long before I even got on the plane. I knew about Dubai’s strict drugs laws but never for one moment did I think something I legally did in my own country would lead to my arrest.”

Not the first time

This isn’t the first time a foreigner has been arrested in Dubai or elsewhere for legal behavior performed before arriving in the country where the same action is illegal. In 2019, U.K. citizen Laleh Shahravresh was arrested for insulting her ex-husband’s new wife in a Facebook comment, according to Detained in Dubai.  Shahravresh reportedly had made the posts three years earlier when she was in London, but she and her teenage daughter were detained when they flew to the Dubai to attend a funeral. 

Under the UAE’s cyber-crime laws, a person can be jailed or fined for making defamatory statements on social media. Her case eventually was settled with a fine.

It’s impossible to overstate the importance of understanding the laws and culture of countries you intend to visit. In some countries, those swimsuit selfies you posted several years ago might be deemed pornographic.  In others, anti-depressants, painkillers, and even over-the-counter cough syrups are banned or have specific rules around them that could cause you problems.

In Singapore, chewing gum is illegal, except for medical use.

Even harder to anticipate, that portable safe you carry your valuables in – cleverly disguised as an iced tea can – might be lined with plaster that could be mistaken by airport security for cocaine when some of it breaks and leaks out into your luggage.

That’s what happened to North Carolina businesswoman Amanda LaRoque on the island of Roatan, Honduras in 2017. LaRoque spent 10 days in a jail cell known as “the cage” – provided only with water and whatever food or other luxuries gracious locals might bring her – before being released.

No insurance coverage, but…

There is no insurance product that will pay your legal bills if you run afoul of the law in a foreign jurisdiction. However, some travel insurers engage “assistance companies” that will refer insurers’ clients to emergency legal service providers.

Richard Atkins, a principal and legal counsel for Philadelphia-based International Recoveries LLC, is one such provider. For more than 30 years, he has operated an international 24/7 legal hotline.

“We do it for the travel insurance industry, to make sure foreign travel is safer from a legal perspective,” Atkins said in an interview. “We also do it for insurers that cover expats and business travelers, as well as for study-abroad programs.”

Atkins typically works through retainers with assistance companies and sometimes directly with insurers or their in-house assistance providers. The service involves an initial consultation with a lawyer with international experience. Sometimes, Atkins said, the matter can be handled and solved just through that call. Other times that consultation also involves a conference or individual call with or selected network lawyer in the foreign county, and many times that solves the legal problem.

“Where the consultations don’t solve the problem, we make a referral to a colleague in the foreign country,” Atkins said. “That initial call is covered, so for all of this, there is no charge to the caller.  In other cases, where the individual or family have no funds to expend for a lawyer, we help obtain the services of free counsel – either court appointed or the public defender.” 

Navigating legal proceedings in foreign countries is as much a matter of understanding the culture as the law. A simple matter could easily be exacerbated by missteps in etiquette or failure to demonstrate sufficient remorse or deference. Atkins described a case in which a traveler was facing incarceration for having torn up a wad of the local currency – a serious offense in Thailand.

“We were able to show that the defendant had received psychological treatment as a child for behavior that included tearing up his parents’ money,” Atkins said. “When the judge understood the man’s psychological history, he dismissed the case.”

Penny wise, pound foolish

As I’ve written previously, too few international travelers buy travel insurance – and those who do tend to purchase trip cancellation/interruption coverage only, foregoing medical/medical evacuation coverage. A report by the U.S. Travel Insurance Association (USTIA) found that cancellation/interruption coverage accounted for nearly 90 percent of benefits purchased, while medical and medical evacuation benefits accounted for just over 6 percent. 

Remember Peter Clark? The headlines about him focus on the cannabis angle, but his troubles began with an unexpected hospitalization. You’re just as likely to become ill or injured abroad as you are at home – maybe more so, due to lack of familiarity with terrain and customs and sensitivity to food and climate. Why would you venture forth without providing yourself with coverage analogous to what you have in your home country?

And while you’re less likely to be arrested than to get sick or injured, the consequences of legal trouble in a foreign country can be extreme. If you’re planning to travel abroad, buy the medical coverage and ask about emergency legal assistance.

Disaster Preparedness, Disaster Resilience, Floods

Polar Vortex,Convective StormsKeep Driving Losses

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Insured losses from March storms in the United States are likely to surpass $1 billion, Aon said in its monthly Global Catastrophe Recap.

Aon said multiple outbreaks – featuring tornadoes, hail, snow, and flooding – were to blame.  The most notable included severe weather across the Central and Southern United States, with 122 tornadoes touching down during the month – the most since 2017. Alabama, Mississippi, Texas, Georgia, and Tennessee experienced the most damage.

This followed record-setting winter weather-related insured losses in February, following a prolonged Polar Vortex event, in which Arkansas, Kentucky, Tennessee, and Texas were among the hardest-hit states.

“The Polar Vortex generated record-breaking cold temperatures which extended as far south as the U.S./Mexico border,” Aon said in its February report. “Concurrently, a series of low-pressure systems produced rounds of hazardous snow, sleet, freezing rain, ice, and severe thunderstorms with impacts spanning from Washington state to the Mid-Atlantic.”

Texas was hard hit by the winter weather, which left dozens dead, millions without power, and nearly 15 million with water issues and could wind up being the costliest disaster in state history. Disaster-modeling firm AIR Worldwide says insured losses “appear likely to exceed $10 billion.”

The Electric Reliability Council of Texas (ERCOT) has been widely criticized for failing to require power facilities to be winterized after the last major storm that caused outages in 2011, thus contributing to damage incurred during the more recent one. Last week, the Cincinnati Insurance Company, headquartered in Ohio, filed suit asking a federal court for a declaratory judgment that would allow the insurer to decline paying damages in bodily injury or property damage lawsuits where ERCOT is found to be liable.

If the federal court doesn’t grant the declaratory judgment, Cincinnati Insurance would likely have to cover ERCOT under its current policy contract.

In February and into March, multiple rounds of heavy rainfall and severe weather generated flooding across parts of the Ohio and Tennessee Valleys. Parts of Kentucky, Tennessee, and West Virginia were most affected.

“Impacts were compounded by localized severe weather, including large hail, straight-line winds, and isolated tornadoes,” Aon reported. “Total economic losses were estimated to approach USD 100 million.”

A large portion of the residential flood damage was expected to be uninsured due to low National Flood Insurance Program (NFIP) coverage.

Severe weather activity in the South continues in April. A cluster of storms swept across the region over the weekend, leaving one person dead in Louisiana, toppling trees and power lines in Mississippi, dropping baseball-sized hail in Alabama, and leveling buildings in the Florida Panhandle.

Catastrophes, Disaster Preparedness, Disaster Resilience, Flood Insurance, Floods

FEMA’s New Approach to Flood Risk Will Make Insurance Program Fairer

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The Federal Emergency Management Agency (FEMA) last week unveiled details of Risk Rating 2.0 – its plan to modernize the National Flood Insurance Program (NFIP) to make it fairer and more sustainable.

The changes measuring flood danger differently – gauging properties’ specific risks and replacement costs, rather than simply whether they sit in a FEMA-designated “flood zone.”  FEMA officials said this would end a system in which low-value homes effectively subsidize insurance for high-value homes.

Despite concerns that Risk Rating 2.0 would lead to huge premium increases, NFIP Senior Executive David Maurstad said 23 percent of policyholders will see “immediate decreases,” 66 percent will see an “average of zero to $10 a month” in additional premiums, and 11% will pay higher bills, some more than $20 a month.

NFIP owes the U.S. Treasury $20.5 billion after a series of hurricanes that resulted in claims costs greater than the premiums FEMA received.

“Our current system is just fundamentally not working for us anymore,” Maurstad said, adding that the new approach would result in a “more equitable, accurate and individualized NFIP.”

Lawmakers in coastal states like Florida worried about the sudden impact of higher rates – more accurately reflecting the greater flood risk in those areas – on their constituents.  FEMA has ameliorated those concerns by making new rates apply only to new policies when the program takes effect in October 2021. Homeowners and businesses with existing flood policies won’t see a rate change until April 2022.

FEMA said high-value homes in high-risk areas would experience seeing the largest increases. FEMA expects their rate increases would take effect over a 10-15 year “glide path” as they continue to be protected by an 18 percent annual cap on premium increases that is written into law.

The Union of Concerned Scientists (UCS) quickly weighed in on the plan.

“The system we’ve used to calculate flood risk, and in turn insurance policy premiums, no longer holds water,” said Shana Udvardy, a UCS climate resilience analyst. “Outdated maps have left homeowners ill-prepared for possible disasters. Risk Rating 2.0 could go a long way in helping homeowners better understand their risk, ensuring they can make informed decisions to protect themselves and their property.”

“It is great to see that FEMA is moving forward with Risk Rating 2.0, which is so badly needed,” said Matthew Eby, executive director of the First Street Foundation, a climate and technology non-profit that has done its own extensive flood-mapping. A recent First Street analysis found the United States to be woefully underprepared for damaging floods.

It identified “around 1.7 times the number of properties as having substantial risk,” compared with FEMA’s flood zone designation. “This equates to a total of 14.6 million properties across the country at substantial risk, of which 5.9 million property owners are currently unaware of or underestimating the risk they face.”

Catastrophes, Disaster Preparedness, Disaster Resilience

Some Experts Suggest Retiring the Name “Tornado Alley”

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(Photo by Robert Laberge/Getty Images).

What’s in a name? If you live in “Tornado Alley,” there might be a lot – or less than you might imagine.

The designation refers to a stretch of geography running from Texas and Oklahoma through Nebraska and Kansas (think Dorothy and Toto, their house wrenched from the parched, flat earth and spinning toward Oz). It first came into use almost 70 years ago, when two atmospheric scientists used it as the title for a research project on tornadoes.

But, as the Washington Post recently reported, some experts believe the name is misleading and should be retired.

“To be honest, I hate the term,” said Stephen Strader, an atmospheric scientist at Villanova University specializing in severe weather risk mitigation. “What people need to understand is that if you live east of the continental divide, tornadoes can affect you.”

Research has shown tornadoes are just as common in the Deep South as they are on the Plains, and there is no real drop in tornadoes as one exits Tornado Alley to the east.

“Tornadoes on the Plains are often elegant and foreboding,” the Post says, “some reliably appearing as high-contrast funnels that pose over vacant farmland for hordes of storm chasers and photographers. The Plains are like a giant meteorological classroom, an open laboratory; its students flock to it every year.”

Which explains why tornadoes we see on TV have that “classic” funnel look – and what we are shown most often comes to be thought of as most “typical.”

In the Deep South, most tornadoes are, as the Post puts it, “rain-wrapped and shrouded in low clouds, impossible to see.” More than a third of all tornadoes in Alabama and Mississippi occur at night, making them twice as likely to be deadly.

But, because they don’t match the popular perception of what a tornado is like and are hard to capture, they seldom appear on TV.

Why does it matter?

Because how we name things influences how we think about them, and how we think about them influences policymaking and individual behavior.

As we reported last year, tornado reports are on the rise – but is that because of changes in weather and climate? Or improved reporting related to technology and the growing popularity of “storm chasing”? Damage from tornadoes and other types of natural disasters is becoming more costly – is that because storms are becoming more frequent and severe? Or because more people are moving into disaster-prone areas?

If you’re not located in Tornado Alley, does it make sense to invest in mitigating tornado-related risks? Probably as much as it does to have flood insurance, even if you’re not in a FEMA-designated flood zone, or anticipate and prepare for winter storms in Texas.

For more information:

Severe Convective Storms: Evolving risks call for innovation to reduce costs, drive resilience

Business Insurance, Business Risk, Insurers and the Economy, Risk Management

Maritime Supply-Chain Vulnerabilities: Why This Won’t Be the Last Timea Megaship Gets Stuck

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By Loretta Worters, Vice President, Media Relations, Triple-I

(Photo by Mahmoud Khaled/Getty Images)

When mega containership Ever Given wedged herself across a one-way section of the Suez Canal during a sandstorm last month, it brought 10 percent of global trade to a halt for a week. The ship – owned by Taiwanese container transportation and shipping company Evergreen Marine Corp. – was finally refloated and traffic in the canal was able to resume.

A Risk & Insurance cover story, published by Triple-I sister organization Risk & Insurance Group (RIG), describes how – in the context of a trend toward larger container vessels and a global supply chain already disrupted by COVID-19 – this incident should serve as a wake-up call for insurers.

Looking at the Ever Given grounding and disruption of canal traffic from a marine insurance perspective, RIG author Gregory DL Morris highlights the impact on cargo insurance claims and the potential for cargo spoilage. He also discusses compromised maneuverability of these massive vessels in high winds and references an increasing number of on-board fires, challenges surrounding salvage, and lack of suitable repair facilities, noting, “Underwriters need to be aware of this.”

Despite the likelihood that immediate property loss in this case will be minimal, megaships pose serious challenges to marine insurance and risk management. According to MDS Transmodal, a transport and logistics research firm, average vessels capacity grew 25 percent between 2014 and 2018, with ultra-large containerships accounting for 31 percent of the total capacity deployed in the second quarter of 2018. Transmodal attributes this trend to industry consolidation through mergers and acquisitions, as well as growing trade lane co-operation through alliances, slot sharing, and vessel-sharing agreements.

Even as traffic through the canal resumes, terminals will experience congestion. In addition, the severe drop in vessel arrival and container discharge in major terminals will aggravate existing shortages of empty containers available for exports. Delays in shipments, increased costs, and product shortages are therefore likely. 

“The fact is that an already heavily disrupted maritime supply chain has taken another hit that will further affect its fluidity, with long-term consequences related to congestions, lead times and predictability,” said Jens Roemer, chair of the Sea Transport Working Group of the International Federation of Freight Forwarders.

While traffic through the canal is now moving, the global supply chain’s vulnerabilities may only now be beginning to become clear.

“Whether a blizzard in Texas or a sandstorm in Egypt,” Morris writes, “the narrow focus on minimal inventories that rely upon just-in-time delivery leaves little allowance for weather or accident.”

Business Risk, Emerging Risks, Health & Safety, Insurers and the Economy, Risk Management

“Lightning Round” Highlights Technologies Reopening the Economy

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Public discussion about re-opening the economy after COVID-19 has mostly revolved around the safety, efficacy, and availability of various vaccines. But in the longer term, other measures and new technologies will be key to getting back to normal and being prepared for future public health emergencies.

Last week’s Lightning Round V: Reopening America in the Post-Pandemic Scenario – a collaboration between Triple-I’s Resilience Accelerator, ResilientH20 Partners, and The Cannon – featured three technologies that promise to help facilitate the recovery.

Workplace workflow

Tomer Mann, executive vice president of business development for 22 Miles, discussed his company’s “digital experience platform,” which incorporates temperature-scanning technology, touchless kiosks, virtual concierge, and other applications to provide social distance among customers and employees and early warning of possible infection in business settings.   

“In March, when we were seeing a lot of the temperature-scanning solutions coming out of China, we realized we could leverage our software to pivot and create a more secure solution, avoiding some of the sensors that are coming out of China that are blacklisted in the trade market and avoiding some of the data breach implications,” Mann said.

22 Miles’ “workplace workflow” starts at a building’s lobby, using facemask and temperature detection and including badge integration and access control for employees and guests. For companies using shared workspaces, the system tracks what spaces are being used to facilitate sanitization between uses. To minimize physical contact while maximizing interactivity, the system’s components can be activated using voice, gesture, or mobile device.

In addition to facilitating safe, hygienic use of these spaces, the system captures large amounts of data that can provide warnings of possible infections and inform modifications to the workflow.

Scrubbing the air

Santiago Mendoza, senior vice president with Integrated Viral Protection, spoke about his company’s indoor air protection system, which has been shown to capture and destroy coronavirus at a 99-plus percentage rate. The system has shown similar results when tested with anthrax spores and other airborne pathogens.

Heating, ventilation, and air conditioning (HVAC) systems are “super spreaders” of coronavirus and other pathogens, Mendoza said, adding that most filter systems only catch and don’t kill them. 

“Our system heats up to almost 400 degrees Fahrenheit and destroys the pathogens,” he said.

The IVP system is available for commercial and residential uses and has been installed in hospitality venues, health facilities, and schools across the United States, Mendoza said. It comes in multiple sizes, including a personal unit for travelers to use in hotel rooms and other closed spaces.

Early warning in water

Jennings Heussner, business development manager for BioBot Analytics, a wastewater epidemiology company, explained how BioBot went from testing for opioids to tracking coronavirus.

“We analyze wastewater coming into treatment plants for human health markers,” Heussner said. The company originally was focused on the opioid epidemic, helping communities better understand the nature of their local opioid problems to better inform their public health response.

When the pandemic hit, BioBot expanded its focus and became the first company in the United States to identify the presence of the virus in wastewater.

Leveraging existing wastewater sampling processes, BioBot analyzes the sample and reports back within one business day after receiving it, providing a quick, inexpensive, comprehensive early warning system.

Ready and resilient

Such technologies will be essential parts of building a pandemic-ready and resilient society. Anticipating and addressing outbreaks early can help alleviate health-related and business-interruption concerns and head off insurance claims.

Just as the insurance industry played a vital role in improving vehicle safety, infrastructure, building codes, and more, insurers and risk managers – partnering with policymakers, businesses, homeowners, and others – will help determine which of these emerging solutions will endure.

Auto Insurance, Legal Environment

Nevada Class Actions Against Auto Insurers Risk Hurting Policyholders

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Class action lawsuits filed in Nevada last month against 10 auto insurers are more likely to hurt policyholders than help them.

The suits contend that discounts, rebates, and policyholder dividends provided in 2020 – amounting to about $14 billion nationally – were not “meaningful” and that the rates charged violate state law against excessive premiums. The $14 billion figure does not include the more than $280 million in philanthropic contributions the industry has also made during COVID-19 to support communities.

The fact is, auto insurance premium rates fell nationally in 2020 for the first time in a decade. Insurers’ net income after taxes fell 26.1 percent through the third quarter of 2020, compared with the same quarter the previous year. A major factor was the pandemic-related discounts granted in 2020.

“The rate is lower because people are driving less,” said Triple-I chief actuary James Lynch, noting that during a lockdown period in the spring driving was down as much as 50 percent. Fewer cars on the road should lead to fewer accidents, and this expectation is what led insurers to proactively provide discounts and other policyholder benefits during the pandemic. Many auto insurers have built these discounts into premium rates for 2021, Lynch said.

Accidents down, fatalities up

Accidents did decline in 2020; unfortunately, traffic fatalities and claims increased. According to the National Highway Traffic Safety Administration (NHTSA), fatalities rose 4.6 percent in the first nine months of 2020, despite overall vehicle miles traveled having decreased. Fatalities in the third quarter of 2020 were 13 percent higher than in the same period of 2019 – the largest such increase in more than a decade. This suggests that driver behavior deteriorated rapidly and significantly during the pandemic.

The 2020 premium reduction would have even been larger, Lynch said, “if people had slowed down.”

Claims rising faster than premiums

Even before COVID-19, auto damage claims were rising faster than general inflation, and auto insurance premium increases trailed inflation. Fatalities had been declining as cars became safer – but safety technology is expensive, making repairs more costly and driving up the size of policyholder claims.

The 2020 trend of increasing fatalities could worsen as traffic volume returns to pre-COVID levels. Data show that many motorists who substantially increased their driving speed when traffic was 50 percent below normal have not slowed down as traffic increased, Lynch said.

“The concern is that frequency patterns will return to the norm, but fast driving will keep claim severity high, putting upward pressure on rates,” Lynch said.

The salient point is this: Insurers have kept their promises to pay claims, given $14 billion back to policyholders, and generously supported communities through philanthropy – even as rising accident severity during the pandemic dented their net incomes. Defending themselves against frivolous litigation will only add to their expenses, and lower premiums are unlikely to be the result.

Catastrophes, Disaster Preparedness, Disaster Resilience, Flood Insurance, Floods

Floods, Freezing, Other Extreme Weather Highlight Need for Planning and Insurance

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Recent flooding in Kentucky “is going to be one that goes into the record books,” the state’s Emergency Management Director Michael Dossett said in a news conference this week. At least 49 counties had issued disaster declarations following days of rain that dumped four to seven inches across a wide stretch of the state and pushed rivers to levels not seen for decades.

Dossett and Gov. Andy Beshear said the state had been in contact with the Federal Emergency Management Agency (FEMA) to seek federal aid and that assessments would be made next week for both the flooding and an ice storm last week. Damage assessments for the ice storm had been put on hold by the floods.

Extreme weather events, like these floods and last month’s winter storm that left dozens of Texans dead, millions without power, and nearly 15 million with water issues, underscore the importance of resilience planning and of homeowners and businesses having appropriate insurance coverage.

Flood protection gap

About 90 percent of all U.S. natural disasters involve flooding.  Whether related to coastal and inland inundations due to hurricanes, extreme rainfall, snowmelt, mudflows, or other events, floods cause billions of dollars in losses each year. According to FEMA, one inch of flood water can cause as much as $25,000 in damage to a home.

But direct economic losses are only part of the picture. Human costs are enormous, and it can take families, businesses, and communities years to recover.

Flood damage is excluded from coverage under standard homeowners and renters insurance policies. However, coverage is available from the National Flood Insurance Program (NFIP) and from a growing number of private insurers.

Many people believe they don’t need flood insurance if the bank providing their mortgage doesn’t require it; others assume their homeowners insurance covers flood damage; others think they cannot afford it.

As a result, a substantial protection gap exists.

A recent analysis by the nonprofit First Street Foundation found the United States to be woefully underprepared for damaging floods. It identified “around 1.7 times the number of properties as having substantial risk,” compared with FEMA’s flood zone designation.

“This equates to a total of 14.6 million properties across the country at substantial risk, of which 5.9 million property owners are currently unaware of or underestimating the risk they face,” the report said.

Current system unsustainable

The NFIP owes more than $20.5 billion to the U.S. Treasury, leaving $9.9 billion in borrowing authority from a $30.43 billion limit in law. This debt is serviced by the NFIP and interest is paid through premium revenues. With flood losses on the rise, the current system is not sustainable without changes.

In December, FEMA proposed “substantively” revising the “estimated cost of assistance” factor the agency uses to review governors’ requests for a federal disaster declaration to “more accurately assess the disaster response capabilities” of the states, District of Columbia and U.S. territories. Its Risk Rating 2.0 initiative, set for implementation in October, aims to make flood insurance rates more accurately reflect insured properties’ individual flood risk.

 In other words, the federal government will likely ask states, municipalities, and some policyholders to shoulder more of the cost of recovering from natural catastrophes.

Complex challenges require multi-pronged approaches to address them, and FEMA and other federal and state agencies are working with the private sector to close the flood protection gap. In the near term, the most cost-effective way for families and businesses to mitigate flood risk is insurance.

If it can rain where you are, it can flood where you are. As Daniel Kaniewski, managing director for public sector innovation at Marsh & McLennan and former deputy administrator for resilience at FEMA, put it during a Triple-I webinar last year: “Any home can flood. Even if you’re well outside a floodplain, get flood insurance. Whether you’re a homeowner or a renter or a businessowner — get flood insurance.”