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Auto Insurance, Homeowners Insurance

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

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Consumer skepticism about the connection between credit history and future insurance claims appears to decline when the predictive power of credit-based insurance scores is explained to them, a recent study by the Insurance Research Council (IRC) suggests.

This is just one of the IRC’s encouraging findings.  Others include:

  • Consumers are generally knowledgeable about credit, credit histories, and credit scores.
  • Nearly all believe it’s important to maintain good credit history, and most believe it would be easy to improve their credit score.
  • Among nearly all demographic groups, paying for auto insurance is not considered a burden for most households.

Concerns have been raised about the use of credit-based scores and certain other metrics in setting home and car insurance premium rates. Critics say it can lead to “proxy discrimination,” with people of color – who are more likely to have less-than-stellar credit histories – sometimes being charged more than their neighbors for the same coverage.

Confusion around insurance rating is understandable, given the complex models used to assess and price risk, and insurers are well aware of the history of unfair discrimination in financial services. To navigate this complexity, they hire teams of actuaries and data scientists to quantify and differentiate among a range of risk variables while avoiding unfair discrimination.

As the chart below shows, insurance claims tend to decline as credit scores improve. The fact that race frequently correlates with lower credit scores highlights societal problems that must be addressed through public policy, including financial literacy education. If anything, apparent racial disparities in insurance availability or affordability related to credit quality lend force to arguments for policy change. 

In a study published last year, nearly half of respondents said financial literacy education would have helped them manage their money better through the pandemic. The study, which surveyed 1,047 U.S. adults, found that 21 percent felt insurance was the subject they understood least. 

While the IRC study found non-Hispanic Black respondents were more likely than other groups to say their credit scores were below average and that it was important to improve their scores and would be easy to do so, they also were less likely to believe credit is a reliable indicator of paying bills or filing claims. Similarly, they were less likely to say it was okay to use credit history in lending, renting, or insurance settings.

All ethnic and racial groups, however, agreed that a person who has maintained good credit should benefit in the form of lower insurance rates.

“Many studies have shown that credit-based insurance scores are predictive of claims behavior,” the IRC report says, adding that recent studies using driving data from telematics devices “show a link between specific driving behaviors, such as hard braking, and variations in credit-based insurance scores.”

Any rating factor that can predict losses and claims helps insurers fairly price insurance by charging individual drivers rates that closely align with their risk. In the absence of these factors, less risky drivers would pay higher rates to subsidize the insurance of more risky drivers.

Learn More

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

Triple-I Issues Brief: Race and Insurance Pricing

Industry Financials, Insurers and the Economy

Ian, Personal Auto, Inflation, Geopolitics Driving Worst P&C Underwriting Results Since 2011

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The property/casualty insurance industry’s underwriting profitability is forecast to have worsened in 2022 relative to 2021, driven by losses from Hurricane Ian and significant deterioration in the personal auto line, making it the worst year for the P&C industry since 2011, actuaries at Triple-I and Milliman – an independent risk-management, benefits, and technology firm – reported today.

The quarterly report, presented at a members-only webinar, also found that workers compensation continued its multi-year profitability trend and general liability is forecast to earn a small underwriting profit, with premium growth remaining strong due to the hard market.

The industry’s combined ratio – a measure of underwriting profitability in which a number below 100 represents a profit and one above 100 represents a loss – worsened by 6.1 points, from 99.5 in 2021 to 105.6 in 2022.

Rising rates, geopolitical risk

Dr. Michel Léonard, Triple-I’s chief economist and data scientist, discussed key macroeconomic trends impacting the property/casualty industry, including inflation, replacement costs, geopolitical risk, and cyber.

“Rising interest rates will have a chilling impact on underlying growth across P&C lines, from residential to commercial property and auto,” he said, adding that 2023 “is gearing up to be yet another year of historical volatility. Stubbornly high inflation, the threat of a recession, and increases in unemployment top our list of economic risks.”

Léonard also noted the scale of geopolitical risk, saying, “The threat of a large cyber-attack on U.S. infrastructure tops our list of tail risks.”

“Tail risk” refers to the chance of a loss occurring due to a rare event, as predicted by a probability distribution.

“Russia’s weaponization of gas supplies to Europe, China’s ongoing military exercises threatening Taiwan, and the potential for electoral disturbances in the U.S. contribute to making geopolitical risk the highest in decades,” Léonard said.

Cats drive underwriting losses

Dale Porfilio, Triple-I’s Chief insurance officer, discussed the overall P&C industry underwriting projections and exposure growth, noting that the 2022 catastrophe losses are forecast to be comparable to 2017.

“We forecast premium growth to increase 8.8 percent in 2022 and 8.9 percent in 2023, primarily due to hard market conditions,” Porfilio said. “We estimate catastrophe losses from Hurricane Ian will push up the homeowners combined ratio to 115.4 percent, the highest since 2011.” 

For commercial multi-peril line, Jason B. Kurtz, a principal and consulting actuary at Milliman – a global consulting and actuarial firm – said another year of underwriting losses is likely.

“Underwriting losses are expected to continue as more rate increases are needed to offset catastrophe and economic and social inflation loss pressures,” Kurtz said.

For the commercial property line, Kurtz noted that Hurricane Ian will threaten underwriting profitability, but that the line has benefited from significant premium growth. “We forecast premium growth of 14.5 percent in 2022, following 17.4 percent growth in 2021.”

Regarding commercial auto, Dave Moore, president of Moore Actuarial Consulting, said the 2022 combined ratio for that line is nearly 6 points worse than 2021.

“We are forecasting underwriting losses for 2023 through 2024 due to inflation, both social inflation and economic inflation, loss pressure, and prior year adverse loss development,” he said. “Premium growth is expected to remain elevated due to hard market conditions.”

“After a sharp drop to 47.5 percent in 2Q 2020, quarterly direct loss ratios resumed their upward trend, averaging 74.2 percent over the most recent four quarters,” Porfilio said. “Low miles driven in the first year of the pandemic contributed to favorable loss experience.” 

Since then, Porfilio continued, “Miles driven have largely returned to 2019 levels, but with riskier driving behaviors, such as distracted driving, and higher inflation. Supply-chain disruption, labor shortages, and costlier replacements parts are all contributing to current and future loss pressures.”

Overall, loss pressures from inflation, risky driving behavior, increasing catastrophe losses, and geopolitical turmoil are leading to the need for rate increases to restore underwriting profits.

Insurance Industry

Insurance Is Human

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Almost a year ago, I felt impelled to bust the cliché that insurance is boring. In that blog post, I called out the idea that any industry that touches every imaginable peril individuals, families, businesses, and communities face could reasonably be considered dull.

Today – as I dig back into work after spending two days at the Society of Insurance Research (SIR) annual conference in Las Vegas – I feel similarly impelled to take on a different myth: That, because of its focus on statistical analysis and the dollars-and-cents aspects of risk, the insurance industry is out of touch with day-to-day human concerns.

I get it. I’m no one’s quant. Until becoming immersed in this big-numbers industry, I probably shared this perspective. I might even slip back into it from time to time, when the conversations become a bit too actuarial for my all-too-verbal nature.

In his opening remarks, Mike Meyers, SIR president and lead competitive analyst at USAA, used a phrase that the cynic in me thought a bit hokey. He referred to the conference – the first major in-person event for SIR since the pandemic – as a “family reunion.” As the event proceeded, though, it really did feel that way. This was my first in-person SIR event, but it quickly became clear that wasn’t the case for most of the attendees.  The warmth and familiarity among the 200-plus participants was palpable.

Now, this was a gathering of insurance industry researchers, so, of course, there was going to be a lot of “numbers talk” and discussion about “leveraging technology to improve loss experience,” and so forth. But the human dimension was never far from any of the panels or one-on-one conversations. Whether the topic was online life and health insurance shopping; the challenges of researching diversity, equity and inclusion (DEI) in insurance; or how COVID-19 has affected the risk profiles of small businesses, nothing was abstract or soulless about these conversations.

Two bits that particularly struck me:

  • In a discussion of automobile safety data, a correlation was drawn between driving-safety and fuel-consumption stats. It was just one chart underscoring the fact that safer drivers use less fuel, which, in turn, has a positive impact on the environment. It’s not a big jump from there to the fact that automobile telematics technology – which helps insurers more accurately price coverage and creates financial incentives to drive more safely – also helps reduce emissions. Who doesn’t want to save money AND the planet?
  • If you’ve ever had to replace an entire ceiling (I have!) because of a long, slow, undetected leak upstairs, the presentation on smart plumbing would have excited you as much as it did me. More inspiring, though, was the win-win strategy implemented by the insurer, which provides the easy-to-use technology to the policyholder for free and pays for a plumbing inspection if the diagnostic app flags a possible leak. Future big claim deterred for the insurer, massive headaches prevented for the homeowner!

I may not be an actuary or a data scientist or an economist – or possess any of the extraordinary quantitative skills insurance is known for – but I’m glad the industry marshals and rigorously applies these resources to such homey challenges, at scale.

Corporate Social Responsibility, Health & Safety

Remote Work Can Impede Escape From Abuse; Financial Literacy Can Remove Roadblocks

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By Loretta L. Worters, Vice President, Media Relations, Triple-I

Remote work, while providing a respite to many from long commutes and surging gas prices, can increase the vulnerability of domestic violence victims. Heightened risks involve not only emotional and physical but also financial abuse – often one of the main reasons victims are unable to leave or have to return to the abusive relationship.

Domestic violence cases increased between 25 percent to 35 percent globally with the start of the pandemic in 2020 and show few signs of abating, according to the American Journal of Emergency Medicine.  Financial dependency is a common tool abusers use to gain power and control in a relationship. Victims continue to be isolated, exploited, and prevented from developing the resilience needed to break free and achieve independence.

Without financial or insurance literacy, renting an apartment or purchasing a car to escape an abuser can be almost impossible for victims – particularly for Black women, who are disproportionately affected. 

In support of Domestic Violence Awareness Month, Triple-I offers five financial strategies victims can use to protect themselves financially before and after leaving an abusive relationship:

  • Securing financial records, including insurance policies;
  • Knowing where the victim stands financially;
  • Building a financial safety net;
  • Making necessary changes to insurance policies; and
  • Maintaining good credit, which can also affect access to insurance.

Credit-based insurance scores are confidential numerical ratings based, in whole or in part, on a consumer’s credit information. Many insurers use these scores – in conjunction with other factors – to help underwrite and price policies, especially for homeowners’ and personal automobile insurance. Actuarial studies find a strong correlation between how people manage their financial affairs and the likelihood of their submitting insurance claims.

Abuse victims often have bad credit for a variety of reasons. The National Coalition Against Domestic Violence (NCADV) reports that victims of intimate partner violence lose a total of 8.0 million days of paid work each year, with a cost exceeding $8.3 billion annually. As many as 60 percent of victims lose their jobs for reasons stemming from the abuse, and how much abuse women will endure correlates statistically with their degree of economic dependence.

“Manipulating money and other economic resources is one of the most prominent forms of coercive control and yet many victims don’t even realize they are being controlled,” said Ruth Glenn, president and CEO of the NCADV and author of the memoir, Everything I Never Dreamed, which chronicles her battle against abuse, violence, and attempted murder.  “That’s why it’s so important for victims to keep their checks, bank cards, and insurance policies in a safe spot that only they know – and, when leaving that abusive relationship, that they take precautions to keep themselves protected through an address confidentiality program.”

Those in crisis and needing immediate assistance, please call 1-800-799-SAFE (7233). 

“The financial education provided by the Insurance Information Institute can be life-saving and will make a real difference for many, many people,” Glenn said.

Other insurance industry resources for victims of domestic violence are The Insurance Industry Charitable Foundation – which has volunteered services at Mosaic House, a shelter for women and children fleeing domestic violence and human trafficking in North Texas, and provided grants to organizations like Dawn Rising, Human Options, the Joe Torre Safe At Home Foundation, the Philadelphia Children’s Alliance , the Center for Safety and Change, Women Rising, the WINGS Program, and Sarah’s Inn – and The Allstate Foundation’s relationship abuse program, which is the longest-running national program focused on ending domestic violence through financial empowerment services for survivors.

Insurance Industry

CISA releases long-awaited plan for national cyber resilience

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The federal Cybersecurity and Infrastructure Security Agency (CISA) in September released its 2023-2025 Strategic Plan, a response to the increasing vulnerability of U.S. infrastructure to cyberattacks. 

Key Takeaways

  • The plan proposes a framework for defining and managing the federal government’s role in mitigating cyber threats to national security. 
  • CISA aims to foster a cross-agency and “whole-of-nation” approach to risk management and resilience.  
  •  Implementation and outcomes can have implications for cyber insurance markets. 
  •  Two federal engagement requests have been issued to get feedback on creating a regulatory path forward. 

Cyber resilience in the current digital ecosystem requires a new mindset.

CISA’s plan arrives in a rapidly transforming threat landscape in which the cybersecurity mindset is duly shifting from “Are we vulnerable to attack?” to “When a breach happens, how can we spot it, contain the damage, and recover as fast as possible?”  

Businesses across all sectors have seen a rise in the frequency of breaches. Hackers are using sophisticated tactics to expand the reach of ransomware to third or fourth parties, such as supply-chain partners. Estimates of organizations attacked in the last year range from 60 percent to as high as 86 percent, probably because dormant ransomware can remain undetected for a while and many organizations are hesitant to publicize or div incidents. 

Organizations involved in critical infrastructure–such as the military, hospitals, financial institutions, and the supply chains providers–can be enticing targets for bad actors. The 2021 Internet Crime Report from the FBI reveals at least one organization in 14 of 16 critical infrastructure sectors experienced a ransomware attack that year. Data indicates that cyberattacks against US ports and terminals are increasing. 

In response to the rising threats, CISA Director Jen Easterly announced earlier this year, “We live at a time when every government, every business, every person must focus on the threat of ransomware and take action to mitigate the risk of becoming a victim.”  

The “whole of nation” strategy – the agency’s first plan since its creation in 2018 – proposes a unity of effort framework, while drawing upon the CISA Strategic Intent from August 2019, to lay a foundation for the agency’s work ahead and incorporate four core goals:  

  • “Cyber defense against threats to National Critical Functions;  
  • Risk reduction and resilience; 
  • Operational collaboration using a “whole-of-nation” approach; and 
  • Agency unification.” 

Loss ratios for cyber insurance are down, but challenges are still mounting. 

Cost-effectiveness remains elusive, despite the growing demand for cyber risk coverage. Data from S&P Global indicates that after three years of steady climb, loss ratios decreased from 75% in 2020 to 65% in 2021. However, contributing factors continue to wreak havoc, including increased frequency and severity of cyber-attacks, rising associated breach costs and liabilities, and the lack of historical incident data necessary to assess and price risk. As liability coverage for critical infrastructure sectors poses further challenges to risk mitigation, some insurers opt out of providing coverage to these entities. 

To build a foundation for risk assessment, CISA aims to create a regulatory path for the data collection mandate of the Cyber Incident Reporting for Critical Infrastructure Act of 2022 (CIRCIA). The legislation prescribes reporting of major cybersecurity incidents (within 72 hours) and ransomware payments (within 24 hours of payment). However, not every organization in a critical sector will automatically be required to report, and a formal enforcement framework for those expected to comply appears to be yet undefined.  

CISA and FIO solicits feedback on forging a path towards national cyber resilience. 

To foster collaboration between the government and private sectors while facilitating the implementation of CIRCIA, CISA recently issued a Request for Information. The list of reporting parameters up for public commentary includes how organizations may be defined as a “covered entity” (thus required to report incidents) and constraints and best practices around sharing of incident information.  

Another example of the cross-agency and “whole-of-nation” effort outlined in CISA’s plan can be seen in a request for comment recently issued by the Department of the Treasury’s Federal Insurance Office (FIO). This public engagement sprang from a June 2022 GAO report recommendation. The FIO is asking for feedback on “the extent to which risks to critical infrastructure from catastrophic cyber incidents and potential financial exposures warrant a federal insurance response.” The agency welcomes information on gaps in other federal cyber risk initiatives, such as the SEC’s proposed cyber incident reporting rules, the Terrorism Risk Insurance Program (TRIP), and the CISA’s cyber incident reporting RFI. 

Triple-I remains committed to advancing Cyber Awareness and supporting conversation about pertinent insurance trends and issues. For further reading, see our Issues Brief and stay tuned to our blog. 

Auto Insurance, Highway Safety, Technology

“A.I. Take the Wheel!” Drivers Put Too Much Faith in Assist Features, IIHS Survey Suggests

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Too many car owners are too comfortable leaving their vehicles’ driver-assist features in charge, potentially putting themselves and others at risk, according to the Insurance Institute for Highway Safety (IIHS).

IIHS said a survey of about 600 regular users of General Motors Super Cruise, Nissan/Infiniti ProPILOT Assist, and Tesla Autopilot found they were “more likely to perform non-driving-related activities like eating or texting while using their partial automation systems than while driving unassisted.”

“The big-picture message here is that the early adopters of these systems still have a poor understanding of the technology’s limits,” said IIHS President David Harkey.

The study reports that 53 percent of Super Cruise users, 42 percent of Tesla Autopilot users, and 12 percent of Nissan’s ProPilot Assist users were comfortable letting the system drive without watching what was happening on the road. Some even described being comfortable letting the vehicle drive during inclement weather.

These systems combine adaptive cruise control and lane-keeping systems, primarily to keep a car in a lane and following traffic on the highway. All require an attentive human driver to monitor the road and take full control when called for.

“None of the current systems is designed to replace a human driver or to make it safe for a driver to perform other activities that take their focus away from the road,” IIHS said in announcing the results of its survey.

While all three automakers caution drivers about the systems’ limits, confusion remains. Tesla’s driver-assist system, which it calls “full self-driving” has received much scrutiny over the years as auto safety experts say the name is misleading and risks worsening road safety.

The U.S.government has set no standards for these features, which are some of the newest technologies on vehicles today. A patchwork of state laws and voluntary federal guidelines is attempting to cover the testing and eventual deployment of autonomous vehicles in the United States. 

Learn More:

Background on: Self-driving cars and insurance

Catastrophes, Disaster Resilience, Floods

IICF Starts Ian Relief Fund

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The insurance industry’s efforts on behalf of people struggling in the wake of disasters doesn’t end with paying policyholder claims.

The nonprofit Insurance Industry Charitable Foundation (IICF) has launched the IICF Hurricane Ian Relief Fund to support those in need in the wake of Hurricane Ian. Funds will benefit Team Rubicon, a nonprofit providing emergency response and relief throughout affected areas, and SW FL Emergency Relief Fund, which provides critical support to nonprofits and people in areas experiencing immediate need.

Through these nonprofits, IICF will provide funds for recovery support, temporary shelter and basic necessities, along with non-perishable food, toiletry items and diapers for children impacted by the storm.

“The insurance industry is rooted in helping others at their time of need,” said Bill Ross, CEO of IICF. “As tens of thousands of Floridians struggle to recover from the devastation of Hurricane Ian, we as an industry are moved to support those impacted through charitable giving.”

With the help of the insurance industry, IICF has been able to raise $2.3 million over the past few years to benefit nonprofits responding to disaster and pandemic needs across the United States and the United Kingdom. To donate to the current effort, please visit https://give.iicf.org/campaigns/23664-iicf-hurricane-ian-relief-fund.

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.”

Insurance Industry

Thousands of Claims Experts Headed to Florida

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Rohit Verma, Chief Executive Officer, Crawford & Company

By Rohit Verma, Chief Executive Officer, Crawford & Company

Hurricane Ian inflicted more damage in Florida and the Carolinas than last year’s Hurricane Ida did in Louisiana, in terms of the number of buildings, vehicles, and infrastructure affected. It is the main reason Ian’s insured losses are likely to exceed Ida’s $36 billion.

Ian’s flood-damage claims are expected to exceed claims for Ian-caused wind damage as a percentage of this $40 billion to $60 billion event, even though only about 18 percent of Florida homes carried flood insurance. Crawford & Company anticipates we will be handling a significant percentage of these flood claims. Dealing with both insured and uninsured losses is going to be especially challenging.

As routes are cleared to the communities of Fort Myers and Florida’s southwest coast, Crawford continues to evaluate the impact of the hurricane and to assist with the recovery. In our fastest ever ramp-up, thousands of Crawford’s adjusters are already deployed – our largest deployment in history at such an early stage – and we expect this number to increase in coming weeks.

This adjuster engagement is spread across our U.S. CAT team: managed repair network Contractor Connection, our loss-adjusting business; Crawford’s on-demand inspection service WeGoLook; and edjuster, the technology-driven field and desktop contents claims handling solutions provider Crawford acquired in August 2021.

Crawford Global Technical Services also is engaged with several clients who are still assessing the damage from Hurricane Ian, and we expect the volume of commercial claims to rise as they get reported.  Moreover, Crawford has fully operational support rooms in Gainesville, Tampa, Sunrise and Orlando, Florida.

Access remains challenging during the early stages of the response due to damaged infrastructure, but we have prioritized emergency mitigation services, board-up activities, and tree removal to help mitigate further damage and return homes and commercial buildings to a usable condition as quickly as possible.

As we get further into the restoration process, claims inflation and supply chain issues are likely to impact the industry’s response to Hurricane Ian. There will be intense demand for building materials.

Our immediate focus now is to help those who experienced devastating losses and restore lives, businesses, and communities affected by the hurricane.

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.

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