The Kilauea volcano eruption – a primer on insurance coverage

Over two dozen homes have been destroyed so far when the Kilauea volcano on the island of Hawaii began erupting last week. Lava flowed into residential neighborhoods on the eastern side, as this Wall Street Journal video shows, and the island  has been shaken by hundreds of earthquakes, the largest one with a magnitude of 6.9 occurred on Friday.

The I.I.I. has a primer on volcanic eruption insurance coverage. Below are some highlights:

What’s covered

  • Most home, renters and business insurance policies provide coverage for property loss caused by volcanic eruption when it is the result of a volcanic blast, airborne shockwaves, ash, dust or lava flow. Fire or explosion resulting from volcanic eruption also is covered.
  • Homeowners and business owners’ policies also provide coverage for property damage, vandalism or theft due to looting if the occupants are displaced.
  • There is typically a 72-hour waiting period before business interruption coverage kicks in.
  • Damage to vehicles caused by lava flow is covered under your auto insurance policy if you have comprehensive coverage, which is optional. Direct, sudden damage to engines from volcanic ash or dust is also covered under most policies.

What isn’t covered

  • Most home, renters and business insurance policies do not cover damage from earthquake, land tremors, landslide, mudflow or other earth movement regardless of whether the quake is caused by or causes a volcanic eruption. Earthquake insurance is available from private insurers as an endorsement to a homeowners policy.
  • Damage to land, trees, shrubs, lawns, property in the open or open sheds (or the contents of those sheds) is typically not covered.
  • The cost to remove ash from personal property is generally not covered unless the ash first causes direct physical loss to personal property. There is also no coverage to remove ash from the surrounding land.
  • Damage that occurs to homes, businesses or vehicles over time due to volcanic dust is not covered under most policies.
  • Volcanic Effusion (i.e. volcanic water and mud) is not covered under a typical homeowners, renters or business insurance policy. However, it is covered by flood insurance, available through the National Flood Insurance Program.

 

 

The Week in a Minute, 05/03/18

The III’s Michael Barry briefs our membership every week on key insurance related stories. Here are some highlights. 

  • The CBS Evening News and CBS This Morning broadcast stories on a Louisiana law firm which earned millions of dollars in FEMA-paid National Flood Insurance Program (NFIP) legal fees after 2012’s Superstorm Sandy.
  • I.I.I. chief actuary James Lynch had an op-ed published in the Spokane, WA, Spokesman-Review and the Reno, NV Gazette Journal which said the public underestimates the risks posed by cannabis-impaired drivers.
  • The Tinder Fire in Arizona’s Coconino County has consumed more than 11,000 acres of land and prompted the evacuation of 1,000-plus people since it started on Friday, April 27.

From the I.I.I. Daily: Our most popular content, April 27 – May 3

Here are the 5 most clicked on articles from the I.I.I. Daily newsletter.

To subscribe to the I.I.I. Daily email daily@iii.org.

 

The brown ocean effect – a trend to keep an eye on

Tropical cyclones usually weaken after they make landfall, but under certain conditions they may intensify or maintain their strength. This is called “the brown ocean effect,” a phenomenon when a large area of hot soil (usually a desert) is soaked by rain from a tropical storm, releasing heat into the atmosphere and fueling the storm. This phenomenon also requires that the lower level of atmosphere resembles a tropical one, and that there is minimal variation in temperature.

These conditions are most likely to occur in Australia, but can also happen in the U.S. and China, according to a recent AIR Worldwide blog post. A NASA-funded study that looked at 227 tropical storms between 1979 and 2008 found that after making landfall, 16 storms, including Tropical Storm Erin, maintained their tropical warm-core characteristics over land, and effectively became “brown ocean effect storms.”

NASA’s satellite image of Ex-Tropical Cyclone Kelvin, moving through Western Australia on Feb. 20, 2018

Auto Insurers engage in aggressive customer courtship as shopping stagnates

Auto insurers are contending with record-low numbers of new shoppers, price competition and the ever looming Insurtech disruptors. These conditions have forced auto insurers into “aggressive customer courtship mode”, according to the J.D. Power 2018 U.S. Insurance Shopping Study.

To court customers insurers are investing forcefully in improving the shopping process and in national advertising to build their brands.

“We’re entering an era of consumer-centric insurance that will likely be marked by a surge in new digital offerings and serious efforts by insurers to improve the auto insurance shopping experience,” said Tom Super, Director of the Property and Casualty Insurance Practice at J.D. Power. “Auto insurers looking to differentiate and win new customers are making big bets with digital—such as in personalization—that meet customers’ growing expectations for improved interactions.”

Highlights from the study include:

  • Delivering an omnichannel experience is critical as 45 percent of auto insurance shoppers use multiple channels when purchasing a policy.
  • Brand reputation is the top driver of consideration, but a strong value proposition remains essential in driving quote and close rates.
  • Insurtech customer awareness still low: Just 6 percent of prospective customers indicate being aware of at least one of the following companies: Lemonade, Metromile, Trov and Sure. Less than half of shoppers who are aware of a given provider would consider doing business with them in the future.
  • Directs are winning purchase experience battle:Overall satisfaction among shoppers who purchased insurance from companies that primarily sell directly to the customer is 846 (on a 1,000-point scale). This compares with a score of 842 among shoppers who purchased insurance from companies that primarily sell through independent agents and 834 among those who bought from insurers who primarily sell through exclusive agents.

 

Cybersecurity insurance growth continues

Cyber insurance remained a fast-growing line in 2017, with package policy premium almost tripling, while standalone premium grew 7 percent*, NAIC data indicate.

Packaged cybersecurity policies as measured in quantified and estimated direct premiums written grew from $416.8 million in 2016 to $1.1 billion in 2017. The number of packaged claims made and occurrence policies in-force increased by 71 percent.

Standalone cybersecurity policies did not fare as well, with a 7 percent increase in direct premiums written from $920.7 million in 2016 to $985.6 million in 2017. The number of standalone occurrence policies in force fell by 12 percent, and the number of standalone cybersecurity claims-made policies fell by 33.3 percent. The loss ratio for 2017 standalone cybersecurity insurance was just 30 percent.

Over the past year, headline grabbing cyber incident such as the Equifax breach ensured that companies remained aware of the enormous potential losses cybersecurity threats pose to their businesses. Cyber incidents ranked second on Allianz’s 2018 list of top business risks (five years ago, it ranked 15th.).

A recent PwC report cautioned that given the increasingly frequent and severe nature of cyberattacks, it’s still unclear whether cyberrisks are adequately priced.

“The inevitable market-turning event will separate carriers that have sufficient risk management, underwriting processes and capital in place from ones that do not,” said the report.

Click to enlarge

*NAIC data sourced from S&P Market Intelligence on April 27, 2018.

 

From the I.I.I. Daily: Our most popular content, April 20-April 26

 

Here are the 5 most clicked on articles from the I.I.I. Daily newsletter.

 

  1. Most and Least Expensive ZIP codes for home insurance, The Street
  2. The Yellowstone supervolcano is a disaster waiting to happen, Washington Post
  3. States Where You Pay the Most and Least for Home Insurance, The Street
  4. Five New York Residents Charged in More Than $31.7M Fraud Scheme, Insurance Journal
  5. Three Insurance Tech Startups Announce Moves To Hartford, The Hartford Courant

 

To subscribe to the I.I.I. Daily email daily@iii.org.

 

Reported Causes of Death and Public Perception

By Jennifer Ha, Head of Editorial and Publications, Insurance Information Institute

This capstone project, entitled, “Death: Reality vs. Reported,” prepared by four students for their Data Science in Practice course at the University of California, San Diego, bases its premise on an old study that compared the disparity of the number and causes of deaths reported by the Centers for Disease Control (CDC), and those reported in the media. In this case, the students have given the thesis an update: they have also included Google Trends Search Volume, but limited deaths reported by media to two sources: The Guardian, and The New York Times.

The students looked at the top 10 largest causes of mortality, as well as terrorism, overdoses, and homicides, three other causes of death they believed to receive a lot of media coverage. They did take some liberties (which they detail), but overall the findings were as follows:

“The most striking disparities here are that of kidney disease, heart disease, terrorism, and homicide. Kidney disease and heart disease are both about 10 times underrepresented in the news, while homicide is about 31 times overrepresented, and terrorism is a whopping 3,900 times overrepresented…This suggests that general public sentiment is not well-calibrated with the ways that people actually die. Heart disease and kidney disease appear largely underrepresented in the sphere of public attention, while terrorism and homicides capture a far larger share, relative to their share of deaths caused.”

Click on the gif below to see actual causes of death vs. what we worry about and what’s in the media:

Opioid abuse by auto insurance claimants — a serious problem

 

Auto insurance may become an inviting target for people seeking opioids, as Medicare is implementing  controversial restrictions on painkillers’ prescriptions.

Opioids were already the largest category of drugs paid for by auto insurers in 2017, according to a recent Auto Insurance Report article citing data from Optum, a pharmacy benefit management firm.  The narcotic represented 19 percent of medications paid for by auto insurance, down from nearly 24 percent in 2016. There were 7.5 opioid prescriptions per claim in 2017 up from 6.7 in 2016.

Tron Emptage, Optum’s chief clinical officer for the Workers Comp and Auto No-Fault division, notes that auto related prescriptions have been rising where workers comp related prescriptions have been falling. The auto related prescriptions also tend to be of a higher dosage than workers compensation.

It’s useful to compare the two types of claims, says Emptage, because injury types tend to be similar. But unlike workers compensation, which has many rules and fee schedules regulating prescription drug use, auto insurers have been on the receiving end of medical cost shifting as well as the abuse of the medical system to support lawsuits and general fraud, says the article. Challenging medical bills can be problematic when first-party claimants are involved, not to mention third-party claimants.

The article concludes that auto insurers in PIP states can establish pharmacy management programs to gain at least a small degree of control over what they pay for.

 

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