Pride Round-Up

June is Pride month and our annual round-up of the latest insurance news around the LGBT (lesbian, gay, bisexual and transgender) community must first acknowledge the June 12 tragedy at the Pulse gay nightclub in Orlando, Florida. Some of the insurance implications of the attack are discussed in this Insurance Business Magazine article.

LGBT Financials: In the year since the landmark U.S. Supreme Court decision mandating states must permit same-sex marriages, LGBT households are changing and marriage equality has simplified finances for many, according to the 2016/2017 LGBT Financial Experience survey by Prudential. Commentary from survey respondents suggests this is due to simplified taxes, insurance coverage and estate planning. Despite agreement on the importance of saving for the future, in comparison to the general population, fewer LGBT respondents have retirement accounts, life insurance or a will or estate plan.

Transgender Rights: As discussed in our earlier blog post Where Insurance Meets Transgender Rights, recent federal and state rulings pertaining to the rights of transgender individuals (including laws restricting restroom access) raise a number of issues, and there are potential insurance implications to consider. 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. Businesses need to know what their state or municipality has enacted on this issue and establish a coherent nondiscriminatory policy to minimize their liabilities.

Corporate Equality: A record 407 businesses, including 27 insurers scored 100 percent in the Human Rights Campaign Foundation’s 2016 Corporate Equality Index (CEI) based on their workplace policies, benefits and practices pertinent to lesbian, gay, bisexual, transgender and queer employees. The number of insurers achieving the top ranking has seen a steady increase over the last decade. A total of 851 businesses were rated in the 2016 CEI. Some 165 of the Fortune 500-ranked businesses achieved a 100 percent rating.

Have a safe and Happy Pride!

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.

15metroareas

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.