“New York City, USA – October 31, 2012: In the aftermath of Hurricane Sandy the Battery Park Underpass is seen completely flooded along the West Street entrance looking north in Lower Manhattan.”
On June 11 the Federal Emergency Management Agency (FEMA) published data covering more than 2 million flood insurance claim records going back to 1978 on its OpenFEMA website. This is a giant leap toward helping scientists, policy-makers, and the public understand how the National Flood Insurance Program (NFIP) works, where flood damage occurs, and what the costs are to the nation.
“This data demonstrates FEMA’s commitment to build a culture of preparedness by providing insights to our stakeholders that can help close the nation’s insurance gap,” said Dr. Daniel Kaniewski, FEMA’s Deputy Administrator for Resilience, in a news release. That gap is quite sizable: FEMA estimates that only 3 percent of homeowners have flood insurance.
Private insurers, who have been carefully getting back into covering flooding in recent years should be able to use the data to grow in the flood insurance space. “The private market will now be able to identify areas with prior flood claims and historical flood insurance policies,” said David Maurstad, FEMA’s Deputy Associate Administrator for Insurance and Mitigation.
As useful as these data could be, the dataset does not include the exact addresses of affected buildings, to protect policyholders’ privacy. It does include ZIP code-level data on where policyholders received payments. A home buyer might not be able to learn the full history of flood risk for a property, as thisSouth Carolina Post and Courier article points out.
However, the published data do enable analysis of how coverage has changed in a geographic area, and where NFIP claims have been filed for more than 40 years. Information such as: state, census tract, ZIP code, year of loss, and amount paid on claims are included. The dataset will be updated every 45 to 60 days and delivers the most specific amount of geographic data possible.
The Natural Resources Defense Council (NRDC) has already used the data to create this animation showing the location of every NFIP claim in the contiguous United States, from 1970 through 2018.
The I.I.I. has more insights about flood insurance here.
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.
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 thisInsurance 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.
By Dr. Steven Weisbart, Chief Economist, Insurance Information Institute
There is good news on the bodily-injury liability insurance front, but no one seems to have noticed. The cost of health care for severely-injured people has barely increased in the last year.
Primarily, bodily injury (BI) liability insurance pays for the medical bills of people who have been severely injured due to the negligence of the insured. As a result, the severity of BI claims would tend to track price changes for inpatient and outpatient hospital services, where severely-injured people would go to get treatment and recover. And lately, these price changes have been shrinking—big time.
The Bureau of Labor Statistics calculates a price component for each of these each month as part of the various versions of the Consumer Price Index (CPI).[1] On June 12 the BLS published its latest data for May 2019.
For inpatient hospital services, the change in prices was +1.2 percent, when compared to prices a year earlier, in May 2018. For outpatient hospital services, the change in prices was even smaller (+0.9 percent), when compared to prices a year earlier.
To put these numbers in some context, the Consumer Price Index for All Urban Consumers (CPI-U)—the most widely-used measure of inflation—rose by 1.8 percent in May 2019 vs. May 2018. Many economists prefer to measure inflation without the effect of price changes for food and energy, which are notoriously volatile. This measure is known as the core CPI. Its May 2019 vs. May 2018 change was 2.0 percent.
When was the last time that any healthcare costs—let alone for hospital services—rose at a slower rate than general inflation? Of course, many other factors affect claims for bodily injury liability, but this is a welcome trend for a significant element.
[1]The most familiar index is the Consumer Price Index for All Urban Consumers (CPI-U)—prices as experienced by all urban consumers, but BLS also publishes CPI-W (prices as experienced by urban wage earners and clerical workers).
An innovative insurance product is being deployed to protect several miles of coral reef around Cancun and Puerto Morelos, reportsBusiness Insurance. The government of Quintana Roo, Mexico, purchased a parametric insurance product that would pay up to $3.8 million to repair hurricane damage to the reef.
Parametric insurance works using a clearly defined parameter (a metric or an index) that triggers the payout. Up until recently, parametric insurance was used by reinsurers for catastrophe risks, but it has started to be used in the travel, retail and agricultural sectors Insurance Businessreported a year ago.
The reef insurance will be triggered if wind speeds above 100 knots are registered within the covered area, with a payout split of 50 percent for reefs and 50 percent for beaches.
One of the advantages of parametric coverage is that it pays out very fast, which is crucial since reef repair will need to be done very quickly to avoid further damage, according to Mark Way, director of Global Coastal Risk and Resilience at The Nature Conservancy in Washington.
“We hope this insurance approach will serve as a scalable model to build new financial mechanisms for the protection of nature,” said Mr. Way.
The insurance policy is financed by the Coastal Zone Management Trust, an organization formed in March 2018 to promote the conservation of coastal areas in the Mexican Caribbean. Partners in the development of the reef insurance concept include the Nature Conservancy, the state government of Quintana Roo, the Cancún and Puerto Morelos Hotel Owners’ Association, CONANP, Mexican Universities and insurance industry representatives. Swiss Re Ltd. was an early partner in the development of the concept.
As insurance professionals, we’re always talking about harnessing new data streams to improve our products. The benefits are obvious, we tell ourselves – think of the potential to align prices with real risks! But sometimes, we also need to ask ourselves: do our customers actually want us to use these data? Do they like the idea of us scouring their social media footprints to help price their insurance coverage?
A recent J.D. Power survey asks exactly these questions – and found that we have a long way to go before our customers get comfortable with their personal insurance company collecting troves of their data. The survey found that 55 percent of customers don’t trust their insurance company to collect and use “alternate data”. Only 22 percent affirmatively trust their insurer. (Alternate data includes anything from driving behavior to social media; basically, anything that goes beyond what we traditionally consider insurance-relevant data, like age.)
But the issue is somewhat more nuanced than that. Customers are, unsurprisingly, more comfortable sharing data that they already share. Thirty-nine percent are okay with sharing utility, phone, or rent payment information. And 45 percent are willing to share their driving data with an insurer.
This could actually be good news for insurers. It shows that customers might change their perceptions of trust regarding their insurer as they become more used to sharing the data. J.D. Power notes that “Initially, customers are more comfortable sharing alternative data they are more accustomed to sharing elsewhere. Driving data and its use in telematics or usage-based insurance programs is fairly common knowledge among customers.”
It’s when the data becomes more personal, like social media posts, that customers grow wary. Only 15 percent and 14 percent were willing to share online activity and social media data, respectively. And a sizable chunk (35 percent) isn’t willing to share any alternative data at all.
Additionally, insurance customers are sensitive about what their insurers are using their data for. For example, 65 percent think it’s reasonable for an insurer to use alternative data to help recover stolen vehicles; 63 percent for an insurer to tailor coverage; and 60 percent for more accurate premium pricing. But they become less accommodating when it comes to using data for things like marketing – 55 percent don’t think that’s a reasonable use of their data.
According to J.D. Power, customers are “jaded by the current overwhelming state of marketing, [so] insurers need to underscore the value” of the data their collecting to the customer. That means the responsibility lies with insurers to prove to their customers that the data collection is worth it.
Not surprisingly, even if a customer thinks it’s okay for an insurer to collect their data, the odds are good they’re worried about privacy. Fully 85 percent consider the risks of privacy and security breaches a disadvantage to sharing their data – even if they’re okay with sharing to begin with. And 74 percent think insurers should ask their customers before collecting and using their alternative data.
The upshot is that customer acceptance of alternative data is a gradual process. Customers want to know what data is being collected. They want to know how it’s being used. And if insurers can connect the dots for them – can demonstrate the value that the alternative data is bringing – then their trust and acceptance will grow. As the J.D. Power survey shows, this has already started happening with driving data. How this will play out with other alternative data will largely be up to how well insurers can prove themselves trustworthy data custodians.
Some people keep an eye on the S&P 500 index. Others, on the Waffle House Index.
It all apparently began with former head of the Florida Department of Emergency Management, William Craig Fugate. Fugate would use the Waffle House diner chain as a proxy for how businesses and communities in the surrounding area were recovering after a disaster.
The Index (WHI) is pretty simple, as a FEMA blog post explains:
If a Waffle House is open and serving its full menu: green. That means the diner probably has power or is running on a generator.
If a Waffle House is open but serving a limited menu: yellow. The diner probably doesn’t have electricity or running water but can still cook on a gas stove.
If a Waffle House is closed: red. The disaster is bad enough that not even Waffle House is serving eggs and grits.
The WHI is a good proxy because the Waffle House – open 24/7, 365 days a year – has excellent risk management procedures in place and often stays open during natural disasters. If even the Waffle House is closed, then you know the situation is bad and the broader community is likely severely impacted.
The I.I.I.’s own Lynne McChristian was once able to grab dinner thanks to a code yellow WHI. “During the 2004 hurricanes in Florida, the disaster response team I was leading lined up outside Waffle House for dinner, as it was the only place open,” McChristian said. She fed six people for $30. Not bad.
The WHI is so good a proxy, in fact, that even FEMA keeps an eye on the index during a natural disaster.
Back in 2016, the WHI went red before Hurricane Matthew hit Florida. As FiveThirtyEightreported, it sparked a, well, colorful reaction:
Waffle House announced Oct. 6 that it was pre-emptively closing some restaurants on a 90-mile stretch of Interstate 95 between Fort Pierce and Titusville in Florida. (In the next few days, as the storm churned up the coast and flooded North Carolina, it would close 98 all told.) And as soon as the announcement went out, media tracking the storm, and customers on social media, invoked the closings as a sign of the apocalypse.
The Miami Herald: “When Waffle House surrenders to a hurricane, you know it’s bad.” The Washington Post: “Hurricane Matthew is so scary even the always-open eatery is evacuating.” A faithful customer on Twitter: “GOD IN HEAVEN THIS IS THE END!”
For those in the path of natural disasters (including tornadoes): stay safe and keep close watch on the WHI to see if you can still get an All-Star Special after the storm is over.
Dr. Phil Klotzbach, an atmospheric scientist at Colorado State University (CSU), and his team released their updated forecast for the 2019 Atlantic Hurricane season which began on June 1 and continues through November 30.
The team adjusted their original forecast which predicted a slightly below average season, and now call for an average season. The new estimate calls for about 6 hurricanes (average is 6.4), 14 named storms (average is 12.1), 55 named storm days (average is 59.4), 20 hurricane days (average is 24.2), 2 major (Category 3-4-5) hurricanes (average is 2.7) and 5 major hurricane days (average is 6.2). These numbers include Subtropical Storm Andrea which formed in May.
“We …believe that 2019 will have approximately average activity. There remains considerable uncertainty as to whether El Niño conditions will persist through the Atlantic hurricane season. The tropical Atlantic has warmed slightly faster than normal over the past few weeks and now has near-average sea surface temperatures. We anticipate a near-average probability for major hurricanes making landfall along the United States coastline and in the Caribbean,” said Dr. Klotzbach.
As is the case with all hurricane seasons, coastal residents are reminded that it only takes one hurricane making landfall to make it an active season for them. They should prepare the same for every season, regardless of how much activity is predicted.
Dr. Phil Klotzbach is a non-resident scholar at the Insurance Information Institute.
