Category Archives: Catastrophes

Catastrophes, Disaster Preparedness, Disaster Resilience

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

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

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

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

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

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

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

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

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

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

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

Anomalous as the Texas winter storm may have been, it is a salient data point that all states and municipalities should take to heart in their disaster planning. In December, FEMA proposed “substantively” revising the “estimated cost of assistance” factor the agency uses to review governors’ requests for a federal disaster declaration to “more accurately assess the disaster response capabilities” of the states, District of Columbia and U.S. territories.

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

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

Catastrophes, Disaster Preparedness, Disaster Resilience

Community Catastrophe Insurance: Four Models to Boost Resilience

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

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

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

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

• A facilitator model

• A group policy model

• An aggregator model

• Purchase through a community captive.

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

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

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

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

Catastrophes, Industry Financials, Insurance Industry

Triple-I/Milliman Report: 2020 Turmoil Takes Toll on P/C Insurer Finances

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The global pandemic and costly natural catastrophes will contribute to a projected 101.7 combined ratio for the U.S.’s property/casualty (P/C) insurers in 2020, higher than the 98.8 the industry posted last year, according to the latest Underwriting Projections: 2020-2022 report from Insurance Information Institute (Triple-I) and Milliman.

The combined ratio is the percentage of each premium dollar a P/C insurer spends on claims and expenses. An increase in the combined ratio means financial results are deteriorating, while a decrease means they are improving.

For 2020, insurers are projected to pay nearly $1.02 (101.7) in claims and expenses for every premium dollar they collected. In 2019, they paid about 99 cents (98.8) on every premium dollar in claims and expenses.

The latest report is somewhat rosier than prior projections. For 2020, P/C insurer annual premium growth is projected to be 1.5%, an improvement from the decline of 0.5% projected three months ago, the report noted.

“Our estimates of premium growth are tied pretty tightly to economic indicators. Estimates of 2020 nominal GDP, while still showing shrinkage, have improved. That, plus a more nuanced understanding of how insurers booked the personal auto givebacks, helped us revise our premium estimates,” said Jason B. Kurtz, FCAS, MAAA, Principal & Consulting Actuary, Milliman. 

In addition, the latest report incorporates more information as to how the industry is performing financially year-to-date. Filed first-half results provide a good idea of how premium and insured loss trends are impacting results.

“We can compare loss ratios for this year against last year and prior years and, after a couple of quarters, we can fine-tune our projection,” Kurtz said. “And we know a lot more about catastrophe losses, which are usually the biggest wildcard, and the third quarter is when the hardest catastrophes generally hit.”

For most lines of business, the forecast changed little from three months ago. Premium forecasts for lines like general liability and commercial auto insurance were affected because of the economic forecast.

“In commercial auto, for example, we thought the increase in online shopping would affect exposures more than it appears to have done. But as to the underwriting result, we didn’t change things much. Rates are higher, as we expected, and those lines are still fighting social inflation,” said James Lynch, FCAS, MAAA, Senior Vice President and Chief Actuary, Triple-I.

The report forecasts U.S. P/C insurance industry premium growth of 5 to 6 percent for 2021-22, slightly lower than the prior forecast released by Triple-I and Milliman.

What to Watch for

There’s still a lot of uncertainty when it comes to the pandemic. “The industry continues to grapple with how big the impact will be,” said Lynch. “There’s more certainty than three months ago, but that still leaves a whole lot of uncertainty,” he said. “Our stance remains where it was – the net loss impact will be the equivalent of a major hurricane – but as industry veterans know, some major hurricanes hit harder than others.”   

Also, the path the economy takes as a result of the pandemic matters, added Kurtz. “Gross domestic product (GDP) rose the fastest in U.S. history last quarter, but the resurgence of COVID cases could mean another lockdown – perhaps softer than what we saw in the spring, but any lockdown triggers a slowdown. So, we might see a double-dip recession, and that suppresses premium growth.” He noted that a K-shaped recovery would be good for some segments of the U.S. economy while not being good for others.

Another wild card: government and regulatory responses. Another Coronavirus Aid, Relief, and Economic Security (CARES) Act that puts money in the hands of individuals and businesses is likely to buoy the economy as it did in the spring, the report states. Liability protections for reopening businesses would be favorable for the industry. “Congress may deal with that in the lame duck session or next year, but we will see,” said Kurtz.

The quarterly report was presented on November 17 at an exclusive members only virtual webinar moderated by Sean Kevelighan, Chief Executive Officer, Triple-I.

“This webinar series is another example of how the Insurance Information Institute is modernizing and innovating,” Kevelighan said.  “Under the leadership of our chief actuary, James Lynch, the Triple-I is now giving its members timely, data-driven, and unique insights on insurance industry underwriting projections.”

Catastrophes, Coastal Property, Disaster Resilience

Hurricane Delta Triggered Coral Reef Parametric Insurance

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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.  

Catastrophes

Are Late, Wet Hurricanes Becoming a Trend?

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By Max Dorfman, Research Writer, Insurance Information Institute

Hurricane Zeta became the 11th named storm and 6th hurricane to hit the United States yesterday, as the extremely active 2020 Atlantic hurricane season continues. Zeta struck just one day before the eighth anniversary of Superstorm Sandy.  

Sandy was the deadliest and most destructive hurricane of the 2012 Atlantic season, causing $70 billion in economic damages and resulting in over 70 fatalities when it made landfall in New Jersey. It surprised an under-prepared New Jersey and New York City when it arrived. Sandy was no longer a hurricane when it made landfall, having undergone transition into an extra-tropical (e.g., non-tropical) low pressure area earlier that day. Although it was no longer a hurricane upon its arrival, it was still immensely damaging due especially to its large size, as well as its interaction with a strong storm system moving east.

There is some history of late-season hurricanes, but Colorado State University climate scientist and Triple-I non-resident scholar Dr. PhilKlotzbach says it would be an overstatement to call this a trend.

“We haven’t really seen a trend in late-season hurricane activity,” Klotzbach said. “A lot of what drives late-season hurricane activity is the phase of El Niño or La Niña. If you have a La Niña, like we have this year, which is colder water in the eastern and central tropical Pacific, that tends to reduce the vertical wind shear that typically tears apart hurricanes. Reduced wind shear tends to keep the hurricane season going longer.”

Klotzbach noted that 2012 was neither an El Niño nor La Niña year.

What made Sandy different?

Hurricane Sandy was a massive aberration.

“Normally, when storms spin up in the Caribbean and move northeast, they continue moving northeast into the North Atlantic and do not significantly impact land,” Klotzbach said. “Unfortunately, with Sandy it started moving northwest.” Indeed, Sandy managed to wreak havoc across the Northeast and other parts of the country, including dumping as much as 36 inches of snow in West Virginia.

“There was a big high-pressure area over the Atlantic Provinces of Canada that built to the north of Sandy and drove the storm to the northwest,” Klotzbach explained. “The sustained winds were strong, maxing out around 80 mph, but the real problem with Sandy was its tremendous size.”

Given the large size of Sandy, it drove a huge storm surge that spanned from New Jersey to Connecticut including New York City.

“The storm surge from Sandy was incredible,” Klotzbach said. “The surge also coincided with astronomical high tide, which exacerbated the inland penetration of water from the coast. For example, the storm tide at the Battery on the southern tip of Manhattan exceeded 14 feet.”

What we can do

The public needs to be more informed about the dangers of these kinds of storms. Even though Sandy wasn’t technically a hurricane when it made landfall in New Jersey, Klotzbach believes the transition of the storm from hurricane to extra-tropical may have been confusing for people who didn’t understand that the storm wasn’t less of a threat after its classification was altered.

“Just because the storm was changing in structure doesn’t mean it wasn’t a significant threat,” Klotzbach said. “It had just about the same maximum winds as when it was a hurricane. People also looked at the maximum wind and saw that it was 80mph and didn’t think it was that much of a problem. But it was an enormous storm, so the surge was much bigger than what you’d expect from an average category 1 hurricane. From that perspective, there were challenges with conveying the magnitude of the threat.”

Indeed, Klotzbach gives a dire warning about the risks associated with not taking these storms seriously.

“A lot of it is in the messaging when these storms are going from tropical to extra-tropical,” he said. “We need to convey how these threats are changing and that just because a system is becoming extra-tropical doesn’t mean that the threat has gone away. We need to get more social science integrated into meteorology to better convey these results to the general public.”

Cross-posted from Triple-I’s Resilience Accelerator.

Catastrophes, Disaster Preparedness, Health & Safety

Deaths Resulting from Louisiana Hurricanes Underscore Need for Personal Power Generator Safety Awareness

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(Photo by Rob Foldy/Getty Images)

By James Ballot,  Senior Advisor, Strategic Communications, Triple-I

On October 1, Hurricane Delta hit Louisiana as a Cat. 2 storm, cutting power to almost 700,000 residents and causing further setbacks to people in that region who were still recovering from Hurricane Laura, the Cat. 4 storm that ravaged the region in late August.

Residents in hurricane-prone regions commonly rely on emergency power generators to aid in recovery from storms and other catastrophes. Nevertheless, many home and businessowners lack knowledge and training to safely run these devices: of the more than 30 lives lost to Laura and Delta nearly one-third  were caused by fires or carbon monoxide (CO) poisoning due to improper use of emergency power generators.

If you own a generator or are considering purchasing one as part of your emergency preparedness planning, the Triple-I encourages you to follow guidance put forth by the Center for Disease Control, State Farm, Travelers and other reliable sources, including:

William Davis, the Triple-I’s Georgia Media Relations Director adds, “Before a storm knocks out electricity, generator owners need to learn how to use them safely. Generators can be life savers in time of need, but they can also be killers!”

Catastrophes, Disaster Preparedness, Disaster Resilience, Flood Insurance

Mudslides Often Follow Wildfire; Prepare, Know Insurance Implications

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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.”  

For insurance purposes, it’s important to understand the difference between “mudslides” and “mudflow.” 

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. 

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

If It Can Rain, It Can Flood: Buy Flood Insurance

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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.   

Business Insurance, Business Risk, Catastrophes, Disaster Preparedness, Disaster Resilience, Floods, Insurers and the Economy, Legal Environment

Policyholder Surplus Matters: Here’s Why

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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.

Further Reading:

POLL: GOVERNMENT SHOULD PROVIDE BUSINESS INTERRUPTION SUPPORT

TRIPLE-I GLOBAL OUTLOOK: CONTINUED PRESSURE ON INVESTMENTS & PREMIUMS

BATTLING FIRES, CALIFORNIA ALSO STRUGGLES TO KEEP HOMEOWNERS INSURED

LAURA LOSS ESTIMATES: $4 BILLION TO $13 BILLION

ATYPICAL WILDFIRE ACTIVITY? OF COURSE — IT’S 2020

SWISS RE: A KATRINA-LIKE HURRICANE COULD CAUSE UP TO $200 BILLION IN DAMAGE TODAY

U.K. BUSINESS INTERRUPTION LITIGATION SEEMS UNLIKELY TO AFFECT U.S. INSURERS

RECESSION, PANDEMIC TO IMPACT P/C UNDERWRITING RESULTS, NEW REPORT SHOWS

BUSINESS INTERRUPTION VS. EVENT CANCELLATION: WHAT’S THE BIG DIFFERENCE?

CHUBB CEO SAYS BUSINESS INTERRUPTION POLICIES ARE A GOOD VALUE AND WORK AS THEY SHOULD

TRIPLE-I CHIEF ECONOMIST: P/C INDUSTRY STRONG, DESPITE SURPLUS DROP

INSURED LOSSES DUE TO CIVIL UNREST SEEN NEARING 1992 LEVELS

COVID-19 AND SHIPPING RISK

BUSINESS INTERRUPTION COVERAGE: POLICY LANGUAGE RULES

Catastrophes, Disaster Preparedness, Disaster Resilience

Battling Fires, California Also Struggles to Keep Homeowners Insured

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The Los Angeles office of the National Weather Service predicted prolonged, potentially record-setting heat and dangerous weather conditions throughout California this summer – and, some experts expect it to continue for some time beyond.

“If you like 2020, you’re going to love 2050,” said Michael Gerrard, director of Columbia University’s Sabin Center for Climate Change Law, in a recent Los Angeles Times article.

These conditions can only exacerbate this year’s atypical wildfire activity in the state. So, it should be no surprise that California is grappling with how to stop insurers from abandoning fire-prone areas, leaving countless homeowners at risk.

“Years of megafires have caused huge losses for insurance companies, a problem so severe that, last year, California temporarily banned insurers from canceling policies on some 800,000 homes in or near risky parts of the state,” The New York Times reports. “However, that ban is about to expire and can’t be renewed, and a recent plan to deal with the problem fell apart in a clash between insurers and consumer advocates.”

Insurers are widely expected to continue their retreat.

“The marketplace has largely collapsed” in high-risk areas, said Graham Knaus, executive director of the California State Association of Counties. “It’s a very large geographic area of the state that is facing this.”

California, where regulations lean toward consumer protection, is particularly challenged. The state doesn’t let insurers set premiums based on what they expect in future damages. They can only set rates based on prior losses. They also aren’t allowed to pass along reinsurance costs to policyholders – costs that are expected to rise as fire risks worsen.

State lawmakers introduced a bill to let insurers writing coverage in wildfire-prone areas incorporate climate predictions and other costs into their rate requests in return for making coverage more available and offering discounts to people who take steps to reduce their home’s vulnerability.

Insurers supported the change, as did the counties association and the union representing firefighters. But the bill faced strong opposition from consumer groups, who ultimately prevailed. Last month, the state senate stripped most of the provisions from the bill and directed the insurance commissioner to review the current rules and report back to the legislature in two years.

The legislature ended its session without acting on the revised version. Insurance Commissioner Ricardo Lara said his focus now is working with high-risk communities to reduce their wildfire risk enough that insurers will keep offering coverage without big rate increases.

“If Californians do our part to protect homes from wildfire,” Lara said, the industry should respond by agreeing to insure those homes.

Janet Ruiz, Triple-I’s director of strategic communications, said, “Insurers in California are working with legislators and the California Department of Insurance to find solutions to keep homeowners insured in wildfire risk areas. The industry supports mitigation efforts, the California FAIR Plan, and the proposed IMAP program.”