Thomas wildfire to cost insurers between $1 billion and $2.5 billion

Catastrophe risk modeling firm RMS puts insured and reinsured losses stemming from the December Thomas fire in Southern California at somewhere between $1 billion and $2.5 billion, reports the Artemis blog.

The fire, which started on December 4, became the largest in California history and was followed by devastating mudslides in burned areas stripped of vegetation.

RMS estimates include losses from burning or smoke damage to personal and commercial lines and insured losses due to business interruption and additional living expenses. They don’t include automobile and agriculture losses, or damage related to the recent mudslides.

 

The I.I.I. has Facts & Statistics on wildfires here.

Flood insurance after the government shutdown

At 12:01 Saturday, the U.S. government shut down. Here is what that means for the National Flood Insurance Program, as taken from the NFIP’s web site (last updated Wednesday):

FEMA and Congress have never failed to honor the flood insurance contracts in place with NFIP policyholders. In the unlikely event the NFIP’s authorization lapses, FEMA would still have authority to ensure the payment of valid claims with available funds.

However, FEMA would stop selling and renewing policies for millions of properties in communities across the nation. Nationwide, the National Association of Realtors estimates that a lapse might impact approximately 40,000 home sale closings per month.

 

Actuarial science vs. Neuroscience

I get interviewed by a lot of newspapers, magazines and TV stations, but maybe the most interesting one came last year when I spoke to David Scharfenberg of the Boston Globe about neuroscience and actuarial science.

David’s article looks at the criminal justice system and suggests that people under the age of 25 should be classified and punished differently from people older than that. Their young-ish minds aren’t fully developed.

He points to scientific studies and programs, but he wanted to talk to me about insurance. The I.I.I., of course, has no opinion on criminal justice, but famously, auto insurers charge younger drivers more than older drivers, and the rates generally change about age 25.

From the article, here is what I said:

The insurance industry’s decades-old imposition of higher rates on young adult drivers is . . . rooted in hard numbers.

The data show a significant decline in the number of accidents for drivers over the age of 25, because they’re more experienced and more mature. And property casualty insurers — more than 2,000 in all — have to retest that proposition year after year, in order to justify the elevated rates to state regulators.

“It’s like, ‘OK, here we are in Arkansas — well, looks like we’re going to be drawing the line at 25, 26 again,’ ” Lynch says. “Now, we’re looking at Massachusetts — oh, there we are again.” The industry, he says, has known for decades what the white coats in the lab are now confirming.

“We were there,” he says, “long before the neuroscientists.”

Postscript: This article was actually published in November, but I only heard about it in mid-January when a prisoner at a correctional center in Massachusetts asked for more information. I sent him this link from our Facts and Statistics page.

The overlooked employee lawsuit risk of family-owned businesses

One might think that family-owned and operated businesses would be relatively immune from employee lawsuits, but that’s not the case according to a recent Gen Re article.

The reasons family-owned businesses get sued include: most family owned businesses employ at least one non-relative; the non-relative is likely to be first to be fired when the business is struggling; and family members are reluctant to discipline each other for bad workplace behavior, especially if the family patriarch is the one misbehaving.

The article gives several examples of lawsuits against family businesses and the awards paid out, concluding that a family-owned business would benefit from including employment practices liability insurance (EPLI) as a part of its insurance package.

 

The week in a minute, 1/12/2018

The III’s Michael Barry briefs our membership every week on key insurance related stories. Here are some highlights. 

Autonomous vehicles at the 2018 Consumer Electronics Show

At the massive Consumer Electronics (CES) show held in Las Vegas from January 8 – 12, self-driving technology took up much of the spotlight, heralding the unstoppable advent of the era of autonomous cars.

The activity went beyond the convention floor, with Aptiv (formerly Delphi) and Lyft partnering to offer rides in self-driving cars to attendees.

The Wall Street Journal reports that Renault-Nissan Chief Executive Carlos Ghosn said at a CES press conference: “[We are] going to see complete arrival and mass marketing of autonomous driving in the next six years. … The speed at which mass marketing will happen will not depend only on us. It will depend on country by country to make this a mass marketing phenomenon, not only a prototype… But this is going to happen.”

At the CES Research Summit, AIG’s Lex Baugh, chief executive officer for North America general insurance, said that the company is figuring out how autonomous vehicle risk might involve auto manufacturers, software providers and parts suppliers, as well as infrastructure and communications providers, reports A.M. Best.

Gaurav D. Garg, CEO of global personal insurance at AIG, said that he expects that jury decisions and awards in litigation related to autonomous vehicles will be a part of shaping the future of the technology.

Zurich Insurance Group, is one company looking to get a jump on auto technology advances. Zurich acquired Bright Box HK Ltd., in a move which the company said would increase its capabilities in connected car technologies and mobility and strengthen Zurich’s proposition for car drivers, car dealers and original equipment manufacturer. The acquisition will also facilitate new insurance services leveraging telematics-enabled data analytics.

Will cyber insurance cover the Meltdown and Specter bugs?

Last week news broke of two security flaws in computer processors that affect virtually all computers, smartphones and smart devices such as televisions and refrigerators.

The first flaw, nicknamed “Meltdown,” applies specifically to Intel chips. The second flaw called “Spectre,” is more difficult for an attacker to exploit but has no available patches yet and lets attackers access the memory of devices running Intel, AMD, and ARM chips.

This article from Woodruff Sawyer & Co., an insurance and risk management company, considers the cyber insurance underwriting implications of these flaws. The article states that once a bug becomes known and a patch or solution is available, the burden shifts to the device owner to download the patch and update their device. Cyber underwriters will want to know if business owners have patched all vulnerable devices, and how long it took to do that after the patches became available.

Another area of underwriting focus will be device obsolescence. Intel has stated that the patches released to address the vulnerability will focus on devices introduced in the last five years. Since manufacturers are not motivated to keep updating old equipment, and it may be difficult for companies to ensure that their entire network is free of the vulnerability if they don’t migrate to newer machines.

The article concludes that companies that are proactive in dealing with the chip vulnerabilities will improve their cyber security – and their ability to secure good cyber insurance.

Adapting to flooding with amphibious architecture

The New Yorker magazine reported recently on the work of the Buoyant Foundation Project, an organization that provides architectural flood mitigation solutions for vulnerable populations.

Amphibious architecture allows an otherwise-ordinary structure to float on the surface of rising floodwater. An amphibious foundation retains a home’s connection to the ground by resting firmly on the earth under usual circumstances, but allows a house to float when flooding occurs.

A buoyant foundation is specifically designed to be retrofitted to an existing house that is already slightly elevated off the ground and supported on short piers.  Under the house the foundation’s buoyancy blocks provide flotation, vertical guideposts prevent the house from floating away, and a frame ties everything together.  Any house that can be elevated can be made amphibious.

Amphibious retrofitting has not yet gained widespread acceptance, and buildings with amphibious foundations are not eligible for subsidized policies offered by the National Flood Insurance Program.

NFIP taps reinsurance market again in 2018

The National Flood Insurance Program returned to the private reinsurance market for 2018, paying $235 million for $1.458 billion coverage from a single flood event.

The coverage limit is 40 percent more than what the NFIP purchased last year ($1.042 billion), and the premium is 56 percent higher than the $150 million NFIP paid last year. The 2017 treaty was the first significant foray for the government insurer into the private sector, and the government recovered the entire $1.042 billion from Hurricane Harvey’s floods.

The structure is a bit different this year. Last year reinsurers covered 26 percent of $4 billion in losses after NFIP retained $4 billion losses. Reinsurers will pay 18.6 percent of the first $2 billion of losses excess of $4 billion and will pay 54.3 percent of the $2 billion excess $6 billion.

Both last year and this, the NFIP gets no protection for the first $4 billion of any flood event – the $4 billion acts similar to a deductible on an insurance policy. After that, the worse the flood gets, the more NFIP recovers, and this year the maximum is $1.458 billion.

Examples:

  • A $5 billion flood would result in a recovery of $186 million – $5 billion minus $4 billion is $1 billion and 18.6 percent of that is $186 million.
  • A $7.5 billion flood would result in a recovery of $1.1865 billion:
    • For the first $6 billion, the recovery would be $372 million, being 18.6 percent of $2 billion (after the $4 billion “deductible.”)
    • For the $1.5 billion in losses above $6 billion, the recovery would be $814.5 million, being 54.3 percent of $1.5 billion.

NFIP explains the structure in a press release, with program Director Roy E. Wright adding his thoughts in a blog post.

Harvey was the third worst flood in NFIP’s 50 years, behind Hurricane Katrina in 2005 ($16.3 billion) and Superstorm Sandy in 2012 ($8.7 billion). Harvey has generated 91,514 claims through January 5, according to messaging from FEMA, and 90.9 percent of them have closed. The average payment has been $108,825.

The I.I.I. has more information on floods and flood insurance here.

The week in a minute, 1/5/18

The III’s Michael Barry briefs our membership every week on key insurance related stories. Here are some highlights. 

With a snowstorm headed up the Atlantic Seaboard, the Weather Channel offered details on the East Coast states to be impacted by this week’s extreme cold.

California’s Thomas Fire is now the largest in the state’s history, having burned an estimated 282,000 acres in Santa Barbara and Ventura counties since the blaze began on December 4, 2017.

Global insurers purchased more U.S. asset managers in 2017 than in any year in two-plus decades, The Wall Street Journal reported, in its December 30-31, 2017 Weekend print edition.

Latest research and analysis