Hurricane Sally looks to be a very significant hurricane for the northern Gulf Coast according to Triple-I non-resident scholar and Colorado State University atmospheric scientist Dr. Philip Klotzbach.
While the Category 1 storm doesn’t look to intensify much today given relatively strong wind shear and cooler sea surface temperatures (since the storm is moving very slowly and consequently churning up colder water beneath the surface), we’re likely to have a long duration storm event unfolding over the next several days.
Wind impacts will be moderate, but the storm will be moving very slowly, so a prolonged period of high winds can be expected. The very slow-moving hurricane is going produce tremendous amounts of rain along the northern Gulf Coast. Large regions will likely experience 10+” of rainfall, with isolated storm totals approaching 30″, said Dr. Klotzbach.
Emergency declarations for parts of Florida, Louisiana, Mississippi and Alabama have been issued and residents are urged to listen to local officials.
U.S. Gulf Coast residents from Louisiana to Florida should prepare for Tropical Storm Sally, which is forecast to strengthen into a hurricane before making landfall on Tuesday.
There is uncertainty over the specific timing and location of Sally’s landfall, as well as its ultimate intensity level. Severe weather conditions will last, however, for several days in multiple states.
The NHC warns Sally will generate destructive hurricane-force winds; torrential rain; life-threatening storm surge; flash flooding; isolated tornadoes; and widespread power outages.
Sally will be the eighth named storm to make landfall in the continental U.S. this hurricane season. Previous 2020 landfalls include Hurricanes Hanna, Isaias and Laura as well as Tropical Storms Bertha, Cristobal, Fay and Marco.
Louisiana, Mississippi, Alabama and Florida residents in the path of Sally should take the following precautions:
Review your evacuation plan and, if you have a pet, your pet’s evacuation plan.
Make sure you have a minimum seven-day supply of non-perishable food and drinking water (one gallon per person, per day) for all family members and pets, as well as a one-week supply of medications for everyone in your household.
Write down the name and phone number of your insurer and insurance professional and keep this information either in your wallet or purse.
Purchase emergency supplies, such as batteries and flashlights.
Prepare your yard by removing all outdoor furniture, lawn items, planters and other materials that could be picked up by high winds.
Fill your car’s gasoline tank because long gas lines and fuel shortages often follow in areas impacted by a tropical cyclone.
Perhaps the most emotionally compelling data point invoked by those who would compel insurers – through litigation and legislation – to pay business-interruption claims explicitly excluded from the policies they wrote is the property/casualty insurance industry’s nearly $800 billion policyholder surplus.
Many Americans hear “surplus” and think of a bit of cash they have stashed away for emergencies. And when you consider that nearly 40 percent of Americans surveyed by the Federal Reserve said they would either have to borrow or sell something to cover an unexpected $400 expense – or couldn’t pay it at all – that number may sound like overkill.
Not as much as you think
But policyholder surplus isn’t a “rainy day fund.” It’s an essential part of the industry’s ability to keep the promises it makes to policyholders. And although a number like $800 billion may raise eyebrows, when we look more closely at its components, the amount available to cover claims turns out to be considerably less.
Insurers are regulated on a state-by-state basis. Regulators require them to hold a certain amount in reserve to pay claims based on each insurer’s own risk profile. The aggregation of these reserves – required by every state for every insurer doing business in those states – accounts for about half the oft-cited industry surplus.
Call it $400 billion, for simplicity’s sake.
Each company’s regulator-required surplus can be thought of as that company’s “running on empty” mark – the point at which alarms go off and regulators start talking about requiring it to set even more aside to make sure no policyholders are left in a lurch.
By extension, $400 billion is where alarms begin going off for the entire industry.
It gets worse – or better, depending on your perspective.
In addition to state regulators’ requirements, the private rating agencies that gauge insurers’ financial strength and claims-paying ability don’t want to see reserves get anywhere near “Empty.” To get a strong rating from A.M. Best, Fitch, S&P, or Moody’s, insurers have to keep even more in reserve.
Why do private agency ratings matter? Consumers and businesses use them to determine what insurer they’ll buy coverage from. Also, stronger ratings can contribute to lower borrowing expenses, which can help keep insurers’ operating costs – and, in turn, policyholders’ premiums – at reasonable levels.
So, let’s say these additional reserves amount to about $200 billion for the industry. The nearly $800 billion surplus we started with now falls to about $200 billion.
To cover claims by all personal and commercial policyholders in a given year without prompting regulatory and rating agency actions that could drive up insurers’ costs and policyholders’ premiums.
Which brings us to today.
Losses ordinary and extraordinary
In the first quarter of 2020, the industry experienced its largest-ever quarterly decline in surplus, to $771.9 billion. This decline was due, in large part, to declines in stock value related to the economic recession sparked by the coronavirus pandemic.
Nevertheless, the industry remains financially strong, in large part because the bulk of insurers’ investments are in investment-grade corporate and governmental bonds. And it’s a good thing, too, because the conditions underlying that surplus decline preceded an extremely active hurricane season, atypical wildfire activity, and damages related to civil unrest approaching levels not seen since 1992 – involving losses that are not yet reflected in the surplus.
Insured losses from this year’s Hurricane Isaias are estimated in the vicinity of $5 billion. Hurricane Laura’s losses could, by some estimates, be as “small” as $4 billion or as large as $13 billion.
And the Atlantic hurricane season has not yet peaked.
The 2020 wildfire season is off to a horrific start. From January 1 to September 8, 2020, there were 41,051 wildfires, compared with 35,386 in the same period in 2019, according to the National Interagency Fire Center. About 4.7 million acres were burned in the 2020 period, compared with 4.2 million acres in 2019.
In California alone, wildfires have already burned 2.2 million acres in 2020 — more than any year on record. For context, insured losses for California’s November 2018 fires were estimated at more than $11 billion.
And the 2020 wildfire season still has a way to go.
All this is on top of routine claims for property and casualty losses.
Four billion here, 11 billion there – pretty soon we’re talking about “real money,” against available reserves that are far smaller than they at first appear.
No end in sight
Oh, yeah – and the pandemic-fueled recession isn’t expected to reverse any time soon. Economic growth worldwide remains depressed, with nearly every country experiencing declines in gross domestic product (GDP) – the total value of goods and services produced. GDP growth for the world’s 10 largest insurance markets is expected to decrease by 6.99 percent in 2020, compared to Triple-I’s previous estimate of a 4.9 percent decrease.
If insurers were required to pay business-interruption claims they never agreed to cover – and, therefore, didn’t reserve for – the cost to the industry related to small businesses alone could be as high as $383 billion per month.
This would bankrupt the industry, leaving many policyholders uninsured and insurance itself an untenable business proposition.
Fortunately, Americans seem to be beginning to get this. A recent poll by Future of American Insurance and Reinsurance (FAIR) found the majority of Americans believe the federal government should bear the financial responsibility for helping businesses stay afloat during the coronavirus pandemic. Only 16 percent of respondents said insurers should bear the responsibility, and only 8 percent said they believe lawsuits against insurers are the best path for businesses to secure financial relief.
Held virtually, the third annual “Hack-for-Resilience” begins on Friday, Sept. 11 and concludes on Sunday, Sept. 13 as part of PennAppsXXI, the nation’s oldest student-run hackathon. The word “hack,” in the context of a hackathon, describes how multiple technologies can be used in new and innovative ways.
“This event allows the Triple-I and its Resilience Accelerator partners to bring together insurers and student innovators who have the same goal—to create new products and services that will reduce the risks people face from natural disasters,” said Sean Kevelighan, CEO, Triple-I. The Triple-I’s Resilience Accelerator was launched in 2019 to reduce the impact of extreme weather events on households and communities through insurance.
The 2020 edition of this competition will give entrants from midnight on Saturday, Sept. 12 through 9 a.m. on Sunday, Sept. 13 to show their skills. During this time, teams of up to four students will conceive, test, and deliver working apps while others develop hardware solutions, Internet of Things (IoT) protocols, and data tools that can save lives and reduce property damage in the wake of a natural disaster.
A team of judges from Wharton Risk Center and Triple-I will award first- and second-place cash prizes in two categories: “Best Overall Hack” and “The Most Outstanding Application of Insurtech,” which is defined broadly as either a product or service that improves the insurance customer experience. The winning teams will be announced on Sunday evening, Sept. 13.
The first-place prizes in 2019 were awarded to the creators of Phoenix, an autonomous drone with the capacity to track and extinguish fires (Best Overall Hack) and WildFire Protect, a parametric insurance product which would pay a policyholder immediately after they incurred a wildfire-related property loss (The Most Outstanding Application of Insurtech).
You can follow this year’s competition on social media via the hashtag #H4R2020
Business interruption losses from a global pandemic are uninsurable due to their sheer scope. Business interruption losses (in the U.S. alone) from the coronavirus are estimated at $220-$383 billion per month — an amount the industry could not and should not be expected to cover.
Americans across the country appear to recognize that only the federal government has the capacity to provide the relief business owners need. A recent poll initiated by Future of American Insurance and Reinsurance (FAIR) found that the majority of Americans believe the government should bear the financial responsibility for helping businesses stay afloat during the coronavirus pandemic.
The poll, conducted by CivicScience, found that only 16 percent of respondents said they believe insurance companies should bear the responsibility for helping businesses during the pandemic, and only 8 percent believe lawsuits against insurers are the best path for businesses to secure financial relief.
Business interruption insurance contracts were not priced to cover global pandemic risks, so forcing insurers to pay for claims their policies weren’t priced to cover would harm all policyholders, said FAIR in their commentary on the poll results.
A government-backed policy solution can provide immediate relief to struggling business owners and protect insurers’ ability to keep promises to policyholders for covered catastrophe losses, like damage from wildfires and hurricanes.
Trial attorneys’ attempts to retroactively force uninsurable pandemic coverage in business interruption insurance contracts are detrimental to policyholders, communities, insurers, and economic growth. A government-backed solution for struggling businesses in need of relief has never been more urgently needed, FAIR concluded.
ABOUT FAIR FAIR is an initiative of the Insurance Information Institute and its member companies whose mission is to ensure fairness for all customers and safeguard the industry’s longstanding role as a pillar of economic growth and stability.
The COVID-19 pandemic continues to depress economic growth around the world, with nearly every country experiencing declines in gross domestic product (GDP) – the total value of goods and services produced. GDP growth for the world’s 10 largest insurance markets is expected to decrease by 6.99 percent in 2020, compared to Triple-I’s previous estimate of a 4.9 percent decrease.
Forward-looking growth proxies, such as interest rates, government spending, equity markets, and commodity prices, are sending mixed to negative messages about growth into 2021.
Against this backdrop, Triple-I experts report, the global insurance industry has continued to issue new policies, service existing ones, and process and pay claims. While the final numbers on the extent of the pandemic and recession’s impact on the industry won’t be clear until 2021-2022, early indicators point to flat premium growth in 2020 globally and to significant differences in how the pandemic, monetary policy, and the recession are affecting insurers in the United States versus abroad.
In its Global Macro and Insurance Outlook for the third quarter, published this week,Triple-I noted that global central banks kept benchmark interest rates mostly on hold in the third quarter at an average of 0.6 percent, reflecting the limits imposed by near-zero interest rates policies.
Concerns about lower long-term interest rates are increasing as global central banks have pushed rates even lower during the pandemic, the report says. In a recent survey, about 33 percent of U.S. insurers said they assume flat long-term benchmark rates, while 50 percent reported having changed, or say they are in the process of changing, their investment strategy. These changes are likely to accelerate now that the U.S. Federal Reserve officially changed the focus of its monetary policy and central banks around the world follow.
Interest rates matter because insurers get the bulk of their profits from investment earnings. U.S. insurers, in particular, rely on fixed-income financial instruments like corporate and government bonds. If lower interest rates put pressure on insurers’ investment earnings, they will have to compensate by raising premiums paid by policyholders or adjusting their risk profiles to reduce claim payouts.
“COVID-19 and lower economic activity continue to hinder premium growth in property, workers compensation, and auto,” the report says, “while a recent survey indicates that COVID-19 led to a reduction in life premium.”
The report says it’s too early to determine whether increasing demand for warranty, indemnity, and cyber coverage and a surge of interest in captive insurers will make up for downward pressure on premium growth across the industry.
The Los Angeles office of the National Weather Service predicted prolonged, potentially record-setting heat and dangerous weather conditions throughout California this summer – and, some experts expect it to continue for some time beyond.
“If you like 2020, you’re going to love 2050,” said Michael Gerrard, director of Columbia University’s Sabin Center for Climate Change Law, in a recent Los Angeles Times article.
These conditions can only exacerbate this year’s atypical wildfire activity in the state. So, it should be no surprise that California is grappling with how to stop insurers from abandoning fire-prone areas, leaving countless homeowners at risk.
“Years of megafires have caused huge losses for insurance companies, a problem so severe that, last year, California temporarily banned insurers from canceling policies on some 800,000 homes in or near risky parts of the state,” The New York Times reports. “However, that ban is about to expire and can’t be renewed, and a recent plan to deal with the problem fell apart in a clash between insurers and consumer advocates.”
Insurers are widely expected to continue their retreat.
“The marketplace has largely collapsed” in high-risk areas, said Graham Knaus, executive director of the California State Association of Counties. “It’s a very large geographic area of the state that is facing this.”
California, where regulations lean toward consumer protection, is particularly challenged. The state doesn’t let insurers set premiums based on what they expect in future damages. They can only set rates based on prior losses. They also aren’t allowed to pass along reinsurance costs to policyholders – costs that are expected to rise as fire risks worsen.
State lawmakers introduced a bill to let insurers writing coverage in wildfire-prone areas incorporate climate predictions and other costs into their rate requests in return for making coverage more available and offering discounts to people who take steps to reduce their home’s vulnerability.
Insurers supported the change, as did the counties association and the union representing firefighters. But the bill faced strong opposition from consumer groups, who ultimately prevailed. Last month, the state senate stripped most of the provisions from the bill and directed the insurance commissioner to review the current rules and report back to the legislature in two years.
The legislature ended its session without acting on the revised version. Insurance Commissioner Ricardo Lara said his focus now is working with high-risk communities to reduce their wildfire risk enough that insurers will keep offering coverage without big rate increases.
“If Californians do our part to protect homes from wildfire,” Lara said, the industry should respond by agreeing to insure those homes.
Janet Ruiz, Triple-I’s director of strategic communications, said, “Insurers in California are working with legislators and the California Department of Insurance to find solutions to keep homeowners insured in wildfire risk areas. The industry supports mitigation efforts, the California FAIR Plan, and the proposed IMAP program.”
This blog post has been updated based on new information received since it was first published on September 4, 2020.
Hurricane Laura may have caused as little as $4 billion of insured damage or as much as $13 billion, according to early estimates.
Property information, analytics and data provider CoreLogic said residential and commercial insured losses from Hurricane Laura in Louisiana and Texas will come in at between $8 billion and $12 billion. Most of the property damage occurred in southwest Louisiana, where Laura made landfall early as a Category 4 hurricane with 150 mph winds.
Catastrophe risk modeler RMS puts the range between $9 billion and $13 billion. This includes wind and storm surge losses of between $8.5 billion and $12 billion, inland flood losses of $100 million to $400 million, and National Flood Insurance Program (NFIP) losses of $400 million to $600 million.
Catastrophe risk modeling firm Air Worldwide said it expects losses related to Laura to fall in the $4 billion to $8 billion range. The combination of the storm’s track through less-populated areas and its relatively small “Rmax” – the distance from the center of the storm to the location of the maximum winds – should keep insured losses down somewhat, the company said.
Cat risk modeler Karen Clark & Co. estimates insured onshore property losses from wind and storm surge will likely amount to $8.7 billion in the U.S. and $200 million in the Caribbean. Its estimate includes the privately insured wind and storm surge damage to residential, commercial, and industrial properties and automobiles but not losses covered by the NFIP or losses to offshore assets.
All estimates are subject to change as more information becomes available.
U.S. insurers and their foundations by June 2020 had donated about $280 million in response to COVID-19, the Insurance Information Institute (Triple-I) estimates based on information collected by the Insurance Industry Charitable Foundation (IICF)
International insurers and their foundations donated an additional $150 million.
U.S. auto insurers have returned more than $14 billion to their customers nationwide in response to reduced driving during the pandemic, according to a Triple-I estimate.
Individual companies are working to alleviate the crisis by donating to global relief efforts and easing the financial burden on their customers. We reported on some of these activities in April.
Below is list of what just a sample of Triple-I’s member companies have contributed to ease a wide array of community needs.
The Allstate Foundation contributed $5 million to help domestic violence victims, youth in need and first responders.
American Family Insurance, along with the American Family Insurance Dreams Foundation, announced more than $4 million in support for COVID-19 pandemic relief and other non-profit efforts. Additional support from the Steve Stricker American Family Insurance Foundation is expected to push the total support to more than $6.8 million.
Chubb is focusing its global pandemic relief efforts on organizations that provide emergency medical supplies to healthcare facilities, to food banks helping the vulnerable and hungry, and for scientific research to treat and prevent this disease. The company announced $12.5 million in grants toward these efforts.
Liberty Mutual’s philanthropy program has committed $15 million in crisis grants to community partners helping respond to the coronavirus; given donations to over 800 nonprofits they partner with in their employee volunteering program; supported employees’ donations with company gifts; and created an employee phone outreach program to call those in the community who are socially isolated.
MetLife Foundation announced that it is committing $25 million to the global response to COVID-19 in support of communities impacted by the pandemic. The grant funding from MetLife Foundation will span all regions where MetLife operates and address both short- and longer-term relief efforts.
MAPFRE is allocating 54 million euros to support customers and suppliers. This is in addition to 5 million euros recently donated to accelerate COVID-19 research in Spain.
Nationwide Foundation is making $5 million in contributions to local and national charities to support medical and economic response efforts.
In addition to delivering $4.2 billion in savings to its customers, State Farm is donating millions to pandemic relief efforts.
The Hanover is donating $500,000 to local community nonprofits to provide pandemic-related assistance, including, $350,000 to local United Way, Boys & Girls Club and Chamber of Commerce organizations in Massachusetts and Michigan where the company employs large concentrations of employees
The Hartford committed $1 million in donations focused on responding to urgent human needs, the health care crisis and the city of Hartford through organizations that have been critical in addressing the humanitarian issues caused by this crisis.
Travelers pledged $5 million to assist families and communities across North America, the United Kingdom and the Republic of Ireland. The money goes to charities that provide essential services, pays wages and health benefits for eligible third-party contract employees, and contributes toward an employee donation matching program.
USAA has committed an additional $30 million to benefit 24 organizations assisting military families during these challenging economic times. The donation is part of USAA’s long-standing mission to support military and veterans’ families and recognizes the specific impact the health crisis has had on the military community.
Westfield Insurance will contribute nearly a million dollars toward nonprofit partners whose work became infinitely more challenging with this pandemic. The company is working with the Akron Canton Foodbank, Cleveland Foodbank, United Way of Cleveland, Feeding Medina County and Feeding America. Additionally, the Westfield Insurance Foundation is matching dollar for dollar up to $50 for every employee who gives to a local foodbank or United Way.
Tell us how your company is contributing to the pandemic relief efforts in the comments below.
Triple-I’s “Insurance Careers Corner” series was created to highlight trailblazers in the insurance industry and to spread awareness on the career opportunities within the industry.
This month we interviewed, Tasha Fuller, CEO & Co-Founder, FloodFrame USA, a Houston-based company that provides homes and businesses with a waterproof cloth barrier against damage from flooding. Tasha shared her insights as a woman entrepreneur in STEM and how past flooding experiences and a background in civil engineering inspired her business.
Tasha Fuller, CEO & Co-Founder, FloodFrame USA
You started your career as a civil engineer. What led you to eventually build your own business, FloodFrame USA?
As an engineer, I wanted to do more for the community. I was designing big projects around Houston, oftentimes office buildings or huge industrial buildings, but I got into engineering to help the world in some way. It was always in the back of my mind to figure out how to best use my talents for this.
My primary focus was hydraulics and hydrology – how water works and how storms work. Then flooding happened in Houston. My family and I went to Denmark about six months after [Hurricane] Harvey to visit family, and we were introduced to FloodFrame on the news. Immediately, I knew this was something that needed to be in Houston. I contacted the Danish engineers, who developed the technology, to discuss how to bring it to the U.S. This led to six months of conversations with the engineers, myself, and my Dad, who is also my business partner. Initially, we were pursuing this [opportunity] on the side, and it was a huge leap of faith when we realized this company needed a full-time champion in order to work in the U.S.
What was the transition like from engineer to entrepreneur?
It was a huge risk, and it was scary. I’d wake up in the morning and wonder if I made the right decision. I left a corporate environment where everything was lined up for me, and I had colleagues to ask questions. The pattern of the day was figured out. As an entrepreneur, each day you ask yourself what’s the best thing for your company. Not having colleagues, it’s all on you, and it can feel like you never turn off. I’ve been doing this for almost two years now, and I’ve most recently learned to find the balance.
What advice would you give to aspiring women entrepreneurs looking to build a STEM business?
On the days where you feel like giving up, just don’t. You are going to have days when you doubt if you have the potential. I read a quote the other day that resonated with me, ‘when you’re tired, learn to rest not quit.’ I’ve been using that for myself because I have tough days too. I recommend going for a walk or doing something that you enjoy. Go back to the challenge after that rest. Things will look a lot brighter than when you were in the moment.
In my previous job, I was the only woman and the only person under 40 in the room. I had to learn to stand my ground and feel comfortable in that situation. I would say to view that situation as an advantage to stand out and have your message heard versus blending into the room.
As a resident of Houston, you’ve experienced several severe storms including Harvey. How did you these experiences influence the business?
We wouldn’t have started this company if we didn’t see the impact of water on our community and how destructive flooding can be. During Hurricane Harvey, I remember watching the water inch towards my parents’ house. It was such a hopeless feeling, because we couldn’t stop this force of nature at the time. I remember thinking that there must be some solution out there for people who want to protect their homes. That’s really where the seed was planted and why meeting the FloodFrame engineers clicked during our trip to Denmark. My family would have been in a different position if we had the protection on our house.
2020 is expected to be one of the worst hurricane seasons on record and the pandemic will bring about new challenges in disaster prep. How have these challenges impacted your business?
We have installations already in the ground in the Greater Houston area. Our primary goal is to educate as many people as possible [in the area] about risk mitigation and property protection. The biggest hurdles have been reaching the people that really need it and educating the community overall. Pre-disaster mitigation is important. Floods will continue to happen, but protection can help people spend a fraction of cost to rebuild a flooded house. I’ve been leveraging digital platforms and accelerator programs like the Resilience Accelerator to find the right partners and get the word out on risk mitigation. We’re in this unusual time, but people realize that their homes are important and need the tools to protect themselves. Even though we are in a pandemic, that doesn’t mean the flooding will stop.
