Q&A With Bob Hartwig, Industry Legend

Dr. Robert Hartwig, an economist and president of the Insurance Information Institute (I.I.I.) for almost a decade is about to head south to join the faculty of the University of South Carolina’s Darla Moore School of Business. We caught up with him in his final days at the I.I.I. to ask him about his time in office, some of his most memorable moments and his plans for the future.

What accomplishment are you most proud of during your time as I.I.I. president?

Bob Hartwig: Over the past 10 years we’ve built an extraordinary brand around the Insurance Information Institute name.  The I.I.I. is the trusted source for insurance information, analysis and expertise.  The organization’s credibility is its currency among its many stakeholders including not only consumers, insurers and media but also legislators, regulators, academics and more.  I’m also very proud of the way that we’ve been able to use cutting edge technology to further our mission of sharing with the world how this vital industry works and the critical role it plays in the global economy.

What was your most challenging day in office?

BH: 9/11.  No question about it.  The I.I.I.’s offices in lower Manhattan were only a few blocks from the World Trade Center site.  We watched real time from our 24th floor office at 110 William Street as the towers fell.  Our building was hit by flying debris and enveloped in smoke.  As the horror of that day was unfolding before our eyes, we were at the same time working to make sure that media and others understood that insurers would be standing by their commitments and would work tirelessly to help the tens of thousands of impacted policyholders, the city of New York and the United States as a whole get back on their feet.

You’ve made hundreds of TV appearances over the years representing the industry. Any memorable moments you can share with us?

BH: There are so many, but once again I go back to 9/11.  One or two days after the event I was invited to appear on the set of 60 Minutes.  I had appeared in the press calling for a Marshall Plan for Manhattan and once again was there to assure a nervous country that insurers were committed to helping rebuild.

You’ve rubbed shoulders with more than a few famous people on the insurance speaking circuit. Who were you most excited to meet and why?

BH: It’s not always the most famous person who delivers the best speech.  I had the chance to meet Bill Clinton, who’s quite a compelling speaker.  Recently, I met Arnold Schwarzenegger—who appeared at a fundraising event for insurance education in his capacity as a former governor of California.  I thought he had a particularly inspiring story that would appeal to many young people.  Perhaps the smartest person I ever met and a personal hero to me was John Nash, recipient of the Nobel Prize in Economics in 1994 and depicted in the movie “A Beautiful Mind.”  I adapted some of the work he had done in the field of game theory in my PhD dissertation.  I met him in 2013 at the age of 84, two years before he and his wife died in a tragic car accident.

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When you’re not in the classroom cultivating the next generation of insurance minds, where can we find you?

BH: Well, you’re likely to find me out running or biking on rural roads in South Carolina.  That said, I bought a house on a lake in South Carolina and may soon indulge myself with a boat—so before too long you’re likely to find me at my favorite fishing hole!

I’m sure I speak on behalf of many of our readers in thanking Bob for his leadership and wishing him all the best in the next chapter!

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.

Insurance Industry Advances Gender Equality

Insurance may have a reputation for being a male-dominated industry, but progress is being made toward gender equality according to a survey of female executives.

Some 86 percent of women attending the Insurance Industry Charitable Foundation’s (IICF) 2016 Women In Insurance Conference agreed that strides were being made to achieve gender equality, up from just 72 percent last year.

The shift in numbers is underpinned by several key trends that have had the most profound impact on the improvement of gender equality in the industry in the past five years.

Active recruitment of a gender-diverse workforce was identified as the most important trend by 44 percent of respondents to the IICF survey.

Another 22 percent cited the establishment of mentorship programs for women, while a further 20 percent said the sponsorship of executive networking opportunities carried the most weight.

Interestingly, 87 percent of respondents said their company in particular is actively working to promote gender diversity, up from 68 percent last year.

Limited opportunities to move up the corporate ladder are also no longer seen as the biggest obstacle to women ascending into leadership roles. Instead, women not promoting themselves enough or effectively was identified as the biggest challenge by 35 percent of respondents.

And when it comes to the advancement of women to senior leadership roles, some 32 percent of respondents rank insurance as the most supportive industry in financial services. Last year, insurance ranked last at just 12 percent.

Erin Calvey, executive vice president at Ironshore Insurance Co. and IICF Conference Series speaker, commented:

“While barriers still exist for women who seek to advance within their careers, we have seen a shift in thought among women in the industry – where lack of opportunities for upward mobility is no longer the primary obstacle.

“We see now more than ever the importance of women uplifting and supporting each other in order to collectively inspire progress.”

For more information on women in insurance check out these facts and statistics from the Insurance Information Institute.

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.

Catching All The Customers

If you plan on trying to catch a Pikachu this weekend, chances are you might be lured into a local pizzeria or bookstore, as savvy businessowners tap into the huge popularity of Pokémon Go and target the pocket monster crowd to boost business.

Now reports say Niantic Labs, the developer of Pokémon Go, will soon accept sponsorship deals with global brands to make certain locations appear more prominently, or to sponsor specific products within the game.

Insurers looking to evolve their business are sure to be among those companies looking at potential Pokémon Go tie-ins to reach and expand their digital audience.

After all, AXA Insurance was among those to partner with Niantic Labs when Pokémon’s predecessor augmented reality adventure game, Ingress was launched in 2013.

The partnership saw AXA retail agencies in the real world turned into Ingress “Portals”, sites that players visit and battle to control for their in-game faction.

In just five months the success of the partnership saw over 600,000 Ingress players visit real world AXA Insurance locations to find, collect and deploy more than 5 million AXA-branded virtual shields in Ingress. AXA representatives also interacted with over 55,000 Ingress players during live player events called “Anomalies” opportunities.

Insurers are also not new to using augmented reality technology in their actual business operations.

For example, Zurich Insurance last year turned to augmented reality smartphone apps to train 10,000 employees in 170 countries in the key skills needed by its next generation of managers.

Insurers are also using augmented or virtual reality (think Google Glasses) to train claim adjusters and streamline the claims process.

So while the insurance risks of disruptive technology like Pokémon Go are clear (and yes, insurers have you covered), it appears there are many ways for insurers to embrace the power of augmented reality to benefit their business and market reach.

As the Celent insurance blog noted:

“For those insurers with investments in the real world like agencies, offices, billboards – and for those that are agile enough – this surprise trend could serve as a great marketing route to catching all the customers, as well as all the Pokémon.”

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.

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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.

Self-Driving Cars Still Evolving

A fatal car accident involving a Tesla Model S in autonomous driving mode is drawing widespread scrutiny both in the United States and overseas.

Joshua Brown was killed in May this year when a tractor trailer made a left turn in front of his Tesla and the self-driving car failed to apply the brakes.

The National Highway Traffic Safety Administration (NHTSA) said it is investigating the incident and will examine the design and performance of the automated driving systems in use at the time of the crash.

Its preliminary evaluation of the incident doesn’t indicate any conclusion about whether the Tesla vehicle was defective, the NHTSA said.

In a blog post, Tesla noted that this is the first known fatality in just over 130 million miles where autopilot was activated:

“Among all vehicles in the U.S., there is a fatality every 94 million miles. Worldwide, there is a fatality approximately every 60 million miles. It is important to emphasize that the NHTSA action is simply a preliminary evaluation to determine whether the system worked according to expectations.”

Tesla further noted that neither Autopilot nor the driver noticed the white side of the tractor trailer against a brightly lit sky, so the brake was not applied:

“The high ride height of the trailer combined with its positioning across the road and the extremely rare circumstances of the impact caused the Model S to pass under the trailer, with the bottom of the trailer impacting the windshield of the Model S.”

As companies continue to innovate and invest in self-driving technology, the crash indicates that fully automated cars are still a thing of the future.

The crash also raises important concerns over regulation.

According to this New York Times article:

“Even as companies conduct many tests on autonomous vehicles at both private facilities and on public highways, there is skepticism that the technology has progressed far enough for the government to approve cars that totally drive themselves.”

And the Wall Street Journal reports:

“Tesla now risks being the test case that could prompt new safety regulations or laws limiting the deployment of self-driving technology.”

The crash also highlights liability concerns regarding this emerging technology. Most car crashes are caused by human error, but presumably the NHTSA investigation will also evaluate potential product liability on the part of the manufacturer.

The crux of the issue is weighing up the risk of crashes versus crashes avoided via the use of self-driving technology.

As the Insurance Information Institute (I.I.I.) notes:

“As crash avoidance technology gradually becomes standard equipment, insurers will be able to better determine the extent to which these various components reduce the frequency and cost of accidents. They will also be able to determine whether the accidents that do occur lead to a higher percentage of product liability claims, as claimants blame the manufacturer or suppliers for what went wrong rather than their own behavior.”

Liability laws might evolve to ensure autonomous vehicle technology advances are not brought to a halt, the I.I.I. adds.