Category Archives: Catastrophes

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. 

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.