Category Archives: Insurers and the Economy

What IoT Cyber Attacks Mean for Insurers

The massive global distributed denial of service attack (DDoS) against internet infrastructure provider Dyn DNS Co. that left over 1,000 major brand name sites including Twitter, Netflix, PayPal and Spotify, inaccessible Friday has implications for insurers too.

While the nature and source of the attack is under investigation, it appears to have been (in the words of Dyn chief strategy officer Kyle York) “a sophisticated, highly distributed attack involving tens of millions of Internet Protocol addresses.”

As Bryan Krebs’ KrebsOnSecurity blog first reported, the attack was launched with the help of hacked Internet of Things (IoT) connected devices such as CCTV video cameras and digital video recorders (DVRs) that were infected with software (in this case the Mirai botnet) that then flooded Dyn servers with junk traffic.

The World Economic Forum (WEF) recently warned that failing to understand and address risks related to technology, primarily the systemic cascading effects of cyber risks or the breakdown of critical information infrastructure could have far-reaching consequences for national economics, economic sectors, and global enterprises.

As the IoT leads to more connections between people and machines, cyber dependency will increase, raising the odds of a cyberattack with potential cascading effects across the cyber ecosystem, the WEF noted.

While IoT connected devices have the potential to transform how businesses and individuals—and their insurers—conduct, manage and monitor their operations, workplaces and their homes, clearly there are embedded risks that insurers need to consider.

Over at Celent’s insurance blog, Donald Light, director of Celent’s North America property/casualty practice, says the Dyn DDoS attack has a number of potentially serious implications for insurers.

Light writes:

“An insurer with a Connected Home or Connected Business IoT initiative that provides discounts for web-connected security systems, moisture detectors, smart locks, etc. may be subsidizing the purchase of devices which could be enlisted in a botnet attack on a variety of targets. This could expose both the policyholders and the insurer providing the discount to a variety of potential losses.”

If the same type of safety and security devices are disabled by malware, homeowners and property insurers may have increased and unanticipated losses, Light suggests.

The Insurance Information Institute white paper on cyber threats and opportunities is available here.

Caribbean Catastrophe Pool Aids Hurricane Matthew Recovery

By tomorrow four Caribbean countries will have received payouts from the CCRIF PC (formerly the Caribbean Catastrophe Risk Insurance Facility) due to Hurricane Matthew, for a total of $29.2 million.


The chart above shows a $20.4 million payout by the CCRIF to the Government of Haiti on its Tropical Cyclone (TC) policy as a result of Hurricane Matthew, and an additional payment of just over $3 million on its excess rainfall policy, for a total of $23.4 million.

The payments come just two weeks since Hurricane Matthew hit Haiti as a Category 4 storm, devastating the southern portion of the country and leaving more than 1,000 dead.

Barbados will also see a payout of just under $1 million on its TC policy for a total payment to the country of $1.7 million due to Matthew.

The excess rainfall policies of Saint Lucia and St. Vincent & the Grenadines were also triggered by Hurricane Matthew, resulting in CCRIF payments to those countries of $3.8 million and $285,349, respectively.

Including the Hurricane Matthew payments, CCRIF has now made a total of 21 payouts to 10 member governments totaling almost $68 million since 2007, all within 14 days of an event.

CCRIF is able to make quick payouts because it offers parametric insurance products to its member countries.

TC policies make payments based on hurricane wind speed and storm surge levels and do not include losses due to rainfall. To fill this gap, CCRIF’s Excess Rainfall (XSR) product was developed a few years ago. Under the excess rainfall policies, payments are triggered based on the volume of rainfall from a hurricane or other rain event.

Each government selects its own attachment point or deductible, so the individual country’s policies are triggered when the modeled losses surpass that point.

Most CCRIF members have purchased both TC and XSR policies and many members also have earthquake coverage.

Just last year, the CCRIF expanded its membership to countries in Central America as well as the Caribbean.

Artemis blog reports that the $29.2 million of payouts due to Hurricane Matthew  by the CCRIF will not come close to troubling its catastrophe bond coverage, but could result in the facility being able to call on reinsurance support for some of the loss.

It also predicts increasing uptake of parametric insurance for disaster protection and recovery funding as more corporate buyers become aware of the opportunities.



Hurricane Matthew: Early Loss Estimates and More

Early estimates put the insured property loss to U.S. residential and commercial properties from Hurricane Matthew at up to $6 billion.

While this figure covers wind and storm surge damage to about 1.5 million properties in Florida, Georgia and South Carolina, CoreLogic’s estimate does not include insured losses related to additional flooding, business interruption or contents.

Parts of North Carolina are expected to remain under dangerous flood risk for at least the next three days, according to the state’s governor Pat McCrory in a report by the Capital Weather Gang blog.

As Dr. Jeff Masters’ WunderBlog reminds us, the potentially huge cost of damage caused by inland flooding is still unfolding.

The WunderBlog post suggests:

“A roughly comparable storm, Hurricane Floyd in 1999, produced about $9.5 billion in U.S. economic damage.”

And given the ongoing flooding across the Carolinas and southeast Virginia, that is a fair starting point for Hurricane Matthew, according to Wunderblog’s account of a conversation with Steve Bowen, director and meteorologist at Aon Benfield.

Catastrophe modeler RMS expects the losses to commercial lines will be the primary driver of total flood insured losses, predominately through multi-peril or all-risks policies.

In a blog post, Tom Sabbatelli, RMS hurricane expert noted:

“We expect that the contribution to insured losses by residential claims will be limited because a proportion of the residential property losses will be covered by the National Flood Insurance Program (NFIP).”

As of July 31, 2016, there were approximately 417,000 NFIP policies in-force in Georgia, South Carolina, and North Carolina.

Penetration of NFIP coverage varies significantly by distance to the coastline, RMS said. While in coastal regions it can be as high as 25 percent in some areas, inland participation can be less than 1 percent.

“This means that although much of the storm surge-driven coastal flood losses will be covered to some extent by the NFIP, many flood-related losses further inland are expected to be uninsured.”

Ratings agency Fitch has said that the insured loss from Hurricane Matthew “is not expected to present a major capital challenge” to the industry.

Fitch estimates that if the storm results in insured losses in excess of $10 billion, a greater proportion of losses will be borne by reinsurers as opposed to primary companies.

More than 30 fatalities have been attributed to Hurricane Matthew in the U.S. alone, but in Haiti the rising death toll is now more than 1,000.

Hurricane Matthew became post-tropical on Sunday, after heading eastward from the North Carolina coast out to sea.

The Insurance Information Institute offer the following tips for filing an insurance claim in the wake of Hurricane Matthew.


Cybersecurity Among Biggest Presidential Challenges

Just days after the disclosure of a massive data breach at email provider Yahoo, believed to have been the work of a state-sponsored actor, it’s notable that cybersecurity made news during the first of three U.S. presidential debates last night.

As Democratic U.S. presidential nominee Hillary Clinton and Republican U.S. presidential nominee Donald Trump squared off, moderator Lester Holt, asked:

“Our institutions are under cyber attack, and our secrets are being stolen. So my question is, who’s behind it? And how do we fight it?”

In her response, Clinton described cybersecurity, cyber warfare as one of the biggest challenges facing the next president.

She said the U.S. faced two different kinds of adversaries: independent hacking groups that try to steal information so they can use it commercially to make money; and cyber attacks coming from states and organs of states.

Clinton noted:

“We need to make it very clear—whether it’s Russia, China, Iran or anybody else—the United States has much greater capacity. And we are not going to sit idly by and permit state actors to go after our information, our private sector information or our public sector information.”

Trump and Clinton then went back-and-forth on whether Russia was responsible for the hacking of Democratic National Committee emails earlier this year.

Setting that discussion aside, both nominees appeared to agree on the enormity of the cybersecurity challenge, as Trump said:

“We have to get very, very tough on cyber and cyber warfare. It is — it is a huge problem… The security aspect of cyber is very, very tough. And maybe it’s hardly doable.”

The just-disclosed 2014 Yahoo breach, in which 500 million accounts were compromised, highlights concerns around the number of state-sponsored cyber attacks, according to this article by the Wall Street Journal.

While organizations should consider the purchase of cyber insurance to manage the financial consequences of an attack, a 2015 Ponemon study found that a more popular approach to managing the risk of a nation state attack is a government-subsidized insurance policy (see below).


What do you think?

Some 17,475 IT and IT security practitioners located in all regions of the U.S. participated in the Ponemon survey.

The Insurance Information Institute’s latest white paper on cyber risk threats and challenges is available here.

Charlotte Unrest and Business Insurance

Ongoing civil unrest and protests in Charlotte, North Carolina following the police shooting of Keith Scott are reported to have caused significant property damage to businesses in the central area of the city.

The Charlotte Observer reports that entertainment complex EpiCentre faced looting and sustained significant damage Wednesday night. Numerous businesses were damaged, including Sundries EpiCentre, CVS, Enso and Fleming’s Prime Steakhouse, it said.

The NASCAR Hall of Fame was among other sites hit by vandals, with adjacent restaurants and hotels also damaged after officials declared a state of emergency for the city.

As clean-up gets underway it’s important to note that most commercial insurance policies generally include coverage for losses caused by riots. civil commotions and fires.

The definition of rioting covers looting by people who steal merchandise or other property from a premises. Vandalism is also covered.

According to The Charlotte Observer, a possible curfew for Thursday night is being discussed by city officials.

The Insurance Information Institute (I.I.I.) notes that if a business has to suspend operations or limit hours due to rioting, business interruption coverage is only covered if there is direct physical damage to the premises, forcing a business to suspend operations.

A “civil authority provision” in a business policy provides coverage for lost income and extra expenses in the event the police or fire department bars access to a specific area as a result of the danger caused by a riot or civil commotion.

In April 2015, looting and arson in Baltimore, Maryland, following the funeral for Freddie Gray, a 25-year-old who died after suffering a severe spinal cord injury while in police custody, resulted in estimated property damage of about $24 million, according to the I.I.I..

Five of the costliest civil disorders in the U.S. occurred in the 1960s. Here’s they are:


Growth Potential of Sharing Economy, and Insurance

If, like me, you’ve taken a ride to the airport with Uber, or looked into renting a holiday home via Airbnb, did you take a moment to think about your insurance coverage?

If the answer to that question is “no,” you’re not alone.

A recent public opinion survey from the Insurance Research Council (IRC) found that 56 percent of all adult Americans who said they have participated in the sharing economy indicated that they did not consider their insurance coverage at the time.

This is despite the fact that more than half of all respondents said that the sharing economy exposes the general population to increased risk.

Some 71 percent of respondents to the same survey reported little familiarity with the sharing economy, with 46 percent saying they were “not at all familiar” with the sharing economy, while 25 percent reported being “not too familiar.”

Survey respondents gave numerous reasons for not participating in the sharing economy. Unfamiliarity was cited most frequently (65 percent), while lack of need was cited by 60 percent and lack of interest by 54 percent.

However, a lack of insurance was the least cited reason for not participating.

Elizabeth Sprinkel, senior vice president of the IRC, noted:

“The substantial number of people with little experience or familiarity with the sharing economy suggests tremendous growth potential in the years ahead.”

And for insurers, too, we would add.

Check out a recent Insurance Information Institute (I.I.I.) presentation on the role of insurance in the sharing economy.

Other I.I.I. resources include information on car sharing and peer-to-peer car rental insurance as well as peer-to-peer home rental and homeowners insurance.

The IRC report, The Sharing Economy: Public Participation and Views, presents findings from an online survey conducted by GfK Public Affairs & Corporate Communications on behalf of the IRC.

A total of 1,105 online interviews were conducted for the study, using a sample drawn from GfK’s Knowledge Panel. Survey data were weighted to the U.S. population of adults aged 18 and above.

Billion-Dollar Insured Disaster Events Add Up

The first half of 2016 saw at least six individual billion-dollar insured disaster events globally, three of which occurred in the United States, according to Aon Benfield’s Global Catastrophe Recap: First Half of 2016.

Four of these events crossed the multi-billion dollar threshold ($2 billion and greater).

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As seen in the chart above the most costly event was a series of earthquakes that struck Japan’s Kumamoto prefecture in April with total insured losses—including losses due to physical damage and business interruption—expected to total in excess of $5 billion.

Other major loss events in the first half included:

—the late May and early June flooding and severe weather (Storm Elvira) in Europe ($3.4 billion insured losses);

—the Fort McMurray wildfire ($3.2 billion insured losses);

—the April 10-15 severe convective storm outbreak in the central United States ($3.2 billion insured losses).

Aon Benfield notes that all of the estimates from both public and private insurers are subject to revision as losses are further developed.

A deeper dive into the data reveals that there were at least 14 events that minimally cost insurers $500 million in the first half of 2016, eight of which were recorded in the U.S. and were all severe convective storm or flood-related.

Globally, public and private insurers endured an elevated level of disaster losses—$30 billion—during the first half of 2016, some 60 percent higher than the $19 billion sustained in 2015. The U.S. sustained the highest level of insurable losses at $14 billion.

The aggregated $30 billion was only the third time on record that first and second quarter losses reached that threshold—even after adjusting for inflation to today’s dollars, Aon Benfield said.

Check out Insurance Information Institute facts and statistics on global catastrophes here.

Thunderstorms Most Costly U.S. Nat Cat in H1 2016

Severe thunderstorms accounted for the lion’s share of U.S. natural disaster losses in the first half of 2016, according to Munich Re.

Of the $17 billion in U.S. economic losses ($11 billion insured) caused by natural catastrophes in the first half of 2016, some $12.3 billion ($8.8 billion insured) were due to a series of storms in Texas and neighboring states, including destructive hailstorms in Dallas and San Antonio, and severe flooding in the Houston metro area.

Winter storms and cold waves were the next most costly U.S. peril in the first half causing insured losses of $1.5 billion, followed by flood and flash flood events with $1 billion in insured losses.

Wildfire, heatwaves and drought resulted in minor insured losses, and there were no losses due to earthquake or tropical cyclones in the first half, according to Munich Re’s Nat Cat Update.


Weather extremes in Texas and other southern states are symptomatic of an El Niño phase, which intensifies the subtropical jet stream, which can cause an increase in severe storms in the region, Munich Re said.

Further north, El Niño conditions also caused warm and dry conditions in Alaska and western Canada, helping to trigger the worst wildfire in Canadian history. Direct losses from these fires totaled $3.6 billion, of which $2.7 billion were insured.

The Fort McMurray fire has been declared the costliest natural catastrophe event in Canada’s history.

One beneficial aspect of El Niño conditions is that it tends to reduce springtime tornado activity over the southern Great Plains. While the year’s thunderstorm season got off to an early start, the states of Texas, Oklahoma, and Kansas have all seen about 50 percent fewer tornadoes this year than in the first half of 2015, Munich Re observed.

Nationally, the number of observed tornadoes was about 700 by the end of June, significantly below the average of 1,021 for the last 10 years.

Tony Kuczinski, president and CEO of Munich Re America, Inc, noted that homes and businesses incur the brunt of thunderstorm losses.

“Property damage from this spring’s thunderstorm season remind us that a roof is a building’s first line of defense against hail and wind events. Proper roof maintenance, roofing materials and installation are all critical to helping reduce these types of losses.”

To help homeowners build safer, stronger structures in the face of increasing severe weather events, Munich Re and the Insurance Institute for Business and Home Safety (IBHS) recently launchd an app that walks homeowners, contractors and architects through the home strengthening process.

FORTIFIED HomeTM On the Go can be downloaded free from the iTunes Store.

U.S. natural catastrophes accounted for almost one quarter of worldwide economic losses in the first half of 2016, and about 58 percent of global insured losses.

June Flood Losses Highlight Insurance Protection Gap

The economic cost of flood losses worldwide in June will exceed $5 billion, though the insured loss portion will be significantly less, according to Aon Benfield’s latest Global Catastrophe Recap.

Impact Forecasting, the cat modeling center of Aon Benfield, reports that major June floods highlighted by China and U.S. events, saw the global economic toll mount.

Seasonal “Mei-Yu” monsoon rains led to multiple rounds of significant flooding across central and southern parts of China throughout June, resulting in more than 130 fatalities.

The most damaging floods occurred in the Yangtze River basin as rivers and tributaries overflowed their banks and minimally inundated 200,000 homes. Beyond property damage, there were substantial impacts to the agricultural sector.

Impact Forecasting said:

“Total aggregated economic losses were estimated by the Ministry of Civil Affairs at upwards of CNY29 billion (USD4.4 billion). Given low penetration levels, the insured loss portion was only a small fraction of the overall damage cost.”

Exceptional rainfall in the U.S. state of West Virginia also led to catastrophic flooding in several counties. The federal government declared a disaster after major damage occurred in Clay, Fayette, Greenbrier, Kanawha, Monroe, Nicholas, Roane, and Summers counties, As many as 5,500 homes and 125 businesses were damaged or destroyed.

“Total economic losses were anticipated to reach into the hundreds of millions of dollars. The insured loss portion of the loss was expected to be less given rather low up-take in the National Flood Insurance Program (NFIP).”

Additional major flood events in the month of June occurred in India, Indonesia, Myanmar, and Ghana, according to the report.

The gap between economic and insured losses for both major flood events in China and the U.S. illustrates the need for greater insurance penetration around the globe.

A 2015 Swiss Re report estimated the current annual disaster protection gap between insured and total losses at around $153 billion, assuming an average catastrophe loss year.

In absolute terms, the U.S., Japan and China account for more than half that amount, with a combined annual shortfall of $81 billion, Swiss Re said.

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.