Category Archives: Catastrophes

Business Risk, Catastrophes, Cyber Risk, Disaster Preparedness, Disaster Resilience, Emerging Risks, Risk Management

Man-made and Natural Hazards Both Demanda Resilience Mindset

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This weekend’s ransomware attack that forced the closure of the largest U.S. fuel pipeline provides another powerful illustration of the need for a resilience mindset that applies to more than just natural catastrophes.

Colonial Pipeline Co. operates a 5,500-mile system that transports fuel from refineries in the Gulf of Mexico to the New York metropolitan area. It said it learned Friday that it was the victim of the attack and “took certain systems offline to contain the threat, which has temporarily halted all pipeline operations.”

Individually, the event demonstrates the threat cybercriminals pose to the aging energy infrastructure that keeps the nation moving. More frighteningly, though, it is yet another example of how vulnerable the complex, interconnected global supply chain is to disruptions of all kinds – a message that isn’t lost on risk managers and insurers.

Last year, a ransomware attack moved from a natural-gas company’s networks into the control systems at a compression facility, halting operations for two days, according to a Department of Homeland Security (DHS) alert. 

The DHS described the attack on an unnamed pipeline operator that halted operations for two days.  Although staff didn’t lose control of operations, the alert said the company didn’t have a plan in place for responding to a cyberattack.

“This incident is just the latest example of the risk ransomware and other cyber threats can pose to industrial control systems, and of the importance of implementing cybersecurity measures to guard against this risk,” a CISA spokesperson said at the time.

Not just energy companies

It isn’t only energy and industrial companies that need to be paying attention. According to cyber security firm VMware, attacks against the global financial sector increased 238 percent from the beginning of February 2020 to the end of April, with some 80 percent of institutions reporting an increase in attacks.

“Cyber is an existential issue for financial institutions, which is why they invest heavily in cyber security,” says Thomas Kang, Head of Cyber, Tech and Media, North America at Allianz Global Corporate & Specialty (AGCS). “However, with such potentially high rewards, cybercriminals will also invest time and money into attacking them.”

He pointed to two malware campaigns – known as Carbanak and Cobalt – that targeted over 100 financial institutions in more than 40 countries over five years, stealing over $1 billion.

An ACGS report shows technical failures and human error are the most frequent generators of cyber claims, but the financial impact of these is limited:

“Losses resulting from the external manipulation of computers, such as distributed denial of service attacks (DDoS) or phishing and malware/ ransomware campaigns, account for the significant majority of the value of claims analyzed across all industry sectors (not just involving financial services companies).”

According to the report, regulators have turned their attention to cyber resilience and business continuity.

“Following a number of major outages at banks and payment processing companies, regulators have begun drafting business continuity requirements in a bid to bolster resilience.”

Not just cyber

The COVID-19 pandemic has taught the world a lot of lessons, not the least of which is how vulnerable the global supply chain – from toilet paper to semiconductors – is to unexpected disruptions. Demand for chlorine increased during 2020 as more people used their pools while stuck at home under social distancing orders and homeowners also began building pools at a faster rate, adding to the additional demand. Such disruptions can ripple through the economy in different directions.

Business interruption claims and litigation have been a significant feature of the pandemic for property and casualty insurers.

When the container ship Ever Given got wedged in the Suez canal – one of the most important arteries in global trade – freight traffic was completely blocked for six days. Even as movement resumed, terminals experienced congestion and the severe drop in vessel arrival and container discharge in major terminals aggravated existing shortages of empty containers available for exports. The ship’s owners and the Egyptian government remain locked in negotiations over compensation for the disruption, and the ship is still impounded.

Spurred in part by this event, the Japanese shipping community is considering alternative freight routes to Europe, both reliant on Russia: the Trans-Siberian Railway and the Northern Sea Route. Neither option is devoid of risks.

In an increasingly interconnected world, there is no bright line distinguishing man-made from natural disasters. After all, the Ever Given grounding was caused, at least in part, by a sandstorm. April’s power and water disruptions that left dozens of Texans dead and could end up being the costliest disaster in state history were initiated by a severe winter storm.

A resilience mindset focused on pre-emptive mitigation and rapid recovery is called for in both cases. There is no “either/or.”

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

Flood: Beyond Risk Transfer

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Half a billion people worldwide are affected by floods annually, and about 90 percent of all U.S. natural disasters involve flooding. The human and economic tolls are massive, and until recently insuring these risks and helping communities recover fell almost entirely on government programs. 

Improved data, analysis, and modeling have helped drive private-sector interest in flood-risk transfer and mitigation. But despite growing private involvement, many experts consider the current system unsustainable. A resilience mindset is required, and that demands more than insurance products.

A new Triple-I paper analyzes the current state of flood risk and resilience and discusses how governments, corporations, academia, and others are rising to the challenges and seizing the opportunities.

“New products alone will not close the protection gap,” says Triple-I CEO Sean Kevelighan. “Risk transfer is just one tool in the resilience toolkit. Our understanding of loss trends and expertise in assessing and quantifying risk must be joined at the hip to technology, public policy and finance, and science. We need to partner with communities and businesses at every level to promote a broad resilience mindset focused on pre-emptive mitigation and rapid recovery.”

The Triple-I paper describes how this is happening. Tapping its own resources and the expertise of its insurance and risk-management network, Triple-I is pleased to bring you this analysis of the current state of flood risk and resilience.

Catastrophes, Disaster Preparedness, Disaster Resilience, Emerging Risks, Insurers and the Economy, Risk Management

Climate Risk Is Not a New Priority for Insurers

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Treasury Secretary Janet Yellen’s pledge to tackle climate change and warning about the economic consequences of failure to act underscore the fact that climate is no longer “merely” an ecological and humanitarian issue – real money is involved.

As long as climate was perceived as a pet project of academics and celebrity activists, driving behavioral change – particularly on the part of industries with billions invested in carbon-intensive technologies and processes – was going to be an uphill effort. But the Titanic has begun to turn, and no industry is better positioned than insurance to help right its course. Insurers are no strangers to climate-related risk – they’ve had a financial stake in it for decades.

Let’s look at the facts:

Global insured weather-related property losses have outpaced inflation by about 7 percent since 1950. Of the $1.7 trillion of global insured property loss reported since 1990, a third is from tropical cyclones, according to Aon data. Nine of the 10 costliest hurricanes in U.S. history have occurred since 2004, and 2017, 2018, and 2019 represent the largest back-to-back-to-back insured property loss years in U.S. history.

Determining how much such losses are driven by climate versus other factors is complicated, and that’s part of the point.

“I know some have argued that this is a reason for us to move slowly,” Yellen said. “The thinking goes that because we know so little about climate risk, let’s be tentative in our actions—or even do nothing at all.  This is completely wrong in my view.  This is a major problem and it needs to be tackled now.”

Understanding the complexities of weather, climate, demographics, and other factors that contribute to loss trends requires data, analytical tools, and sophisticated modeling capabilities. Insurers invest heavily in these and other resources to be able to assess and price risk accurately. As a result, they’re uniquely well positioned to inform the conversation, drive action, and present solutions. 

And they’re leading by example.

Chubb Chairman and CEO Evan G. Greenberg is among the industry leaders who has been on the forefront of communicating about climate risk. When Chubb announced that it will not make new debt or equity investments in companies that generate more than 30 percent of revenues from coal mining or coal energy production, Greenberg said, “Making the transition to a low-carbon economy involves planning and action by policymakers, investors, businesses and citizens alike. The policy we are implementing today reflects Chubb’s commitment to do our part as a steward of the Earth.”

Swiss Re last month announced a similarly ambitious carbon reduction target of 35 percent by 2025 for its investment portfolio. Zurich Insurance Group last year announced the launch of its Climate Change Resilience Services to help businesses better prepare for current and future risks associated with climate. Aon annually publishes its Weather, Climate and Catastrophe Insight reports.

These are just a few examples of how the insurance industry already is recognizing its stake in addressing climate change and providing resources to help others attack the problem.  

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

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

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

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

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

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

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

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

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

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

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

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

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

Catastrophes, Disaster Preparedness, Disaster Resilience

Some Experts Suggest Retiring the Name “Tornado Alley”

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(Photo by Robert Laberge/Getty Images).

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

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

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

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

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

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

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

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

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

Why does it matter?

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

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

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

For more information:

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

Careers and Employment, Catastrophes, Insurance Industry, Risk Management

Women’s History Month Karen Clark: A Model of Success

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

Like many people, Karen Clark’s career was influenced by circumstances and serendipity rather than advanced planning.  In graduate school she developed a love of building computer models, leading to her first job in the research department of Commercial Union Assurance. 

“One of my first assignments was to figure out if the insurer had too much coastal exposure because they had been growing along the coastline,” said Clark.  “I started to research hurricanes and how I could potentially build a model to estimate hurricane losses.” 

That research ultimately led Clark to write her seminal paper “A Formal Approach to Catastrophe Risk Assessment and Management,” published in the Casualty Actuarial Society Proceedings, in which she argued for probabilistic models rather than the subjective rules of thumb then used in underwriting. 

“Catastrophe modeling was a game-changer because it introduced a whole new way of understanding and managing risk,” Clark explained.  “We don’t just look at worse-case scenarios, but we develop a probability distribution of potential outcomes.  What are the chances of a $1 billion versus a $10 billion hurricane loss?  You need probabilities so you can evaluate how likely you are to have a solvency-impairing event and how much reinsurance you want to purchase and for pricing the product.  You also need to know what the costs and benefits are of different mitigation strategies.  That’s what was missing prior to the catastrophe models.” 

Being Taken Seriously as a Woman in the Insurance Industry

When Clark first started out, catastrophe reinsurance was primarily written out of Lloyd’s of London.  “Lloyd’s was 100% male,” she laughed.  “I gave my first presentation in the Lloyd’s Library to about 100 male underwriters.  Not only was I a woman, but I was an American woman, and I was seven months pregnant,” she said.  “Along with that, I was carting this portable computer. Many underwriters had never seen a portable computer, much less used one. 

“After my presentation, there was silence in the room, and little interest, but that didn’t dissuade me.  I was determined to find those innovators and forward thinkers and I did find a few in Lloyd’s and in the U.S., who helped me to develop AIR’s first product, CATMAP.”

Clark said it is important early on to find those forward thinkers who believe in what you’re doing and are willing to make a commitment.  She advised women not to take no for an answer and to be good communicators.  “You always have to ask for what you want.  The worse that can happen is you get a no.” 

Clark hasn’t looked back since.  As founder of the first catastrophe modeling company, Applied Insurance Research, later AIR Worldwide, she became an internationally recognized expert in the new field of catastrophe risk modeling, revolutionizing the way insurers, reinsurers and financial institutions manage their catastrophe risk. 

Clark declined many offers to sell her company over the years, but eventually decided to sell AIR to Insurance Services Office (ISO).  Several years later, she co-founded  Karen Clark & Company (KCC) with her business partner, Vivek Basrur, never intending to develop catastrophe models again.  “But as my partner likes to say, life is what happens when you have other plans.”

Reinventing an industry

“Through numerous consulting engagements with global (re)insurers we discovered the models were not meeting all the needs of the senior level decisions makers.  We started hearing several consistent themes and eventually developed what we called the CEO Wish List”, said Clark.

That CEO Wish List informed the KCC vision for a new generation of catastrophe models—models that are more accurate, fully transparent, and provide decision makers with additional risk metrics and insight into large loss potential.  “We didn’t change the fundamental structure of the models”, says Clark, “but rather how the models are  delivered to (re)insurers and how they can be leveraged in new ways.”

Clark said that KCC is doing a few things differently than other modelers and one of them is their scientific approach.  “Rather than extrapolating from historical data, we have implemented advanced physical modeling techniques for the more frequent events, such as severe convective storms, winter storms, and extratropical cyclones.  This enables our models to capture all weather-related claims and not just those defined as catastrophes.  Our internal systems automatically ingest over 30 gigabytes of data a day from all the satellites, radar stations and global models so our clients have high resolution hazard footprints every morning for monitoring and managing daily claims activity. 

“Interestingly, reinventing the catastrophe modeling industry was just as challenging as inventing it”, says Clark, “because most people thought it was impossible.”  “We again had to find those industry leaders and early adopters who believed in our vision and then worked with us to make it a reality.”

Clark said she’s very fortunate she discovered her passion at a young age when she first started her career.  I just love what I do, and until I can come up with something else that I could enjoy doing daily as much as I enjoy KCC, I’ll be right here.”

Cross-posted from the Triple-I Resilience Accelerator blog

Catastrophes, Insurance Industry

Triple-I CEO: 2020 Proved Insurers Can Lead Through Disruption

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Sean Kevelighan


The U.S.’s auto, home, and business insurers have more than met the challenges raised by COVID-19 over the past year, according to Sean Kevelighan, CEO, Insurance Information Institute (Triple-I).

“2020 proved how this industry can lead through disruption. We can adapt. We can innovate. We can keep our promises and pay claims—even during a global pandemic,” Kevelighan said, in remarks today to the Reinsurance Association of America’s (RAA) virtual 2021 Catastrophe Risk Management conference.

The net income after taxes for U.S. auto, home, and business insurers cumulatively dropped to $35 billion in the first nine months of 2020, a 25-plus percent decrease from where the insurers’ net income after taxes stood after the first nine months of 2019, Kevelighan said. The deterioration was attributable in part to the severity of 2020’s hurricanes, wildfires, and civil unrest.

Despite these events, the Triple-I’s CEO noted how insurers provided an estimated $14 billion in premium relief to locked-down drivers, donated nearly $300 million to charitable causes, and largely retained its national workforce of 2.8 million Americans as premiums grew modestly.

“If you look at net premiums written growth, we were actually at the 10-year average last year,” Kevelighan continued, reporting how auto, home, and business insurers realized three percent net premiums written growth year-over-year when comparing the first nine months of 2020 to the same timeframe in 2019. Net premiums written are premiums written after reinsurance transactions.

COVID-19’s arrival in the U.S. also prompted the Triple-I’s launch last year of its Future of American Insurance & Reinsurance (FAIR) campaign, he continued, as policymakers, such as those in the U.S. House of Representatives, sought clarity on what property damages were, and were not, covered under standard business income (interruption) insurance policies.

“The FAIR campaign was meant to be an aggressive way to inform the discussion,” Kevelighan stated, “Our customers needed financial support and we knew the federal government was the only entity who could provide it.”

In assessing 2021’s key issues, Kevelighan said he thought telematics and social inflation would take on greater import among insurers and their policyholders. “Telematics is one way our industry can drive safety on our roads,” the Triple-I’s CEO said, referring to the devices drivers can place voluntarily in their vehicles to reduce the cost of auto insurance and to encourage safe driving habits. “Social inflation is getting worse. These massive litigation lawsuits are really putting a strain on the cost of liability insurance,” Kevelighan stated.

Following his remarks, Kevelighan participated in a live question and answer session moderated by Frank Nutter, president, RAA. Katrin Zitzelsberger, senior epidemiologist, Munich Re, and Damon Vocke, partner, Duane Morris, joined them.

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

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

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

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

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

Flood protection gap

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

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

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

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

As a result, a substantial protection gap exists.

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

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

Current system unsustainable

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

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

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

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

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

Catastrophes, Insurance Industry, Risk Management

Triple-I CEO to speakat RAA Catastrophe Risk Management Conference

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Sean Kevelighan, Triple-I CEO, will be a featured speaker at the Reinsurance Association of America’s 18th annual Cat Risk Management conference as part of a COVID-19 panel. The panel will discuss the economic impact of the pandemic on insurers, pandemic-related litigation, and reinsurance issues.

The online conference takes place March 22-24 and features a powerhouse roster of experts who will share their views on lessons learned from the tumultuous year just passed, explore risk-management issues, and offer insights on how decision makers can navigate 2021. 

Conference registration includes three full days of information, plus an on-demand capability that lets attendees preview sessions before the scheduled presentations and review sessions they might have missed or wish to view again.

The conference targets financial-sector professionals–including insurers, reinsurers, and investment banks–responsible for catastrophe risk management; attorneys specializing in reinsurance; academics; federal/state government officials; and regulators. In addition to the exceptional technical program, it’s a great networking opportunity. 

Review the agenda and register at www.reinsurance.org.