Hawaii, Florida, Georgia and North Carolina Prepare for Storms

With numerous tropical systems in the Atlantic and two major hurricanes (Madeline and Lester) threatening Hawaii in the Pacific, insurers are keeping a close watch to see how things develop.

Over at Wunderblog, Dr. Jeff Masters observes that the dual scenario of two major hurricanes heading towards Hawaii is unprecedented in hurricane record keeping.

Hurricane Madeline, the closer of the two to Hawaii, intensified rapidly, growing from tropical storm to Category 3 strength in just 24 hours, Dr. Masters notes, and has since intensified to Category 4.

While the forecast models are not conclusive on the exact tracks and intensity of these named storms, it’s clear that both Hurricane Madeline and Hurricane Lester could affect Hawaii with high surf, torrential rain, and potential winds over the next week.

Hawaii’s costliest hurricane, based on insured property losses, was Hurricane Iniki in September 1992. Iniki caused $1.6 billion in damage when it occurred, or $2.7 billion in 2014 dollars, according to the Insurance Information Institute (I.I.I.).

Check out the I.I.I.’s Hawaii Hurricane Insurance Fact File for more information, including the top writers of homeowners, commercial and auto insurance.

Meanwhile, on the U.S. Atlantic coast, a tropical storm warning is in effect for the coast of North Carolina from Cape Lookout to Oregon Inlet for tropical depression eight.

A second system—tropical depression nine— is also being closely watched in the Gulf of Mexico. In its latest public advisory, the National Hurricane Center says the system is set to strengthen and that interests in central and northern Florida, and southeastern Georgia should monitor its progress.

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I.I.I.’s Florida insurance representative Lynne McChristian offers some sound advice on making sure your property insurance is ready for named storms in her latest blog post.

Take a look at I.I.I.’s North Carolina Hurricane Insurance Fact File, Georgia Hurricane Insurance Fact File, and Florida Hurricane Fact File for more information.

Allergic Reaction: EpiPen Needed to Restore Reputation

As the mother of a young child with a life-threatening nut and sesame allergy, it’s hard to remain objective and impartial when it comes to a company increasing the price of EpiPen, the life-saving allergy injector, by more than 400 percent since 2007.

However, the latest example of a company facing a public backlash, political pressure and social media storm due to its business practices illustrates the importance of having the necessary resources in place to mitigate the effects of a reputational risk crisis if and when it occurs.

As we’ve noted before in an earlier blog post, reputational risk is among the most challenging categories of risk to manage. A survey from ACE Group found that 81 percent of companies view reputation as their most significant asset—and most of them admit that they struggle to protect it.

The survey suggests that organizations need a clear framework for managing reputational risk that reduces the potential for crises, taking a multi-disciplinary approach that involves the CEO, PR specialists and other business leaders.

Mylan, the company at the center of the EpiPen controversy, has moved quickly to respond to the angry mob and to stem the drop in its share price which has so far lost investors $3 billion.

Yesterday, Mylan’s CEO Heather Bresch went on CNBC to announce the company was increasing financial assistance to patients to offset out-of-pocket costs of the EpiPen.

However, as The New York Times reports, Mylan did not say it would lower the list price — which has risen to about $600 for a pack of two EpiPens, from about $100 when Mylan acquired the product in 2007.

By the way, actress Sarah Jessica Parker also announced she is ending her relationship with Mylan after the pricing debacle broke.

Wherever you stand in this debate, the reality is the pharmaceutical industry is for-profit, as noted by Ms Bresch, and in the absence of a competitor or a generic, EpiPen is the latest example of a company trying to maximize profit.

Reputational risk is not covered by a standard business insurance policy, but companies can purchase coverage via a stand-alone policy which typically would pay fees for professional crisis management and communications services; media spending and production costs; some legal fees; other crisis response and campaign costs including research, events, social media and directly associated costs.

Newer reputation insurance products have also been developed that would cover a company’s financial losses due to reputational and brand damages.

In the mean time, in a climate of increased public, regulatory and investor scrutiny, the Mylan case is a good example of why companies need to be more proactive than ever to respond to challenges before they do serious damage to their brand and reputation.

Zika and Business Interruption Insurance

As the Zika virus continues its rapid spread and amid travel warnings, including one advising pregnant women not to travel to popular tourist destination Miami Beach as well as advice to postpone non-essential travel to Florida’s Miami-Dade County, questions on business interruption insurance are bound to arise.

So this is perhaps a good time to review what a business interruption insurance policy covers.

The Insurance Information Institute (I.I.I.) reminds us that business interruption coverage, sometimes known as business income insurance, covers financial losses resulting from a business’s inability to operate because of property damage due to an insured event.

Generally, business interruption insurance will cover:

•Revenue lost due to the closure.

•Fixed expenses, such as rent and utility costs.

•Expenses of operating from a temporary location.

But there must be direct physical damage to the property from a covered event for a business to be reimbursed under the policy.

A good example of a covered event would be a fire or windstorm that might damage property thereby causing a business to lose income.

A mosquito-borne infectious disease does not appear to meet the threshold for property damage under a traditional business interruption policy therefore.

In addition, while businesses may lose income due to fewer customers and tourists visiting an area because of fear over the Zika outbreak and in response to travel warnings, legal experts say there are several reasons why traditional business interruption insurance policies are unlikely to respond.

Some businesses may have an extension to their property insurance policy that could provide some business interruption coverage for non-damage scenarios (i.e. where there is no physical damage to an insured’s property), but limitations and exceptions to this coverage may apply.

Recently, the World Economic Forum (WEF) observed that beyond direct health impacts, infectious diseases can impose significant additional economic costs through a response called “aversion behavior”.

Aversion behavior includes actions taken by individuals to avoid any exposure to the illness, as well as actions taken by investors as they anticipate those individual decisions.

Even individuals with no direct contact with the disease will take a range of actions to avoid any risk of contracting the disease, the WEF says:

“As shown by the recent Ebola outbreak, these reactions can be rational or they can dramatically overestimate risk, leading to a wide variety of factors that can negatively impact the economy, from stress to labour and supply scarcity, financial market instability, and price increases.”

The economic impact of aversion behavior may be significantly greater than the direct economic impact from sickness and death, the WEF said.

For example in 2015 the World Bank estimated a potential loss in GDP of more than US$1.6 billion in Guinea, Liberia, and Sierra Leone as a result of the Ebola epidemic, and more than US$500 million across the rest of the continent. This was based on an erosion in consumer and investor confidence and disruptions to travel and cross-border trade.

Check out I.I.I. facts and statistics on mortality risk here.

Zika virus resources from the Centers for Disease Control and Prevention (CDC) are available online.

According to the CDC, as of August 17, there were 2,260 cases of Zika in the U.S.

Below is the CDC map of Zika cases reported in the U.S.:

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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.

Banner Health Breach: Are You Covered?

Up to 3.7 million payment card and patient medical records are reported to have been compromised in a cyber attack at Phoenix, Arizona-based healthcare provider Banner Health, underscoring the threat faced by the medical/healthcare sector.

Beginning June 17, the attack targeted Banner Health patients, health plan members, healthcare providers and retail customers.

On its website, Banner Health said it had discovered in early July that cyber attackers may have gained unauthorized access to computer systems targeting payment card data at food and beverage locations, including cardholder name, card number, expiration date and internal verification code.

In late July, Banner Health also discovered that patient information, health plan member and beneficiary information may have been compromised—including names, birthdates, addresses, physicians’ names, dates of service, claims information, and possibly health insurance information and social security numbers.

Physician and provider information may also have been compromised, including names, addresses, dates of birth, social security numbers and other identifiers.

As investigators look into the specifics of this breach, a glance at the numbers reveals that Banner Health will almost double the number of records compromised in U.S. data breaches targeting the medical/healthcare sector in 2016, per figures released by the Identity Theft Resource Center (ITRC).

As of August 2, 2016, some 206 data breach events, exposing just under 5 million records, had been tracked against the medical/healthcare sector, according to the ITRC. Make that 207 data breaches, exposing 8.7 million records.

With Banner Health, total data breach events year-to-date will also rise to at least 573 breaches, with 17.2 million records exposed. (This does not account for any other data breaches that may have occurred since August 2).

A recent Ponemon report wisely reminded us that “no healthcare organization, regardless of size, is immune from data breach.”

In the last two years, the average cost of a data breach for healthcare organizations was estimated at more than $2.2 million, according to Ponemon.

“Data breaches in healthcare are increasingly costly and frequent, and continue to put patient data at risk. Based on the results of this study, we estimate that data breaches could be costing the healthcare industry $6.2 billion.”

Criminal attacks are currently the leading cause of breaches in healthcare, Ponemon said. All the more reason for cyber insurance to be purchased, as the I.I.I. advises in this white paper.

Insurers Ready for the Summer Olympics

Opening ceremonies for 2016 Summer Olympics in Rio de Janeiro are just days away and amid crime, security and public health concerns, it is the global insurance industry that provides the critical risk coverage needed for this sporting event to go ahead.

More than 10,000 athletes from 206 countries will come together in Rio to participate in a total of 665 events which are expected to attract up to 500,0000 international spectators as well as a considerable number of domestic tourists.

Approximately $1 billion in insurance is in place for this event, via a policy purchased by the International Olympic Committee (IOC), Business Insurance reports.

The policy, underwritten by major reinsurers Swiss Re and Munich Re, covers the IOC in the event the games need to be canceled due to a natural catastrophe, civil unrest, pandemic or terrorism.

It also covered the 2012 London Summer Olympics and the 2014 Winter Olympics in Sochi, Russia.

Terrorism coverage for the Olympic Village which will house the athletes, has been underwritten in the London and international markets, according to the Business Insurance article.

Though a major global sporting event gives terrorists a worldwide audience for spectacular attacks, London-based risk consulting firm Control Risks continues to assess the terrorism threat in Rio as low.

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Bomb disposal experts detonated a controlled explosion Sunday night to destroy a suspicious package found at Maracana Stadium, site of the Olympics opening ceremonies (pictured above). There are also concerns about lone wolf attacks.

In a security briefing, Control Risks notes that there is no history of transnational terrorism in Brazil, and the country continues to rely heavily on its foreign policy (based on principles of multilateralism, peaceful settlement of disputes and non-interventionism) as a main source of protection.

Brazil has set up its largest security operation in history to address the unique challenges surrounding the event and its counter-terrorism strategy is built on the lessons learned from the country’s successful hosting of the 2014 World Cup.

Some 47,000 Brazilian security professionals have been deployed and the country is also relying on foreign expertise. In 2015, Brazil sent around 100 police officers abroad to learn about best practices for managing large international events, including the Boston and Berlin marathons, and the Tour de France.

In addition to the events taking place in Rio, the football tournament will also be held in five other cities: Manaus, Belo Horizonte, Brasília, Salvador and São Paulo. Some 38,000 members of the armed services as well as security forces will patrol the five football host cities.

Crime and public safety will be the most pressing concerns during the sporting events, Control Risks notes, though significant disruption to travel and logistics is also anticipated due to protests.

Tensions in many urban centers, including Rio de Janeiro, remain elevated as a result of Brazil’s ongoing political and economic crisis. While most demonstrations are likely to be peaceful, there is a credible risk of clashes between security forces and protesters, particularly if the security forces adopt a heavy-handed approach.

Control Risks advises companies to continue to monitor the situation closely.

While the Zika virus has been billed as the biggest public health threat, experts say the bigger concerns for visitors are actually traffic accidents, the Flu, and pollution.

Check out Insurance Information Institute facts and statistics on terrorism. Check out CDC guidance on the Zika virus in Brazil here.