Cost of Lightning-Caused Claims Soared Due to 2020’s U.S. Wildfires

By Loretta Worters, Vice President, Media Relations, Triple-I

For the fourth consecutive year, the number of lightning-caused U.S. homeowners insurance claims decreased in 2020, even as the average value of those claims has more than doubled since 2017, according to Triple-I’s analysis of national insurance claims data. 

Lightning-related homeowners insurance claim costs nationally rose dramatically due to a series of lightning strikes across Northern California in 2020.  The average cost per lightning claim in California was $217,555 in 2020, while the national average for this type of claim was nearly $29,000.

Triple-I also found that:

  • More than $2 billion in lightning-caused U.S. homeowners insurance claims were paid out in 2020 to 71,000-plus policyholders
  • The average cost of a lightning-caused U.S. homeowners insurance claim increased 141 percent between 2019 and 2020 (from $11,971 to $28,885) and 168 percent from 2017 to 2020 (from $10,781 to $28,885)
  • The average number of lightning-caused U.S. homeowners insurance claims decreased by nearly 7 percent between 2019 and 2020 (from 76,860 to 71,551)

The wildfires in California and elsewhere damaged homes which had to be either repaired or rebuilt with more expensive construction materials. The National Association of Home Builders reported that, between mid-April and mid-September 2020, lumber prices soared more than 170 percent nationwide, adding $16,148 to the price of a typical, new single-family home.

The August Complex Fire, started by lightning strikes in August 2020, was the largest in California’s history, as defined by acres burned, according to the California Department of Forestry and Fire Protection (CAL FIRE). It spread across 1 million acres and impacted seven counties.

State-by-State Numbers

Florida – which has the most thunderstorms— remained the top state for lightning-caused homeowners insurance claims in 2020, with 6,756, followed by Georgia (4,686), Texas (4,675), and California (4,233).

Homeowners Insurance Coverage

Damage caused by lightning, which results in a fire, is covered under standard homeowners insurance policies.  Some policies provide coverage for power surges that are the direct result of a lightning strike, which can cause severe damage to appliances, electronics, computers and equipment, phone systems, electrical fixtures and the electrical foundation of a home.

In recognition of Lightning Safety Awareness Week, June 20-26, the Triple-I and the Lightning Protection Institute (LPI), a national organization that establishes standards for specifying and installing lightning protection systems and promotes lightning safety, encourage homeowners to install  lightning protection systems in their homes. 

“When we think of lightning safety, we should make a distinction between personal safety and property protection,” said Tim Harger, LPI’s Executive Director.  “Personal safety is what we do during a storm and the safest place in any lightning event is within a structure protected by a properly designed, inspected and certified lightning protection system,” he said.  “Installing lightning protection systems in our homes or businesses is an action we can take before a storm that can mitigate against property damage.”  

Triple-I Ready To Mark June 19 As A Federal Holiday

By Sean Kevelighan, CEO, Insurance Information Institute

Congress passed legislation this week to establish June 19 as Juneteenth National Independence Day, and the Insurance Information Institute (Triple-I) applauds the bipartisan action which made it happen.  President Joseph Biden is expected to sign the measure into law.

The date is a significant one in U.S. history because June 19, 1865, symbolically marked the end of slavery in the U.S.

The Triple-I represents an industry built on a foundation of trust and fairness, and there can be no tolerance for racial discrimination in any form.

Insurers take pride in keeping their promises and being there for their customers in moments of need. 

Today and every day, insurers want to foster unity and support the communities they serve while also contributing to real, positive change.  

The decision to make Junteenth a federal holiday is in keeping with that tradition.

Declarations of Pride: David Glawe, NICB President and CEO

By Scott Holeman, Media Relations Director, Triple-I

David Glawe, President and CEO of the National Insurance Crime Bureau, has been fighting crime for nearly 30 years. His extensive background in national security, law enforcement and management provided distinguished credentials to lead NICB’s efforts in combatting insurance fraud and theft. Before taking on this position, Glawe served as Under Secretary of Intelligence for Analysis at the Department of Homeland Security, and was the highest ranking, openly gay official in the U.S. Government.

During our Declarations of Pride series, Glawe shares his personal life journey, which includes progress in LGBTQ+ issues and examples of why there’s ongoing need for meaningful dialogue about equality with friends, family and allies.

Glawe encourages asking questions for meaningful dialogue with LGBTQ+ friends and family.

Glawe says speaking OUT is important for LGBTQ+ people who may be struggling for acceptance.

Auto insurance rates impacted by labor crunch, supply chain disruptions

In a recent interview with CNBC, Dr. Michel Léonard, Triple-I vice president and senior economist, explained how the return to pre-pandemic driving levels is resulting in higher auto accident rates.

More accidents mean a larger volume of more expensive claims for insurers to pay because of higher repair costs, delays in repair time due to chip shortages, supply chain disruptions and a labor crunch.

The consumer price index showed that the auto insurance index was up 16.9 percent in May from the previous year, following a 6.4 percent rise in April from the previous year.

Elyse Greenspan, a managing director at Wells Fargo, said the year-over-year increase resulted from the premium base in May 2020, reflecting pandemic-related refunds. Triple-I analysis shows that due to the sharp declines in the number of miles driven, U.S. auto insurers returned $14 billion to their customers last year.

Greenspan describes the current auto insurance market as still soft even after recent rate increases. Not all insurers are raising rates, she added. “It’s still a good environment for consumers who are purchasing auto insurance.”

Valuable metals make catalytic converters an attractive target for thieves

Huge spikes in catalytic converter theft have been reported throughout the nation in recent months. The anti-pollution devices contain precious metals such as platinum, palladium or rhodium and can be removed from the bottom of a car or truck in as little as five minutes.

Thieves are getting anywhere from $50 to $250 per converter from recyclers, according to the National Insurance Crime Bureau (NICB) and replacing the part can cost $900 or more.

In an effort to stem the thefts, the NICB has recently teamed up with several Virginia police departments to host catalytic converter etching events. During the events, mechanics etch and paint vehicle registration numbers onto the converters, which serves to track the parts if stolen.

Additional etching events are currently being scheduled in Virginia. The NICB encourages law enforcement across the nation to hold similar events to help combat catalytic converter theft.

Other theft prevention options include installing a steel shield that fits over the catalytic converter, requiring time and extra tools to remove the part; cages made of high-strength steel that’s difficult to cut; or stainless-steel cables welded from the catalytic converter to the car’s frame.

If your converter is stolen, the theft is covered by the optional comprehensive portion of your insurance policy in some cases. But you will be responsible for paying the deductible. If your deductible is $1,000 and the cost to repair the damage costs $1,000 or maybe a few hundred dollars more, you may not opt to file a claim.

Drivers are advised to contact their insurers to report the theft and determine the best course of action.

Declarations of Pride: Michael McRaith, Blackstone Insurance Solutions

By Scott Holeman, Media Relations Director, Triple-I

Michael McRaith is proud of the way insurance companies and Corporate America have helped advance LGBTQ+ rights. In this installment of Declarations of Pride, the Managing Director of Blackstone Insurance Solutions discusses the evolution of LGBTQ+ rights and the importance of diversity in the workplace.

McRaith’s distinguished insurance career includes being the first director of the Federal Insurance Office in the U.S. Treasury, Director of the Illinois Insurance Department, and an officer with the National Association of Insurance Commissioners. Prior to public service, he was a partner in the Chicago office of McGuireWoods LLP. In addition to his role at Blackstone, he also currently serves on the Board of Directors for Gryphon Mutual Insurance Company.

Among honors for public service, McRaith has received the Distinguished LGBTQ Alumnus Award from Indiana University, the Exceptional Service Award from the U.S. Department of the Treasury, and recognition as a Distinguished Fellow by the International Association of Insurance Supervisors.

Cyber Risk Gets Real, Demands New Approaches

With the cyber risk environment worsening significantly, a recent A.M. Best report says, “prospects for the U.S. cyber insurance market are grim.”

The recent proliferation of ransomware attacks leading to business interruption and other related hazards has caused cyber insurance – which began as a diversifying, secondary line – to become a primary component of a corporation’s risk management and insurance purchasing decisions.

Consequently, the A.M. Best report says, insurers urgently need to reassess all aspects of cyber risk, including their appetite, risk controls, modeling, stress testing, and pricing, to remain a viable long-term partner for dealing with cyber risk.

Cyber insurance “take-up” rates (the percentage of eligible customers opting to buy the coverage) are on the rise, according to a recent Government Accountability Office (GAO) report – to 47 percent in 2020 from 26 percent in 2016. This increased demand has been accompanied by higher prices for cyber insurance, as well as reduced coverage limits for some industry sectors, such as healthcare and education. In a recent survey of insurance brokers, the GAO says, more than half of respondents’ clients saw prices rise 10 to 30 percent in late 2020.

“The rate increases for cyber insurance outpaced that of the broader property/casualty industry, but the increase in cyber losses outstripped the rate hikes, which suggests more trouble for 2021 as ransom demands continue to grow,” said Sridhar Manyem, director, industry research and analytics at A.M. Best.

The A.M. Best report says the challenges the cyber insurance market faces include:

  • Rapid growth in exposure without adequate underwriting controls;
  • The growing sophistication of cyber criminals that have exploited malware and cyber vulnerabilities faster than companies that may have been late in protecting themselves; and
  • The far-reaching implications of the cascading effects of cyber risks and the lack of geographic or commercial boundaries.

In April, Federal Reserve Chairman Jerome Powell said cyberattacks are the foremost risk to the global financial system, even more so than the lending and liquidity risks that led to the 2008 financial crisis.  

“The world evolves, and the risks change as well and I would say that the risk that we keep our eyes on the most now is cyber risk,” Powell said. “There are scenarios in which a large financial institution would lose the ability to track the payments that it’s making, where you would have a part of the financial system come to a halt, and so we spend so much time, energy and money guarding against these things.” 

The Fed chief’s concerns have since been borne out by attacks on the Colonial PipelineJBS SA – the world’s largest meat producer – the New York City Metropolitan Transportation Authority, and others.

More recently, FBI Director Christopher Wray compared compared the current spate of cyberattacks with the challenge posed by the Sept. 11, 2001, terrorist attacks. He said the agency was investigating about 100 different types of ransomware, many tracing back to hackers in Russia.

As we’ve written elsewhere with respect to natural catastrophes, it seems the world has entered a phase in which the traditional emphasis on risk transfer through insurance products is no longer sufficient to address today’s complex, interconnected perils. A focus on resilience and pre-emptive mitigation is in order, and insurers are well positioned to serve not only as financial first responders but as partners in managing these evolving hazards.

Ms. Winnie Tsen, Assistant Director, Financial Markets and Community Investment, U.S. Government Accountability Office (GAO), was one of the key contributors to the GAO’s May 2021 report on cyber insurance.

Declarations of Pride: Ken Ross, John Hancock

By Scott Holeman, Media Relations Director, Triple-I

Triple-I’s Declarations of Pride series celebrates and features prominent LGBTQ+ insurance professionals. Meet Ken Ross, Vice President & Counsel at John Hancock Insurance, who says insurance companies are responding to the unique needs of the LGBTQ+ community.

Ken also says Diversity, Equity and Inclusion have never been more important in the workplace. Ken encourages the LGBTQ+ community to consider the insurance industry for rewarding career opportunities.

Ken has 30+ years of legislative and regulatory experience, specializing in state regulatory and legislative relations. Prior to joining John Hancock, he served as President and COO of the Michigan Credit Union League (MCUL), Assistant General Counsel for Citizens Republic Bancorp Holding Company (CRBHC), and Commissioner of the Michigan Office of Financial & Insurance Regulation.

He has degrees from the University of Michigan-Dearborn and Western Michigan University’s Thomas M. Cooley Law School.

Swiss Re: “Zombies”
Could Kill Recovery

Global pandemic.

Supply-chain disruptions.

Increasingly costly cyber-attacks.

Extreme weather and other climate-related hazards.

And now, zombies.

Swiss Re’s chief economist this week said failures of hundreds of “zombie companies” over the next few years are among the concerns prompting insurers to reduce risk and charge higher premiums – a trend that is likely to continue as corporate failures increase.

Zombies – companies that lack the cash flow to cover the cost of their debt – are “a ticking time bomb” whose effects will be felt as governments and central banks withdraw measures that have helped keep these companies alive during the pandemic, Jerome Haegeli told Reuters.

The sobering prediction comes as stock prices hit records and the U.S. economy appears headed for 6.5 percent growth this year. Haegeli said these strengths are illusory because they’re based on temporary fiscal and monetary support.

Insurers are being cautious: reining in underwriting risk, being more prudent about investment allocations, and even taking precautions on insuring operations and supply-chain risk.

“They are not getting fooled by the short-term picture,” Haegeli said. “If you look at the market today, everything looks great. However, it’s illusionary to think that this environment can last” as “life support” is withdrawn in coming months. And that, he said, will bring an increase in long-overdue bankruptcies.

It’s tempting to presume that, as the pandemic-driven aspects of the economic crisis are brought under control, recovery will proceed apace. After all, the economy was doing fine before the pandemic hit, right?

But in September the Bank for International Settlements (BIS) pointed to a “pre-pandemic increase in the number of persistently unprofitable firms, so-called ‘zombies’, which are particularly vulnerable to economic downturns.”

Before the pandemic, the BIS said, about 20 percent of listed firms in the United States and United Kingdom were zombies and 30 percent in Australia and Canada. By comparison, zombies constituted about 15 percent of listed companies in 14 advanced economies in 2017 and 4 percent before the 2008 financial crisis.

Absent any reason to believe these companies’ situations substantially improved during the pandemic or that the contagion didn’t spawn more zombies, the expectation of more corporate collapses seems reasonable.

Add to this rising losses due to hurricanes, severe convective storms, and wildfires; the threat of sea level rise; and the growing reality business and government disruption from cybercrime, and the likelihood of increasing premiums and reduced coverage limits seems strong.

IBHS Ranks Building Codes as Above-Average Hurricane Season Approaches

Building codes are critical to disaster mitigation, as well as to enabling families, communities, and businesses to bounce back from natural and man-made catastrophes.  The Insurance Institute for Business and Home Safety (IBHS) “Rating the States” report has become an important resource for comparing the quality of these codes and of states’ enforcement of them.

Published every three years, “Rating the States” evaluates the 18 states along the Atlantic and Gulf coasts, all vulnerable to catastrophic hurricanes, based on building code adoption, enforcement, and contractor licensing.

The 2021 Atlantic hurricane season is expected to be another “above-average” one.

“Damage reduction that results from the adoption and enforcement of building codes helps to keep people in their homes and businesses following a natural or manmade disaster, reduces the need for public and private disaster aid, and preserves the built environment,” IBHS writes in the most recent edition of the report. It cites research following Hurricane Charley in 2004 that found code improvements adopted in 1996 in Florida resulted in a 60 percent reduction in residential property damage claims and a 42 percent reduction in cost of claims.

Benefits of strong, uniform, well-enforced statewide codes are diverse and include:

  • Giving residents a sense of security about the safety and soundness of their buildings,
  • Preserving economic resources of a community and reducing post-disaster government spending,
  • Protecting first responders during and after fires and other disaster events,
  • Incorporating new best practices and cost efficiencies, and
  • Reducing solid waste in landfills from homes that are damaged or destroyed during disasters.

In the 2021 report, no state achieved a perfect rating based on the IBHS 100-point scale, though several states received high scores, including:

  • Florida (95 points)
  • Virginia (94 points)
  • South Carolina (92 points) and
  • New Jersey (90 points).

Other states that performed well were Connecticut (89 points), Rhode Island (89 points), North Carolina (88 points), Louisiana (82 points), Massachusetts (78 points), and Maryland (78 points).

The 2021 edition also includes information from the nonprofit Federal Alliance for Safe Homes (FLASH) to support consumer awareness and response to local building codes in their area.  Inspect2Protect.org offers a free building code look-up tool available to all homeowners.

“With more Americans living in harm’s way, it is even more critical for residents and communities to have the information they need to take action,” said Triple-I CEO Sean Kevelighan. “2021’s Rating the States report is essential reading for anyone who resides in a hurricane-prone state and wants a definitive assessment of its building codes.”

More information from Triple-I

Hurricane Season: More Than Just Wind and Water

Flood: Beyond Risk Transfer

Modern Building Codes Would Prevent Billions in Catastrophe Losses

California Earthquakes: How Modern Building Codes Are Making Safer, More Resilient Communities

Millions Saved in Japan by Good Engineering and Government Building Codes

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