Category Archives: Specialty Coverage

Specialty Coverage

Human-wildlife conflict insurance: the next frontier for microinsurance?

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AB Consultants and IIED at a consultative forum, Kenya

Most wildlife in New York City is of the insect or rodent kind (though a peregrine falcon did once hang out on my air conditioner for a few minutes.) Not so in many parts of the world, including Africa, Asia and parts of North America. And as human populations continue to expand into natural habitats, there arise the inevitable clashes between humans and wildlife.

There’s even a term for this phenomenon: “human-wildlife conflict” (HWC). The World Wide Fund for Nature (WWF) notes that this conflict includes wild animals destroying crops, killing livestock, damaging property – and even attacking (and injuring) humans themselves. Humans will often retaliate by killing wild animals to prevent future attacks.

One way to help communities at risk of wildlife conflict is (drumroll please) insurance. To learn more about this kind of insurance, I spoke with Barbara Chesire-Chabbaga, director and lead consultant for AB Consultants, an organization that aids in the development of microinsurance and digital financial services across Sub-Saharan Africa. Her company is actively working to develop a microinsurance product for human-wildlife conflict.

Human-wildlife conflict: deadly and costly

HWC is a reality of daily life in many places with high populations of both humans and wildlife. Take Kenya: more than 65 percent of wildlife lives outside protected areas, which means human-wildlife interaction is inevitable in communities that live near those protected areas.

Unfortunately, death and injury (for both humans and wildlife) are not uncommon outcomes of HWC. But crop damage is the most frequent cause of loss from HWC. Chabbaga noted that, in Kenya “close to 3,000 cases of crop damage were recorded between the years of 2015 and the first 2 months of 2017, compared with 148 death and injury incidences.” And these numbers probably underreport the frequency of HWC crop damage.

Furthermore, crop damage can have significant ramifications for communities that depend on farming and livestock rearing. A single attack that leads to crop damage could impact that year’s harvest, which can result in a financial domino effect that reverberates long after the attack.

Compensation schemes as financial mitigation

Chabbaga did note that compensation schemes for HWC are not a new idea, especially in areas with high rates of human-wildlife interaction. Indeed, financial mitigation for HWC has long been believed to yield significant benefits, by offsetting the actual losses themselves and by reducing wildlife retaliatory killings. Some of these schemes include the Big Life Foundation, the Amboseli Trust for Elephants and the Maasai Wilderness and Conversation Trust.

A typical compensation scheme will reimburse farmers for certain amounts if a wild animal destroyed their property, subject to certain conditions (like making sure that their farms are well-enclosed, and animals are well herded and away from protected areas, for example).

But straight compensation schemes have their limitations. They can be expensive, and often rely on donations, which leads to issues with financial stability and sustainability. Chabbaga cited a compensation scheme in the Mwaluganje elephant sanctuary, in which farmers yielded farmland for conservation purposes and were compensated yearly. But the scheme collapsed when funding ran out.

That’s where insurance comes in. “Microinsurance has the ability to pool larger numbers, employ technology and manage the entire client journey from registration to claim settlement in such a way that client value and the business cases are well-balanced,” argued Chabbaga.

Human-wildlife conflict insurance: better compensation, more sustainable?

“Human wildlife conflict is a new risk that has previously not been considered by insurance companies, but there is a general optimistic overview that HWC is an insurable risk worth exploring,” said Chabbaga.

AB Consultants is currently working on developing just that kind of HWC microinsurance in partnership with the International Institute of Environment and Development (IIED) and funded by the Darwin Initiative. Referred to as “Livelihoods Insurance From Elephants” (LIFE), the project is currently focused on two regions in Sri Lanka and Kenya, to determine how best to design an insurance product that can reduce losses for small-holder farmers and other low-income households from HWC. As you can probably guess from the name, the project is currently focused specifically on human-elephant conflict.

The LIFE project is still in the development phase and Chabbaga said that they’re still toying with the specific details of how to structure the policy, but she did give some idea of what the insurance will look like. “With microinsurance, the idea is to bundle as many risks as possible. With that in mind, it is possible that the scheme will include a majority, if not all, HWC related risks i.e. crop and property damage, death and injury.” Microinsurance typically has minimal exclusions, but for HWC insurance an important exclusion would be to deny coverage to a loss incurred by illegal activities such as poaching or trespassing into protected areas.

Consumers in the two pilot regions have so far expressed positive attitudes towards this insurance. The plan is to begin product rollout in January 2020.

For more information about microinsurance more generally, check out our webpage.

Specialty Coverage

Preparing for a Festival Fiasco with Insurance

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By Brent Carris, Research Assistant, Insurance Information Institute

On Sunday, June 3rd, the Governor’s Ball Music Festival (Gov Ball), a three-day event on Randall’s Island in New York, fell victim to the perils of inclement weather. After delaying set times by nearly seven hours, it was subsequently announced to the attendees that all were to evacuate due to the inclement weather forecast. What followed was a mass exodus of frantic festival-goers trying to get off the island.

Gov Ball organizers announced that they would be offering full refunds to everyone who bought a Sunday ticket (prorated if they had purchased a three-day pass). As 150,000 visitors flocked to Randall’s Island for Gov Ball in 2017, according to a Founder’s Entertainment white paper, this could result in roughly $19 million in refunds.

But the event organizers won’t be on the hook for the full cost of those refunds as they likely have event cancelation insurance.  Event cancelation insurance typically costs 1 to 1.5 percent of the overall cost of an event, and provides cover for cancellation, abandonment, interruption or postponement of an insured event for reasons beyond the control of the event organizer.

In 2017, we witnessed the worst of a music festival gone awry with the infamous Fyre Festival (Fyre).  While the Fyre debacle was largely due to the organizers’ lack of planning, the outcome taught mega-festival organizers what not to do and how to best prepare for uncontrolled disturbances.

Ideally, risk and claim specialists tour facilities far in advance to mitigate any potential dangers and to keep all attendees safe. Determining the size and type of insurance coverage means understanding the risks of the specific event.

As noted in this  Insurance Journal article, mega-events like Coachella and Lollapalooza will take on at least five kinds of insurance policies: cancelation, including terrorism coverage, general liability, umbrella policies, workers’ compensation, and business auto coverage. Additional coverage can be bought for crime, errors and omissions policies, directors and officers’ policies, and if applicable, film insurance.

When all goes well, a music festival means great music with great friends. However, when weather doesn’t agree or emergency strikes, the result can be a calamity for the festival organizers and the attendees.

 

 

Specialty Coverage

How to insure your college tuition

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The most tangible benefit of insurance is to make someone whole after a loss. Sometimes that means paying for a new roof. Other times that means cutting a check after a car is totaled.

If you have “tuition insurance,” it could also mean refunding your college tuition if you have to withdraw during the semester.

To learn more about this kind of insurance, I spoke with Paul D. Richardson, Liberty Mutual’s managing director for tuition insurance distribution. The 2018 – 2019 academic year is Liberty’s first foray into offering tuition insurance.

Refunding tuition in case the unexpected happens

Tuition insurance is a simple concept: it will refund college costs if a student has to withdraw from school at any point during the semester because of an unforeseen event, like an illness, accident or mental health issue. Those costs include tuition, room and board, and any mandatory fees assessed on the student.

The student (or, more likely, parents) just needs to buy the coverage before the semester starts. Premiums are usually about 1 percent of the total costs. Not a bad deal if you can recover $25,000 for $250.

Richardson pointed out that this isn’t really a new concept. But traditionally, tuition insurance was only available through a few select universities. Parents might not have even known it existed. And if they did, they were often under the (incorrect) impression that the university would refund their costs if their kid withdrew – so why buy insurance on top of the already-exorbitant cost of college?

University refunds are not guaranteed

“A lot of parents and students are unaware of how university refund policies work,” Richardson said. “Usually they operate on a sliding scale.” But if the student has to withdraw a month or so into the semester, in many cases they might not get any money back at all.

That’s where tuition insurance comes in. “Tuition insurance covers the gap,” Richardson said. Whatever the university doesn’t refund gets picked up by the policy to make sure that reimbursement is 100 percent. It’s a relatively affordable way to protect a significant financial investment.

The nitty-gritty details

Obviously, it’s not that simple. Like any policy, there are terms and conditions to tuition insurance. A key aspect is that the student has to withdraw entirely from the academic semester. “To qualify for reimbursement, they can’t earn any academic credit as a result of the withdrawal,” said Richardson. Tuition insurance wouldn’t be needed if a student misses a few weeks of class and then returns to pass their final exams, since they would not be out any tuition dollars.

It also doesn’t apply during summer break. “The policy period is the first day of classes and ends the last day of classes,” Richardson said.

Tuition insurance also comes with exclusions. For example, while pre-existing medical conditions are generally covered, there are some situations where coverage would not apply.  Poor academic performance is not covered, unsurprisingly.

Sports injuries are probably covered, since they’re usually within the scope of a student’s academic life. But there is no coverage for professional sports, like if you’re getting paid to participate in an intramural Ultimate Frisbee tournament.

And not all recreational injuries are covered. “Activities that come with an upfront serious potential for a major accident are often excluded,” Richardson said. “We look at each case individually but generally we draw the line at something that would cause an accident that is an extremely high risk. Like skydiving, that’s actually a named exclusion in the policy.”

Customizable coverage

Every student’s needs are unique. That’s why the Liberty Mutual tuition insurance product is highly customizable. Living off-campus? Then you’ll probably get a cheaper premium that doesn’t cover room and board. Have a scholarship? Depending on the terms of the grant, you may be able to cover that as well. “We’re trying to allow students and families to customize their price point based on their financial needs,” said Richardson.

You can learn more about Liberty Mutual’s program here.

Specialty Coverage

Offshore wind farms: what’s the insurance angle?

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In January 2019, wind power accounted for about 7 percent of net energy generation in the United States. While that doesn’t sound like much, wind power has been a significant contributor to new electricity generation over the past few years (though natural gas still leads the pack).

While most wind farms are onshore, wind farms on large lakes and oceans are becoming increasingly popular. Most notably, offshore wind speeds are much faster and steadier than on land. The U.S. Department of Energy estimates that wind off U.S. coasts offers a technical resource potential of about 7,200 terawatt-hours of electricity generation per year – which basically translates to double the country’s current electricity use. Even if just 1 percent of this potential is tapped into, that can end up powering nearly 6.5 million homes.

What’s the insurance angle?

Constructing and operating an offshore wind turbine is no stroll on the beach. Start-up costs can be significant (though they have been declining rapidly). And many pieces – both literal and logistical – need to come together before a wind farm can start generating electricity: transporting the towers and blades out to sea on specialized vessels; sinking foundations into the ocean or lake floor; constructing onshore and offshore power substations; laying cable between the turbine and the land. Plus, there’s Mother Nature to reckon with, like hurricanes and lightning strikes (a very common danger facing wind turbines, unsurprisingly).

Offshore wind operations are complex, with many unique risks. But the insurance marketplace is sophisticated and offers coverage for all phases of wind farm construction and operation.

There is no standard “offshore wind turbine” insurance policy. In all likelihood, windfarm insurance policies are a tailored mixture of many different policies to meet an operator’s unique needs.

Let’s walk through some of the coverages that might be made available.

Wind turbine construction

Builder’s risk property insurance: this insurance covers property during a construction project. There is no standard builder’s risk form, so coverage can vary widely, but usually the coverage applies to the building being constructed and any materials being used on site.

Liability wrap-up insurance: Typically all the engineers, contractors, subcontractors, etc. on a construction project have their own general and professional liability insurance. But for big, complicated projects like an offshore wind farm, the project owner might purchase what’s called a “wrap-up”, which basically, well, wraps up everyone’s liability insurance into one policy. This both simplifies the risk management process and offers cost savings to everyone involved.

Delay in start-up insurance: Affectionately called “DSU insurance,” this coverage protects developers and owners of any revenue lost due to a delay in finishing construction. For example, if a wind turbine’s construction is delayed because of a storm, DSU could cover the operator for their lost revenue.

Wind turbine operation

Property/liability insurance: Like pretty much every commercial operation, wind turbine operations probably have a package of property and liability insurance. The former will cover the actual turbine from certain types of losses (like fire); the latter will cover the wind turbine owners from any liability they might incur against others, like if the turbine collapses and hits a nearby boat.

Wind operations might also have business interruption coverage, which could kick-in if a turbine stops functioning and the operator losses money during the downtime. They may also have separate coverage protecting them from any pollution or environmental liability arising out of the turbine’s operations.

Ocean marine insurance

Offshore wind operators may also consider ocean marine insurance coverages, which can include:

  • Hull insurance: insuring a vessel for physical damage.
  • Ocean marine liability insurance: covering liability arising out of a vessel’s operation, including collision damage and, often, wreck cleanups.
  • Ocean marine cargo insurance: covering damage to cargo on a vessel.

Insurance plays a vital role in developing offshore wind farms. Operators and investors already face significant costs just to get a turbine out to sea. Knowing that insurance will protect them if something goes wrong is one of the reasons they’re willing to take on these vital energy projects in the first place.

Specialty Coverage

Insurance can get weird

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Yesterday’s post about insurance-related Guinness World Records got me thinking: what other weird insurance policies are out there?

If you know much about insurance, you know that the first place to inquire about weird insurance policies is Lloyd’s of London, legendary clearinghouse for the strange and unusual. (And innovative: they were the underwriters for the world’s first auto policy, the first aviation policy, and soon the first space tourism policy.)

Naturally, Lloyd’s has an entire webpage dedicated to what it (in what I imagine to be staid, Oxford-accented English) calls “innovation and unusual risks.” Some top hits include insurance coverage for David Beckham’s legs (£100 million), Keith Richards’ hands ($1.6 million), and cricketer Merv Hughes’ trademark mustache (£200,000).

My personal favorite is insurance for members of a Derbyshire Whisker Club who wanted coverage for their beards against “fire and theft.” Theft?

“Insurability”, or why we can have insurance for weird things

Weird insurance is an object lesson about “insurability.” Ideally, an insurable risk should have, at a minimum, the following features:

  • “Accidental”: insurability usually requires risks be accidental. Otherwise, an insured could just…burn down their house on purpose and collect the insurance money. That’s called fraud.
  • “Pure”: speaking of fraud, insurable risks should probably be “pure” and not speculative – meaning that an insured shouldn’t stand to gain financially from a loss.
  • “Measurable”: if a loss does happen, an insurer should need to know whether this can be measured in both time (can they tell when a loss happened) and money (how much should they pay out).

Fortunately for our hirsute Derbyshiremen, “beard insurance” satisfies all these criteria. Can a beard be destroyed by accidental fire? Check. The beard-wearer doesn’t stand to gain if his beard burns? Check. If the beard burns, we know when it happened and how much the loss would cost the bewhiskered gentleman? Check, check, and check.

There are other “ideal” features of an insurable risk, but they’re not deal breakers. They’re more like “nice to haves”. For example, some argue that an ideal risk is one that is common to a large pool of insureds, so that insurers can better project how much they might need to pay out in the event of a loss. Think of homeowners insurance: you’d probably want a large pool of homeowners to a) figure out the likelihood of certain losses and b) spread the risks out over a larger population.

Some underwriters at Lloyd’s clearly don’t think this is a requirement for insurability. After all, there is only one pair of legs belonging to David Beckham.

And it’s a good thing that a large pool isn’t always necessary requirement for insurability. For one, it means I can read about weird insurance policies. But for another, it means that as long as you’re not, say, abetting bad behavior like insuring an assassin or something, you can probably find someone willing to pay the price to cover your risks. Which makes for a better, more protected world.

Regulation, Specialty Coverage

Insurance Commissioner challenges Guinness record for tallest politician

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istock

On March 27, Guinness World Records named Brooklyn councilman Robert Cornegy as the tallest male politician in the world. But his title was disputed by North Dakota insurance commissioner Jon Godfread who claims that he stands an inch and 3/4 higher than Cornegy’s 6 feet, 10 inches.

Godfread, who played basketball at the University of Iowa, said he didn’t know that “being a tall politician was a thing,” and that he’d probably get in touch with Guinness. A spokeswoman from Guinness said that the organization would be “be happy to receive an application” from Godfread.

Guinness keeps track of a wide range of unusual records. Insurance related records include: The highest ever insurance valuation ($100 million) of a painting for the move of the Mona Lisa from Paris to the U.S. for a special exhibition; Pittsburgh Steelers’ Troy Polamalu highest insured hair ($1 million); and the largest ever life insurance policy ($201 million).