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Disaster Preparedness

Have a disaster plan for your small business

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Owning a small business has many rewards, like freedom, independence and the chance to financially benefit from your own hard work.  But there are also major challenges, like long hours, hungry competitors, and cash-flow problems.

One of the challenges that lands squarely on the shoulders of the small business owner is risk management. Whereas larger firms have the funds to hire specialists whose sole concern is identifying and preparing for threats to the business, Arthur the accountant and Mia the mover must take on that role themselves.

Natural disasters are a type of risk that can strike a business at any time. Luckily for Arthur and Mia, business insurance often comes with loss prevention expertise offered by many insurance carriers to their clients. An agent or broker can create a disaster and recovery plan customized for any business.

Here is a list of disaster planning tips State Farm® offers for small businesses, they include:

Safety first

  • Take time to plan evacuation routes and exits from your facility and mark them.
  • Install proper emergency lighting and exit signs to help show the way in case of power failure.
  • Designate staff “safety wardens” to guide and assist any emergency efforts, including regular drills.
  • Businesses should conduct emergency training exercises with all employees as frequently as needed to reinforce proper reaction times and responses.
  • Identify appropriate shelter spaces, such as a basement or storm cellar, in your facility for emergencies that may require them. If there is no basement in your building, go to the center of a small interior room on the lowest level away from windows or outside walls, such as a closet or interior hallway. Make sure spaces are kept clear of items that would limit their capacity or safety.
  • For more information about emergency safety procedures, visit the Federal Emergency Management Agency (FEMA).

Secure your assets

  • Contact a qualified contractor to discuss risk mitigation construction techniques for your building or office.
  • As an added precaution, you may also want to research places where you could temporarily relocate your operations if disaster strikes.
  • Maintain a comprehensive, up-to-date inventory of the items and equipment used in your business. Consider capturing these assets in photographs or video and securing the images and inventory files offsite.
  • Institute regular backup procedures for critical software and data to help ensure your business maintains access to the digital infrastructure it needs.
  • A business natural disaster plan will help get you up and running.

Following a disaster, you’ll want to resume business as quickly as possible:

  • Keep a name and telephone number list of contractors or repair firms who could make emergency temporary repairs or board up windows should some of your buildings be damaged.
  • Maintain a list of key suppliers, creditors, customers, and employees you need to contact about the state of your operation.
  • Construct a financial plan to cover continuing payroll expenses and debt obligations.

 

 

Careers and Employment

An open letter to college graduates from I.I.I. CEO Sean Kevelighan

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June 2019

Dear College Graduate:

Congratulations! You made it!

Graduation isn’t an end, but a beginning. As you embark on your career path, please allow me to offer a few observations and some valuable guidance that others have shared with me:

  • Have an upward vision. Know where you want to go in life but understand that worthwhile journeys seldom follow a straight path; sometimes moving sideways creates a clearer route to the top.
  • Remember that what got you “here” won’t necessarily get you to “there.” Take stock of what’s around you and look for new skills and points of view that can contribute to success.
  • Be open to new challenges. You may find new perspectives on—and outlets for—your passions.

The last bit of advice is kind of familiar to those of us in the insurance industry. “I never considered a career in insurance when I was a student” is a pretty familiar refrain. Our team at the Insurance Information Institute includes an actuary who studied journalism, an economist who studied literature, and other dedicated professionals who’ve come to insurance from a wide variety of educational and professional backgrounds. Why did we all end up choosing insurance as a career? Because we have discovered what more than 2.5 million folks currently working in our industry already knew: That insurance careers offer virtually limitless opportunities to earn, learn, grow and make lasting contributions to your community every day.

So, if you haven’t yet considered a career in insurance, then you’re in good company. Because for 350 years, our industry has been driving innovation, embracing change and building a safer, more prosperous world. That’s why the I.I.I. and our member companies are proudly leading the charge to build a workforce that’s responsive to the needs of the people we serve.

We wish you all the best and hope you will choose insurance as a career.

 

Sincerely,

Sean M. Kevelighan

CEO

The Insurance Information Institute

 

Specialty Coverage

Insurance protection for a rainy day

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I snapped this picture in southern Georgia. No outdoor weddings that day.

June weather in New York City can be fickle. As the I.I.I.’s own Brent Carris reported, this fickleness can lead to chaos for the city’s outdoor music festivals, like the recent fiasco at this year’s Gov Ball. Carris noted that event organizers will often have event cancellation insurance to protect themselves financially.

But this got me thinking: is there rain insurance?

Weather insurance

The answer: yes, actually. It’s usually called “weather insurance” – and covers financial losses resulting from adverse weather, including rain. Typically, weather insurance is useful if you’re planning an outdoor event, like a wedding or a bar mitzvah. Commercial events can also buy this insurance, like fairs or festivals.

According to Trusted Choice, weather insurance is often tailored to a specific event’s needs. For example, a sailing regatta in San Francisco might want to be covered for excessive fog, whereas a baseball tournament in Arizona might want to be covered for extreme temperatures. Of course, these covered perils can be combined: it gets hot in southern Florida and rains a lot, so you might want to cover your golf tournament for both high temperatures and precipitation. Plus, you know, hurricanes.

How the coverage gets triggered also depends on the event: one-day events might want their policies to kick in if a certain amount of rain falls over a certain amount of time. Other events that last multiple days or weeks might want the trigger to be if rainfall or temperatures exceed their averages during the policy period.

Special event insurance

Okay, cool, that means I can protect myself in case I have to cancel my invitational street hockey tournament. But what if I have to cancel or postpone for non-weather reasons? That’s where “special event insurance” comes in. It’s broader than just plain weather insurance and will cover other causes of cancellation.

In the case of a wedding, special event insurance can cover cancellation due to, among other things: death or illness of a key participant, or if the bride or grooms is suddenly called to military duty. You can also cover your gifts in case they’re stolen or damaged. You can even cover your losses if one of your third-party providers can’t uphold their promises to you. For example, you could be covered if the bridal salon goes out of business and you have to get a dress somewhere else, or the photographer fails to show up and you need to deputize your cousins to take pictures with their smartphones.

Ticket insurance

It’s not just event organizers who can get insurance protection, though. There are also products to protect attendees. For example, Allianz calls its product “Global Assistance Event Ticket Protector Insurance,” which roughly translates into English as “ticket insurance”.

According to the Ticketmaster website, this insurance will reimburse you 100 percent of your ticket (including taxes and shipping) if any of a long list of things happens that prevents you from enjoying your event. Illness or serious injury, for example. Military duty is also covered (who knew there was such a high risk of someone being whisked away to military duty on short notice?). You’ll also be covered if a traffic accident keeps you from getting to the venue, or if your plane is delayed getting in.

However, being lazy is not a covered cause of loss: “Please note that no benefits will be extended for cancellations due to simply changing your mind.”

Insurance Industry

From the I.I.I. Daily: Our most popular content, June 7 to June 13

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Here are the 5 most clicked on articles from this week’s I.I.I. Daily newsletter.

To subscribe to the I.I.I. Daily email daily@iii.org.

 

Flood Insurance

FEMA publishes flood insurance claim records going back to 1978

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“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 this South 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.

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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Getty Images

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.

 

 

Insurers and the Economy

Bodily Injury Liability Prices and Overall Inflation

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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).

Catastrophes, Disaster Preparedness

Mexico’s coral reefs get insured against storm damage

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iStock, Riviera Maya, Quintana Roo, Mexico

An innovative insurance product is being deployed to protect several miles of coral reef  around Cancun and Puerto Morelos, reports Business 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 Business reported 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.

Insurance Industry

J.D. Power Study on insurers and data: a matter of trust

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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.

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