Category Archives: Risk Management

Catastrophes, Disaster Preparedness, Disaster Resilience, Flood Insurance, Floods, Homeowners Insurance, Legal Environment, Regulation, Risk Management

Evolving Risks Demand Integrated Approaches

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Even as the Smokehouse Creek Fire – the largest wildfire ever to burn across Texas – was declared “nearly contained” this week, the Texas A&M Service warned that conditions are such that the remaining blazes could spread and even more might break out.

“Today, the fire environment will support the potential for multiple, high impact, large wildfires that are highly resistant to control” in the Texas Panhandle, the service said.

This year’s historic Texas fires – like the state’s 2021 anomalous winter storms, California’s recent flooding after years of drought, and a surge in insured losses due to severe convective storms across the United States – underscore the variability of climate-related perils and the need for insurers to be able to adapt their underwriting and pricing to reflect this dynamic environment. It also highlights the importance of using advanced data capabilities to help risk managers better understand the sources and behaviors of these events in order to predict and prevent losses.

For example, Whisker Labs – a company whose advanced sensor network helps monitor home fire perils, as well as tracking faults in the U.S. power grid – recorded about 50 such faults in Texas ahead of the Smokehouse Creek fires.

Bob Marshall, Whisker Labs founder and chief executive, told the Wall Street Journal that evidence suggests Xcel Energy’s equipment was not durable enough to withstand the kind of extreme weather the nation and world increasingly face. Xcel – a major utility with operations in Texas and other states — has acknowledged that its power lines and equipment “appear to have been involved in an ignition of the Smokehouse Creek fire.”

“We know from many recent wildfires that the consequences of poor grid resilience can be catastrophic,” said Marshall, noting that his company’s sensor network recorded similar malfunctions in Maui before last year’s deadly blaze that ripped across the town of Lahaina.

Role of government

Government has a critical role to play in addressing the risk crisis. Modernizing building and land-use codes; revising statutes that facilitate fraud and legal system abuse that drive up claim costs; investing in infrastructure to reduce costly damage related to storms – these and other avenues exist for state and federal government to aid disaster mitigation and resilience.

Too often, however, the public discussion frames the current situation as an “insurance crisis” – confusing cause with effect. Legislators, spurred by calls from their constituents for lower premiums, often propose measures that would tend to worsen the problem because they fail to reflect the importance of accurately valuing risk when pricing coverage.

The federal “reinsurance” proposal put forth in January by U.S. Rep. Adam Schiff of California is a case in point. If enacted, it would dismantle the National Flood Insurance Program (NFIP) and create a “catastrophic property loss reinsurance program” that, among other things, would set coverage thresholds and dictate rating factors based on input from a board in which the insurance industry is only nominally represented.

U.S. Rep. Maxine Waters (also of California) has proposed a Wildfire Insurance Coverage Study Act to research issues around insurance availability and affordability in wildfire-prone communities. During  House Financial Services Committee deliberations, Waters compared current challenges in these communities to conditions related to flood risk that led to the establishment of NFIP in 1968. She said there is a precedent for the federal government to step in when there is a “private market failure.”

However, flood risk in 1968 and wildfire risk in 2024 could not be more different. Before FEMA established the NFIP, private insurers were generally unwilling to underwrite flood risk because the peril was considered too unpredictable. The rise of sophisticated computer modeling has since given private insurers much greater confidence covering flood (see chart).

In California, some insurers have begun rethinking their appetite for writing homeowners insurance – not because wildfire losses make properties in the state uninsurable but because policy and regulatory decisions made over 30 years ago have made it hard to write the coverage profitably. Specifically, Proposition 103 and its regulatory implementation have blocked the use of modeling to inform underwriting and pricing and restricted insurers’ ability to incorporate reinsurance costs into their premium pricing.

California’s Insurance Commissioner Ricardo Lara last year announced a Sustainable Insurance Strategy for the state that includes allowing insurers to use forward-looking risk models that prioritize wildfire safety and mitigation and include reinsurance costs into their pricing. It is reasonable to expect that Lara’s modernization plan will lead to insurers increasing their business in the state.

It’s understandable that California legislators are eager to act on climate risk, given their long history with drought, fire, landslides and more recent experience with flooding due to “atmospheric rivers.” But it’s important that any such measures be well thought out and not exacerbate existing problems.

Partners in resilience

Insurers have been addressing climate-related risks for decades, using advanced data and analytical tools to inform underwriting and pricing to ensure sufficient funds exist to pay claims. They also have a natural stake in predicting and preventing losses, rather than just continuing to assess and pay for mounting claims.

As such, they are ideal partners for businesses, communities, governments, and nonprofits – anyone with a stake in climate risk and resilience. Triple-I is engaged in numerous projects aimed at uniting diverse parties in this effort. If you represent an organization that is working to address the risk crisis and your efforts would benefit from involvement with the insurance industry, we’d love to hear from you. Please contact us with a brief description of your work and how the insurance industry might help.

Learn More:

Triple-I “State of the Risk” Issues Brief: Wildfire

Triple-I “State of the Risk” Issues Brief: Flood

Triple-I “Trends and Insights” Issues Brief: California’s Risk Crisis

Triple-I “Trends and Insights” Issues Brief: Risk-Based Pricing of Insurance

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

Tamping Down Wildfire Threats

Catastrophes, Disaster Preparedness, Disaster Resilience, Insurers and the Economy, Regulation, Risk Management

NAIC, FIO to Collaborate on Data Collection Around Climate Risk

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When the U.S. Treasury Department’s Federal Insurance Office (FIO) announced in December 2022 that it was considering a new data-reporting mandate for certain property/casualty insurers, it raised red flags for insurers and policyholders.

In response to a request for comments on the proposed data call, Triple-I told FIO the requested data would be duplicative, could lead to misleading conclusions, and – by increasing insurers’ operational costs – would ultimately lead to higher premium rates for policyholders.

“Fulfilling this new mandate would require insurers to pull existing staff from the work they already are doing or hire staff to do the new work, increasing their operational costs,” Triple-I wrote. “As FIO well knows, state-by-state regulation prevents insurers from ‘tweaking’ their cash flows in response to change the way more lightly regulated industries can. Higher costs inevitably drive increases in policyholder premium rates.”

In its own response, the National Association of Insurance Commissioners (NAIC) emphasized the importance of collaboration with the industry to avoid such unintended consequences.

“While we recognize the Treasury’s desire to better understand the impact of climate risk and weather-related exposures on the availability and affordability of the homeowners’ insurance market,” NAIC wrote, “we are disappointed and concerned that Treasury chose not to engage insurance regulators in a credible exercise to identify data elements gathered by either the industry or the regulatory community.”

FIO has listened and responded appropriately. The agency has abandoned its plan to gather data on home insurance rates and availability in high-risk states. Instead, NAIC announced that it has implemented a nationwide Property & Casualty Market Intelligence Data Call (PCMI) in collaboration with FIO.

“The PCMI data call represents the collaborative, nonpartisan work that state insurance regulators have undertaken through the NAIC to address the critical challenge of the affordability and availability of homeowners’ insurance and the financial health of insurance companies,” said NAIC president Andrew Mais, who also serves as Connecticut’s insurance commissioner.

The change in approach is important both on its own merits – in ensuring that FIO obtains the information it needs without excessively and unnecessarily burdening the insurance industry – and in the recognition it reflects that federal actions affecting the insurance industry should involve the industry. For example, legislation proposed by U.S. Rep. Adam Schiff earlier this year to create a federal “catastrophe reinsurance program” raises several concerns that warrant scrutiny and discussion – not the least of which is that it would set coverage thresholds and dictate rating factors based on input from a board in which the insurance industry is only nominally represented.

“Triple-I commends the decision by FIO and NAIC to collaborate on a joint comprehensive property/casualty insurance data call to gather insights into the dramatic changes we’re seeing in the insurance marketplace,” said Triple-I CEO Sean Kevelighan. “Insurance companies are committed to finding solutions for how we can predict and prevent property damage from natural disasters, as well as keeping costs of coverage at competitive levels. Data calls are time-consuming and expensive. A unified collection of data will help make this a more efficient process.”

Learn More:

Federal “Reinsurance” Proposal Raises Red Flags

FEMA Reauthorization Session Highlights Importance of Risk Transfer and Reduction

NAIC Seeks Granular Data From Insurers to Help Fill Local Protection Gaps

Data Call Would Hinder Climate-Risk Efforts More Than It Would Help

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

Complex Risks in a Complicated World: Are Federal Backstops the Answer?

Triple-I Responds to SEC’s Proposed Climate-Risk Disclosure Requirements

Triple-I CEO: Insurance Leading on Climate Risk

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 Resilience, Insurers and the Economy, Regulation, Risk Management

Federal “Reinsurance” Proposal Raises Red Flags

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By Sean Kevelighan, Triple-I CEO

Legislation proposed by U.S. Rep. Adam Schiff (D-Calif.) to create a federal “catastrophe reinsurance program” raises several concerns that warrant scrutiny and discussion – starting with the question: Does what’s being proposed even qualify as insurance?

If enacted into law, the bill would establish a “catastrophic property loss reinsurance program…to provide reinsurance for qualifying primary insurance companies.” To qualify, insurers would have to offer:

  • An all-perils property insurance policy for residential and commercial property, and
  • A loss-prevention partnership with the policyholder to encourage investments and activities that reduce insured and economic losses from a catastrophe peril.

The proposed program would phase in coverage requirements peril by peril over several years and discontinue FEMA’s National Flood Insurance Program (NFIP). It would set coverage thresholds and dictate rating factors based on input from a board in which the insurance industry is only nominally represented.

And nowhere in the 22-page proposal do any of the following words or phrases appear:

  1. “Actuarial soundness”;
  2. “Risk-based pricing”;
  3. “Reserves”; or
  4. “Policyholder surplus”.

Actuarially sound risk-based pricing and the need to maintain adequate reserves and policyholder surplus to ensure financial strength and claims-paying ability are the bedrock of any insurance program worthy of the name – not technical fine print to be worked out down the road while existing mechanisms are being dismantled and market forces distorted through government involvement.

Insurance is a complicated discipline, and prior federal attempts at providing coverage have struggled to balance their goal of increasing availability and reducing premiums against the need to base underwriting and pricing on actuarially sound principles to ensure sufficient reserves for paying claims.

Actuarially sound risk-based pricing and the need to maintain adequate reserves and policyholder surplus…are the bedrock of any insurance program worthy of the name – not technical fine print to be worked out down the road…

Sean Kevelighan, CEO, Triple-I

Learn from history

NFIP is a strong case in point. Created in 1968 to protect property owners for a peril that most private insurers were reluctant to cover, NFIP’s “one-size-fits-all” approach to underwriting and pricing has led to the program now owing more than $20 billion to the U.S. Treasury because it lacked the reserves to fully pay claims after major events like Hurricane Katrina and Superstorm Sandy. It also often led to lower-risk property owners unfairly subsidizing coverage for higher-risk properties.

Having thus learned the importance of risk-based pricing, NFIP has changed its underwriting and pricing methodology. The new approach – Risk Rating 2.0, announced in 2019 and fully implemented as of April 1, 2023 – more equitably distributes premiums based on home value and individual properties’ flood risk. As a result, premiums of previously subsidized policyholders – particularly in coastal areas with higher values – have risen, leading to outcries from many higher-risk owners who have seen their subsidies reduced.

In addition to leading to fairer pricing, Risk Rating 2.0 – by reducing market distortions – increases incentives for private insurers to get involved. For a long time, private insurers considered flood an untouchable peril, but improved data modeling and analytical tools have increased their comfort writing this business. As the charts below show, private insurers have been playing a steadily increasing role in recent years, covering a larger percentage of a growing risk pool.

Over time, this trend should lead to greater availability and affordability of flood insurance coverage.

Rather than incorporating the lessons generated by NFIP’s experience with a single peril, Rep. Schiff’s proposal would discontinue the reformed flood insurance program while adding a new layer of complexity to coverage across all perils and casting into question the future of various state insurance programs and residual market mechanisms currently in place.

Time-tested principles

Any attempt by the federal government to address insurance availability and affordability concerns must be made with an understanding of how insurance works – from pricing and underwriting to reserving and claim settlement. For example, the Schiff bill proposes piloting an all-perils policy with a term of five years. There are good reasons for property/casualty policies to be written with a one-year term. Specifically, the conditions that affect claims costs can change quickly, and insurers – as referenced above – must set aside sufficient reserves to be able to pay all legitimate claims. If they cannot revisit pricing annually, the financial results could be disastrous.

“Who would have thought in 2019 that replacement costs would increase 55 percent within three years?” asked Dale Porfilio, Triple-I’s chief insurance officer. Supply-chain disruptions related to the COVID-19 pandemic and Russia’s invasion of Ukraine contributed to just such a replacement-cost spike. “Requiring five-year terms for policies would have led to a massive drain on policyholder surplus.” 

Policyholder surplus is the financial cushion representing the difference between an insurer’s assets and its liabilities.

In announcing his proposed legislation, Rep. Schiff said it is intended to “insulate consumers from unrestrained cost increases by offering insurers a transparent, fairly priced public reinsurance alternative for the worst climate-driven catastrophes.”

This language ignores the fact that, under state-by-state regulation, premium rate increases are anything but “unrestrained” and ratemaking is based on actuarially sound principles that are transparent and fair. Property/casualty insurance already is one of the most heavily regulated industries in the United States.

Consumers deserve real solutions

Policyholders have legitimate concerns about affordability and, in some cases, availability of insurance. These concerns can create pressure for political leaders at both the state and federal levels to advance measures that are perceived as promising to help. Unfortunately, many recent proposals begin by mischaracterizing current trends as an “insurance crisis,” as opposed to what they really represent: A risk crisis.

Insurance premium rates tend to move in line with the frequency and severity of the perils they cover. They also are affected by factors like fraud and litigation abuse; climate, population, and development trends; and global economics and geopolitics. That is why insurers hire actuaries and data scientists and employ cutting-edge modeling technology to ensure that insurance pricing is actuarially sound, fair, and compliant with regulatory requirements in all states in which they do business.

That is how insurers keep lower-risk policyholders from unfairly subsidizing higher-risk ones.

To its credit, the federal government is working to reduce climate-related risks and investing in resilience through programs like Community Disaster Resilience Zones (CDRZ) and FEMA’s Building Resilient Infrastructure and Communities (BRIC) program. The Bipartisan Infrastructure Law contains substantial funding to promote climate resilience. These are worthy endeavors aimed at addressing risks that drive up insurance costs.

But history has shown that direct government involvement in the underwriting and pricing of insurance products tends not to end well.  Any plan that would attempt to micromanage insurers’ coverage of all perils through a lens that ignores time-tested, actuarially sound risk-based pricing principles raises a host of red flags that must be discussed and addressed before such a plan is allowed to become law.

Learn More:

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

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

Illinois Bill Highlights Need for Education on Risk-Based Pricing of Insurance

Education Can Overcome Doubts on Credit-Based Insurance Scores, IRC Survey Suggests

Matching Price to Peril Helps Keep Insurance Available and Affordable

Policyholder Surplus Matters: Here’s Why

Triple-I Issues Brief: Flood

Triple-I Issues Brief: Proposition 103 and California’s Risk Crisis

Triple-I Issues Brief: Risk-based Pricing of Insurance

Triple-I Issues Brief: How Inflation Affects P/C Insurance Pricing – and How It Doesn’t

Triple-I Issues Brief: Race and Insurance Pricing

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.

Lightning, Risk Management

Assess, Measure, Mitigate Your Lightning Risk

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By Kelley Collins, Director of Business Development and Communications, Lightning Protection Institute

Our lives are filled with risk assessment and mitigation. From grabbing an umbrella for a rainy day to stocking up on supplies for an impending natural disaster, we assess and measure the potential risks before an event occurs to be prepared and protect ourselves from unwanted consequences.

For many, however, assessing and mitigating lighting risk isn’t necessarily top of mind. We know lightning is going to strike – more than 31 million cloud-to-ground strikes occur annually. But being personally affected seems so unlikely that people may think preparation isn’t necessary or even possible. Understanding how to mitigate risks associated with lightning is essential to individuals and property owners.

Lightning strikes about 100 times every second. Incorporate assessment of lightning risk into our daily lives.

Impact of Lightning: Homes, Businesses, Critical Facilities

About 6,000 times a minute, there is a lightning strike that contains an electrical discharge hotter than the sun. One strike can cause immense damage that goes beyond fire. The damage to the electrical infrastructure and the electronics connected to that infrastructure can be destroyed – bringing communication, security and productivity to a halt. 

Convective storms – which are associated with thunder, lightning, and other weather changes – caused $38 billion in insured losses in the first half of 2023. 

“Assessing your risk to lightning before a storm enables homeowners and business owners to predict and mitigate their risks to losses due to a lightning strike,” said Triple-I CEO Sean Kevelighan. 

If any of the following structures are hit by lightning, there are consequences beyond the repairs from a fire. When there are surges and/or damages to the electrical system, here are just a few consequences that impact time, money, and – in the worst cases – can cost lives:

Homes: Costly repairs and equipment replacement (TVs, washer/dryer, computers);  

Businesses: Emails and communication stopped, production downtime and loss of revenue; and

Critical Facilities: Inability to meet the emergencies of individuals or the community. 

Lightning protection systems are scientifically proven to mitigate these risks. When properly installed, a lightning protection system makes a building resilient to the damage of lightning strike. These systems protect the structure, the electrical system, and the humans within the building.

Lightning risk assessment

From homeowners to design/build experts, learning how to measure and mitigate the risks of lightning is vital to the prevention of lightning damage. For personal safety, assess the current and future weather conditions; if you see lightning, get indoors. For protecting homes, buildings, and structures, there are a few ways to conduct an assessment to determine the risks of lightning. If the assessment determines that there are perceived risks of lightning, lightning protection systems can be installed to mitigate those risks.

Key assessment factors

The NFPA 780 standard for lightning protection is one option that offers a simple and complex approach to assessments. At the advanced level, an assessment involves a complex equation with several variables (ie., Nd= Ngx Aex C1 x10-6). At the very least, consider the key assessment factors within three general areas of a structure: 

  • External criteria
  • Structure, design, and use
  • Internal activity

External Criteria

When you first walk up to a building or structure, scan the surroundings and conduct a visual inspection. This involves identifying potential lightning strike paths, such as tall trees, antennas, or nearby structures. Evaluate the building’s height and design. Now, assess how that structure compares to other buildings or objects near it. 

  • Is it the tallest building? 
  • Is it situated on a hill or by itself?

If you are designing a new building, assess how that building will be incorporated into these surroundings to ensure proper consideration for making that building more sustainable to a lightning strike.

What is the propensity for lightning strikes in that city, county, or state? Different regions have varying levels of lightning activity, and this information is crucial in determining the necessary level of protection. Lightning frequency data can be obtained from local weather services or scientific experts, such as Vaisala, who collect data on lightning activity. 

Structure Design and Use

Evaluate the materials and use of the building.

  • What are the building materials: Glass, wood, brick, etc.? 
  • Does the design impact the propensity for a lightning strike: Taller points or roof attachments?
  • What is the use of the building: 
    • Does it contain hazardous or flammable objects?
    • Does it store valuable and/or historical objects?
    • Does it perform critical services?

Internal Activity

Identify people and activity on the inside of the structure. 

  • Are there many people inside this structure? 
  • What’s the likely panic level if a building evacuation is necessary? 
  • Can the people move quickly? For instance: In a nursing home or hospital, all occupants cannot quickly exit a building that was hit by lightning. In a large high-rise with large groups of occupants, a speedy exit may not be possible.

What is the building’s function? Identify the services that are being conducted in that building. If lightning hits the structure you are assessing, what happens to the people and services inside? Here are some key structures to protect in high-risk areas:

  • Data centers
  • Distribution centers
  • Schools and churches
  • Public works facilities
  • Critical facilities, such as fire, police, hospitals, emergency operation centers

Assessment leads to mitigation and protection. Having a general understanding of a lightning risk assessment enables all of us to make better choices. Individuals and homeowners can protect themselves and their homes. Design/build experts and facility managers can make choices to ensure their buildings are more resilient, sustainable, and safer with lightning protection systems.

Proper steps for a formal assessment and installation

If your general assessment leads you to question the structure’s vulnerability, the NFPA 780 guidelines specify that the formal assessment process should be carried out by qualified professionals who are knowledgeable about lightning protection systems. These professionals may include lightning protection system designers, engineers, or certified installers who have undergone specific training and have a comprehensive understanding of the guidelines. 

By following the lightning assessment process outlined by NFPA 780, property owners can ensure that their lightning protection systems are properly designed, installed, and maintained. Proper installation protects structures from the devastating effects of lightning strikes and promotes the safety of individuals inside.

 

Corporate Social Responsibility, Disaster Resilience, ESG, Risk Management

How Liberty Mutual Foundation BringsRisk ManagementInto Communities

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By Max Dorfman, Research Writer, Triple-I

Nature-based solutions, green jobs, and resilient infrastructure are at the core of Liberty Mutual Foundation’s approach to helping marginalized communities that are most vulnerable to climate-related perils.

“We believe investing philanthropically in communities to help them mitigate and adapt to the impact of climate change is a natural extension that we do as a property-casualty insurer and an area where we can offer a lot of expertise,” Foundation President Melissa MacDonnell told Triple-I CEO Sean Kevelighan in a recent Triple-I Executive Exchange.

MacDonnell described the foundation’s three-pronged approach to community giving, which consists of:

  • Nature-based solutions, such as increasing access to locally grown food and green space to protect communities from sea-level rise or flooding;
  • Green jobs that provide training and skill development in the green economy for low-income and underrepresented youth and young adults; and
  • Resilient infrastructure for low-income neighborhoods and communities of color.

The foundation also supports existing partners in advancing their climate resiliency goals.

“Any organization in our philanthropic portfolio is eligible for these grants, so they can step back and consider how climate is impacting them,” MacDonnell said. “This includes homelessness shelters and job programs. This is our way of acknowledging that climate affects all of us.”

Kevelighan noted that this holistic approach is particularly important for residents of vulnerable communities.

“We’ve been talking at Triple-I about the role everyone plays in climate,” he said. “It’s encouraging that you’re bringing risk management into communities – particularly those that can’t provide themselves enough resources.”

Kevelighan and MacDonnell discussed how other insurers can become more involved in helping vulnerable communities.

“Insurers should carve out the time to listen to the communities” MacDonnell said. “Partnering with communities and public officials is also important. We are at an incredible moment in time where federal funding is available for climate projects” as a result of measures like the Community Disaster Resilience Zones Act of 2022, which aims to build disaster resilience by identifying disadvantaged communities that are most at risk to natural disasters and providing funding for projects that mitigate those risks.