By Loretta Worters, Vice President, Media Relations, Triple-I
More than $1 billion in lightning-caused U.S. homeowners insurance claims were paid out in 2021 to 60,000-plus policyholders, with 40 percent of that figure ($522 million) attributable to California alone, according to Triple-I.
Based on national insurance claims data, the Triple-I found:
The total value of claims in 2021 were down more than 36 percent from 2020 but increased more than 43 percent since 2017, from $916.6 million to more than $1.3 billion;
The average number of lightning-caused U.S. homeowners insurance claims fell more than 15 percent between 2020 and 2021, continuing a downward trend since 2017 of more than 28 percent; and
The average cost per claim was also down 25 percent from 2020 (28,885 to 21,578), but the five-year trend shows the average cost per claim has doubled, to $21,578 from $10,781.
The average cost per claim is volatile from year to year, but it has been particularly high in the past two years because of lightning fires throughout the country, the Triple-I noted.
The outsized 2020 insured loss payout number nationwide was caused in part by California’s CZU August Complex fire, which was sparked by lighting. The multiple blazes impacted Santa Cruz and San Mateo counties and caused at least one fatality. Alaska is currently fighting a wildfire in the southwest part of the state due to lighting.
Not only does lightning result in deadly fires it can cause severe damage to appliances, electronics, computers and equipment, phone systems, electrical fixtures, and the electrical foundation of a home. The resulting damage may be far more significant than a homeowner realizes. Supply-chain delays are also sending appliances and electronics prices higher.
Florida—the state with the most thunderstorms—remained the top state for number of lightning claims in 2021, with 5,339, followed by Texas, Georgia, and California, respectively. California, which had 3,381 lightning claims, had the highest average cost per claim at $154,574, the second year to have an impact on the Golden State.
Creating a new layer of federal oversight would neither enhance nor standardize the climate-related disclosures U.S. insurers make to investors, Triple-I said in a letter to the U.S. Securities and Exchange Commission (SEC).
“The U.S. property and casualty industry supports and can play a constructive role in advancing transparency around weather- and climate-related risks,” Triple-I CEO Sean Kevelighan and Chief Insurance Officer Dale Porfilio wrote. “Indeed, as financial first responders, insurers have a strong ethical and financial interest in facilitating the transition to a lower-carbon economy and in promoting resilience during that transition.”
But adding a new layer of federal oversight to the existing regulatory structure would complicate insurer operations “while providing little to no benefit toward reducing greenhouse gas emissions and adapting to near-term conditions and perils,” the letter said.
The U.S. insurance industry is regulated in more than 50 jurisdictions, receiving more governance and regulatory oversight than any other type of financial service. More than 80 percent of insurers’ investments are in fixed-income – mostly municipal – securities.
“The SEC’s effort overlaps significantly with those of other entities,” Kevelighan and Porfilio wrote, mentioning the National Association of Insurance Commissioners (NAIC) and the states that regulate insurance, as well as the Treasury Department’s Federal Insurance Office (FIO). “Assessing Scope 3 emissions would be particularly onerous for insurers due to the fact that they cover diverse personal and commercial assets and activities, over which they have no control – further, there is currently no accepted methodology for insurers to measure their underwriting-related Scope 3 emissions, which makes the SEC’s proposed requirement premature for our industry.”
Scope 3 emissions are the result of activities from assets neither owned nor controlled by the reporting organization, according to the U.S. Environmental Protection Agency (EPA).
Triple-I recommended that the NAIC climate risk disclosure survey serve as the primary reporting regime for all insurers, allowing for consistent enforcement across ownership structures (public, private, and mutual) while avoiding unnecessary complexity and expenses.
“Property and casualty insurers are no strangers to climate and extreme-weather risk. We may not always have talked about the issue in those terms, but our industry has long had a financial stake in the issue. Consider the fact that insured losses caused by natural disasters have grown by nearly 700 percent since the 1980s and that four of the five costliest natural disasters in U.S. history occurred over the past decade.The industry is committed to disclosure of climate-related exposures, as such information will be integral to insurers’ ability to accurately and reliably underwrite such risks and make better-informed investment decisions,” Kevelighan and Porfilio wrote.
By Max Dorfman, Research Writer, Triple-I (06/08/2022)
Nearly three-quarters of property and casualty policyholders consider climate change a “primary concern,” and more than 80 percent of individual and small-commercial clients say they’ve taken at least one key sustainability action in the past year, according to a report by Capgemini, a technology services and consulting company, and EFMA, a global nonprofit established by banks and insurers.
Still, the report found not enough action is being taken to combat these issues, with a mere 8 percent of insurers surveyed considered “resilience champions,” which the report defined as possessing “strong governance, advanced data analysis capabilities, a strong focus on risk prevention, and promote resilience through their underwriting and investment strategies.”
The report emphasizes the economic losses associated with climate, which it says have grown by 250 percent in the last 30 years. With this in mind, 73 percent of policyholders said they consider climate change one of their primary concerns, compared with 40 percent of insurers.
The report recommended three policies that could assist in creating climate resiliency among insurers:
Making climate resilience part of corporate sustainability, with C-suite executives assigned clear roles for accountability;
Closing the gap between long-term and short-term goals across a company’s value chain; and
Redesigning technology strategies with product innovation, customer experience, and corporate citizenship, utilizing advancements like machine learning and quantum computing
“The impact of climate change is forcing insurers to step up and play a greater role in mitigating risks,” said Seth Rachlin, global insurance industry leader for Capgemini. “Insurers who prioritize focus on sustainability will be making smart long-term business decisions that will positively impact their future relevance and growth. The key is to match innovative risk transfers with risk prevention and assign accountability within an executive team to ensure goals are top of mind.”
A global problem
Recent floods in South Africa, scorching heat in India and Pakistan, and increasingly dangerous hurricanes in the United States all exemplify the dangers of changing climate patterns. As Efma CEO John Berry said, “While most insurers acknowledge climate change’s impact, there is more to be done in terms of demonstrative actions to develop climate resiliency strategies. As customers continue to pay closer attention to the impact of climate change on their lives, insurers need to highlight their own commitment by evolving their offerings to both recognize the fundamental role sustainability plays in our industry and to stay competitive in an ever-changing market.”
Data is key
The report says embedding climate strategies into their operating and business models is essential for “future-focused insurers,” but it adds that that requires “fundamental changes, such as revising data strategy, focusing on risk prevention, and moving beyond exclusions in underwriting and investments.”
The report finds that only 35 percent of insurers have adopted advanced data analysis tools, such as machine-learning-based pricing and risk models, which it called “critical to unlocking new data potential and enabling more accurate risk assessments.”
Insurers, regulators, and members of Congress have expressed concern about proposed changes in how Standard & Poor’s Global Ratings defines “available capital” in its rating criteria. Specifically, S&P would no longer consider certain debt to be counted as available for purposes of rating insurers’ financial strength and ability to pay claims.
“Disruptive” and an “overuse of market power” is how the Association of Bermuda Insurers and Reinsurers (ABIR) described the measure in an 18-page letter to S&P, which has requested comments by April 29 on its proposed methodology and assumptions for analyzing the risk-based capital adequacy of insurers and reinsurers.
S&P’s proposed changes, in ABIR’s view, would lead to the sudden removal of billions of dollars overnight that otherwise would be available to underwrite catastrophe risk – a sector in which average insured losses have risen nearly 700 percent since the 1980s.
“This debt is viewed as capital by the regulators,” ABIR CEO John Huff says in a news release. “If carriers are forced to restructure debt, they’ll get less favorable terms today. Any replacement debt will increase financial leverage, which is counter to the stability people seek from a rating agency.”
ABIR points out ambiguity in the timing of the rollout of the planned changes, saying, “Insurers and reinsurers will have no time to respond to the new debt treatment before S&P has indicated the changes will go into effect.”
“There is no glide path or grandfathering,” Huff says. “It’s just a cliff. “
Bermuda’s insurers urge the rating agency to provide a transition period for any such changes, as well as grandfathering debt that already is in place.
“If there’s a transition plan, we can work within that,” Huff says. “But having this so abrupt is quite disruptive. Standard & Poor’s should be adding stability, not causing disruption.”
“Neither the United States Geological Survey (USGS) nor any other scientists have accurately predicted a major earthquake,” according to a recent post in the California Residential Mitigation Program (CRMP) blog. “And scientists do not expect to be able to predict earthquakes in the future. However, USGS scientists can calculate the probability that a significant earthquake will occur in a specific area within a certain number of years.”
Forecasting earthquakes directly before they occur is not possible – and the risk of a large earthquake remains high. With more than 15,000 known faults in California – more than 500 categorized as “active” – and most Californians living within 30 miles of an active fault, no one in the Golden State is immune to earthquake risk.
With this in mind, the United States government has been working toward greater quake preparedness. The USGS recently released a report, UCERF3: A New Earthquake Forecast for California’s Complex System,projecting a 93 percent probability of one or more magnitude 6.7 quake or greater hitting Southern California over the 30-year period that began in 2014. Additionally, the USGS predicts that, over the same period, there is more than a 99 percent chance of at least one magnitude 6.7 or greater earthquakes occurring in all of California.
What can you do to prepare?
ShakeAlert is a tool that helps Californians provide an initial alert concerning an imminent tremor. This early warning system delivers information that on earthquakes moments after it is begun, such as the expected intensity of ground shaking, and warning people who may be affected.
Additionally, retrofitting older homes – particularly those built before 1980, which predate modern seismic building codes – can help create more quake-resistant and resilient residences. Indeed, U.S. Census data found that than 53 percent of the housing units in San Diego County fall into that category.
As wildfires and other climate-related events continue to capture headlines, it’s important that homeowners and businesses in quake-prone areas do not neglect earthquake preparation. Most standard homeowners and renters insurance don’t cover most earthquake damage. However, with the right tools and information, people can better prepare for tremors, keeping themselves and their homes safe.
Construction material costs rose dramatically in 2021, altering the underwriting and pricing of commercial property insurance. A recent report by Westchester – Chubb’s excess and surplus specialty product group – details the causes of rising commercial property insurance prices and how they can be mitigated.
The report cites three main factors driving the increase:
More frequent and severe insured losses due to extreme weather;
A supply chain crisis that has generated higher costs for construction materials; and
Rising inflation, which totaled nearly 7 percent in December 2021 from the previous year’s period and is the largest one-year increase in the past 40 years.
Weather, extreme and unpredictable
According to NOAA National Centers for Environmental Information, there were 20 weather-related disasters with losses exceeding $1 billion occurred in the United States between January and September 2021. Between 1980 and 2020, the average number of these types of losses was seven.
In the first half of 2021, about $42 billion in insured property losses were recorded by the insurance industry, representing the highest figure in a decade, according to Swiss Re.
Despite this dramatic rise in losses, the report says, catastrophe risk models “may not fully capture the potential losses attributable to unusual weather events like the December 2021 tornado outbreak, Hurricane Ida, and Winter Storm Uri.” The unpredictability of these storms, alongside a need for better hydrological, topological, and geospatial data gathering and analysis, continues to pose a threat for insurers trying to anticipate risks associated with commercial properties.
Supply chain
2021 also saw a fluctuation of pricing changes for many materials — particularly those used for building – courtesy of the pandemic’s disruption of the global supply chain. Although the exorbitant lumber prices fell in the second half of the year, the prices of materials like copper piping and tubing dramatically increased, according to the report. This posed a challenge for insurers to approximate future costs for underwriting and pricing purposes.
If an unexpected major storm hits a heavily populated region, thousands of homes may need to be repaired or replaced at the same time, pushing the cost of goods and labor – and, ultimately, insurance – even higher. In November 2021, the report says, it was estimated that commercial properties were undervalued for insurance underwriting purposes by more than 30 percent.
Inflation
In addition to pandemic-driven cost increases, underwriters are concerned about the broader inflation picture and its potential impact on interest rates.
“High inflation of the 1970s and early 1980s, for example, adversely affected the industry, resulting in weaker underwriting performance and reserve levels,” the report says. “Rising interest rates, on the other hand, deteriorated the value of fixed income assets.”
Economists recently polled by Reuters said they expect the U.S. Federal Reserve to tighten monetary policy to tame persistently high inflation at a much faster pace than they believed a month earlier.
Where do we go from here?
Westchester’s report offers several strategies to help combat rising commercial property insurance costs:
Insurers, reinsurers, modeling firms, brokers, and risk managers need to develop more accurate and near-real-time data on building condition, drainage systems, real estate trends, and access to construction materials and labor;
Risk managers and property owners should consider entering agreements with contractors before weather events to ensure that materials and services are available when the need arises;
To ensure more comprehensive underwriting of a building’s replacement value, more frequent and in-depth property damage risk appraisals from qualified sources are needed; and
Insurers should consider upgrading loss prevention services provided to commercial property owners and rewarding policyholders with discounts and credits for taking certain risk-mitigation measures.
Insurers – beyond their traditional role as financial first responders – are helping policyholders mitigate the risks posed by natural disasters and cyber threats, panelists at a Joint Industry Forum (JIF) panel said.
The JIF’s C-Suite on Resilience panel was moderated by John Huff, president and CEO of the Association of Bermuda Insurers and Reinsurers (ABIR). It included Richard Creedon, CEO, Utica Mutual Insurance Company; Paul Horgan, Head of U.S. National Accounts, Zurich North America; John Smith, CEO, Pennsylvania Lumbermens Mutual Insurance Company; and Rohit Verma, CEO, Crawford & Co.
“2021 has been a year of risk that has certainly challenged us,” ABIR’s Huff said. “Eighteen events in the U.S. alone, with over a billion dollars an event. Just a few years ago, those types of numbers would be unheard of, not to mention the 538 deaths and significant economic losses.”
Hurricane Ida, a Category 4 storm that made landfall in Louisiana in August, and the Dixie Fire, which burned 1 million acres in California over four months, were two of the most devastating national disasters this year.
“One recurring theme that we can talk about, especially with hurricanes and wildfires, is that we have growth in population in areas that are significantly impacted by these threats,” said Phil Klotzbach, PhD, a research scientist at Colorado State University’s Department of Atmospheric Science, and a Triple-I non-resident scholar, in introductory remarks.
Huff started the discussion by noting that the notion of resilience seems to have evolved from preparedness to meet and rebound from large, single events like hurricane, earthquake, or wildfire.
“It seems we may have entered a new period for leadership to think of resilience more broadly,” he said. “I’m thinking of the interconnectedness of businesses, individuals, and communities through technology and global commerce; the supply-chain and labor-force disruptions we’ve experienced due to the pandemic; cyber risks, which is such a growing market for our industry but also a growing risk for our global economy. Have risk and resilience fundamentally changed in recent years? Or are we just having to adjust to viewing them through a new lens?”
“There’s certainly a lot more to think about,” said Utica Mutual’s Creedon. “The opportunity moment for us is that there’s market need and expertise we have to expand beyond the traditional risk-transfer product.”
He noted that the industry has historically thought about risk and resilience “in balance-sheet terms, we’re building up large reservoirs of capital and surplus for that large capital- and surplus-draining event that’s going to happen. But nowadays capital is fairly cheap and abundant – it’s almost a renewable resource – and that kind of makes the risk-transfer product more commoditized and sort of a race to the bottom on pricing and product.”
The opportunity lies in insurers’ ability to augment their traditional capabilities with risk management, loss control, and other services to have an impact for consumers, he noted.
“It’s not, in my mind, a fundamental shift in what we define as risk,” said Pennsylvania Lumbermens’ Smith. “It’s that there are so many coming at us. As I think about risk, I do a lot of listening. That’s why I’m here today, why I’m part of [Triple-I] I want to hear different perspectives.”
Zurich’s Horgan drew a contrast between U.S. insurers and their European counterparts, which, he said, “have been focused on climate change for a much longer time. Zurich has been monitoring its environmental footprint since 2007, has been net neutral since 2014, has signed on to U.N. agreements. These are things that have been hotly debated in the U.S., but they’re buying in.”
“Our customers are craving for insights,” Horgan continued. “These are evolving risks. Some of them are insurable, some of them are not. [Our customers] are looking to us for data. They know where they’ve got to be, and they know they have this journey to get there.”
“I think about resilience as being able to recover from adversity, able to recover from a loss, or prevent that loss from having any impact on you,” Crawford’s Verma said. “It’s impressive to see what the industry has done. Where there’s a gap is, if the industry was a playing field, everyone is playing like a quarterback, and if everyone is playing like a quarterback you can’t win.”
Verma said his concern is whether the industry is coming together as a team to “rethink the ecosystem of insurance – the brokers, the claims providers, the carriers” to have a meaningful impact on resilience.
Insurance industry decision makers and thought leaders gathered yesterday for the Triple-I Joint Industry Forum (JIF) in New York City to share insights on managing risk in the post-pandemic world.
The in-person, daylong program was conducted in accordance with New York City’s COVID-19 protocols. Topics ranged from climate and cyber risk and the impact of “runaway litigation” on insurer losses and policyholder premiums to the challenges and opportunities presented by “the Great Resignation” for acquiring and nurturing talent in the industry.
The panels featured speakers from across the insurance world, academia, and media. Watch this space next week for panel wrap-ups.
This year’s hurricanes have served as a wakeup call about the importance of flood insurance and the fact that not enough people have it. Only 1 in 6 homes in the United States is insured against flood, yet 90 percent of natural catastrophes in the country involve flooding.
More of the population is moving into flood-prone areas. Not only does this increased residential and commercial development put more people in harm’s way, it reduces the amount of land available to absorb excess water. This means more homes and businesses inundated, more contents damaged or destroyed, and more vehicles immersed.
Nowadays, flooding tends to cause more costly damage than wind. An average storm year will generate uninsured losses of $10 billion due to flooding, compared to insured losses of $5 billion.
“One of the most frustrating things for our industry related to flood is that this is actually an insurable peril and it’s broadly uninsured,” said Keith Wolfe, president of U.S. property & casualty insurance at Swiss Re. Wolf recently spoke with Triple-I CEO Sean Kevelighan, in the latest edition of Triple-I’s Executive Exchange, about closing the flood-protection gap.
That’s changing, however, as the public and private sectors work together to improve consumer behavior and harden communities. The private market is slowly but surely closing the flood protection gap as it emerges as a viable complement to the National Flood Insurance Program.
Improvements in modeling are making this peril more insurable, and private companies are recognizing the flood-insurance opportunity and entering the market. According to Swiss Re, flood represents a $1.1 billion growth opportunity for insurers.
In high-risk areas like the West Coast with its wildfires and Florida with its hurricanes and floods, insurance non-renewals are on the rise as insurers attempt to limit their exposure to future losses. Homeowners insurance protects your most valuable possession, so the prospect of getting a notice that your policy will not be renewed can be nerve-racking.
But don’t panic if that happens – you have options.
Know the difference between cancellation and non-renewal
There is a big difference between an insurance company canceling a policy and choosing not to renew it. Insurance companies can’t cancel a policy that has been in force for more than 60 days except when:
Nonrenewal is a different matter. Either you or your insurance company can decide not to renew the policy when it expires. Depending on the state you live in, your insurance company must give you a certain number of days’ notice and explain the reason for not renewing before it drops your policy.
Question the non-renewal
If you think the reason the insurance company provided for non-renewing is unfair or want a further explanation, call the company. You may get an opportunity to keep your coverage by verifying that you’ve taken risk mitigation measures such as replacing the roof or removing flammable materials near your house.
If your policy isn’t renewed because of a failed inspection, making the proper updates could help you maintain coverage.
Ask friends and relatives for recommendations for insurers and then do your due diligence.
Contact the state insurance department to find out whether they make available consumer complaint ratios by company. If they do, check into the insurers you’re considering doing business with.
Check the financial health of prospective insurance companies by using ratings from independent rating agencies and consulting consumer magazines for reviews.
For price quotes, call companies directly or access information online. Your state insurance department may also provide comparisons of prices charged by major insurers.
Get quotes from at least three companies.
Don’t shop based on price alone. Remember, you’ll be dealing with this company in the event of an accident or other emergency. When you need to file a claim you’ll want an insurer that provides good customer service, so test that while you’re shopping, and choose a company whose representatives take the time to address your questions and concerns.
Explore your state’s shared market option
If you’ve shopped around and can’t find coverage, you may need to turn to the state-run shared market. Many states offer Fair Access to Insurance Requirements (FAIR) policies for high-risk homes, or beach and windstorm plans for coastal properties. These policies offer limited coverage and are often more expensive than a standard home policy from a private insurer.
For more comprehensive coverage, homeowners in California may purchase a “difference in conditions” policy that complements FAIR Plan coverage.
Look into surplus lines
The surplus lines market, which is comprised of highly specialized insurers, exists to provide coverage that is not available through licensed insurers in the standard market. Each state has surplus lines regulations and each surplus lines company is overseen for solvency by its home state.
Available surplus lines companies vary by state. Speak with an insurance agent or broker about surplus lines if you’ve been rejected by at least three other insurers.
Non-renewals in disaster-prone areas
State regulators are pushing back against the non-renewal trend by placing moratoriums on non-renewals for certain zip codes, as happened in California recently, or for certain companies, as is the case in Louisiana.
Whether the decision not to renew is yours or your insurer’s, don’t put off shopping for a new policy. You don’t want coverage on your home to lapse.
