Accumulation risk, where a single event triggers losses under multiple policies in one or more lines of insurance, is emerging in new and unforeseen ways in today’s interconnected world, says a post at Swiss Re Open Minds blog.
From Ruta Mikiskaite, casualty treaty underwriter, and Catriona Barker, claims expert UK&International Claims at Swiss Re:
“Accumulation scenarios have always been familiar in property insurance but for casualty lines of business, they have been perhaps less of an issue. However, large losses in recent years show how traditional physical perils should not be underestimated for their casualty clash potential.”
For example, Kilmore East-Kinglake bushfire, the most severe of a series of deadly wildfires in the Australian state of Victoria on Black Saturday, 7 February 2009, led to a settlement of A$500 million—the biggest class action settlement in Australian legal history.
Per Swiss Re’s post, the Royal Commission found that the fire was caused by poorly maintained power lines owned by power company SP AusNet and maintained by asset manager Utility Services Group. The Victoria State government was also held liable for its failure to provide sufficient prevention measures and inadequate warnings during the fires.
“With improved technology and scientific tools available to analyze and simulate scenarios following storms, fires and floods to predict their likely or alternative courses, any action by an individual, corporate body or government now attracts far greater scrutiny. As a result, there can be a greater readiness to sue for alleged nuisance or negligence leading to more casualty claims out of natural perils.”
The upshot: insurers need to look at their reinsurance programs to see how they would respond to liability clash events.
This post is was submitted by Lynne McChristian and Janet Ruiz, the I.I.I.’s Florida and California representatives.
Natural disasters (such as a flood, earthquake, hurricane or tornado) sometimes invite another type of disaster: “Storm Chasers” who try to profit from others’ unfortunate circumstances. These profiteers take many forms – from workers posing as qualified contractors to “volunteers” trying to help only themselves to lawyers and public adjusters offering to take over your claim. If you start having second thoughts about anyone who has offered assistance after disaster strikes, here are some tips to get you back on course:
- Never feel pressured to make a decision.
While the need to recover quickly is understandable, do not succumb to a high-pressure sales pitch. If you’ve signed an agreement or contract, remember the Federal Trade Commission has rules protecting consumers that allow you to cancel a contract up until midnight of the third business day after entering into it. This applies to door-to-door sales contracts for more than $25, as well as sale contracts for more than $25 made at any place other than a seller’s usual place of business. Additionally, states have similar rules to help consumers having second thoughts on the contracts they’ve signed.
- Think carefully about signing over your claim to an outsider.
This may sound like a good idea, since it appears to free you from handling the details of disaster recovery. However, what often happens when a third-party (which can be a contractor or public adjuster) takes over your claim is that you lose control of it and repair costs may be greatly inflated, delayed or not in compliance with building codes. The desire to get the job done right the first time makes a good case for the homeowner to stay involved in the process.
- Always deal with a licensed, insured contractor for both temporary and permanent repairs.
Be certain to have a pro handle your job. Unlicensed individuals may actually cause more damage to your property. And, if they are injured on your property, they may hold you liable if they do not have their own insurance. You can request to see their license and verify it with state or county officials. Unlicensed contractors can be reported to your state’s licensing board. Keep receipts for temporary repairs, as your insurer will reimburse you for these expenses.
- Know that your insurer is an on-call advisor to help you through every step of the claims process.
Home and business insurance policies comes with claims services, so consult your insurer as soon as possible after disaster strikes. Disaster claims are handled based on the severity of damage, so those most impacted get priority. That is why it is important to provide an accurate preliminary account of the damage when you make the initial call to your insurer. Also, be sure to mention any circumstances that may necessitate expedited claims handling, such as special needs situations. Contact the department of insurance in your state if you have complaints.
- Report the scam to local police and your state insurance department.
These scams can happen to anyone, so don’t hesitate to contact authorities. Many states also have consumer affairs departments to assist you in answering questions, protecting your interests and filing charges, if necessary.
Though the wildfires in California continue, RMS has estimated economic and insured losses between $3 billion and $6 billion, making this collection of wildfires the most expensive ever.
According to data from Property Claim Services as reported on the I.I.I web site, the most expensive wildfire previously was the 1991 Oakland Hills fire, which incurred losses of about $2.75 billion, adjusted for inflation.
Because the penetration rate for insurance is so high in this region, RMS says its figure represents both economic and insured loss.
The range includes loss due to property damage, contents and business interruption caused by the burn component of the fires to residential, commercial, and industrial lines of business.
It does not include automobile or agricultural crop losses, smoke damage, or any factor for post-loss amplification. Because of the impacts to the wine industry throughout the region, RMS notes the significant uncertainty regarding the long-term business interruption for this event, which could result in a higher total loss.
It is important to note that these events are still on-going and the perimeters of the active fires may change significantly before containment. Therefore, these exposure and loss estimate are considered preliminary and are representative of the current situations.
In a recent study on China’s natural catastrophe (NatCat) perils, Gen Re collected direct economic loss data over the past 10 years (2007 to 2016). I.I.I. staffer Brent Carris sums up the study below.
During the 10-year period covered by the study, 24 percent of catastrophe related economic losses came from earthquakes, only topped by droughts, at 25 percent. The remaining damages consisted of: rainstorms, typhoons, snow and low temperature, and hail and tornados at 24 percent, 12 percent, 8 percent and 7 percent, respectively. In 2008, there was a significant spike in losses due to the Sichuan Earthquake.
According to AIR Worldwide, catastrophe insurance indemnity account for only 9 percent of direct economic loss in Asia. In China, a projection of this number would be even lower if based on the past 10 years’ major NatCat events. For example, insurance payout against total direct economic loss for the Sichuan earthquake in 2008 was 0.2%, and less than 1% for the Ya’an earthquake in 2013. Insurers are reluctant to provide coverage for high risk areas, notably due to insufficient pricing and the inability to monitor NatCat accumulation/aggregates.
The situation is expected to improve, however, as the development of catastrophe insurance is deemed an important aspect of the growth of China’s insurance industry.
Catastrophe modeler AIR shook up the insurance world this week with its insured loss estimate for the Caribbean from Hurricane Maria: $40 billion to $85 billion – which would put it on par with Hurricane Katrina and the 2011 Japan earthquake and tsunami as the worst insured catastrophes in history, according to I.I.I. research.
Concerned mixed with skepticism; RMS has an estimate less than half the size. This from the Artemis reinsurance blog:
The size of AIR’s industry loss estimate has already raised questions among industry analysts, some of whom are questioning the range and believe the eventual industry exposure could be even lower than the bottom end of it.
But AIR’s estimate reflects the enormous damage and disruption that hurricane Maria has caused and with Puerto Rico badly hit the final cost to insurance and reinsurance interests is going to be very high.
Late Thursday, AIR published an explanation of their estimate. They call it “all but the perfect storm for Puerto Rico.” Intense winds enveloped the island; not a corner escaped. And Puerto Rico, unlike most Caribbean islands, has a significant industrial presence – more than $120 billion, and that is where two-thirds of the AIR’s estimate comes from.
The range of the estimate is quite wide. For Puerto Rico by itself, it’s $35 billion to $70 billion. Sources of uncertainty, AIR indicates, are
- Demand surge.
- How dwellings will contend with the wind vs. water question.
- How business interruption and business income losses will unfold, particularly among hotels. Other BI issues include how much excess inventory manufacturers have on hand, how soon infrastructure will resuscitate, and whether insurance settlements will be affected by political pressure.
Update: As were getting ready to post, RMS explained its pick. TL;DR – industrial buildings on the island are sturdily built, so not much damage. And Karen Clark & Co. puts Puerto Rico losses at $28 billion, in about the same range as RMS.
The I.I.I.’s California representative, Janet Ruiz briefed our membership this week on key insurance related stories. Here are some highlights.
- The I.I.I.’s Steven Weisbart was quoted in a Washington Post story on the insurance industry’s financial strength in the wake of Hurricanes Harvey and Irma.
- A FEMA/State Disaster Recovery Center opened today (September 20) at the Carolyn Sims Center in Boynton Beach (Palm Beach County) for Floridians impacted by Hurricane Irma.
- Florida’s Department of Financial Services opened Irma-related Insurance Village locales this week in St. Augustine, Jacksonville, Fort Myers, and Naples.
- The Texas Department of Insurance (TDI) released details on Hurricane Harvey’s Disaster Assistance Mobile Unit Locations.
- Maria made landfall as a Category 4 storm in southeast Puerto Rico Wednesday. The governor’s spokesperson said ‘this is a total disaster.’ The same evacuation centers used for Irma are filled with thousands of people according to CNN.
- The LA Times offered these earthquake preparedness tips in the wake of the deadly 7.1 quake that struck Mexico City on Tuesday.
- Politico posted last week an in-depth story on how Oklahoma’s earthquakes could adversely impact the U.S.’s energy supplies. It was written by the author of Quakeland: On the Road to America’s Next Devastating Earthquake (Dutton 2017).
- Dr. David Harkey will succeed Dr. Adrian Lund in January 2018 as president of the Insurance Institute for Highway Safety (IIHS) and the Highway Loss Data Institute (HLDI).
By I.I.I. staffer Brent Carris
While natural disasters have the unique ability to unify people, it is important to stay cognizant of scams and fraud that follow.
PropertyCasualty360 addressed potential scams in this article, noting that hurricane relief fraudsters are some of the first to appear after a storm. One way to avoid scams is to donate strictly to well-known reputable organizations such as the Red Cross or Direct Relief. The Insurance Industry Charitable Foundation has a Hurricane Harvey disaster relief fund as well.
Affected homeowners should be wary of who they let into their home for repairs. Regulators in Florida are warning consumers not to sign Assignment of Benefits (AOB) forms to get repair work started.
FEMA has launched this page with information on disaster relief and how affected individuals can prepare for the arising fraudsters.
The issue of causation, especially when there may be multiple causes of loss, can be a tricky one for both insureds and insurers. It comes down to what caused the loss – and in what order.
Take the example of a major catastrophe, like a hurricane, where there may be property claims arising from both wind and water. Determining the cause of loss is key to determining whether there is coverage under the terms of an insurance policy because there are two policies in play, one for wind damage and one for flood damage.
Some jurisdictions subscribe to the “efficient proximate cause doctrine” while others subscribe to the “concurrent causation doctrine”.
The efficient proximate cause doctrine finds that where there is a concurrence of different perils, the efficient cause – the one that set the other in motion – is the cause to which the loss should be attributed.
Under the concurrent causation doctrine, when multiple perils contribute to a loss, coverage is allowed if at least one cause of the loss is covered by the policy.
In the case of Florida, a recent court decision adopted the concurrent causation doctrine, which will impact Hurricane Irma claims.
Our Communications department has received questions from Canadian news outlets on behalf of Canadian citizens who own homes in areas affected by either Hurricane Harvey or Irma. Here are some of their questions and the answers we found. Of course, the answers below also apply to other non-citizens who own property in the U.S.
Q: Can Canadians qualify for a Federal Emergency Management Agency (FEMA) grant?
A: It depends. To be eligible for assistance from FEMA, at least one person in the household must be a U.S. citizen, Qualified Alien or noncitizen national with a U.S. Social Security number.
Q: Can Canadians purchase a FEMA National Flood Insurance Program (NFIP) policy?
A: Yes. Anyone who owns property in the U.S. can buy a FEMA NFIP policy as long as their property is in a participating NFIP community. They should be able to buy excess flood coverage if the event they want policy limits above a beyond what FEMA’s NFIP offers ($250,000 for dwelling protection, and $100,000 for the dwelling’s contents).
Q: Can Canadians purchase a policy from Florida’s Citizens Property Insurance Corp.?
A: Yes, it appears. We found no restrictions on the citizenship of the buyer. To find out more about Florida Citizens’ eligibility requirements click here.
We’ve chronicled loss estimates from Harvey. Here we’ll do the same for Irma.
As of 6 p.m. 9/13, Karen Clark estimates :
- Total insured loss of $25 billion, being
- $18 billion in the United States, mainly Florida but also Georgia, South Carolina and Alabama.
- $7 billion through the Caribbean.
Business Insurance notes:
Estimates include losses to buildings, other insured structures, contents, business interruption and autos, but do not include crops or losses covered by the National Flood Insurance Program.
As of 2:30 p.m. 9/10, RMS estimates:
- 10 percent chance that wind losses will exceed $60 billion. (This estimate has been falling the past couple of days, as the storm has tracked away from the Miami/Fort Lauderdale/Palm Beach corridor.)
- This doesn’t include:
- Post-event amplification (demand surge), which could add as much as another 15 percent, depending on how the storm plays out.
- Storm surge, which could add another 30 percent.
As of 5 p.m. 9/10, via press release:
- Total US Insured Losses: $20 billion to $40 billion.
- This estimate did not include any mention of insured losses in the Caribbean, which were estimated between $5 billion to $15 billion, according information in a prior AIR release.
- Here at I.I.I., we’ll note that a $20 billion loss would make the storm one of the three worst insured catastrophes in U.S. history, even after accounting for inflation.
As of 3 p.m. 9/9, via CNBC:
Total Insured Losses: $20 billion to $65 billion.
U.S. Insured Losses $15 billion to $50 billion