Category Archives: Disaster Resilience

Catastrophes, Disaster Preparedness, Disaster Resilience

Texas Winter Storm Costs Raise Extreme-Weather Flags for States, Localities

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Last month’s winter storm that left dozens of Texans dead, millions without power, and nearly 15 million with water issues could wind up being the costliest disaster in state history.

Disaster-modeling firm AIR Worldwide says claims volume will likely be significant and, with average claims severity values of $15,000 for residential risks and $30,000 for commercial risks, insured losses “appear likely to exceed $10 billion.”

AIR says several variables could drive the loss well above that amount, including:

  • A higher-than-expected rate of claims among those risks affected by prolonged power outage,
  • Whether utility service interruption coverages pay out;
  • Larger-than-expected impacts from demand surge,
  • Government intervention, and
  • Whether claims related to mold damage start to emerge as a significant source of loss.

FitchRatings says the widespread scale and claims volume of the event could drive ultimate insured losses as high as $20 billion. For context, the state’s insured losses related to Hurricane Harvey were about $20 billion, according to the Texas Department of Insurance. The deadly 2017 hurricane devastated the Gulf Coast region. Last month’s winter storm affected every region of the state.

“All 254 counties will have been impacted in some way by the freeze,” said Lee Loftis, director of government affairs for the Independent Insurance Agents of Texas. “That is just unheard of.”

All Texas counties have received state disaster declarations by Gov. Greg Abbott, opening them up to additional state assistance. But many rural counties are currently excluded from President Biden’s major disaster declaration.

State and local officials say the federal government moved swiftly to approve declarations for 108 counties and that more are likely coming as reports of damage mount. Eighteen of the state’s 20 most populous counties were included in the declarations. But for the 146 counties — many of them rural — the wait is nerve wracking.

Officials say it’s because those counties lack data on damages. Nim Kidd, chief of the Texas Division of Emergency Management, said the state is urging residents to report their property damage through an online damage assessment tool. State officials will report that damage to FEMA in hopes it will lead to more counties being added to the major disaster declaration.

Earl Armstrong, a FEMA spokesperson, said in a statement to the Texas Tribune that homeowners and renters who don’t live in a disaster-designated county should file a claim with their insurer, document damage to their home from the storm, and keep receipts for all expenses related to repairs.

Anomalous as the Texas winter storm may have been, it is a salient data point that all states and municipalities should take to heart in their disaster planning. 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.

In other words, the federal government will likely ask states and municipalities to shoulder more of the cost of recovering from natural catastrophes – making it even more important for every state to prepare for and insure against events that might have seemed unthinkable not so long ago.

And as Texas and other affected states recover, they still have 2021’s severe convective storm and hurricane seasons ahead of them.

Disaster Resilience, Insurance Industry, Technology

New insurance advisory board seeks technological solutions to disaster resilience

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The insurance industry continues to be a major stakeholder in mitigating the effects of natural disasters on communities. As such, a group of U.S. insurers, reinsurers, intermediaries, and model providers are creating an advisory board called Helix.

Facilitated by The Institutes, Helix seeks to integrate new approaches to automated claims analysis into an overarching framework for the application of new and emerging technologies in natural disaster resilience, according to a Risk & Insurance article.

“We are excited to help coordinate this effort focused on mitigating the adverse effects of natural disasters,” says Peter Miller, President and CEO of The Institutes. He described Helix as an opportunity “to serve as a neutral third party in work on this important issue that ultimately benefits the general public.”

Initially building on work to implement open common data standards for catastrophe risk analytics, the Helix vision is grounded on four pillars to support the industry’s increasingly wide-ranging and growing capabilities:

  • Climate and resilience: Pursuing hazard and resilience research and advocating for innovation in insurance products and economic responsiveness;
  • Data standards, data content/interpretation/quality, and industry-level data resources;
  • Technology: Transparency in models and analytics, Insurtech innovations, and technology solutions;
  • Operations: Common industry tools, improved communication/exchange across the value chain, and support/education for the industry

Helix builds on the work of The Institutes’ Catastrophe Modeling Operating Standards (CMOS) initiative. The CMOS team completed a survey project in September 2020 to establish and implement an open common exposure data standard. This project also provided a set of recommendations for the community to advance the work.

“Based on the interest in and success of the CMOS, it is clear there is a desire for an industry-wide, cooperative effort focused on resilience from natural catastrophes,” says Sean Ringsted, Chief Risk Officer, Chubb. “We’ve received strong interest in creation of Helix and look forward to welcoming the participation of additional organizations.”

The Institutes is in the process of engaging founding members and building out the appropriate governance structure. As those are put in place, Helix members will determine initial priorities in support of the four pillars and leveraging the work performed under the CMOS initiative. Companies in search of additional information, or that have interest in contributing expertise to the effort can contact The Institutes at helix@theinstitutes.org.

Cross-posted from the Triple-I Resilience Accelerator

Disaster Preparedness, Disaster Resilience, Flood Insurance, Floods

Study Quantifies Future Climate Change Impact on Flood Losses

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A new study from the nonprofit First Street Foundation projects the impact climate change may have on U.S. flood losses.

The report – The Cost of Climate: America’s Growing Flood Risk –finds that, when adjusting for the long-term impact of a changing climate, nearly 4.3 million homes have “substantial” flood risk that would result in financial loss.

“If all of these homes were to insure against flood risk through the National Flood Insurance Program (NFIP),” the report continues, “the rates would need to increase 4.5 times to cover the estimated risk in 2021, and 7.2 times to cover the growing risk by 2051.”

Last year, the foundation released a report indicating that nearly 6 million U.S. properties could be at greater risk of flooding than currently indicated by Federal Emergency Management Agency (FEMA) flood maps.

The new report is particularly resonant as FEMA prepares to implement Risk Rating 2.0, an initiative to make flood insurance pricing more representative of each policyholder’s exposure and help customers better understand their risks and the importance of having flood coverage. It plans to accomplish this by using industry best practices and technology to deliver rates that “are fair, make sense, are easier to understand, and better reflect a property’s unique flood risk.

Implementation of Risk Rating 2.0 is scheduled to begin in October 2021.

Since homeowners who have federally backed mortgages and reside in FEMA-designated Special Flood Hazard Areas (SFHA) are required to buy flood insurance, the First Street data serve as an example of an early indicator of who could be most affected by risk-based rate changes in the near term and as the impacts of climate change evolve.

Potential cost consequences of expanded coverage under NFIP – or, worse, of not addressing the existing flood-protection gap – underscore the importance of a multi-pronged approach to mitigation and resilience that includes improved attention to how, where, and whether to build or rebuild and expanded availability and affordability of insurance.  

Disaster Preparedness, Disaster Resilience

Why Do DisastersKeep “Surprising” Us?A Resilience Culture Would Aid Preparation

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Texas in recent days has become the latest poster child for government failure to prepare for catastrophe.

A Washington Post analysis places last week’s “rolling disaster” – with more than 14 million people in 160 counties experiencing power loss and water-service disruptions due to severe winter weather – alongside the U.S. federal government’s failure to anticipate and prepare for a global pandemic.

“Other such episodes of government caught by surprise are etched in people’s memory,” the article says, citing Hurricane Katrina and the 9/11 terrorist attacks as precedents. “It is rarely the case that these disasters strike without warning…. As many government officials have said, there is little incentive and almost no political reward for investing money to head off a crisis.”

Blame is being apportioned for Texas’s failure to mitigate what now has to be recognized as an inevitable confluence of extreme weather conditions with infrastructure vulnerability. It certainly seems as if investment in a handful of cold-proofing measures for the state’s independent, lightly regulated energy system might have prevented much of the suffering.

But what about other states suffering from service disruptions and their toll in human pain? And what about the next “unforeseen” catastrophe?

Instead of pointing fingers for actions not taken, it might be more productive to focus on developing a national and global culture of resilience; communicating the objective value of understanding, anticipating, and mitigating the impact of natural and man-made risks; and taking steps in advance to promote resilience in the aftermath of events that can’t be avoided. 

This is what Triple-I, its members, and partners have been doing. Our Resilience Accelerator curates and shares data and insights from across the risk-management world with a focus on promoting resilience best practices.  Our Joint Industry Forum annually brings together insurance and risk-management leaders and subject-matter experts to explain and update anyone with an interest in risk on the latest trends, developments, and solutions. We produce webinars, hold educational town halls, and regularly engage with the news media to help inform their coverage.

We also play an active role in helping to close the oft-mentioned “skills gap” in the insurance industry.

“The risks we all face—whether natural or man-made—are top of mind for younger generations,” Triple-I CEO Sean Kevelighan said recently. “We’re beginning to see these future leaders turn to insurance. They are beginning to understand that our 350 years of history, of managing risks of all kinds, is truly a catalyst for solutions. These solutions will result in a more resilient and protected world.”

Catastrophes, Disaster Preparedness, Disaster Resilience

Community Catastrophe Insurance: Four Models to Boost Resilience

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Many households and small businesses don’t have sufficient savings to repair and rebuild after a natural disaster. Insurance is a vital source of recovery funds, but many are uninsured or insufficiently insured. This insurance gap doesn’t just reduce their resilience; its impact can slow the recovery of entire communities.

Community-based catastrophe insurance (CBCI) – arranged by a local government, quasigovernmental body, or a community group to cover individual properties in the community – may help close the coverage gap. A recent Marsh & McLennan report looks at such arrangements and how they can promote community resilience.

In addition to improving financial recovery for communities, CBCI can provide more affordable disaster insurance coverage and could be linked directly to financing for community-level hazard mitigation. It offers multiple delivery models so officials and risk managers can explore and implement CBCI as part of an integrated risk management strategy.

Four broad institutional structures for CBCI illustrate the different roles and responsibilities of the community and other partners:

• A facilitator model

• A group policy model

• An aggregator model

• Purchase through a community captive.

In these frameworks, the community’s role and responsibility increase from lowest to highest. In the first, the community is more of a facilitator and a negotiator. In the second, it takes on a role in distribution, choosing insurance options and collecting premiums. In the third, the community plays a dual role: as the insured on a contract with a reinsurer and as the disburser of claims funds.

The fourth model harnesses an existing structure — an insurance captive — that enables the community to provide disaster policies.

“In all cases, the community could offer the coverage for a property owner to voluntarily decide to purchase, or there may be a few instances where a community would compel residents to purchase coverage,” the Marsh report says. “When coverage is voluntary, however, a community would likely need to offer purchase incentives to achieve goals of widespread take-up of the coverage.”

The report describes the four models in detail and provides a five-part roadmap for implementation.

Disaster Resilience, Insurance Industry

Insurers Are Addressing Climate Risks

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By Richard Creedon

The insurance industry is uniquely positioned to provide leadership in the public policy dialogue over climate risks. Our contribution to this conversation is crucial because insurers recognize the growing intensity of threats to the properties insurers financially protect. 

In 2020, the U.S. witnessed a record hurricane season with 30 named storms; 12 of them made landfall. We also observed the worst wildfire season on record with more than 10 million acres burned—roughly the size of Maryland.

The U.S.’s auto, home, and business insurers cumulatively saw their catastrophe-caused insured loss payouts more than double to $47.1 billion for the first nine-months of 2020 from $21.5 billion in the same nine-month period a year earlier, Verisk and the American Property Casualty Insurance Association (APCIA) found.

The federal government quantified this trend, too. According to the National Oceanic and Atmospheric Administration (NOAA), there were 22 weather and climate disasters in the U.S. in 2020. Damages from these disasters exceeded $1 billion each and totaled approximately $95 billion for all 22 events when including both insured and uninsured losses, NOAA estimated.

The demand for insurance industry involvement in addressing climate risks is urgent. With a new administration and Congressional majority, climate is a priority issue in Washington, D.C. Industry leaders would be wise to explore pro-actively climate risk solutions for business and society—and not wait for elected officials to prescribe a response.

I believe climate risk is a challenge that should be integrated into each insurer’s Enterprise Risk Management (ERM) framework. That means examining climate risk impacts on insurer investments, underwriting and operational priorities—and then managing all dimensions of those findings.

The Own Risk and Solvency Assessment (ORSA) framework is already in place. Adding additional resources to this process will provide further intelligence for how insurers ought to operate as we move forward. For example, at my company, we decided rather than wait for regulators to try to limit fossil fuel investments, we created a green energy portfolio. The idea was to create a position in non-carbon energy production—and be opportunistic as the economy transitions toward non-carbon alternatives.

We believe this transition can be done responsibly while still managing the primary mandate of securing financial strength for policyholders.

One of the biggest challenges we will likely face is rising consumer expectations. We also must remember the political arena often animates public expectations. As an industry, we have at times struggled to produce innovative products and services.

Whether its personal or commercial insurance, our consumers want offerings that are relevant for their individual needs, which today includes being more resilient to climate risk. Everyone in the financial sector faces these challenges but I am confident insurers have the insights and expertise to deliver the innovation required in our changing world.

Richard Creedon, Chairman of the Board and CEO of the member companies of the Utica National Insurance Group is also Chairman of the Insurance Information Institute’s Executive Leadership Committee

Disaster Preparedness, Disaster Resilience, Risk Management

New FEMA Tool Maps Community Vulnerability to 18 Natural Hazards

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The Federal Emergency Management Agency (FEMA) recently unveiled its National Risk Index (NRI) for natural hazards. The online mapping application identifies communities most at risk for 18 types of events. It visualizes the risk metrics and includes data about expected annual losses, social vulnerabilities, and community resilience. 

Casey Zuzak, senior risk analyst at FEMA, described the index at the recent Triple-I Resilience Town Hall – the first this year in a series presented by Triple-I and ResilientH2O Partners.

Zuzak explained that the NRI draws from a wide range of data and analytics resources and considers the probabilities or frequencies of 18 natural hazards and the population and property value exposed. Expected annual loss is calculated separately for each hazard, then summed to generate a composite score for all 18.

NRI enables FEMA to talk with communities about specific risks, identify high-impact mitigation opportunities, and learn how they can make the best use of their risk-management resources.

“NRI wasn’t built in a silo,” Zuzak said. “We brought in local and county and state governments, tribal and territorial governments to make sure we had the best available data. We also brought in academia, nonprofit organizations, and private industry to make sure we had everyone’s input.”

Part of an effort to reduce costs and eliminate inconsistent risk assessments for planning, the NRI uses a national baseline risk assessment to identify areas that offer high returns on risk-mitigation investment. The NRI can help communities:

  • Update emergency plans;
  • Improve hazard-mitigation plans;
  • Prioritize and allocate resources;
  • Identify need for more refined risk assessments;
  • Encourage community risk communication and engagement;
  • Educate homeowners and renters;
  • Support adoption of enhanced codes and standards;
  • Inform long-term community recovery.

“Nothing like this – a free, consistent, comprehensive nationwide risk assessment tool that addresses multiple hazards and includes social vulnerability and community resilience – existed before,” said Dr. Michel Léonard, CBE, vice president and senior economist for Triple-I. “This is an important addition to the toolkit of risk managers, insurers, policymakers, and others working to create a safer, more resilient world.”

Business Risk, Disaster Resilience, Emerging Risks, Insurers and the Economy, Webinars

Virtual Triple-I Forum Reviews 2020, Looks Ahead at Risks, Opportunities

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Sean Kevelighan, Triple-I CEO

Insurance is a business that promotes and demands resilience, and 2020 was a year-long case study in our industry’s ability to respond rapidly to new challenges from a firm financial foundation. Triple-I’s virtual Joint Industry Forum (JIF) provided many examples from a range of industry and academic leaders, along with insightful discussions about what the industry faces in the near and longer terms.

At the 2020 JIF in New York City, it was clear from our various panels that the industry had a full plate of priorities for the year ahead. Then came COVID-19, and a whole new set of public health and economic concerns was added to the existing exposure mix. The virus brought a strong economy nearly to a halt; while officials assessed and responded to these threats, civil unrest on a scale not seen since the 1990s broke out on the streets of many cities; historic and near-historic weather and wildfire activity descended on communities whose resources were already strained by the pandemic.

And all of the above took place amid the uncertainty created by the most contentious, chaotic election year in modern U.S. history.

Through it all, as this year’s JIF speakers described, the property/casualty insurance industry managed to shine.

“Look at how our companies performed” in the real-time shift to fully remote work, noted Chuck Chamness, President and CEO of the National Association of Mutual Insurance Companies (NAMIC). “Then look at the dynamic changes in our businesses caused in large part by the pandemic, where we gave back $14 billion in premiums to policyholders and contributed a couple of hundred million dollars-plus in charitable contributions. We really did our job this year.”

David Sampson, American Property Casualty Insurance Association (APCIA) President and CEO, added that the “bulk of the industry came together to proactively work with agents and policymakers to create a solution that could work for all stakeholders to provide protection against widespread economic shutdown as a result of a viral outbreak.”

APCIA, NAMIC, and Independent Insurance Agents and Brokers of America proposed to Congress a Business Continuity Protection Plan (BCPP) that would allow businesses to buy revenue-replacement coverage for up to 80 percent of payroll and other expenses in the event of a pandemic through state-regulated insurance entities, with aid coming from the Federal Emergency Management Agency (FEMA), which would run the program.

Our industry also faced a literal existential threat in the form of efforts to require insurers to pay billions in business income (interruption) claims for which not one penny of premium had ever been paid. Thanks to industry leaders stepping up to educate policymakers and the media, much of this threat – though, by no means all of it – seems to have faded. Triple-I’s Future of American Insurance & Reinsurance (FAIR) campaign played a critical role in informing policy discussions on business interruption coverage, the uninsurability of pandemic risk, and the need for federal involvement to mitigate the financial impact of future pandemics.

Throughout this year’s virtual JIF, the emphasis on innovation is a consistent thread. Peter Miller, President and CEO of The Institutes, observed that the pandemic and its attendant operational and economic stresses forced the industry into innovation overdrive. He cited a member of The Institutes’ board saying 2020 “caused them to do 10 years of innovation in one,” adding that board members have told him work-from-home alone has saved their companies “one hundred-plus million dollars a year.”

Whether discussing the industry’s response to climate change and extreme weather or how to communicate the importance of risk-based pricing to policymakers, innovation is at the heart of solving every challenge (and seizing every opportunity) our industry faces. Peter emphasized the importance of using innovation strategically across the entire value chain – not just to solve specific problems as they emerge.

In addition to the panelists I mentioned above, the conversations featured a cross section of industry leaders, Triple-I subject-matter experts and non-resident scholars. If you weren’t able to attend, you can view and watch the panels here.

Disaster Preparedness, Disaster Resilience, Flood Insurance, Floods

Study Supports Casefor Flood Mitigationas World Warms

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Intensifying rainfall fueled by climate change over the past 30 years has caused nearly $75 billion in flood damage in the United States, according to a study by Stanford University researchers.

The findings, published in the journal Proceedings of the National Academy of Sciences, shed light on the growing costs of flooding and the heightened risk faced by homeowners, builders, banks and insurers as the planet warms. Losses resulting from worsening extreme rains comprised nearly one-third of the total financial cost from flooding in the U.S. between 1988 and 2017, according to the report, which analyzed climate and socioeconomic data to quantify the relationship between changing historical rainfall trends and historical flood costs.

About 90 percent of natural disasters in the United States involve flooding, and much has been written about the flood protection gap.

“On average nationwide, only 30 percent of homes in the highest risk areas have flood coverage,” according to the Risk Management and Decision Processes Center of the Wharton School at the University of Pennsylvania, a Triple-I Resilience Accelerator partner. “Less than 25 percent of the buildings flooded by Hurricanes Harvey, Sandy, and Irma had insurance. Indeed, repeatedly after floods there is evidence of the United States’ large and persistent flood insurance gap.”

To make matters worse, a recent analysis by the nonprofit First Street Foundation found the United States to be woefully underprepared for damaging floods. The foundation identifies “around 1.7 times the number of properties as having substantial risk,” compared with Federal Emergency Management Agency (FEMA) flood designation.

Flood coverage isn’t included in most homeowners insurance policies, so many may not know they don’t have it if their bank didn’t require them to buy it before providing a mortgage. Until recently, flood insurance was considered an untouchable risk for private insurers to write, so FEMA’s National Flood Insurance Program (NFIP) was the only game in town.

In recent years, however, Congress adopted new laws to support the emergence of a robust domestic private flood insurance market.  Last year, regulators provided rules that allowed private carriers to offer flood policies outside of NFIP and to qualify for the mortgage flood insurance requirement. Carriers and reinsurers are expanding their use of sophisticated models to underwrite flood risk, driving the growth of private sector flood insurance.

Triple-I has more information about flood insurance in our Spotlight on: Flood insurance article.

Disaster Resilience, Flood Insurance, Floods

Expanded Triple-I Flood Risk Maps Provide Richer Perspective

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The Triple-I Resilience Accelerator’s flood risk visualization tool is being enhanced with:

  • National Flood Insurance Program (NFIP) data on “take-up rates” by U.S. county from 2010 to 2021,
  • Differences between take-up rates inside and outside of flood zones, and in different proximities to flood zones.

These additions will expand the Accelerator’s visualization from covering only the current year to providing an historical perspective on how take-up rates have changed over time. 

Take-up rates and resilience

Insurance take-up rates represent the percentage of people eligible for a particular coverage who take advantage of it. In the case of flood insurance, they are calculated as the number of insurance policies in force in a certain geography over the total number of eligible properties for which insurance can be bought.

Understanding flood insurance take-up rates is essential to assessing and improving communities’ ability to rebound from damaging events. About 90 percent of natural disasters in the United States involve flooding, the NFIP says, and much has been written about the flood protection gap.

“On average nationwide, only 30 percent of homes in the highest risk areas have flood coverage,” according to the Risk Management and Decision Processes Center of the Wharton School at the University of Pennsylvania, a Triple-I Resilience Accelerator partner. “Less than 25 percent of the buildings flooded by Hurricanes Harvey, Sandy, and Irma had insurance. Indeed, repeatedly after floods there is evidence of the United States’ large and persistent flood insurance gap.”

But understanding that gap to a degree that will support meaningful action requires comprehensive, granular data only NFIP can provide. It also requires the data to be available in easy-to-use formats. This is where the Triple-I/NFIP collaboration comes into play.

Key considerations to keep in mind when looking at take-up rates are year-over-year changes; whether the rates are by city, county, or state; and whether they are for all homes or homes in flood zones alone. During the first quarter of 2021, Triple-I’s Resilience Accelerator’s flood map will be updated with four options for users to visualize:

  • Annual take-up rates from 2010 to 2018,
  • 2019 take-up rates based on 2018 renewals only,
  • County-wide and flood-zones-only take-up rates estimates for 2020, and
  • County-wide share of dwellings in close proximity to flood zones.

Historical perspective

In 2019, NFIP started publishing historical data on NFIP insurance coverage, policies, and claims. NFIP’s decision to publish this data was a transformative point for industry practitioners, academics and those involved with flood insurance analysis. The Triple-I’s visualizations use NFIP’s full- and part-year data from 2010 to 2019 and our own estimates, based on this data, for 2020.

Dr. Michel Léonard, CBE, Triple-I vice president and senior economist says: “We’ve worked closely with NFIP to ensure that our visualizations reflect the most current, accurate information available on flood insurance take-up rates. In addition, we wanted to add to the discussion surrounding NFIP take-up rates by providing less common yet insightful ways to understand and visualize take-up rates, such as take-up rates for properties in flood zones only or the share of a country’s property in different proximities to flood zones.”

Flood coverage, as opposed to water damage from mechanical breakdown inside a house, isn’t included in most homeowners insurance policies, so many homeowners may not realize they don’t have it if their bank didn’t require them to buy it before providing a mortgage. Until recently, flood insurance was considered an “untouchable” risk for private insurers to write, so the NFIP was the only game in town.

In recent years, however, Congress adopted new laws to support the emergence of a robust domestic private flood insurance market.  Last year, regulators provided rules that allowed private carriers to offer flood policies outside of NFIP and to qualify for the mortgage flood insurance requirement. Carriers and reinsurers are expanding their use of sophisticated models to underwrite flood risk, driving the growth of private sector flood insurance.

 “We want to acknowledge and stress how significant the NFIP Policy and Claims data is to increasing our understanding of flood risk,” Léonard said. “Good data takes a lot of work, and NFIP’s commitment to making this data available is a perfect example of public-private partnerships delivering concrete value.”