By Mark Friedlander, Director, Corporate Communications, Triple-I
Tropical Storm Henri is forecast to become a hurricane and may impact parts of New England this weekend. Residents are advised to plan and prepare now.
By John Novaria, Managing Director, Amplify
Bermuda is more than pink beaches and golden sunsets – it’s a major force in the re/insurance industry. The Association of Bermuda Insurers & Reinsurers (ABIR) works to raise the profile of Bermuda’s reinsurers and insurers and represents their public policy interests around the world.
ABIR CEO John Huff recently sat down with Triple-I CEO Sean Kevelighan to discuss the contribution of Bermuda companies to global resiliency. Some of those contributions include:
Huff is excited about the role the re/insurance industry is playing in securing a more resilient future for society.
“If you talk to your kids, this may be the first time our work is resonating with the next generation,” he says. “I do think it’s our opportunity to lead in the area of climate, resilience and adaptation.”
In discussing the Bermuda value proposition, Huff noted the concentration of exceptional talent within a square mile of Hamilton’s business district, which has captured the attention of investors who have plowed capital into the jurisdiction to form startup companies. Huff also said many established companies in Bermuda are scaling up by expanding their capabilities to take on more risk through analytics, underwriting and capital allocation.
Indeed, Bermuda is full of surprises. Huff said the general public doen’t realize that Bermuda companies underwrite half of the mortgage insurance sold in the US, creating opportunities for more young families to purchase their first home.
Learn more about ABIR.
The formation of nine large wildfires this week—three in Washington, two in California and Oregon, and one each in Idaho and Montana—highlight the importance of having an evacuation plan and the right coverage.
“Insurers are fulfilling their traditional role as the nation’s financial first responders as thousands of Americans evacuate in the West,” said Triple-I CEO Sean Kevelighan. “Wildfires are actively burning millions of acres, and as we are seeing these regions becoming more populated, it will be critical to focus on rebuilding communities in a more resilient manner, as well as make changes to public policies that are hindering the ability to clean and remove tinder which are fueling the devastation.”
Triple-I’s Resilience Accelerator demonstrates the power of insurance as a force for resilience. It does so by telling the story of how insurance coverage helps governments, businesses, and individuals recover faster and more completely after catastrophes. The Resilience Accelerator also links to HazardHub, an organization that assesses the wildfire risks individual properties face nationwide.
The National Interagency Fire Center (NIFC) reported yesterday that 1.95 million acres have burned in the U.S. during 2021. California’s Antelope, Dixie, McFarland, and Monument Fires grew by thousands of acres over the past few days, the NIFC added.
Oregon’s Bootleg fire, which has been burning along the Oregon and California border since July 6, continues to challenge firefighters while new blazes emerge.
“We are running firefighting operations through the day and all through the night,” said Joe Hessel, incident commander. “We are looking at sustained battle for the foreseeable future.”
A standard homeowners insurance policy covers wildfire-caused property damage to a home’s structure and its outbuildings (e.g., garage), as well as the personal belongings housed on the premises. A renter’s insurance policy covers the renter’s personal belongings. If a residence has been rendered temporarily uninhabitable by a wildfire, standard homeowners and renters insurance policies provide additional living expenses (ALE).
Triple-I offers the following tips to those who live in a wildfire-prone community.
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Wildfire is a critical risk facing California, but at least one insurance industry leader argues that the state government isn’t taking it seriously enough.
“Yes, the governor has committed some $2 billion dollars to wildfire budget items,” writes John Norwood of Norwood Associates LLC in an Insurance Journal Op-Ed piece. “These include $404.8 million to hire staff and purchase firefighting equipment; $1.128 billion for forest management, such as thinning and prescribed burns; and $616 million to community investments.”
The details can be found in the Wildfire and Climate Change Fact Sheet provided by the governor’s office.
“However,” the Op-Ed continues, “if you compare that commitment of dollars to the list of other budget allocations the governor has just signed, it appears the administration and the Legislature determined the wildfire problem was only as worthy as some of the lower-priority budget allocations, like cleaning up trash ($1.5 billion) and paying-off delinquent water and electrical bills ($2 billion).”
Norwood is one of California’s top legislative advocates and managing partner of Norwood Associates. He is considered the leader in the state’s insurance, financial services, and small business sector.
Rising insurance costs
Wildfires over the past five years have burned millions of acres in California, destroyed entire towns, wiped out well over 10,000 homes, killed scores of residents, and blanketed the state with unhealthy air.
“California homeowners and businesses are paying five- and six-figure premiums for property insurance, and that is only when they can find insurance at any price,” Norwood writes. “California’s largest industries – agriculture and wine production – are being devastated by the lack of available insurance.”
And yet, he continues, “the $2 billion dollars committed to wildfire risks doesn’t even make it into the top five issues in the state based on the budget allocation committed to the fight.”
Role of reinsurance
Reinsurers — which insure insurers — are crucial to how the world handles natural disasters. As the frequency and severity of small-scale disasters increase, they’re having to pay more attention. S&P Global observes that “around one-half of the reinsurers we rate reduced their exposure in absolute terms, with very few players taking on additional catastrophe risk.”
It adds that this “de-risking trend” among reinsurers has been particularly visible in North America in recent years.
Without reinsurance, primary insurance rates must rise as properties in some areas become uninsurable.
Norwood argues that availability and affordability of property insurance are unlikely to change until the global reinsurance market believes California is serious about addressing its wildfire risks and there are demonstrable results in reducing the number and severity of wildfires in the state.
Without the reinsurance market backing California property/casualty insurance companies, there will continue to be an availability crisis in the state for property insurance and prices for such coverage will continue to increase substantially to the detriment of California’s homeowners and businesses.
Insurance is essential for individuals, businesses, and communities to recover quickly from natural catastrophes – but perils have evolved to a point at which risk transfer, though necessary, isn’t enough to ensure resilience.
Triple-I CEO Sean Kevelighan said during a that better insured communities recover more quickly but “the long-term resilience of both the communities impacted by natural catastrophes and of the industry itself depend on preparedness and improved risk mitigation.” He was one of three panelists participating in the webinar.
“Something’s Got to Give”
Insured U.S. natural catastrophe losses totaled $67 billion in 2020 after an Atlantic hurricane season which included 30 named storms, record-setting wildfires in California, Colorado, and the Pacific Northwest, and a severe derecho in Iowa. This year’s hurricane season looks to be more severe; the Bootleg wildfire in Oregon – so large and intense it has begun to create its own weather and is affecting air quality as far east as New York City – isn’t expected to be fully contained until late November; and these disasters are taking place on the heels of devastating winter storms in the first quarter.
As Kevelighan put it in his panel remarks, pointing to a 700 percent increase in insurer loss costs since the 1980s, “Something’s got to give.”
“As the country’s financial first responders,” he said, “insurers are not just responsible for providing relief to the communities affected by natural disasters, but also planning for potential catastrophes to come.”
One of the ways insurers do this, he said, is by building the industry’s cumulative policyholders’ surplus—the amount of money remaining after insurers’ collective liabilities are subtracted from their assets. At year-end 2020, the U.S. policyholders’ surplus stood at a record-high $914.3 billion.
Mitigate and educate
The role of the insurance industry has grown beyond merely taking on risks to educating the public, regulators, and corporate decision makers on the changing nature of risk and driving a resilience mindset characterized by a focus on pre-emptive mitigation and rapid recovery. Triple-I and a host of other insurance industry organizations have played a key role in promoting public-private partnerships and using advanced data and analytics to understand and address hazards in advance.
For example, Triple-I’s online Resilience Accelerator provides access to data and risk maps that empowers the public to assess and prepare for risks specific to their own communities.
This webinar, co-presented by The Institutes’ Griffith Foundation and the Insurance Regulator Education Foundation, included panelists Hanna Grant, Head of the Secretariat, Access to Insurance Initiative; and Dr. Abhishek Varma, Associate Professor, Finance, Insurance and Law, Illinois State University. It was moderated by James Jones, Executive Director, Katie School of Insurance and Financial Services, Illinois State University.
Webinar highlights:
Natural disasters create opportunities for unethical contractors, and consumers need to be on the alert.
Post-disaster repair scams typically start when a contractor makes an unsolicited visit to a homeowner and pressures the homeowner to pay the contractor their insurance claim money – then disappear without doing the work.
Triple-I is teaming up with the National Insurance Crime Bureau (NICB) during the NICB’s Contractor Fraud Awareness Week (July 12-16) to educate the public about such frauds and how to avoid them.
Before hiring any contractor, consumers affected by a natural disaster should call their insurer. There’s no need to rush into an agreement. Homeowners should inspect all work and make sure they are satisfied before paying. Most contractors will require a reasonable down payment, but no payments should be made until a written contract is in place.
The NICB offers these tips to homeowners before hiring a contractor:
The NICB Post-Disaster Contractor Search Checklist explains the contractor hiring process step by step. Anyone with information concerning insurance fraud or vehicle theft can report it anonymously by calling toll-free 800-TEL-NICB (800-835-6422) or submitting a form to the NICB.
“Acting as communities’ financial first responders, insurers rebuild damaged homes, cars, and lives after a natural disaster,” said Triple-I CEO Sean Kevelighan. “The Insurance Information Institute is proud to join forces with the NICB to educate consumers and communities about how to best prepare and recover economically.”
“Victims of disasters are under tremendous stress as they are often pulled from their homes, fight heavy traffic attempting to get to safety, all while leaving their home and belongings behind,” said NICB President and CEO David Glawe. “When they go home, they are exhausted and strained, a time when they are most susceptible to these fraudulent schemes.”
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Article: Insurance Fraud
Facts & Statistics: Insurance Fraud
The insurer for the Champlain Towers South condo association has said it will make an up-front payment to resolve damage claims related to the 12-story beachfront property in the Miami suburb of Surfside, Fla., that collapsed on June 24, 2021.
“We want to make it known that James River Insurance Company has made the decision to voluntarily tender its entire limit from the enclosed policy towards attempting to resolve all the claims in this matter,” the insurer’s attorney wrote to the judge handling a class-action lawsuit seeking millions of dollars in damages from the association.
Since the collapse last week, four residents or their families have filed lawsuits against the association. Many more suits are expected in the coming months, and litigation could take years as investigators work to determine what caused the collapse. The first court hearing was held yesterday, and a Miami-Dade Circuit judge acknowledged that the building’s $48 million in total insurance coverage likely won’t be enough.
In all, the court heard, the condo association’s master policy has $30 million in property coverage and $18 million in liability coverage. The condo association has agreed to hand over financial decision making to a court-appointed “receiver.”
Seeking survivors as storm nears
With investigators still working to find and rescue survivors and Hurricane Elsa – the first of the 2021 Atlantic hurricane season and earliest “E-named” storm on record – heading toward Florida, the situation remains fluid. This week, dozens of units at a Central Florida condominium complex near Disney World were deemed unsafe after an inspection found the walkways leading to the units were at risk of collapsing, according to an Osceola County spokesperson. Residents were advised to enter the buildings containing the units at their own risk, the spokesperson said, adding that county staff were offering residents assistance with temporary housing.
Increased attention to the condition of older high-rise buildings in South Florida and across the U.S. in the wake of the Champlain Towers collapse could lead to a rise in claims for loss-of-use coverage. In addition, many businesses in the vicinity of the collapse have been made inaccessible during the rescue operation, which could lead to business interruption claims.
Spotlight on building codes
Furthermore, this event could lead to a review of building codes and inspection practices nationwide. South Florida’s building codes are among the nation’s strongest – designed to keep residents safe from hurricanes. The state implemented mandatory codes after Category 5 Hurricane Andrew ripped homes from their foundations and left 65 dead in Homestead in 1992, and some counties – particularly in South Florida – have added more stringent requirements.
But after last week’s collapse, IBHS chief engineer Anne Cope said, “This is a moment like Katrina and Andrew, where we are going to learn something and make changes.”
Many of the region’s buildings – including Champlain Towers South – were built before 1992 as part of a South Florida condo boom. Those buildings are subject to codes that were in place at the time of their construction, and are only required to undergo local county inspections every 40 years – such as the 2018 review of the Surfside condo in which an engineer raised red flags that the building was beginning to address but didn’t warn of imminent disaster.
A FEMA study last year said implementation of modern building codes could save states and localities billions of dollars.
Losses from the winter storm that swept through the southern United States earlier this year continue to loom large among the concerns of property and casualty insurers, even as the nation contends with wildfires and anticipates yet another above-average hurricane season.
“On its own, Uri would not necessarily impact premium rates,” says Dr. Michel Léonard, CBE, Triple-I vice president and senior economist. “What matters is the overall severity of extreme weather events during a calendar year or a specific peril season.”
Dr. Léonard reports that current expectations among weather experts of higher-than-average hurricane and wildfire seasons – in addition to Uri – will likely contribute to increases in property insurance rates in 2021, “before and regardless of inflation.”
“Traditionally, actuarial models keep natural catastrophe losses and inflation separate and combine them in the last stage of rate estimates,” Léonard says.
Three 2021 trends, he says, add up to put upward significant pressure on insurance rates for 2022:
“There are a few situations in which extreme weather events directly contribute to replacement cost increases, which, in turn, impact rates,” Léonard says. “But ‘price gouging’ – such as happened after Uri – shouldn’t be confused with inflation. It’s temporary, while inflation almost always endures.”
It’s important for people living in earthquake-prone areas to remember that standard homeowners and renters insurance don’t cover most earthquake damage.
For this reason, Janet Ruiz, Triple-I’s California-based director of strategic communication, advises people in the state to consider buying a policy that, at a minimum, covers the structure, building code upgrades, and emergency repairs.
“You can also get coverage for additional living expenses and personal property, and some companies even cover damaged swimming pools or masonry veneer,” Ruiz writes in a recent Op-Ed in The San Diego Union-Tribune.
As the South Napa and Ridgecrest earthquakes – in 2014 and 2019, respectively – recede from memory and wildfire readiness and resilience seem the more immediate need, Ruiz reminds Californians that even relatively mild tremors can inflict costly damage. She therefore encourages residents to reduce their risk through education, mitigation, and insurance.
There are a number of earthquake insurance providers in California. Many participate in the California Earthquake Authority (CEA), but some non-CEA insurers also provide options to help protect Californians from financial loss.
“CEA offers premium discounts to policyholders who have retrofitted, or strengthened, their older homes to help them better withstand shaking,” Ruiz writes.
In a separate Op-Ed, CEA CEO Glenn Pomeroy advises on retro-fitting older homes to be more quake resistant and resilient. Older homes – especially those built before 1980 – are more susceptible to earthquake damage because they predate modern seismic building codes. According to U.S. Census data, more than 53 percent of the housing units in San Diego County fall into that category of being built before 1980 and could be in need of retrofitting.
Seismic retrofitting can be straightforward and often not as expensive as homeowners might think. Depending on the type of retrofit needed, the work can usually be done in a couple of days, with costs ranging from $3,000 to $7,000.
“Compared to the potential cost of repairing an earthquake-damaged home,” Pomeroy writes, “spending a smaller amount of money to help prevent damage can help avoid a much bigger repair bill after an earthquake. Whatever the cost, it is a relatively small price to pay to protect the value of your home and, more importantly, make it safer for your family.”
Particularly important as the need for pandemic social distancing continues, Pomeroy points out, “Homeowners can remain inside their dwelling as workers do the job without entering the residence.”
Building codes are critical to disaster mitigation, as well as to enabling families, communities, and businesses to bounce back from natural and man-made catastrophes. The Insurance Institute for Business and Home Safety (IBHS) “Rating the States” report has become an important resource for comparing the quality of these codes and of states’ enforcement of them.
Published every three years, “Rating the States” evaluates the 18 states along the Atlantic and Gulf coasts, all vulnerable to catastrophic hurricanes, based on building code adoption, enforcement, and contractor licensing.
The 2021 Atlantic hurricane season is expected to be another “above-average” one.
“Damage reduction that results from the adoption and enforcement of building codes helps to keep people in their homes and businesses following a natural or manmade disaster, reduces the need for public and private disaster aid, and preserves the built environment,” IBHS writes in the most recent edition of the report. It cites research following Hurricane Charley in 2004 that found code improvements adopted in 1996 in Florida resulted in a 60 percent reduction in residential property damage claims and a 42 percent reduction in cost of claims.
Benefits of strong, uniform, well-enforced statewide codes are diverse and include:
In the 2021 report, no state achieved a perfect rating based on the IBHS 100-point scale, though several states received high scores, including:
Other states that performed well were Connecticut (89 points), Rhode Island (89 points), North Carolina (88 points), Louisiana (82 points), Massachusetts (78 points), and Maryland (78 points).
The 2021 edition also includes information from the nonprofit Federal Alliance for Safe Homes (FLASH) to support consumer awareness and response to local building codes in their area. Inspect2Protect.org offers a free building code look-up tool available to all homeowners.
“With more Americans living in harm’s way, it is even more critical for residents and communities to have the information they need to take action,” said Triple-I CEO Sean Kevelighan. “2021’s Rating the States report is essential reading for anyone who resides in a hurricane-prone state and wants a definitive assessment of its building codes.”
More information from Triple-I
Hurricane Season: More Than Just Wind and Water
Modern Building Codes Would Prevent Billions in Catastrophe Losses
California Earthquakes: How Modern Building Codes Are Making Safer, More Resilient Communities
Millions Saved in Japan by Good Engineering and Government Building Codes