Lightning Strikes, Insurance Responds

Next time you’re home when a heavy thunderstorm rolls in, take a moment to think about how damaging lightning losses can be and how insurance helps.

In fact, insurers paid out $790 million in lightning claims last year to nearly 100,000 policyholders, according to a new analysis by the Insurance Information Institute (I.I.I.) and State Farm.

Damage caused by lightning, such as fire, is covered by standard homeowners policies and some policies provide coverage for power surges that are the direct result of a lightning strike.

As James Lynch, vice president of information services and chief actuary of the I.I.I. says:

“Not only does lightning result in deadly home fires, it can cause severe damage to appliances, electronics, computers and equipment, phone systems, electrical fixtures and the electrical foundation of a home.”

It’s due partly to the enormous increase in the number and value of consumer electronics that the average cost per claim has continued to rise, Lynch explains.

There were 99,423 insurer-paid lightning claims in 2015, down 0.4 percent from 2014, but the average lightning claim paid was 7.4 percent more than a year ago: $7,497 in 2015 vs. $7,400 a year earlier.

The average cost per claim rose 64 percent from 2010 to 2015. By comparison, the Consumer Price Index (an inflationary indicator that measures the change in the cost of a fixed basket of products and services, including housing, electricity, food, and transportation) rose by 9 percent in the same period.

In recognition of Lightning Safety Awareness Week (June 19-25), the I.I.I. and the Lightning Protection Institute (LPI) encourage homeowners to install a lightning protection system in their homes. These systems are designed to protect the structure of your home and provide a specified path to harness and safely ground the super-charged current of the lightning bolt.

The growing market for smart home technology makes installing a lightning protection system even more important, noted the I.I.I. It is also an opportunity for designers, builders and code officials to include lightning protection systems in their plans.

Kimberly Loehr, director of communications for the LPI adds:

“Just as smart homes provide the ultimate in safety and comfort, lightning protection systems ensure that state-of-the-art home automation systems aren’t damaged by direct or nearby lightning strikes.”

U.S. Exposure to Brexit Referendum

London, for decades the financial center of Europe, finds itself on the brink of a monumental vote. On Thursday, British voters will decide whether to leave the European Union in what’s known as the Brexit referendum.

While there is uncertainty over what a Brexit could mean for the UK economy and for London, there is also uncertainty over what it would mean for the United States and for U.S. companies.

The Los Angeles Times reports that while the U.S. economy is better insulated than most from the risk of market turmoil, the Brexit referendum has added to uncertainties in a presidential election year and to lingering concerns about China’s economic slowdown.

A lot of U.S. companies have something to lose if the UK decides to leave the EU, with the banking and insurance sectors among those most likely to be affected, according to this CNBC report.

Some U.S. companies have moved not just parts of their operations but whole headquarters from the U.S. to the UK, CNBC says.

For example, the world’s largest insurance broker Aon, relocated its corporate headquarters to London from Chicago in 2012, in a move designed to give the company greater access to emerging markets through London.

Aon told CNBC in a statement:

“If Britain votes to leave the European Union, the innovative center of excellence that has set London apart in the insurance space will be deeply challenged.

“Talent is a true differentiator for the city of London, and to create a barrier between the industry that addresses the world’s most complex risks and the global talent needed to do this will have real implications.”

If companies lose the ability to passport their services into Europe, they may decide to move their European hubs and staff out of London and the UK, which would lead to significantly higher operational costs.

The London insurance market has been very vocal on why remaining in the EU is the best outcome for insurers.

As Lloyd’s chief risk officer Sean McGovern said earlier this year, the London market is currently the largest global hub for commercial and specialty risk—controlling more than £60 billion ($88 billion) of gross written premium.

And the UK’s membership of the EU gives it access to the world’s largest insurance market with a world market share of nearly 33 percent and total insurance premiums of nearly Euros 1.4 trillion ($1.6 trillion).

In a recent paper, Lloyd’s, the International Underwriting Association and Fidelis warned that Brexit poses a significant threat to London insurance jobs and business.

Read more about the insurance sector impact of a Brexit in this analysis by London law firm Clifford Chance.

Aon’s full statement on the EU referendum is available here.

What Does A Cyberattack Really Cost?

The current market value put on the business impact of a cyberattack is grossly underestimated, according to a new report from Deloitte Advisory.

It finds that the direct costs commonly associated with data breaches, such as regulatory fines, breach notification and protection costs, and public relations costs account for less than 5 percent of the total business impact.

But the effects of a cyberattack can be even more far-reaching and last for years, resulting in a wide range of hidden or intangible costs related to loss of intellectual property, operational disruption, increase in insurance premiums, and devaluation of trade name.

In fact more than 95 percent of the financial impact of a cyberattack is likely to accrue in these areas and businesses can be caught especially unprepared for these intangible costs.

In a press release, Don Fancher, principal, Deloitte Advisory, and global leader for Deloitte forensic, says:

“Rarely brought into executive and board conversations around cyber risk are the costs and consequences of IP theft, cyber espionage, data destruction, or business disruption, which are much harder to quantify and can have a significant impact on an organization.

“Our intent is not to scare executives into thinking that all cyber incidents will be more costly than they think. It’s to give them a better understanding of their specific risks so they can make more educated decisions that are aligned with their business strategies.”

Find out more about cyber risks and insurance in this Insurance Information Institute paper.

Global Insured Disaster Losses in May: $7 billion and Counting

At least $7 billion—that’s how much global disasters and severe weather are expected to cost insurers and reinsurers in May.

Aon Benfield’s latest Global Catastrophe Recap Report notes that the Fort McMurray wildfire in Alberta, Canada, will become the costliest disaster in the country’s history.

Insured losses—including physical damage and business interruption—are expected to be in excess of $3.1 billion, while total economic losses will be well into the billions of dollars.

The fire charred more than 580,000 hectares (1.43 million acres) of land and destroyed at least 10 percent of Fort McMurray, including more than 2,400 homes and other structures.

Remarkably, no direct casualties were reported from the event as it prompted the largest evacuation in the history of Alberta.

Adam Podlaha, global head of Impact Forecasting, says:

“The severity of wildfire damage in Fort McMurray is an unfortunate reminder of how significant insurable losses can be from the peril.”

And:

“Since this is just the sixth individual global wildfire to surpass the billion-dollar threshold for insurers, there is not a lot of precedent for a fire event of this magnitude.”

Check out Insurance Information Institute wildfire facts and statistics here.

Elsewhere, severe weather and flooding in Europe where the storm ‘Elvira’ swept across parts of northern Europe between late May and early June caused most damage in Germany, France, Austria, Poland and Belgium, where floods impacted many major metro regions, including Paris.

Preliminary estimates from industry associations in France (MAIF) and Germany (GDV) put the estimated combined minimum claims payouts at in excess of $2.3 billion, while overall economic damage is tentatively estimated at $4.6 billion.

May also saw no fewer than five outbreaks of severe convective storms in the United States, affecting parts of the Plains, Midwest, and Mississippi Valley. Storm-related flooding also caused major damage in parts of Texas.

Total aggregated insured losses were estimated at over $1 billion, Aon’s Impact Forecasting unit said.

Meanwhile, Cyclone Roanu brought torrential rain to Sri Lanka, eastern India, Bangladesh, Myanmar and China during May, damaging or destroying nearly 125,000 homes and structures across all five countries. Estimated reconstruction costs were put at $1.7 billion, though insured losses are substantially less due to low insurance penetration.

Even after all that, May was not done, with other notable natural hazard events around the globe, including:

—Five separate instances of flooding impacted China as aggregated economic losses topped $1.5 billion. Most of the damage was attributed to agricultural interests.

—Other major flood and landslide events in May were reported in parts of Hispaniola, Kenya, Tajikistan, Afghanistan, Rwanda, Ethiopia, India and Yemen.

—Tropical Storm Bonnie brought heavy rainfall to portions of the Carolinas and Georgia in the United States at the end of May and into June. Total economic losses were expected to be minimal.

—Earthquakes in Ecuador and China caused damages to thousands of homes and a winter weather outbreak in northern China caused damage to crops totaling $61 million.

Top Metro Areas Have More to Lose When a Hurricane Hits

Latest Atlantic hurricane season forecasts are focused on the numbers – how many storms can we expect? and how many of those will be major hurricanes? NOAA, Colorado State University and Tropical Storm Risk cast their predictions here, here and here.

But as the latest storm surge analysis from CoreLogic indicates, it is where a hurricane hits land that is often a more important factor than the number of storms that may occur during the year.

Why?

More than 6.8 million homes located along both the Gulf and Atlantic coasts of the United States are at risk of hurricane-driven storm surge, with a total reconstruction cost value (RCV) of just over $1.5 trillion, according to CoreLogic.

But the disproportionate numbers of at-risk homes in just 15 major metropolitan areas means that where the storm makes landfall can make all the difference in terms of property damage and loss of life.

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CoreLogic’s analysis reveals that some 67 percent of the 6.8 million total at-risk homes and 68 percent of the total $1.5 trillion RCV is located within 15 major metropolitan areas.

That’s 4.6 million homes, with total RCV of just over $1 trillion located in urban centers along the Gulf and Atlantic coasts including Miami, New York City, New Orleans, Houston, Philadelphia, Charleston and Boston.

The Miami metro area, which includes Fort Lauderdale and West Palm Beach, tops the list with 780,482 at-risk homes and an RCV of $143.9 billion.

By comparison, the New York City metro area has slightly fewer homes with potential storm surge risk at 719,373, but a significantly higher RCV totaling $260.2 billion.

As CoreLogic says:

“History has shown us that a single low-level storm can cause substantial property loss and potential loss of life it it occurs in or near an area of dense development.”

It’s important to note that properties located outside of designated FEMA flood zones may still be at risk for storm surge inundation.

However, only homes located within FEMA-designated high risk flood areas are required to carry flood insurance through the National Flood Insurance Program.

A 2015 poll by the Insurance Information Institute found that 14 percent of American homeowners had a flood insurance policy. This percentage has been at about the same level every year since 2009.

Atlantic Hurricane Season Off to Early Start

Whichever way you slice it, NOAA’s just-released outlook for the 2016 Atlantic Hurricane Season appears to suggest we’re on track for more hurricane activity than we’ve seen in a while.

NOAA predicts a 70 percent chance of 10 to 16 named storms (winds of 39 mph or higher), of which 4 to 8 could become hurricanes (winds of 74 mph or higher), including 1 to 4 major hurricanes (Category 3, 4 or 5; winds of 111 mph or higher).

It calls for a 45 percent chance of a near-normal season, but there is also a 30 percent chance of an above-normal season. The likelihood of a below-normal season is at 25 percent.

NOAA2016AtlanticHurricaneOutlook

In the words of Dr Gerry Bell, lead seasonal hurricane forecaster with NOAA’s Climate Prediction Center:

“This is a more challenging hurricane season outlook than most because it’s difficult to determine whether there will be reinforcing or competing climate influences on tropical storm development.

“However, a near-normal prediction for this season suggests we could see more hurricane activity than we’ve seen in the last three years, which were below normal.”

To put that in context, the 2012 Atlantic hurricane season was extremely active and tied with 1887, 1995, 2010 and 2011 for having the third-most named storms on record.

Insurers paid out more than $26 billion in hurricane losses that year, including Superstorm Sandy which caused $19 billion in insured property losses.

With Bonnie threatening to develop into a tropical storm over the Memorial Day weekend, the Atlantic could have its second storm before the official start of hurricane season, which starts June 1, as the Insurance Information Institute reminds us here.

Bear in mind that NOAA’s outlook includes Hurricane Alex, a pre-season storm that formed over the far eastern Atlantic in January.

With El Niño dissipating, NOAA’s Climate Prediction Center forecasts a 70 percent chance that La Niña— which favors more hurricane activity — will be present during the peak months of hurricane season, August through October.

However, current model predictions show uncertainty as to how strong La Niña and its impacts will be.

Check out this earlier post over at Artemis blog about the potential impact of La Niña.

As we’ve said before, regardless of predictions and outlooks it pays to be prepared and this year’s hurricane season is no different.

Check out I.I.I. facts and statistics on hurricanes.

Emerging Risk: the Internet

We think of the Internet as a borderless entity, but that could all change, according to an annual emerging risk report from Swiss Re.

The publication is based on the SONAR process, an internal crowdsourcing tool that collects inputs and feedback from underwriters, client managers, risk experts and others to identify, assess and manage emerging risks.

Increased localization of internet networks within country borders is one of the key emerging risks that industry players should prepare for, the report suggests.

It notes that as cybercrime has grown rapidly, so the Internet has become less safe and governments are instituting more regulation, requiring companies to protect their online assets more effectively and to store data on servers physically located within their geographical borders.

Some countries are even using special software to filter out unwanted information, firewalls and isolated IT infrastructure detached from global networks, Swiss Re reports.

“A step further in this direction is the design and development of internet protocols which make certain communications impossible. In China, for instance, the government already controls all Internet content as well as the physical infrastructure.”

While no international consensus has emerged yet on how the internet should be governed, the report reveals that there is a chance that disconnected national and regional nets will become more common.

As Swiss Re says:

“Such developments would increase IT costs and regulation and would hurt insurance companies operating across borders.”

In particular, the report highlights that evolving regulation would increase operational risk and could trigger more liability claims in the directors and officers (D&O) and fidelity arena, as well as massively increasing costs for setting up and maintaining separate legal structures.

Another concern is that technology companies may face liability suits from customers if they are no longer able to access data stored on cross-border servers.

Where Insurance Meets Transgender Rights

Both as assumers of risk and as employers, insurers are in a unique position when it comes to navigating the changing legal environment and civil rights.

Recent federal and state rulings pertaining to the rights of transgender individuals raise a number of issues, and there are potential insurance implications to consider.

In March North Carolina passed a controversial law (HB 2) requiring transgender individuals to use public bathrooms that correspond to their gender at birth. This led the U.S. Justice Department to send a letter to North Carolina leaders saying the law violates the U.S. Civil Rights Act and Title IX.

More than 150 CEOs and business leaders of major companies voiced their opposition. PayPal withdrew its plans for a $3.6 million investment and 400 jobs in the Tar Heel state.

Also in April, in a landmark ruling on transgender students’ rights in schools, the Fourth Circuit Court of Appeals in Virginia decided that the U.S. Department of Education can prohibit anti-transgender discrimination under Title IX, a federal law that prohibits sex discrimination in education. (G.G. v Gloucester County School Board)

In the wake of this ruling, President Obama issued a directive instructing public schools to allow transgender students to use the restroom that matches their gender identity.

Meanwhile, several federal agencies have issued strong opinions on the issue of discrimination and transgender rights, for example:

—The U.S. Department of Health and Human Services has ruled that hospitals, clinics and other healthcare providers cannot discriminate against patients on the basis of gender identity.

U.S. Attorney General Loretta Lynch has made clear that laws restricting restroom access that affect transgender individuals are discriminatory.

—The Departments of Justice and Education issued a joint letter to public schools explaining how federal law prohibiting sex discrimination affects schools’ obligations toward transgender students.

—The U.S. Equal Employment Opportunity Commission (EEOC) has sued several employers over their treatment of transgender employees, including restroom access, on the basis that alleged conduct violates Title VII of the Civil Rights Act of 1964, which prohibits sex discrimination, i.e.. employment discrimination based on gender identity or sexual orientation.

While this is an evolving area of law and liability for businesses and municipalities everywhere, insurers—and the policies they write—will no doubt be implicated.

Industry experts say it’s critical that businesses find out what their state or municipality has enacted on this issue and establish a coherent nondiscriminatory policy to minimize their own liabilities.

In a recent PodCast with A.M. Best on the legal issues surrounding transgender restroom access Brian Cafritz, a partner at Kalbaugh, Pfund & Messersmith Law P.C. said there could be potential implications for commercial general liability policies that cover slander, defamation, assaults, or other discrimination acts.

Cafritz also noted that as federal laws change, negligent hiring or retention claims could be raised impacting the insurance policies that cover these entities.

School districts and municipalities in particular face rising potential liability. A recent brief by Munich Re noted that policy coverage that might be impacted by transgender litigation against school personnel include:

—General liability: physical bodily injury and/or mental anguish, mental injury

—Personal Injury: defamation of character, violation of privacy rights

—Wrongful Acts – tortious error, act or omission

Workplace issues as they relate to transgender employees was a topic of discussion at the recent RIMS conference session, as reported by Business Insurance.

P/C Industry Resilient Even in Face of Disaster

The property/casualty insurance industry is, and will remain, extremely well capitalized and financially prepared to pay very large scale losses in 2016 and beyond, according to Insurance Information Institute (I.I.I.) president Dr. Robert Hartwig and chief economist Dr. Steven Weisbart.

In their commentary on the industry’s 2015 year end results, Drs. Hartwig and Weisbart note that overall industry capacity remains near an all-time record high.

“Overall industry capacity (policyholder surplus) slipped slightly to $673.7 billion as of December 31, 2015, but was still extraordinarily strong, as measured by a premium-to-surplus ratio of 0.76—virtually the strongest it has ever been.”

They go on:

“Thanks to a surging stock market until 2015, policyholders’ surplus has generally continued to increase with the end of the Great Recession and three consecutive years without large-scale catastrophe losses. But the lack of stock gains in 2015 ended (or at least stalled) this trend.”

At $673.7 billion as of December 31, 2015, policyholders’ surplus was down $1.5 billion or 0.23 percent from year-end 2014.

The bottom line is that the industry is extremely well-capitalized, even in the face of disaster.

As the I.I.I. reports:

“The fact that the P/C industry was able to rapidly and fully recoup its losses to surplus even in the event of disasters like superstorm Sandy (which produced $18.8 billion in insured losses in 2012) is continued evidence of its remarkable resilience in the face of extreme adversity.”

Other takeaways of the industry’s 2015 year end results: moderate profits in 2015, as measured by a return on average surplus of 8.4 percent, virtually the same as in 2014; modest premium growth (net written premiums in 2015 crossed the half-trillion-dollar mark to $514.0 billion, although the rate of increase slipped slightly to 3.4 percent growth from 4.2 percent in 2014); and a below-100 combined ratio for the fourth straight year (97.8 in 2015, compared with 97.0 in 2014).

The industry results were released by ISO, a Verisk Analytics company, and the Property Casualty Insurers Association of America (PCI).

Fido Takes A Bite Out of Homeowners Claims

Don’t bite on this, but next week’s National Dog Bite Prevention Week is a reminder that Fido can cost dog owners—and their insurers—dearly.

Dog bite (and dog-related injuries) accounted for more than one-third of all homeowners insurance liability claim dollars paid out in 2015, costing in excess of $570 million, according to the Insurance Information Institute (I.I.I.) and insurer State Farm.

In its analysis, the I.I.I. found that while the number of dog bite claims nationwide decreased 7.2 percent in 2015, the average cost per claim for the year was up 16 percent.

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The average cost paid out for dog bite claims nationwide was $37,214 in 2015, compared with $32,072 in 2014 and $27,862 in 2013.

In fact, the average cost per claim nationally has risen more than 94 percent since 2003.

Why is this?

Loretta Worters, vice president at the I.I.I., says increased medical costs as well as the size of settlements, judgments and jury awards given to plaintiffs, which are still on the upswing, are responsible for the higher costs per claim.

Dog-related injuries also have an impact on the potential severity of losses. In addition to bites, dogs knock down children, cyclists, the elderly, all of which can result in fractures and other blunt force trauma injuries.

Another factor might be the surge in U.S. Post Office worker attacks, many of which take place at the customer’s door.

The study found the average cost per claim varies substantially across the country.

While Arizona had only the ninth largest number of claims at 393, it registered the highest average cost per claim of the 10 states with the most claims: a staggering $56,654.

State Farm notes that insurance is an important aspect to being a responsible dog owner and offers this important advice:

“When renting a property make sure to have rental insurance because most landlords do not provide coverage should there be a dog bite incident. If you are a homeowner, talk to your insurance agent about what is covered under a standard homeowner policy related to dogs.”

More on this story over at propertycasualty360.com

 

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