Category Archives: Catastrophes

Insurance Helps Break Cycle of Extreme Disasters and Poverty

The human and economic costs of extreme natural disasters on poverty are much greater than previously thought and insurance is one of the resilience-building tools that could help, according to new analysis from the World Bank.

In all of the 117 countries studied, the report finds that the effect of floods, windstorms, earthquakes and tsunamis on well-being, measured in terms of lost consumption, is larger than asset losses.

It estimates the impact of disasters on well-being in these countries is equivalent to global annual consumption losses of $520 billion, and forces 26 million people into poverty each year. This outstrips other estimates by 60 percent.

But resilience-building interventions, including universal early warning systems, improved access to personal banking, insurance policies and social protection systems (like cash transfers and public works programs) could lessen climate shocks.

The report finds that these measures combined would help countries and communities see a gain in well-being equivalent to a $100 billion increase in annual global consumption, and reduce the overall impact of disasters on well-being by 20 percent.

As World Bank Group President Jim Yong Kim, says:

“Severe climate shocks threaten to roll back decades of progress against poverty. Storms, floods, and droughts have dire human and economic consequences, with poor people often paying the heaviest price. Building resilience to disasters not only makes economic sense, it is a moral imperative.”

Efforts to build resilience among poorer communities are already gaining ground, the report shows.

For example, Kenya’s social protection system provided additional resources to vulnerable farmers well before the 2015 drought, helping them prepare for and mitigate its impacts.

And in Pakistan, after record-breaking floods in 2010, the government created a rapid-response cash grant program that supported recovery efforts of an estimated 8 million people.

Check out the Insurance Information Institute issues updates on microinsurance and emerging markets here, and on catastrophes and insurance issues here.

Growing Insurance Resilience to Disasters

Latest estimates from Aon Benfield that just 50 percent of the U.S. losses from Hurricane Matthew are covered by public and private insurance renews the spotlight on the growing risk protection gap and disaster resilience.

In its latest Global Catastrophe Recap report, Aon Benfield’s Impact Forecasting unit expected total economic losses from Matthew would range up to a high of $10 billion. Public and private insurance losses were considerably less, estimated as high as $5 billion.

The reason for this is that a large portion of the inland flood loss in North Carolina went uninsured due to low take-up of the federally-backed National Flood Insurance Program (NFIP), Aon said.

A post over at Artemis blog reports:

“Once again this demonstrates the insurance and reinsurance protection gap is not simply an emerging market issue, rather it is evident in perhaps the most mature property catastrophe insurance market in the world in the United States.”

Indeed, Swiss Re sigma has said the amount of financial loss caused by catastrophes not covered by insurance is growing.

This so-called global insurance protection or funding gap totaled $75 billion in 2014, according to Swiss Re.

A recent issue brief by Wharton Risk Center co-director Howard Kunreuther pointed to evidence showing that consumers tend to purchase too little insurance or purchase it too late.

As a result, it said, taxpayers wind up bearing substantial burdens for paying restoration costs from extreme events. The 2005 and 2012 hurricane seasons alone cost taxpayers nearly $150 billion.

The Wharton brief suggests there is much that can be done to better facilitate the role that insurance can play in addressing losses from extreme events, both natural and man-made.

To better meet its objectives, insurance must embody two guiding principles, first premiums must accurately reflect risk and secondly, to ensure equity and affordability, special financial assistance should be made available to homeowners who would no longer be able to afford their premiums.

More information on the protection gap problem in this Insurance Information Institute report Underinsurance of Property Risks: Closing the Gap.

I.I.I. facts and statistics on flood insurance are available here.

Post-Matthew Update: How To Safely Clean Up Mold After A Flood

Guest Post: CDC

Returning to your home after a flood is a big part of getting your life back to normal. But consumers and small businesses may be facing a new challenge: mold. What can you do to get rid of it? How do you get the mold out of your home or office and stay safe at the same time? CDC has investigated floods, mold, and cleanup, and offers practical tips for homeowners and others on how to safely and efficiently remove mold from the home.

In 2005, thousands of people along the Gulf Coast were faced with cleaning up mold from their homes after Hurricanes Katrina and Rita. One of our first concerns was to let homeowners and others know how they could clean up mold safely. After Hurricane Sandy in 2012, we teamed up with other federal agencies to provide practical advice on mold cleanup. This guidance outlines what to do before and after going into a moldy building, how to decide if you can do the cleanup yourself or need to hire someone, and how you can do the cleanup safely.

Prepare To Clean Up

Before you start any cleanup work, call your insurance company and take pictures of the home and your belongings. Throw away, or at least move outside, anything that was wet with flood water and can’t be cleaned and dried completely within 24 to 48 hours. Remember, drying your home and removing water-damaged items is the most important step to prevent mold damage.

Protect Yourself

We offer specific recommendations for different groups of people and different cleanup activities. This guidance educates people about the type of protection (think: gloves, goggles, masks) you need for different parts of your mold cleanup. It also identifies groups of people who should and should not be doing cleanup activities.

Be Safe With Bleach

Many people use bleach to clean up mold. If you decide to use bleach, use it safely by wearing gloves, a mask, and goggles to protect yourself. Remember these four tips to stay safe:

  • NEVER mix bleach with ammonia or any other cleaning product.
  • ALWAYS open windows and doors when using bleach, to let fumes escape.
  • NEVER use bleach straight from the bottle to clean surfaces. Use no more than 1 cup of bleach per 1 gallon of water when you’re cleaning up mold.  If you are using stronger, professional strength bleach use less than 1 cup of bleach per gallon of water.
  • ALWAYS protect your mouth, nose, skin, and eyes against both mold and bleach with an N-95 mask, gloves, and goggles.  You can buy an N-95 mask at home improvement and hardware stores.

You can take steps to keep yourself and others protected while cleaning up mold after a flood. Make sure to follow CDC’s recommendations so you can return home safely.

Resources

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.

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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.

 

Disaster Preparedness? There’s an App for That

Research tells us that 40 percent of Americans use their smartphone to look up government services or information, so if you’re charging your mobile devices in preparation for Tropical Storm Hermine you might want to download the Federal Emergency Management Agency’s (FEMA) updated disaster app.

The free FEMA app now lets you receive weather alerts from the National Weather Service, so you can get alerts on severe weather happening anywhere in the country even if your phone is not located in the area. This makes it easy to track severe weather—such as a hurricane—that may be threatening you, your family and friends.

Other features of the FEMA app that will help you weather the storm include a customizable checklist of emergency supplies, maps of open shelters and disaster recovery centers, and tips on how to survive natural and man-made disasters.

Important features of the app for after the storm, include a disaster reporter where you can upload and share photos of damage and recovery efforts to help first responders, as well as easy access to apply for federal disaster assistance.

Craig Fugate, FEMA administrator:

“Emergency responders and disaster survivors are increasingly turning to mobile devices to prepare for, respond to and recover from disasters. This new feature empowers individuals to assist and support family and friends before, during, and after a severe weather event.”

The FEMA app is available for free in the Apple store for Apple devices and Google Play for Android devices.

Here at the Insurance Information Institute (I.I.I.) we also recommend you download our award-winning Know Your Plan app which helps you, your family and even your pets prepare to safely get out of harm’s way ahead of the storm.

In addition, the I.I.I. Know Your Stuff home inventory app allows you to keep an up-to-date record of your belongings so you’re fully covered in the event of an emergency.

Both I.I.I. apps are available for iPhone or Android.

Louisiana Flooding Underscores Insurance Need

The ongoing flooding in Louisiana is being described as the worst natural disaster to strike the United States since Superstorm Sandy of 2012.

Latest reports indicate that at least 11 are confirmed dead and more than 30,000 have been rescued. An estimated 40,000 homes have sustained flood damage statewide, but local reports put that figure higher.

Some 20 Louisiana parishes have now received a federal disaster declaration.

Flood damage is excluded under standard homeowners and renters insurance policies, but available as a separate policy both from the National Flood Insurance Program (NFIP) and some private insurers.

So, what would a superstorm Sandy-type event look like in terms of NFIP payouts?

According to the I.I.I., superstorm Sandy was the second costliest U.S. flood, based on NFIP payouts as of June 2016.

“Superstorm Sandy which occurred in October 2012, resulted in $8.2 billion in NFIP payouts as of June 2016, second only to 2005’s Hurricane Katrina with $16.3 billion in payouts.”

There were 130,214 NFIP claims from superstorm Sandy as of June 2016. The average paid loss was $63,352, compared with 167,984 claims from Katrina, with an average paid loss of $97,142.

All these figures are preliminary as claims are still being processed, the I.I.I. notes.

While flood insurance penetration rates are reported to be relatively low in the affected parishes, time will tell how the Louisiana flood stacks up among major U.S. flood disasters.

In 2015 and 2016 the states of Texas, Louisiana, Mississippi, South Carolina and West Virginia have experienced devastating rainfall-induced flooding, resulting in billions of dollars in economic losses.

Here’s a look at the top 10 most significant flood events by NFIP payouts:

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A massive relief operation mounted by the American Red Cross is expected to cost at least $30 million and that number may grow as the scope and magnitude of the devastation in Louisiana becomes clearer.

Check out this I.I.I. issues update on flood insurance for more background on the topic.

Being Prepared for Summertime Flash Floods

Several regions of the country appear to be under flash flood watches and/or warnings as we head into the weekend, underscoring the risk of summertime flooding from slow-moving thunderstorms or excessive rainfall and the need to be prepared.

Weather Underground reports that the threat of flash flooding, and eventually river flooding, will become more widespread from Texas and Louisiana to the Ohio Valley and parts of the Great Lakes in the coming days.

Flash flooding is already reported to be serious in parts of Louisiana and Mississippi as of Friday morning.

Climate scientists believe that the number and volatility of extreme intense precipitation events is on the rise due to the changing climate.

Munich Re describes flash floods as a much underestimated risk:

“While media interest tends to focus on storm surges and river floods, the risk of flooding in places away from rivers and lakes is generally overlooked.”

Flash floods typically occur as independent, localized and random events and unlike river flooding, it’s the intensity rather than the total amount of rainfall that is the concern.

A recent report by FM Global warned that U.S. businesses, depending on their location, should start preparing now for increased, extreme rainfall that a changing climate will likely deliver.

Certain regions of the United States are expected to be prone to more intense precipitation events and a potentially increased risk of flooding, FM Global said. Here’s the graphic:

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Buildings, machinery, data centers, transportation networks, supply chains, people and sales can all be affected by extreme wet conditions, according to the report. When companies have a choice, they should site their facilities in nothing less than 500-year flood zones (where there’s only a 1-in-500 chance of a flood every year), it suggests.

Businesses should also sharpen their focus on water management, diverting water from property, optimizing drainage and protecting water supplies, and considering new weather extremes when managing supply chains.

For any home or business the purchase of flood insurance is key to being prepared for flash flooding, or any kind of flooding event, according to the Insurance Information Institute. Flood damage is excluded under standard homeowners and renters insurance policies, but available as a separate policy both from the National Flood Insurance Program and some private insurers.

Check out these Insurance Institute for Business and Home Safety (IBHS) resources on steps you can take to protect your home or business from flood damage.

Tianjin Anniversary: Better Modeling Benefits Insurers

As we approach the one year anniversary of the explosions at the Port of Tianjin, China, a new report finds that a port’s size and its catastrophe loss potential are not strongly correlated.

Based on the 1-in-500 year estimated catastrophe loss for earthquake, wind and storm surge perils, the surprising analysis by catastrophe modeler RMS, shows that it’s not just the biggest container hubs around the world that have a high risk of insurance loss.

For example, smaller ports such as the U.S. ports of Plaquemines, Louisiana, and Pascagoula, Mississippi, as well as Bremerhaven, Germany rank among the top 10 ports at highest risk of marine cargo loss.

Chris Folkman, director, product management at RMS, said:

“While China may be king for volume of container traffic, our study found that many smaller U.S. ports rank more highly for risk — largely due to hurricanes. Our analysis proves what we’ve long suspected — that outdated techniques and incomplete data have obscured many high-risk locations.”

RMS’ analysis shows the riskiest two ports are in Japan (Nagoya – $2.3 billion) and China (Guangzhou – $2 billion), and that six of the top 10 riskiest ports are in the U.S., with the remaining two in Europe (see chart below).

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The findings come after four years of marine catastrophes which have generated billions of dollars in marine insurance losses: 2015 Tianjin explosion (more than $3 billion); 2012 Superstorm Sandy (est. $3 billion marine loss, of which approximately $2 billion cargo loss); and the 2011 Tohoku earthquake and tsunami.

The Tianjin loss ranks among the largest man-made insured global loss events in history, with an estimated total insured property loss of up to $3.5 billion.

To conduct its analysis RMS marine risk experts used the new RMS marine cargo model, which takes into account cargo type, precise storage location, storage type, and dwell time to determine port exposure and accumulations.

RMS suggests that better data and modeling are key for more effective portfolio management and underwriting.

Check out Insurance Information Institute facts and statistics on man-made disasters here.

Wildfire Smoke Travels

Two wildfires in California prompted officials to issue air pollution warnings almost 200 miles away in Nevada this week, reminding us that wildfire exposure reaches far beyond the flames.

The Soberanes fire which is located in the Monterey County area is currently 23,688 acres in size and is 10 percent contained. The Sand Fire, which began on July 22, quickly grew to more than 30,000 acres and is now 38,346 acres in size and 40 percent contained.

In the first six months of 2016 there were 26,510 wildfires across the United States, compared to 29,078 wildfires in the first half of 2015, according to statistics from the National Interagency Fire Center, as reported by the Insurance Information Institute (I.I.I.).

Over the 20-year period 1995 to 2014, fires—including wildfires—accounted for 1.5 percent of insured catastrophe losses in the United States, totaling about $6 billion, according to the Property Claims Services (PCS) unit of ISO.

Smoke, soot and ash produced by large wildfires present a risk to property and life in the fire zone, not to mention a potential health risk to residents living in the path of the smoke.

It’s important to recognize that even if a property doesn’t suffer direct damage from flames in a wildfire, it may be exposed to extensive smoke, soot and ash damage.

From the insurance perspective, damage caused by fire and smoke are covered under standard homeowners, renters and business owners policies and under the comprehensive portion of an auto insurance policy.

However, it’s important to notify your agent or insurer of this damage on a timely and proper basis.

Water losses or other damage caused by fire fighters while extinguishing a fire is also covered under these policies.

Here’s a visual of the smoke from the California wildfires, courtesy of NOAA and Weather Underground:

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Check out I.I.I. claims filing tips here.