Dimitri Mikhaylov working the front register at Chelsea Bagel of Tudor City
By Kris Maccini, Social Media Director, Triple-I
In support of Small Business Saturday, November 28, the Insurance Information Institute spotlights Chelsea Bagel, a business that has stayed resilient during the pandemic.
Deciding on your local bagel shop is a quintessential part of becoming a New Yorker. I’ve made this city my home for the past 17 years now, and it’s the first thing I do every time I move into a new neighborhood. About four years ago, I made Midtown East, Manhattan my home, and it didn’t take long for Chelsea Bagel of Tudor City to become my go-to shop.
Chelsea Bagel of Tudor City is owned by Dimitri Mikhaylov. He opened the shop and its sister restaurant, Chelsea Bagel & Café , along with his brother in 2015. Owning his own bagel shop became a dream after Dimitri invested in another coffee shop a few years prior. Never did he imagine just five years later, the world would be in a global pandemic.
The bagel and spread counter at Chelsea Bagel of Tudor City
“Prior to the pandemic, we were doing fine covering expenses. We had a steady flow of regular customers and high traffic from tourists. Facing the pandemic and this tough economy has been one of our biggest challenges,” says Dimitri.
In the early days of the pandemic, Dimitri had to make some difficult decisions to keep his doors open. He made reductions in staff, changed hours of operation, and withheld his own paycheck in order to pay his employees.
“The first four weeks of the pandemic, I spent a lot of my own money to meet business expenses, and I didn’t pay myself for 10 weeks,” he says. “My wife and I also had to make the decision to postpone our home mortgage for six months in order to pay for the business.”
“During that time, I thought that my business interruption insurance would have been able to help cover our losses, but after contacting my insurer, I realized pandemics are not covered. The next step was to apply for a government PPP loan.”
The small business PPP loan allowed Dimitri both to cover his expenses and hire back some staff. Since the summer, business has picked up, and he’s slowly welcoming back his regulars. There has been a 25% increase in customers in recent months compared to the start of the pandemic where business decreased by 75%.
In addition to the PPP loan, Dimitri advises that small business owners really look at their expenses to see where they can cut off spending. At the height of the pandemic, he chose to do all the buying himself, which drastically cut down the cost of goods for his shop.
“I’m hoping that the economy returns and brings customers back,” Dimitri says. “This area [New York City] relies on tourists.”
“It crossed my mind not once but many times to give up the business during all this, but hope kept me going. I have a family to feed and my employees have families to feed.”
Hurricane Delta last month triggered a 17 million peso (US $800,000) insurance payout to the Trust for the Integrated Management of the Coastal Zone, Social Development, and Security for the State of Quintana Roo, Mexico. The parametric policy, deployed last year, cost the trust nearly 5 million pesos (US $230,000), covering 150 square kilometers (58 square miles) of coastal ecosystems for the entire 2020 hurricane season.
Recent research illustrates the benefits provided by mangroves, barrier islands, and coral reefs – natural features that frequently fall victim to development – by limiting tropical storm damage, particularly from storm surge. Unlike traditional insurance, which pays for damage if it occurs, parametric insurance pays when specific conditions are met – regardless of whether damage is incurred. Without the need for claims adjustment, policyholders quickly get their benefit and can begin their recovery. In the case of the coral reef coverage, the swift payout will allow for quick damage assessments, debris removal, and initial repairs to be carried out.
Quintana Roo partnered with hotel owners, the Nature Conservancy, and the National Parks Commission to pilot a conservation strategy involving a parametric policy that pays out if wind speeds greater than 100 knots hit a predefined area.
Similar approaches could be applied to protecting mangroves, commercial fish stocks that can be harmed by overfishing or habitat loss, or other intrinsically valuable assets that are hard to insure with traditional approaches.
Last week’s Lightning Round III: Products and Services for Disaster and Risk Mitigation featured presentations by four teams of entrepreneurs who have developed products to boost societal resilience and mitigate natural disaster risks. This was the third time this year that Triple-I and its Resilience Accelerator, ResilientH20 Partners and The Cannon, have connected entrepreneurs with leading insurance innovation specialists and investors.
Air.ly: An app that identifies locales near wildfire zones where individuals afflicted with respiratory issues, or other health complications, can find fresh-air recreation opportunities. It won the prize this year for the Best Overall Hack-for-Resilience.
Insura: An app that uses a home’s location and historical loss data to recommend mitigation and maintenance activities that could reduce a homeowner’s insurance premiums. It won this year’s prize for the Best Application of Insurtech.
Ami Nachiappan, a Junior at New York University, presented on behalf of the four-member Air.ly team.
“For many with sensitive respiratory systems, the wildfires’ smoke has created difficulty breathing and dizziness,” she said, pointing out that this can be the case hundreds of miles from fire locations and long after the blazes have been extinguished.
Air.ly provides “a comprehensive visualization of real-time air-quality data across the U.S.,” as well as well as recommending locations for safe outdoor recreation activities. Existing weather apps that display air-quality information lack “call to action options and cautionary warnings,” and recreation apps like Yelp lack real-time weather and air-quality information.
This fragmentation, Nachiappan said, is what sets Air.ly apart.
Savan Patel, a sophomore at the University of Pennsylvania, spoke for the four-member Insura team. Insura is a third-party “gamification platform” for home improvement products modeled after applications that seek to reduce automobile accidents and claims by influencing driver behavior.
In addition to the hack-a-thon winners, two established businesses – members of the Resilience Innovation Hub “portfolio of disaster risk-mitigation innovation” presented their products:
Thermal Gate™ 2.5: An artificial intelligence-based system that screens and detects individuals who have an elevated body temperature before they enter venues that are open to the public.
Mesh++ : A just-in-time WiFi community network that requires no external power or wiring to generate broadband access for first-responders, citizens, and preparedness interests.
A FORTIFIED roof (left) sustained no damage from Hurricane Sally, the neighboring house (right) did not fare as well.
The FORTIFIED construction certification was developed by the Insurance Institute for Business and Home Safety (IBHS) to protect homes against severe weather. In this post Fred Malik, managing director, FORTIFIED, and Chuck Miccolis, managing director, Commercial – IBHS, talk about how the system held up in Alabama against Hurricane Sally.
In 2004, Hurricane Ivan slammed into Alabama causing widespread devastation. Unwilling to let the same damage happen again, thousands of homeowners and commercial property owners have turned to IBHS’s FORTIFIED program to protect their properties and prepare for the next big storm.
Last month, the ‘next big storm’ came. Exactly sixteen years since Hurricane Ivan made landfall, Hurricane Sally crawled its way onto the Alabama coast. The Category 2 storm subjected homes and businesses to more than 8 hours of relentless winds. While the aftermath of Sally’s landfall vividly showed too many buildings are still not built as strong as they could be, those in the area built to the FORTIFIED standard provide hope for a more resilient future.
More than 16,000 FORTIFIED properties were put to the test and they demonstrated homes and businesses can be built better. In the days following Sally’s landfall, IBHS conducted field assessments across coastal Alabama to better understand building performance, including dozens of FORTIFIED properties. To date, indications are that more than 90% of the thousands of FORTIFIED buildings had zero to minor cosmetic damage. As a wind standard, FORTIFIED performed to its design.
The evidence is clear driving through Baldwin County, Alabama – home and business owners who had a FORTIFIED Roof didn’t need a blue tarp, didn’t have significant water intrusion through the roof, and businesses were able to re-open as soon as flooding abated and power was restored. Most observed damage was only cosmetic, and disruption was minimized, meaning those who made the decision to strengthen their properties aren’t dealing with the headache of rebuilding. Because FORTIFIED provides layers of protection, it stopped the cascade of damage before it started.
Some FORTIFIED homeowners were even able to offer refuge for neighbors in need. Having benefited from local incentives to build stronger, some FORTIFIED homeowners in Orange Beach experienced no damage from wind or wind-driven rain, while neighbors were forced to make repairs as well as tear out and throw away much of the contents of their homes.
Another poignant example took place at the Lodge at Gulf State Park, which had been completely destroyed by Hurricane Ivan. Determined to overcome the vulnerabilities Ivan had so devastatingly exposed, the property owners wanted to be a leader in demonstrating to the community how to build back stronger. They turned to the FORTIFIED program.
The hotel was rebuilt in 2019 to the FORTIFIED standards, and IBHS verified the construction process and material selection complied with those standards. Evaluators, trained by IBHS, guided construction and design teams to minimize flaws that otherwise may have gone unnoticed. As a result, when Hurricane Sally’s eyewall passed directly over the Lodge, it not only continued operations, it also housed employees who did not have FORTIFIED homes. Additionally, many media outlets, including The Weather Channels, chose to stay at the lodge to cover the storm and, some unknowingly, benefitted from the protection of FORTIFIED to report on the hurricane, perhaps prompting FEMA Administrator Pete Gaynor to emphasize “mitigation works.”
Continuing the post-storm research, IBHS will develop an analysis of key factors influencing the performance of these FORTIFIED structures. Preventing avoidable damage is one of IBHS’s three imperatives, and Sally demonstrated how FORTIFIED achieves that mission. For more information, go to fortified.org.
Four entrepreneurial teams who have developed products to boost societal resilience and to mitigate natural disaster risks will present them during a free Insurance Information Institute (Triple-I) event on Thursday, Oct. 22, at 11 a.m., ET.
Billed as the Lightning Rounds for Resilience and Pre-Disaster Mitigated Innovations, it is the third time this year the Triple-I and its Resilience Accelerator, ResilientH20 Partners and The Cannon, have connected entrepreneurs with leading insurance innovation specialists and investors. Pre-registration is required.
The first of the day’s two panels will feature the web-based apps developed by the prize-winning teams from 2020’s collegiate Hack-for-Resilience III. The Triple-I and the Wharton Risk Management and Decision Processes Center at the University of Pennsylvania honored these two student entrepreneurial teams in September 2020.
Air.ly: The app identifies locales near wildfire zones where individuals afflicted with respiratory issues, or other health complications, can find fresh air. It won the prize this year for the Best Overall Hack-for-Resilience.
Insura: The app uses a home’s location and historical loss data to recommend mitigation and maintenance activities which could reduce a homeowner’s insurance premiums. It won this year’s prize for the Best Application of Insurtech.
“We’re excited to spotlight the outstanding work of talented students who have accepted the challenge to build and empower the resilience movement. Products like Air.ly and Insura are proof today’s brightest young minds are creating the tools that will better allow people to navigate through, and prepare for, natural disasters,” said Michel Leonard, PhD, CBE, Vice President and Senior Economist, Triple-I.
Two established businesses – members of the Resilience Innovation Hub “portfolio of disaster risk-mitigation innovation” -will present their products and services during the event’s second and final panel:
Thermal Gate™ 2.5: The artificial intelligence (AI) based system screens and detects individuals who have an elevated body temperature before they enter venues which are open to the public.
Mesh++ : The just-in-time WiFi community network requires no external power nor wiring to generate broadband access for first-responders, citizens, and preparedness interests.
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.”
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.
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.
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
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.
Rivers swollen by Hurricane Sally’s rains have devastated parts of the Florida Panhandle and south Alabama, and the storm’s remnants are forecast to spread the flooding to Georgia and the Carolinas.
Many of the properties damaged will doubtless be found to be uninsured, compounding homeowners’ misery.
A well-known coverage gap
The flood insurance protection gap has been well documented. A recent Triple-I paper – Hurricane Season: More Than Just Wind and Water – states that “about 90 percent of all natural disasters in the United States involve flooding” and cites experts strenuously urging everyone to buy flood insurance.
“Any home can flood,” says Dan Kaniewski — managing director for public sector innovation at Marsh & McLennan and former deputy administrator for resilience at the Federal Emergency Management Agency (FEMA). “Even if you’re well outside a floodplain…. Get flood insurance. Whether you’re a homeowner or a renter or a business — get flood insurance.”
Dr. Rick Knabb — on-air hurricane expert for the Weather Channel, speaking at Triple-I’s 2019 Joint Industry Forum — is similarly emphatic.
“If it can rain where you live,” he said, “it can flood where you live.”
Despite such warnings, even in designated flood zones, the protection gap remains large. A McKinsey & Co. analysis of flood insurance purchase rates in areas most affected by three Category 4 hurricanes that made landfall in the United States — Harvey, Irma, and Maria — found that as many as 80 percent of homeowners in Texas, 60 percent in Florida, and 99 percent in Puerto Rico lacked flood insurance.
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 report identified “around 1.7 times the number of properties as having substantial risk,” compared with FEMA’s 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 foundation says.
A more recent Triple-I analysis, conducted in advance of Hurricane Sally, found that flood insurance purchase rates in the counties most likely to be affected by the storm were “remarkably low.”
“In Taylor County, Ga., for example, just 0.09 percent of properties are insured against flooding,” Triple-I wrote.
NOT covered by homeowners insurance
Flood damage is excluded under standard homeowners and renters insurance policies. However, flood coverage is available as a separate policy from the National Flood Insurance Program (NFIP), administered by FEMA, and from a growing number of private insurers, thanks to sophisticated flood models that have made insurers more comfortable writing this once “untouchable” risk.
Invest in resilience
If it seems as if you’ve heard me beat this drum before, you’re right. I take flood and flood insurance very personally.
After Hurricane Irene flooded my inland New Jersey basement in August 2011, destroying many irreplaceable items, it was my flood insurance that enabled me to have a French drain and two powerful pumps installed that have since kept my historically damp basement bone dry – even during Superstorm Sandy the following year.
Organized into two categories—Best Overall Hack for Resilience and Best Application of Insurtech—Hack-for-Resilience III was a virtual event conducted over 36 hours spanning 8:00 pm Friday night through 8:00 am Sunday morning. Students used Slack, Zoom and HopIn digital collaboration platforms, to recruit and select teammates, ideate, seek guidance from mentors, and produce and demonstrate hacks.
This year’s H4R attracted 38 teams from as far away as British Columbia, Brasil and India. Some interesting trends emerged: For 2020, several hacks used gamification—applying the principles and characteristics of video gaming to tasks and problem-solving—as a technique to teach and test catastrophe resilience. This year also saw numerous student innovators drawing inspiration from their own families’ recent natural disaster experiences.
A panel of judges that included Dr. Carolyn Kousky, Wharton Risk Center’s Executive Director and Dr. Michel Leonard, the Triple-I’s Vice President and Senior Economist, selected first- and second-place winning hacks in both categories. They are:
Developed as a way to get households into a “resilience frame of mind,” INSURA uses location and historical loss data, to incentivize catastrophe resilience by making a game of preparedness and mitigation. Users enter information about their homes and known risks, and INSURA suggests mitigation activities and common household maintenance chores. Players are scored by calculated potential insurance premium savings.
Created in response to recent wildfires, CLAIM CART makes it easier for users to file claims for insured losses by guiding them step-by-step through creating an effective household inventory to receive maximum payout for their lost possessions. The app works by querying insurer and public loss and item pricing data to help people prepare for a disaster by more accurately presenting and organizing information about the contents of their home.
Inspired by the development team members experiences during recent California wildfires, AIR.LY is billed as “the one-stop shop [for finding] safe outdoor retreats during wildfires.” AIR.LY helps delivers vital, in-real-time help to an often-overlooked group: persons afflicted with respiratory issues or other health complications.
Designed and built by a team of high-schoolers, S.O.S. is story-mode game that allows players to choose disaster scenarios that present multiple options to instruct on fire and flood safety, as well as effective preparedness and evacuation practices.
First place-winning team members will each receive a $200 Amazon gift card for their winning hacks, while the runners-up each will receive a $100 Amazon gift card. New for 2020 is an additional reward for first place winners, entry into a Resilience Accelerator Lightning Rounds ideas showcase, where teams will demo their winning hacks to a panel of insurance innovation leaders and investors.
The Wharton Risk Center and the Triple-I wish to again extend our thanks to all who contributed to making Hack-for-Resilience III and PennAppsXXI a rousing success!
By James Ballot, Senior Advisor, Strategic Communications, Triple-I
Perhaps the most emotionally compelling data point invoked by those who would compel insurers – through litigation and legislation – to pay business-interruption claims explicitly excluded from the policies they wrote is the property/casualty insurance industry’s nearly $800 billion policyholder surplus.
Many Americans hear “surplus” and think of a bit of cash they have stashed away for emergencies. And when you consider that nearly 40 percent of Americans surveyed by the Federal Reserve said they would either have to borrow or sell something to cover an unexpected $400 expense – or couldn’t pay it at all – that number may sound like overkill.
Not as much as you think
But policyholder surplus isn’t a “rainy day fund.” It’s an essential part of the industry’s ability to keep the promises it makes to policyholders. And although a number like $800 billion may raise eyebrows, when we look more closely at its components, the amount available to cover claims turns out to be considerably less.
Insurers are regulated on a state-by-state basis. Regulators require them to hold a certain amount in reserve to pay claims based on each insurer’s own risk profile. The aggregation of these reserves – required by every state for every insurer doing business in those states – accounts for about half the oft-cited industry surplus.
Call it $400 billion, for simplicity’s sake.
Each company’s regulator-required surplus can be thought of as that company’s “running on empty” mark – the point at which alarms go off and regulators start talking about requiring it to set even more aside to make sure no policyholders are left in a lurch.
By extension, $400 billion is where alarms begin going off for the entire industry.
It gets worse – or better, depending on your perspective.
In addition to state regulators’ requirements, the private rating agencies that gauge insurers’ financial strength and claims-paying ability don’t want to see reserves get anywhere near “Empty.” To get a strong rating from A.M. Best, Fitch, S&P, or Moody’s, insurers have to keep even more in reserve.
Why do private agency ratings matter? Consumers and businesses use them to determine what insurer they’ll buy coverage from. Also, stronger ratings can contribute to lower borrowing expenses, which can help keep insurers’ operating costs – and, in turn, policyholders’ premiums – at reasonable levels.
So, let’s say these additional reserves amount to about $200 billion for the industry. The nearly $800 billion surplus we started with now falls to about $200 billion.
To cover claims by all personal and commercial policyholders in a given year without prompting regulatory and rating agency actions that could drive up insurers’ costs and policyholders’ premiums.
Which brings us to today.
Losses ordinary and extraordinary
In the first quarter of 2020, the industry experienced its largest-ever quarterly decline in surplus, to $771.9 billion. This decline was due, in large part, to declines in stock value related to the economic recession sparked by the coronavirus pandemic.
Nevertheless, the industry remains financially strong, in large part because the bulk of insurers’ investments are in investment-grade corporate and governmental bonds. And it’s a good thing, too, because the conditions underlying that surplus decline preceded an extremely active hurricane season, atypical wildfire activity, and damages related to civil unrest approaching levels not seen since 1992 – involving losses that are not yet reflected in the surplus.
Insured losses from this year’s Hurricane Isaias are estimated in the vicinity of $5 billion. Hurricane Laura’s losses could, by some estimates, be as “small” as $4 billion or as large as $13 billion.
And the Atlantic hurricane season has not yet peaked.
The 2020 wildfire season is off to a horrific start. From January 1 to September 8, 2020, there were 41,051 wildfires, compared with 35,386 in the same period in 2019, according to the National Interagency Fire Center. About 4.7 million acres were burned in the 2020 period, compared with 4.2 million acres in 2019.
In California alone, wildfires have already burned 2.2 million acres in 2020 — more than any year on record. For context, insured losses for California’s November 2018 fires were estimated at more than $11 billion.
And the 2020 wildfire season still has a way to go.
All this is on top of routine claims for property and casualty losses.
Four billion here, 11 billion there – pretty soon we’re talking about “real money,” against available reserves that are far smaller than they at first appear.
No end in sight
Oh, yeah – and the pandemic-fueled recession isn’t expected to reverse any time soon. Economic growth worldwide remains depressed, with nearly every country experiencing declines in gross domestic product (GDP) – the total value of goods and services produced. GDP growth for the world’s 10 largest insurance markets is expected to decrease by 6.99 percent in 2020, compared to Triple-I’s previous estimate of a 4.9 percent decrease.
If insurers were required to pay business-interruption claims they never agreed to cover – and, therefore, didn’t reserve for – the cost to the industry related to small businesses alone could be as high as $383 billion per month.
This would bankrupt the industry, leaving many policyholders uninsured and insurance itself an untenable business proposition.
Fortunately, Americans seem to be beginning to get this. A recent poll by Future of American Insurance and Reinsurance (FAIR) found the majority of Americans believe the federal government should bear the financial responsibility for helping businesses stay afloat during the coronavirus pandemic. Only 16 percent of respondents said insurers should bear the responsibility, and only 8 percent said they believe lawsuits against insurers are the best path for businesses to secure financial relief.
