California endured the largest and most destructive wildfires in state history in 2017 and 2018. The aftermath has left many wondering whether catastrophic wildfires will be the new normal for California and other fire-prone states, and, if so, what can be done. As the 2019 wildfire season progresses, there is a sense of urgency in the discussions among homeowners and business owners, policymakers, insurance companies and community leaders about how to change the paradigm in which wildfire-prone areas manage and respond to wildfire risks.
The Insurance Information Institute was fortunate to get an opportunity to speak with someone who is on the front lines of wildfire response. Frank Frievalt is the Fire Chief at Mammoth Lakes Fire Protection District and part of the Western Fire Chiefs Association (WFCA). He is leading the insurance section of the WFCA’s Wildfire Initiative. The WFCA has recently formed a partnership with ISO and Interra to help better understand wildfire risk for communities.
I.I.I.: Many are concerned that the severity of wildfire events in the United States will only increase. Do you agree? If so, what do you think some of the major factors for this increase are?
FF: What we currently have is an alignment of factors. We have 100 years of 100 percent fire suppression policy, so fuel loadings are off the scale in environments where fire is part of the natural ecology. We have growth of houses built in the Wildland–Urban Interface (WUI) fueled by market forces (there is an estimated $250 billion in assessed home valuation in the 11 western states). There is the weather piece – the data is pretty clear that we are having a shift in climate which is not likely to change quickly. You also have ignitions which are mostly caused by people, and unless people’s general behavior improves remarkably, I don’t see any reason why the contributing factors are going to change.
I.I.I.: Tell us about the Wildfire Initiative and how you see a partnership between the WFCA and insurers developing?
Frank Frievalt: After becoming the Mammoth Lakes Fire Chief in late 2012 I began to notice a disconnect with ISO’s FireLine risk assessment ratings for structures in WUI communities and the Defensible Space guidelines we use in the Western Fire Service. I set out to understand how ISO’s FireLine worked and reached out to ISO.
The main thing that we need to do is get technical facts empirically validated about mitigations for structural hardening that will deter ember reception at the structure. That’s how we’re losing most of the structures, it’s not direct flame contact. Once we have them identified and validated then we have to look into how these mitigations can be applied actuarially. We’ve been working with ISO who are really open to closing the knowledge gap.
Part of our goal is to have fire services and the insurance industry stand shoulder to shoulder and look at the mitigations that actually change the needle on outcomes, because we have the same goal – the protection of life and property.
I.I.I.: What are some of the public policy missteps that you see in relation to wildfire mitigation?
We’re only now coming to understand that the federal policy of 100 percent fire suppression will guarantee significant fuel loading and once the fire is established it’s going to burn extremely hot.
California has the most robust WUI code in the country; but that’s not a common situation. Fire Chiefs we collaborate with in the West are frequently opposed by developer and even local government interests when attempting to incorporate more stringent WUI codes.
We really cannot approach the present WUI problem using past approaches from the fire service, insurance industry, or legislation; we are experiencing conditions that are significantly different from the past both as individual variables, and synergistically among each other.
I.I.I.: What do you think about recent wildfire legislation in California?
FF: Anytime there is a social disruptor people get frustrated and call their legislator, and then we start to see reactive-based legislation that is quickly passed, but frequently lacks the necessary detail to implement, track, and manage it.
About 11 months ago there was a flood of this type of legislation that hit California. AB 1516 is one of the most significant pieces but it needs to be followed closely and massaged. It calls for a risk model advisory group and we are working with legislators on that.
The success of public policy requires public buy-in. No public policy is effective that’s just purely enforcement related. The best work that’s going to be done is not by my firefighters or insurance agents – it’s going to be done by Mr. and Mrs. Smith annually and diligently maintaining proscribed defensible space, maintaining structural hardening (mostly retrofits), and then federal, state, and local government works on fuels management which is on the perimeter of communities.
We have got to get a connection with what we’re doing in defensible space inspections and what we’re doing in risk modeling. If my defensible space requirements are the same as the insurance company’s requirements to retain insurance at an affordable rate, then we increase our level of public buy-in to the mitigations that matter.
I.I.I.: Could you suggest a practical list of mitigations for homeowners?
FF: This is not the definitive list, we are still working to come up with that, but here is what I can offer now:
*Window assembly (an unintended consequence of the energy efficiency push led to vinyl windows, which melt and drop out making the building exposed to embers – windows are a big issue)
It’s vitally important the we collectively (and that includes I.I.I.) get involved in measuring the most cost-effective retrofit mitigations for these items. New houses can be built to new code but older houses need to retrofit.
Preliminary studies are indicating that structures built to the 2008 WUI code, and those that had a successful first WUI inspection had a 30 percent less loss to wildfire.
I.I.I.: Can you talk about the role emerging technology plays in mitigation and firefighting?
FF: This area is moving remarkably fast, perhaps too fast; we have a situation where technologies are seeking problems to solve rather than a situation where problems are seeking the best technical tools toward solutions. We need to focus on asking the right questions first. That said, I believe that big data analysis, real-time modeling at the parcel level, hyperspectral imaging, full-scale ember laboratory experimentation, and converting hazard mitigations to actuarial risk are among the top technological leverage points emerging in the WUI discussion.
I.I.I.: Any thoughts on the future of fireproof houses?
FF: I’m not sure the “fireproof” house is plausible in the literal sense. A concrete box would not burn, but it doesn’t have much curb appeal either. The future of survivable houses in the WUI will exist in the shared space between fiscally and socially acceptable risk, market forces on development cost/sales, and the level of effort communities are willing to put into prevention of, and response to, the wildfires that are a natural part of the western ecosystem.
I.I.I.: What are some of the public education efforts of the initiative?
FF: The public education will be secondary to where the science leads us. Whatever we settle on, the public education message must be consistent in content, and recognition, between the fire service and the insurance industry. The terminal objective of public education is to induce informed decisions that encourage behaviors beneficial to the public good. If we fail to send a consistent message, public education efforts will be fragmented and lack credibility; we will have failed to serve the public good.
Terrorism, by design, is unpredictable, hugely destructive, and to date uninsurable through private market methods alone.
Few events demonstrate this better than the 9/11 attacks, in which terrorists hijacked commercial airliners and flew them into the World Trade Center towers and the Pentagon. The attacks remain the deadliest and most expensive terrorist incidents in U.S. history, with insurance losses totaling about $47.0 billion in 2019 dollars, according to I.I.I. estimates.
U.S. and international insurers were able to pay virtually all the claims from the 9/11 attacks and their aftermath. But insurers also made it clear that they could not, on their own, cover future losses caused intentionally by people acting strategically to attack select targets intentionally. In response to these concerns, the U.S. Congress enacted the Terrorism Risk Insurance Act of 2002 (TRIA), creating a federal backstop for catastrophic terrorism losses that is designed to keep terrorism risk insurance available and affordable. Renewed in 2005, 2007 and again in 2015, the act is set to expire on December 31, 2020.
Although the expiration is still more than a year away, U.S. commercial insurers are preparing for the possibility that the federal backstop might expire, and federal financial assistance is unavailable for a catastrophic terrorist event.
A new I.I.I. report, A World Without TRIA: Incalculable Risk, concludes that the terrorism insurance market is more robust than in the immediate aftermath of 9/11, but – similar to the situation in 2015 – does not appear to have the ability to bear all terrorism risk.
In this context, the report offers a historical overview of TRIA – why it exists and how it functions – to inform the discussion about the potential consequences should the program disappear. The report discusses:
Commercial terrorism risk insurance before the 9/1 1 attacks
How the attacks changed the terrorism risk insurance marketplace
The enactment of the federal Terrorism Risk Insurance Act and the program’s structure
What happened when the program briefly expired in 2015
How a failure to reauthorize the program in 2020 could affect terrorism risk insurance
Over the next months the Triple-I Blog will run stories featuring key participants in the terrorism risk insurance market and highlight news stories from our database from the periods immediately following 9/11 (before TRIA) and 2015 (when TRIA briefly lapsed). You can follow the topic here.
By Lynne McChristian, I.I.I. Media Spokesperson and Non-resident Scholar
If Hurricane Dorian left its imprint on your home or business, you’ve likely already started the claims process with a call to your insurer. Knowing what happens next will be helpful as the recovery begins.
The insurance claims process is indeed a process. There are steps involved and requirements from both the policyholder and the insurance company. Most people have never had to file an insurance claim of any sort. And if they had, it might have been an automobile accident claim, which can be far less complex that one that involves damage to something as large and costly as a home and whatever is inside it.
After a widespread natural disaster, insurers take a triage approach to claims handling, and that means those people who suffered the most damaging losses are seen first. Obviously, everyone with damage wants to be seen promptly, yet taking care of people in order of damage is what serves those most in need.
After you report a claim, someone will be sent out to appraise the damage. You might have more than one insurance claims professional visit, as there is separate expertise involved – depending on the damage you reported. You might have someone look at the structure, an additional claims adjuster for the contents damage, and then a flood damage claims expert visit your property, if you have flood insurance protection. Some of these insurance professionals may work directly for your insurer, while others are hired as independent contractors to give your claim faster attention. Tip: Get a business card and cellphone number for every person who appraises the damage, so you can follow up.
If your home is so badly damaged that you cannot live in it, you may get a check on the spot from your claims adjuster. This is not a settlement check. It is coverage that is part of a standard homeowners policy, called Additional Living Expense. It covers the extra expenses you’ll have if you must live elsewhere while your home is repaired or rebuilt.
Above all else, keep organized and retain all your receipts. Temporary repairs you made to prevent further damage are covered under your policy. You will want to keep the process rolling to return to normal – and insurers want that, too.
By Dr. Steven Weisbart, Chief Economist, Insurance Information Institute
On September 6, 2019, the U.S. Bureau of Labor Statistics announced that the U.S. economy had added 130,000 jobs (seasonally-adjusted) in August; and more than one-and-a-quarter million nonfarm jobs (actually 1,266,000) through the first eight months of 2019.
Nonfarm employment has risen every month since October 2010—107 consecutive months and counting. Not every sector or industry has consistently added jobs in that span. Indeed, the diversity of the economy has seen robust job growth in some areas that offsets job losses in other areas. Job growth in the immediate wake of the Great Recession was to be expected but the trends in job growth and its persistence in recent years is surprising.
The insurance industry is a case in point. The insurance subindustry with the strongest employment gains in recent years is — not surprisingly—health and medical expense insurers, given the enactment and implementation of the Affordable Care Act. But other insurance subindustries have shown unusual employment trends. For example, as Table 1 shows, both the property/casualty (P/C) and the life/annuity subindustries have generally shed employees.
Perhaps the most surprising row in Table 1 is the Agents & Brokers line. Pundits have been predicting for years that the agent/broker distribution channel is about to be replaced by newer methods of distribution. Obviously, that time has not come yet.
As for the P/C and life/annuity carriers, one might assume that the reductions result from automating routine functions, as has been the case in non-insurance industries, such as manufacturing. If this is the explanation, it translates to increased productivity (more work done with fewer employees), which is obviously a good thing.
Two caveats pertain to this number: first, the July and August numbers are preliminary and are likely to be revised—often slightly—up or down, in the coming two months. Second, the overall benchmark revision, to take effect next winter, is likely to trim half a million jobs from the count for 2019, based on data from the Census Bureau. Even with these adjustments, employment kept growing in 2019.
As Hurricane Dorian churns northward off the coast of South Carolina as a Category 2 storm, the National Hurricane Center continues to forecast dangerous storm surge conditions through the Carolinas, up the coast into Virginia, as of 11 a.m. September 5.
Using National Flood Insurance Program policy takeup rates as estimated by Aon, the six coastal counties in South Carolina average a 28 percent flood insurance takeup rate, compared to a 16 percent takeup rate for the 21 coastal counties in North Carolina. Dare County in North Carolina had the highest takeup rate of both states, with 61 percent, and Hertford County had the lowest in the two states, at 1.0 percent. Overall South Carolina has 204,372 total policies in force, with 2,284,722 housing units statewide. North Carolina has 132,983 policies in force for 4,622,575 housing units statewide.
The graphic below shows the probability of storm-induced flooding for the Carolina coast as of September 5 at 2 p.m. eastern.
For up-to-date flood probability click here.
More flood insurance facts and statistics from the I.I.I. are available here.
As of early afternoon on September 4 Hurricane Dorian was approximately 100 miles off the east coast of Florida. The National Hurricane Center reported that Hurricane Dorian would likely move slowly up the Florida coast to Georgia and the Carolinas. While the storm’s intensity has declined since it struck the Bahamas as a Category 5 hurricane, Dorian is now classified as a Category 2 hurricane with sustained winds of 105 mph.
Federal emergency declarations are in effect for Florida, Georgia, South Carolina and North Carolina, and the governor of Virginia also declared a state of emergency. Dorian is expected to maintain its current intensity for the next few days, and forecasters said that those in Northeast Florida to the Carolinas should be on alert for the possibility of destructive winds and flooding from heavy rains or storm surges.
Dr. Phil Klotzbach, a meteorologist at Colorado State University and Insurance Information Institute non-resident scholar, is providing regular updates on Dorian via Twitter. He said that the storm has now generated the ninth-most accumulated cyclone energy by an Atlantic hurricane named during August in the satellite era (since 1966).
In a Fox Business interview, Michael Barry, senior vice president and head of media relations and public affairs at the Insurance Information Institute, said,“The industry is very well capitalized and has the financial wherewithal to pay whatever claims comes its way. Of course, right now, we’re looking at the priority of making sure everybody’s customers are safe and sound.”
An Artemis blog post said that even if Dorian remains just offshore, some sources expect a low-single digit billions market loss from the hurricane, just from wind and surge damage along its track. That figure would rise with every mile closer to shore the eye of Hurricane Dorian comes.. Any wobble west onto shore or a full landfall could raise the potential insurance, reinsurance and insurance-linked securities (ILS) market impact significantly.
Recovery from Dorian in the Bahamas and other islands of the Caribbean that were impacted is expected to be slow because most of the damage caused by the storm is not covered by insurance. In a Wall Street Journalarticle, Steve Bowen, a meteorologist and head of catastrophe insights at Aon plc, said that commercial businesses have the highest levels of insurance penetration in the Bahamas, while many individuals lack coverage.
Jonny Urwin, an analyst with UBS Group AG, said it estimates that insured damage in the Bahamas could be between $500 million and $1 billion. For the storm overall, UBS projects that the total insured losses from Dorian could be between $5 billion and $10 billion, basing its estimate on a comparison with Hurricane Matthew, which followed a similar path in 2016.
As of August 28, Hurricane Dorian has been forecast to be a Category 4 hurricane and chances have increased for a direct hit over Labor Day weekend along the coast of Central Florida, causing storm preparations to get off to a frenzied start.
The National Hurricane Center’s (NHC) forecast track map showed Dorian making a direct landfall over Volusia and Brevard Counties on September 2 with winds of more than 110 mph, storm surge, high tides and torrential rainfall.
Dorian became a tropical storm on August 24 and strengthened to hurricane status on August 28 near St. Thomas, U.S. Virgin Islands. Nearly the entire eastern coastline of Florida and the Georgia coastal area are within the potential path of the storm. Florida Gov. Ron DeSantis has declared a statewide state of emergency.
According to Dr. Phil Klotzbach, a meteorologist at Colorado State University and Insurance Information Institute non-resident scholar, Hurricane Dorian has now generated more Accumulated Cyclone Energy than the other four named storms of the 2019 Atlantic hurricane season combined. Andrea, Chantal and Erin were very weak, and while Barry became a hurricane, it was relatively short-lived.
The I.I.I. offers the following guidance to those who live and work along the east coast of Florida and Georgia:
Write down the name and phone number of your insurer and insurance professional and keep this information either in your wallet or purse;
Purchase emergency supplies, such as batteries and flashlights;
Secure drinking water and non-perishable food; both are essential for all household members in case of prolonged power outages. It is recommended you have one gallon of drinking water per person per day, for up to seven days;
Prepare your yard by removing all outdoor furniture, lawn items, planters and other materials that could be picked up by high winds;
Fill your car’s gasoline tank because long gas lines and fuel shortages often follow a major weather event;
Motorcycles are popular with riders seeking affordable transportation options and the thrill of the open road. But they can also be attractive targets for thieves. The good news is that motorcycle thefts saw a decline in 2017 and 2018 after an uptick in the previous two years.
According to the National Insurance Crime Bureau’s (NICB) annual motorcycle thefts report, in 2018 motorcycle thefts were down by six percent with a total of 41,674 motorcycles reported stolen compared with 44,268 in 2017. About 44 percent of the motorcycles stolen in 2018 were recovered.
In general, motorcycle thefts are a seasonal crime related to warmer months, with 10 percent or more of thefts from the yearly total occurred in May, June, July, August, September, and October.
According to the report the top 10 states for motorcycle thefts in 2018 were:
New York (1,777)
South Carolina (1,743)
North Carolina (1,466)
Georgia (1,174) and
The top 10 cities for motorcycle thefts in 2018 were:
New York (1,310)
Los Angeles (628)
Las Vegas (540)
San Diego (527)
San Francisco (520)
Austin (329) and
San Jose (322)
The top 10 most stolen motorcycles in 2018 by manufacturer were:
American Honda Motor Co., Inc. (8,260 thefts)
Yamaha Motor Corporation (6,655)
American Suzuki Motor Corporation (4,882)
Kawasaki Motors Corp., U.S.A. (4,861)
Harley-Davidson, Inc. (4,769)
Taotao Group Co. Ltd (1,851)
KTM Sportmotorcycle AG (780)
Genuine Cycle (515)
Ducati Motor Holding (455)
Kymco U.S.A., Inc. (413)
The NICB offers the following fraud and theft prevention tips:
Purchase your motorcycle from reputable manufacturers or dealers. When purchasing from a private party, avoid custom or “assembled vehicle.”
Take the motorcycle to a local dealership for inspection before purchasing.
When purchasing a motorcycle from a private party, consider investing in a vehicle history report. Also, go to your local law enforcement station to make the transaction. Many law enforcement agencies have “safe areas” to complete purchases between private parties.
When selling your bike, don’t turn over the title until the funds (check or money order) have cleared the bank.
Use common sense; park in well-lit areas, lock your ignition, and remove your keys.
Remove the key and lock your motorcycle even if stored in a garage. You may want to invest in additional aftermarket lock(s) and even a theft-deterrent system with tracking capabilities (e.g. GPS) for your motorcycle.
Don’t store your title in your motorcycle’s storage compartment.
Place unique markings on your motorcycle and take photos of them. If your bike is stolen, you can use these markings to identify your property.
The I.I.I. has Facts & Statistics on auto theft here.