Category Archives: Disaster Preparedness

Catastrophes, Disaster Preparedness, Disaster Resilience, Risk Management

Insurers Engage
as Climate Perils
Drive Up Costs

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By Max Dorfman, Research Writer, Triple-I

2023 was another year with high-risk climate and weather-related challenges, with 2024 positioned to pose its own challenges.

Indeed, 2023 was the warmest year for the globe since 1850 — when these records were first made. The temperature in 2023 was over two degrees Celsius above the 20th Century average, with the 10 warmest years in recorded history occurring from 2014-2023. Record-setting temperatures hit areas across Canada, the southern United States, Central America, South America, Africa, Europe, Asia, as well as parts of the Atlantic Ocean, the Indian Ocean, and South Pacific Ocean.

These shifts in global weather – combined with changing population and other dynamics – have played a powerful role in the risk of disasters.

Costs are high

In the United States, Allianz estimates, extreme weather events now cost the country $150 billion a year, making these perils “key threats” for organizations. However, larger companies are leading a response to these risks by transforming their business models to low carbon, while also creating new and improved plans to respond to climate events. Allianz notes that supply-chain resilience is a crucial area of focus for the coming year.

“Although this year’s Allianz Risk Barometer results on climate change show that reputational, reporting, and legal risks are regarded as lesser threats by businesses,” said Denise De Bilio, ESG Director, Risk Consulting, Allianz Commercial, “many of these challenges are interlinked.”

According to Allianz, exposure remains highest for utility, energy, and industrial sectors. Last year’s wildfires in Canada limited oil and gas output to 3.7 percent of national production. Water scarcity is now also considered to be a threat.

Promising developments

As Triple-I reported in late 2023, despite all the concern regarding climate risk, certain weather-related disasters actually declined in the past year. This includes U.S. wildfire, which saw its lowest frequency and severity in the past two decades, despite catastrophic losses in Washington State, Hawaii, Louisiana, and elsewhere, according to a Triple-I Issues Brief. California – a state often considered synonymous with wildfire – last year experienced its third mild fire season in a row.

Homeowners insurance rates in California, as elsewhere in the United States, have been rising.  Some of this trend is due to wildfires and construction in the wildland-urban interface, which put increased amounts of expensive property at risk. According to Cal Fire, five of the largest wildfires in the state’s history have occurred since 2017. 

Much of California’s problem, however, is related to a 1988 measure – Proposition 103 – that severely constrains insurers’ ability to profitably insure property in the state. Late in 2023, California Insurance Commissioner Ricardo Lara announced a package of executive actions aimed at addressing some of the challenges included in Proposition 103.

Flood remains a severe and increasing peril in the United States. While the federal government remains the main source of insurance coverage through FEMA’s National Flood Insurance Program (NFIP), the private insurance market is increasingly stepping up to assume more of the risk. As Triple-I has reported, between 2016 and 2022, the total flood market grew 24 percent – from $3.29 billion in direct premiums written to $4.09 billion – with 77 private companies writing 32.1 percent of the business.  As the charts below make clear, private insurers are accounting for a bigger piece of a growing pie.

This is an important development, as the growing private-sector involvement in flood can reasonably be expected to result, over time, in greater availability and affordability of flood insurance as the peril increases and NFIP – through increased reliance on risk-based pricing – spreads the cost of coverage more fairly among property owners. Historically, the system often subsidized coverage for higher-risk homes, to the detriment of lower-risk property owners. With NFIP premium rates rising to more accurately reflect the risk assumed, private insurers – armed with increasingly sophisticated data and analytical tools – are better equipped than ever to identify opportunities to write more business.

Much yet to be done

Growing awareness and action to address climate-related risk is promising, but the crisis is far from over. In several U.S. states, insurance affordability and even availability are being affected, and much of the conversation around this topic confuses cause with effect. Rising insurance rates and constrained underwriting capacity is a result of the risk environment – not a cause of it.

Investment in mitigation and resilience is necessary, and this will require collective responsibility from the individual and community levels up through all levels of government. It will require public-private partnerships and appropriate alignment of investment incentives for all co-beneficiaries.

Learn More:

Triple-I Issues Brief: Flood

Triple-I Issues Brief: Wildfire

FEMA Reauthorization Session Highlights Importance of Risk Transfer and Reduction

Miami-Dade, Fla., Sees Flood Insurance Rate Cuts, Thanks to Resilience Investment

Milwaukee District Eyes Expanding Nature-Based Flood-Mitigation Plan

Attacking the Risk Crisis: Roadmap to Investment in Flood Resilience

It’s Not an “Insurance Crisis” — It’s a Risk Crisis

Catastrophes, Disaster Preparedness, Disaster Resilience, Homeowners Insurance

FEMA Highlights Role
of Modern Roofs
in Preventing
Hurricane Damage

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By Max Dorfman, Research Writer, Triple-I

Homes with more modern roofs were able to avoid significant damage from Hurricane Ian, compared with those with older roofs, according to a recent study by the Federal Emergency Management Agency (FEMA).

Of the 200 homes surveyed, 90 percent with roofs installed before 2015 had roof damage, as opposed to 28 percent for those installed after 2015, when Florida imposed new ordinances regarding how roofs are attached to houses and how waterproof they need to be. Indeed, when Hurricane Ian made landfall at Cayo Costa, a barrier island in Lee County, Fla., on Sept. 28, 2022, it damaged 52,514 homes and other structures in the area, causing an estimated $55 billion in insured losses in 2024 dollars.

Some of this damage, according to the data, could have been mitigated by updated roofs.

History tells the same story

After the devastation of Hurricane Andrew in 1992, Florida took the initiative to develop innovative plans to prevent hurricane damage. These changes further came into effect in 2002, with a new focus on roofing. However, there were inconsistencies in the quality of the roofing.

“The 1970s-era homes performed better than some of the post-2002 new building code homes because of the sealed roof deck,” Leslie Chapman-Henderson, president of the Federal Alliance for Safe Homes, told The Miami Herald. “It was a nominal cost (to reinforce the roof) and a simple thing to do, but it made a huge difference.”

Now, with a renewed focus on metal sheet roofs—which bear the brunt of storms more resiliently than asphalt shingle roofs—FEMA’s data could drastically change the way in which homes are built, and how insurers are responding to fraudulent claims.

Insurance scams set progress back

Insurers are forced to raise the price of coverage in hurricane-prone areas in Florida because of a rash of schemes to deliberately damage roofs to qualify them for insurance claims, a persisting trend.

“Fraud drives insurance rates up and harms all Florida policyholders,” Citizens Property Insurance CEO Tim Cerio said. Still, implementing the changes suggested by the FEMA study may help alleviate some of the concerns posed by insurers—and help homeowners.

“When you’re looking at a home and evaluating its ability to survive a hurricane, the health of the roof is the first question to ask,” said Chapman-Henderson. “It not only increases your performance in the hurricane itself, but in the current environment it can help save you money on your insurance.”

Learn More:

Lawsuits Threaten to Swell Hurricane Ian’s Pricetag

Triple-I Issues Brief: Hurricanes

Auto Insurance, Coastal Property, Disaster Preparedness, Homeowners Insurance, Legal Environment, Market Conditions, Risk Management, Theft

Chubb Highlights Perils Keeping High-Net-Worth People Awake at Night

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According to a recent Chubb survey of 800 high-net-worth individuals in the United States and Canada, 92 percent are concerned about the size of a verdict against them if they were a defendant in a liability case – yet only 36 percent have excess liability insurance.

When it comes to liability, Chubb says respondents are most worried about auto accidents, allegations of assault or harassment, and someone working in their home getting hurt. Damage awards are rising dramatically for a number of reasons, according to Laila Brabander, head of North American personal lines claims for Chubb.

“Economic damages historically were based on factors such as the extent of an injury and resultant medical expenses or past and future loss of income,” she said. “But we are seeing a rise in non-economic damages, such as pain and suffering and post-traumatic stress disorder, that overshadow actual economic losses.”

Brabander described a case in which a client at a yoga studio fell onto the person next to her and was sued by the injured party for pain and suffering.

“The same plaintiffs’ tactics to encourage large verdicts in commercial trucking, auto liability, product liability and medical malpractice suits are now being utilized to push for larger jury awards against our high-net-worth clients,” Brabander said.

Another factor driving up the cost of settlements is the third-party litigation funding, in which firms  provide funding to plaintiffs and their lawyers in exchange for a percentage of the settlement. These private-equity firms began in the commercial space and are now funding lawsuits against individuals and their insurers.

High-net-worth people also are deeply concerned about the threats posed to their homes by extreme weather and climate-related events. Much of this concern may be due to increased development in coastal areas vulnerable to tropical storms and flooding and in the wildland-urban interface – areas in which development places property into proximity with fire-prone wilderness (see links below).

Chubb’s findings are based on a survey of 800 wealthy individuals in the United States (650 respondents) and Canada (150 respondents). Respondents had investable assets of at least $500,000, with the majority reporting assets of $1.5 million to $50 million and 12 percent reporting assets of more than $50 million.

Learn More:

Triple-I Issues Brief – State of the Risk: Wildfire

Triple-I Issues Brief – State of the Risk: Hurricanes

What Is Third-Party Litigation Funding and How Does It Affect Insurance Pricing and Affordability?

Catastrophes, Disaster Preparedness, Disaster Resilience, Homeowners Insurance, Risk Management

Despite High-Profile Events, U.S. Wildfire Severity, Frequency
Have Been Declining

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With record-breaking wildfires making headlines in recent years, it may be surprising to learn that U.S. wildfire frequency and severity for in 2023 are on track to be the lowest in the past two decades. In fact, the trend has been generally downward since 2000, according to a recently published Triple-I Issues Brief.

Despite catastrophic losses in Washington State, Hawaii, Louisiana, and elsewhere, California – a state often considered synonymous with wildfire – is in the midst of its second mild fire season in a row. This may be due to drought-breaking rains and snows, but Texas is experiencing fewer wildfires than in 2022, despite worsening drought conditions. About 37 percent of the continental U.S. remains under some form of drought, according to the U.S. Drought Monitor.

At the same time, Swiss Re reports that wildfire’s share of insured natural catastrophe losses has doubled over the past 30 years. How can those trends be reconciled? At least part of the answer resides in population trends – specifically, growing numbers of people choosing to live in the wildland-urban interface (WUI), the zone between unoccupied and developed land, where structures and human activity intermingle with vegetative fuels.

 Mitigation is necessary – but not sufficient

The improvements in frequency and severity are likely due to investments in mitigation. State and local authorities have invested heavily to mitigate the human causes of wildfire. In addition, the federal Infrastructure and Jobs Act of 2021 included billions to support wildfire-risk reduction, homeowner investment in mitigation, and improved responsiveness to fires. More recently, the Biden Administration announced $185 million for wildfire mitigation and resilience as part of the Investing in America Agenda, which should help continue the declines in frequency and severity.

But with more people living in the WUI – nearly 99 million, or one third of the U.S. population, according to the U.S. Fire Administration – more than 46 million homes with an estimated value of $1.3 trillion are at risk.

According to the 2022 Annual Report of Wildfires produced by the National Interagency Fire Center (NIFC), 68,988 wildfires were reported and 7.5 million acres burned in 2022.  Of these fires, 89 percent were caused by human activity and burned 55 acres per fire. By contrast, the 11 percent of fires caused by lightning resulted in an average of 563 acres burned, 10 times more than human-caused fires.

This difference may shed light on why the number of fires has been decreasing more dramatically than acres burned. Further, population shifts into the WUI are increasing the proximity of property to places prone to fire, helping to explain the rise in wildfire’s increased percentage of insured losses.

Catastrophes, Coastal Property, Disaster Preparedness, Disaster Resilience, ESG, Floods, Homeowners Insurance, Risk Management

CSAA: When It Comes
to Fighting Climate Risk, We’re All On the Same Side

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By Max Dorfman, Research Writer, Triple-I

CSAA Insurance Group – a AAA insurer – is spurring innovation in the insurance industry through several initiatives tackling the dangers of climate risk.

“We’ve been on a journey to reduce our environmental footprint for a long time,” said Debbie Brackeen, Chief Strategy & Innovation Officer with CSAA, in a recent executive exchange with Triple-I CEO Sean Kevelighan. “We are seeking to reduce our carbon footprint by 50 percent by 2025. We view this work as aligned with our mission: to help our members prepare for and recover from climate risk.”

CSAA has taken several steps to help achieve its goals, including:

  • Leading the first-ever Innovation Challenge on climate resilience with IDEO and Aon, along with several other sponsors;
  • Working on the California Innovation Fund in partnership with Blue Forest, a $50 million fund that CSAA contributed half that capital, focused on forest restoration and reducing fuel in a smart and sustainable way; and
  • Supporting the Wildfire Interdisciplinary Research Center at San Jose State University, which conducts work around predictive modeling, among other endeavors.

While this may seem like a new development, Kevelighan noted that insurers have long worked toward these goals.

“We’ve seen the ESG movement take a hold in the past few years, but it’s been in the DNA of the Triple-I and the insurance industry generally for a long time,” Kevelighan said. “More than half the battle is recognizing that the risk is increasing, while identifying solutions.”

Still, with the increasing consequences associated with climate risk, more work needs to be done.

“There were billion-dollar wildfire losses at CSAA in my first two years in the industry,” Brackeen said. “I wondered if this was normal. It ignited in me that, whatever we do in innovation, it will have to do with wildfire risk. However, what concerns me the most is that risks are becoming uninsurable. This is from the cumulative effects of several different types of losses, including convective storms.”

“We have to seek different types of innovative partnerships to address these issues,” Brackeen concluded. “In this fight for our industry, there are no competitors. We have to be on the same side of the table.”

Catastrophes, Disaster Preparedness, Disaster Resilience, Earthquakes, Emerging Risks, ESG, Flood Insurance, Floods, Insurers and the Economy, Legal Environment, Regulation, Risk Management

Triple-I Town Hall Amplified Calls
to Attack Climate Risk

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By Jeff Dunsavage, Senior Research Analyst, Triple-I

I’m pleased and proud to have been part of Triple-I’s Town Hall — “Attacking the Risk Crisis” — in Washington, D.C. In an intimate setting at the Mayflower Hotel on November 30, 120-plus attendees got to hear from experts representing insurance, government, academia, nonprofits, and other stakeholder groups on climate risk, what’s being done to address it, and what remains to be done.  

Triple-I’s first-ever Town Hall was designed as a logical step in its multi-disciplinary, action-oriented effort to change behavior to drive resilience. Capping a year in which headlines about “insurance crises” in several states garnered major media attention, Triple-I and its members and partners recognized the need for clarification.

“What we’re seeing is not an ‘insurance crisis’,” Triple-I CEO Sean Kevelighan told the standing-room-only audience. “We’re in the midst of a risk crisis. Rising insurance premium rates and availability difficulties are not the cause but a symptom of this crisis.”

Whisker Labs CEO Bob Marshall discusses innovation with moderator Jennifer Kyung, Vice President and Chief Underwriter at USAA.

While the insurance industry has a critical role to play and is uniquely well equipped to lead the attack, simply transferring risk is not enough. A recurring theme at the Town Hall was the need to shift from a focus on assessing and repairing damage to one of predicting and preventing losses.

Three moderated discussions – examining the nature of climate risk and its costs; highlighting the need of strategic innovation in mitigating those risks and building resilience; and exploring the role and impact of government policy – gave panelists the opportunity to share their insights with a diverse audience focused on collaborative action.

The agenda was:

Climate Risk Is Spiraling: What Can Be Done?

Moderator: David Wessel, Senior Fellow and Director at the Brookings Institution and former Economics Editor for The Wall Street Journal.

Panelists:

Dr. Philip Klotzbach, Colorado State University, researcher and Triple-I non-resident scholar.

Dan Kaniewski, Managing Director, Public Sector at Marsh McLennan, Former FEMA Deputy Administrator.

Jacqueline Higgins, Head, North America & Senior Vice President, Public Sector Solutions, Swiss Re

Jim Boccher, Chief Development Officer, ServiceMaster.

Jeff Huebner, Chief Risk Officer, CSAA.

Innovation, High- and Low-Tech: How Insurers Are Driving Solutions

Moderator: Jennifer Kyung, VP, Chief Underwriter, USAA.

Panelists:

Partha Srinivasa, EVP, CIO, Erie Insurance.

Sam Krishnamurthy, CTO, Digital Solutions, Crawford.

Bob Marshall, CEO, Whisker Labs.

Stephen DiCenso, Principal,Milliman.

Charlie Sidoti, Executive Director, InnSure.

Outdated Regs to Legal System Abuse: It Will Take Villages to Fix This

Moderator: Zach Warmbrodt, financial services editor, Politico.

Panelists:

Parr Schoolman, SVP and Chief Risk Officer, Allstate.

Tim Judge, SVP, Head Modeler, Chief Climate Officer, Fannie Mae.

Dan Coates, Deputy Director, DRS, Federal Housing Finance Agency.

Fred Karlinsky, Co-Chair of Greenberg Traurig’s Global Insurance Regulatory & Transactions Practice Group.

Panelists and participants alike appreciated the compact, action-focused, conversational nature of the single-afternoon event, as well as the opportunity to discuss areas in which their diverse industry- or sector-specific priorities and efforts overlapped.

If you weren’t able to join us in Washington, don’t worry. In his closing remarks, Kevelighan announced plans to take the program on the road with a local and regional focus, so stay tuned. You can contact us if you’re interested in participating in future Town Halls or other Triple-I events. You also can join the “Attacking the Risk Crisis” LinkedIn Group to be part of the ongoing conversation.

Disaster Preparedness, Disaster Resilience, Flood Insurance, Homeowners Insurance, Risk Management

Weather Risk Isn’t “Someone Else’s Problem,” Triple-I Executive Tells Weather Channel Viewers

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Of the findings in Triple-I’s recent report on consumer perceptions of weather risk, the Weather Channel’s experts were most struck by the fact that 60 percent of homeowners said they’d taken no steps to prepare – so, they asked Triple-I Chief Insurance Officer Dale Porfilio for his perspective.

Ultimately, Porfilio said, it comes down to perceptions.

“Two thirds of the people surveyed said they don’t expect to be affected by weather risk in the next five years,” Porfilio told the Weather Channel. “If you don’t think you’re going to be impacted, why would you prepare with a home evacuation plan or a home inventory?”

Of course, anyone who is exposed to weather is exposed to weather-related risk, and it’s essential for homeowners to understand and address the most relevant risks in order to protect their investments and their families.

Porfilio also addressed a question regarding availability of flood insurance, explaining that coverage is generally available through the Federal Emergency Management Agency’s National Flood Insurance Program, as well as a growing number of private insurers, but “might be perceived as too expensive.”

It is possible, however, that some insurers might not be willing to offer coverage in areas that have been hit repeatedly by flood.

Awareness and preparation are key. The Triple-I survey, published in coordination with global reinsurer Munich Re, found that, among the 22 percent of respondents who reported understanding their level of flood risk, 78 percent said they had purchased flood insurance. The report, Homeowners Perception of Weather Risks, provides insights into trends, behavior and how experiencing a weather event impacts consumer perceptions of future events. 

Learn More:

Survey Suggests Few Homeowners Prepare for Weather-Related Risks

Climate Risk Isn’t All About Climate: Population, Land Use, Incentives Need to Be Addressed

Stemming a Rising Tide: How Insurers Can Close the Flood Protection Gap

Catastrophes, Coastal Property, Disaster Preparedness, Disaster Resilience, Flood Insurance, Floods, Homeowners Insurance, Legal Environment

Lawsuits Threatento Swell Ian’s Price tag

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Litigation costs could add between $10 billion and $20 billion to insured losses from Hurricane Ian, adding to the woes of Florida’s already struggling homeowners’ insurance market, says Mark Friedlander Triple-I’s corporate communications director.

Early estimates put Ian’s insured losses above $50 billion.

“Based on the past history of lawsuits following Florida hurricanes and the state’s very litigious environment, we expect a large volume of lawsuits to be filed in the wake of Hurricane Ian,” Friedlander said in an interview with Insurance Business America.

Most suits are expected to involve the distinction between flood and windstorm losses. Standard homeowners’ policies exclude flood-related damage from coverage, but differentiating between wind and flood damage in the aftermath of a major hurricane can be challenging.

Flood insurance is available from FEMA’s National Flood Insurance Program, as well as from a growing number of private carriers.

Trial attorneys are “already on the ground” and soliciting business in some of the hardest hit areas, Friedlander said. “This will be a key element in the solvency of struggling regional insurers who are already facing financial challenges.”

Six Florida-based insurers have already failed this year. Florida accounts for 79 percent of all U.S. homeowners’ claims litigation despite representing only 9 percent of insurance claims, according to figures shared by the Florida governor’s office. Litigation has contributed to double-digit premium-rate increases for home insurance in recent years, with Florida’s average annual home-insurance premium of $4,231 being among the nation’s highest.

“Floridians are seeing homeowners’ insurance become costlier and scarcer because for years the state has been the home of too much litigation and too many fraudulent roof-replacement schemes,” Triple-I CEO Sean Kevelighan said. “These two factors contributed enormously to the net underwriting losses Florida’s homeowners’ insurers cumulatively incurred between 2017 and 2021.”

Trevor Burgess, CEO of Neptune Flood Insurance, a St. Petersburg, Fla.-based private flood insurer, said that in all locations pummeled by Ian, the percentage of homes covered by flood policies is down from five years ago. Friedlander told Fox Weather that, while more than 50 percent of properties along Florida’s western Gulf Coast are insured for flood, “inland…the take-up rates for flood insurance are below five percent.”

While Florida is at particularly severe and persistent risk of hurricane-related flooding, the protection gap is by no means unique to the Sunshine State. Inland flooding due to hurricanes is causing increased damage and losses nationwide – often in areas where homeowners tend not to buy flood insurance.

In the days after Hurricane Ida made landfall in August 2021, massive amounts of rain fell in inland, flooding subway lines and streets in New York and New Jersey. More than 40 people were killed in those states and Pennsylvania as basement apartments suddenly filled with water. In the hardest-hit areas, flood insurance take-up rates were under five percent.

Damaging floods that hit Eastern Kentucky in late July 2022 and led to the deaths of 38 people also were largely uninsured against. A mere 1 percent of properties in the counties most affected by the flooding have federal flood insurance.

“We’ve seen some pretty significant changes in the impact of flooding from hurricanes, very far inland,” Keith Wolfe, Swiss Re’s president for U.S. property and casualty, said in a recent Triple-I Executive Exchange. “Hurricanes have just behaved very differently in the past five years, once they come on shore, from what we’ve seen in the past 20.”

Disaster Preparedness, Disaster Resilience

Peril in Perspective:New Book Untangles Disaster Risk for Layand Professional Readers

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From the first sentence of the first chapter of her new book – Understanding Disaster Insurance: New Tools for a More Resilient Future – Carolyn Kousky nails it: “When it comes to disasters, record-breaking is the new normal.”

Kousky, associate vice president for economics and policy at the Environmental Defense Fund and a Triple-I non-resident scholar, is not engaging in hyperbole when she writes:

“The past few years have seen the largest wildfires on record in places across the globe, from California to Australia. We have seen the earliest formed hurricanes, the strongest storms, the most storms in a year, and the deadliest storm surges. We’ve seen record-breaking rainfall. We’ve experienced the hottest summers, the hottest days, and the hottest nights. We’ve also seen a pandemic sweep the globe, as well as the largest and most sophisticated cyberattack to date.”

If you’re a regular reader of the Triple-I Blog and the Resilience Blog on Triple-I’s Resilience Accelerator website, you’ve already had a sampling of the “new normal” Kousky describes. She is well qualified to explain these complex risks, having previously served as director of policy research and engagement and as executive director of the University of Pennsylvania’s Wharton Risk Center.

Kousky’s academic work goes deep into disaster insurance markets, disaster finance, climate risk management, and policy approaches for increasing resilience. She has published numerous articles, reports, and book chapters on the economics and policy of climate risk and is frequently cited in mainstream and business media.

And she can write, which — as anyone who has slogged through as many academic papers and insurance trade publications as I have can tell you – is a major differentiator.

Kousky has managed to produce something of a unicorn: a book on disaster insurance that anyone who cares about understanding our increasingly interconnected and disaster-prone world can read and learn from. Rather than dive straight into the deep weeds of modeling, pricing, and reserving, Kousky begins by clearly describing the global disaster landscape, articulating the threats and their costs, and explaining what insurance is – and, perhaps most important, what it isn’t – in terms the lay reader can easily identify with:

“By making regular premium payments – certain small losses – insureds are then protected against big losses by receiving compensation when those losses occur. In this way, you can think of insurance as moving money from the good times, when there are no disasters, to the bad times when a disaster happens. You pay a bit in the good times to receive money in the bad times.”

As to what insurance is not, Kousky writes:

“Insurance is not risk reduction…. It needs to go hand in hand with investments to actually reduce risks. At a household level, it could be upgrading to a fortified roof if you live on the hurricane-prone coast… When risks are reduced, insurance is cheaper, such that risk reduction is a critical complement to insurance. We need both.”

When she does get into the taller grass of insurance market structures and operations, regulations, and technically complex aspects of risk transfer beyond insurance, Kousky gives the reader fair warning.

Insurance professionals might choose to skip over some of the familiar industry history and fundamentals, but I found them interesting and – again, a tribute to Kousky’s writing – not at all painful. Her elaboration on the five “ideal criteria for insurability” and discussion of “thin-tail” versus “fat-tail” risks provides a helpful touchstone for insurance generalists like me.

“Insurability is not a yes/no proposition, but a spectrum,” Kousky reminds us, “from easier-to-insure risks, like auto collisions, to difficult-to-insure risks, like destructive earthquakes and hurricanes, to the almost-impossible-to-insure risks, like war.”

Untangling and quantifying these perils and developing strategies to address them will be at the heart of risk management in a warmer, wetter, increasingly chaotic world.

Kousky’s book does a solid job of describing what is being done, what’s working and what isn’t; the challenges of insurance availability and affordability; the opportunities and limitations of risk-transfer mechanisms; the importance of markets, public policy, and individual initiative; and the promise of innovation.

That is no small accomplishment.

Disaster Preparedness, Disaster Resilience, Flood Insurance, Floods, Homeowners Insurance

Hurricanes Drive Louisiana Insured Losses, Insurer Insolvencies

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Max Dorfman, Research Writer, Triple-I

Severe hurricane damage in recent years has led to major losses by writers of Louisiana homeowners’ insurance and to the insolvency of eight insurers.

Louisiana homeowners’ insurers had a combined ratio of 461.9 in 2021. Combined ratio represents the difference between claims and expenses paid and premiums collected by insurers. A combined ratio below 100 represents an underwriting profit, and a ratio above 100 represents a loss.

With earned premium of nearly $2 billion, the 461.9 combined ratio means the industry experienced a $7.2 billion underwriting loss in 2021. As Triple-I Chief Insurance Officer Dale Porfilio puts it, “It would take 24 years of achieving a combined ratio of 85 for homeowners’ insurance writers in Louisiana to return to positive profitability.”

In 2020, Hurricanes Delta, Laura, and Zeta all caused major damage, resulting in a large number of insurance claims. Through September 30, 2021, there were 323,727 insurance claims of all types for these storms. Insurers paid or reserved $9.1 billion for Laura alone. Additionally, Hurricane Ida, which occurred in 2021, generated 460,709 insurance claims of all types through June 30, 2022, with insurers having paid or reserved $13.1 billion for that storm.

Eight Louisiana homeowner insurers already have become insolvent, and at least 12 companies have submitted withdrawal notices to Louisiana’s Department of Insurance, a preliminary measure needed to leave the state. This has forced tens of thousands of homeowners to depend on the state’s insurer of last resort, Louisiana Citizens Property Insurance Corp.

The market is struggling so much that Louisiana Insurance Commissioner Jim Donelon has called the current circumstances a “crisis.”

Next steps

In response, the Louisiana Insurance Guaranty Association (LIGA) has begun to restructure its management of claims for policyholders of insolvent insurers using property estimating technology from Verisk, a global data analytics provider.

“Seamless coordination with independent adjusting firms has become critical as we work to help hurricane victims throughout Louisiana rebuild their homes and return to normal,” said John Wells, executive director of LIGA.

More work to be done

A 2020 Triple-I Consumer poll found that 27 percent of homeowners said they had flood insurance, which indicates a record high. However, this figure is greater than National Flood Insurance Program (NFIP) estimates. As the Triple-I notes, homeowners may not understand what flood coverage is and how it works — specifically, that flood damage is not covered under standard homeowners’ and renters’ insurance policies. Flood coverage is available as a separate policy from the National Flood Insurance Program (NFIP), administered by the Federal Emergency Management Agency (FEMA), and from many private insurers

As storms continue to wreak major damage across vulnerable areas, homeowners and flood insurance are more important than ever.  But risk transfer alone is not enough.  

“Risk transfer is just one tool in the resilience toolkit,” says Triple-I CEO Sean Kevelighan. “Our understanding of loss trends and expertise in assessing and quantifying risk must be joined at the hip to technology, public policy, 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.”