Munich Re has designed a fun and educational game that lets the user play the part of a hacker, pick a target, and guess the damage caused. Designed in a nostalgic 80’s 8 bit style, WhatTheHack uses real-life case studies. You can choose from targets including a cookie factory, a hospital or a dating website. You also get your choice of attack strategies. Try it out and see if you can get your name on the leader board by correctly answering questions about the impact of each attack.
Cyber incidents hit one of every 10 U.S. small businesses last year yet only 31 percent of them have cyber insurance. Ten percent of the small businesses surveyed had one or more cyber incidents in 2017, resulting in a typical loss of $188,400, an increase of $73,000 from the year before. Read more about it here.
Hurricane Harvey hit Texas in August 2017. Just weeks later, Irma made landfall in Florida, followed by Maria in Puerto Rico. The so-called “HIM” storms struck the U.S. 16 months ago, but final insured loss numbers have yet to be finalized. Why?
There are at least two reasons: the storms happened in rapid succession, wreaking havoc on the claims settlement process; and the storms caused significant business interruption losses, which can take time to settle.
The storms happened in rapid succession. Three major hurricanes hit the U.S. within a month of each other. This put a serious strain on insurers’ ability to adjust losses – basically, investigating and settling claims. There weren’t enough local adjusters, so others had to be brought in from other states. But despite the reinforcements, there weren’t always enough adjusters to go around as storm followed storm. Claim reports were therefore delayed and the expenses for adjusting losses increased. (Similar issues cropped up during the 2005 season, when hurricanes Katrina and Rita hit Louisiana only three weeks apart.)
This problem was especially acute in Puerto Rico after Hurricane Maria. As the Property Claims Services (PCS) unit of ISO noted, loss adjusters and contractors had to be flown in from the mainland – but not nearly enough of them were available, since many were still working on damage from Harvey and Irma. Fewer adjusters and contractors meant that, in many cases, only emergency repairs could be completed. As these temporary repairs deteriorated, buildings were further damaged, and more repair payments had to be made. Additionally, PCS noted that mainland adjusters may have been unfamiliar with the insurance policies typical in Puerto Rico, leading to insurers having to reopen some claims.
Claims were also reopened in Florida after Hurricane Irma, but for different reasons. In April 2018 Florida’s Citizens Property Insurance Corp. announced that it had reopened about 37 percent of its Irma-related claims since the storm. Citizens stated that many claims required additional payments or needed more information.
A high volume of reopened claims could be due to insurers paying out losses too quickly. Some have argued that insurers in Florida had acted so quickly in an attempt to avoid dealing with assignment of benefits (AOB) claims. (Check out the I.I.I.’s recent report on Florida’s AOB crisis for more information.) Several insurers have noted that insured losses for Irma continue to rise because of AOB claims, reopened claims, and higher adjustment expenses.
Business interruption issues continue. “Business interruption” usually includes losses that result from a business’s lost revenue and increased expenses caused by property damage following a hurricane. Sometimes these policies will also cover losses from utility outages. Depending on how severe the damage is, business interruption claims can be quite large – and they can take a long time to settle.
Consider Puerto Rico: Unfortunately, Hurricane Maria slammed the island’s fragile infrastructure and energy grid. The pharmaceutical industry, which has a large manufacturing footprint on the island, was particularly affected. The commissioner of the U.S. Food and Drug Administration (FDA) noted at the time that damaged factories weren’t nearly as big a problem as an unstable electric grid. There were shortages of some drugs and medical devices for months after Maria struck.
Because of these issues, we can’t expect the final insured losses for the HIM storms until maybe mid-2019, almost two years after the fact.
Congress has passed the 2018 Farm Bill and President Trump is expected to sign the bill into law. A key part of the bill (once enacted) will legalize hemp cultivation and sale on the federal level – with certain restrictions, of course. The previous farm bill only permitted individual states to develop programs for hemp cultivation.
Hemp is an agricultural commodity that’s used in tens of thousands of products, everything from textiles to industrial products to food. But when we talk about hemp, there are a few things that underwriters and other insurance professional should be aware of.
“Hemp” has a specific definition. Under the bill, hemp is defined as the plant Cannabis sativa L. that contains less than 0.3 percent THC, the cannabinoid that gets users high. THC levels in hemp are so low that they can’t get users high.
Hemp is not marijuana. Hemp is a plant in the genus Cannabis, a genus which includes marijuana and hemp. These two plants are chemically distinct. Marijuana is still illegal under federal law.
Hemp and hemp-derived products can cross state lines. Importantly, hemp can cross state lines in interstate commerce under the 2018 bill. Under the 2014 Farm Bill, only individual states could establish programs for hemp cultivation.
Hemp cultivators will be licensed. Not just anyone can grow hemp. The bill directs state and federal agencies to develop regulatory procedures for licensing hemp cultivators.
Hemp and hemp-derived cannabinoids are non-psychoactive. A popular chemical found in Cannabis plants (including marijuana) is “cannabidiol” (CBD). CBD has some properties like THC but can’t get users high. Hemp-derived CBD is being infused into all sorts of consumers products, from facial creams to chocolate. There’s also at least one cocktail bar in Brooklyn that will add a shot of CBD to your martini.
The FDA has a stance on CBD – and it’s not permissive. But speaking of chocolate, the U.S. Food and Drug Administration (FDA) has said that it’s illegal to sell CBD-added food and food products across state lines. Whether it’s legal to sell CBD-added food within a state depends on that state’s law (this National Law Review article has more information on the issue).
Retired U.S. Army general Stanley McCrystal will address the I.I.I.’s Joint Industry Forum on January 17th as the event’s keynote speaker. We are proud to note that General McChrystal and his co-authors’ book, Leaders: Myth and Reality, has been selected as one of the best business books of the year by the Financial Times.
In the book, the authors compare leaders from diverse eras and fields, including Albert Einstein and Harriet Tubman, and contest leadership myths.
A significant driver of these costs is Florida’s “assignment of benefits crisis.”
Today the I.I.I. published a report documenting what the crisis is, how it’s spreading and how it’s costing Florida consumers billions of dollars. You can download and read the full report, “Florida’s assignment of benefits crisis: runaway litigation is spreading, and consumers are paying the price,” here.
An assignment of benefits (AOB) is a contract that allows a third party – a contractor, a medical provider, an auto repair shop – to bill an insurance company directly for repairs or other services done for the policyholder.
The process is innocuous and common throughout the country. But as our report notes, Florida’s unique legal systems richly rewards plaintiff’s attorneys and vendors when they submit inflated bills to insurance companies and then file lawsuits when those bills are disputed.
Not just a few lawsuits. Lots of lawsuits. The numbers are staggering. There were roughly 1,300 AOB lawsuits statewide in 2000. There were more than 79,000 in 2013, and nearly 135,000 through November 9, 2018, a 70 percent increase in just five years.
Inflated claims and massive volumes of lawsuits have the predictable result of driving up insurance companies’ legal costs. Insurers are forced to then pass those costs on to consumers. In the study, we estimate that Florida’s auto and homeowners policyholders have paid about $2.5 billion more for insurance over the past dozen years to cover the increase in legal costs.
That doesn’t even count the billions more in excess claim settlements that are at the heart of the problem.
Many of these inflated bills and lawsuits are driven by a select number of contractors and their attorneys. Florida insurance customers can protect themselves – and their fellow citizens – by being very cautious when signing away their benefits under an AOB.
The 2018 hurricane season officially ended on November 30. The National Oceanic and Atmospheric Administration’s (NOAA) storm counts for the season were: 15 named storms, including eight hurricanes. Two of these were “major” hurricanes (Category 3, 4 or 5).
To put that into perspective, the average hurricane season has 12 named storms, including six hurricanes, of which three are major. That makes 2018 a little worse than a “normal” year, and well within NOAA’s predictions before the start of the season on June 1.
Fortunately, these numbers are down from the especially destructive 2017 season, which included the so-called “HIM” storms (Harvey, Irma, and Maria). In 2017 there were 17 named storms, including 10 hurricanes, of which six were major.
But that is little comfort to the people affected by the two major hurricanes, Florence and Michael.
Hurricane Florence: Florence reached Category 4 status on September 10, making landfall on September 14 in North Carolina as a Category 1. Because the storm moved very slowly, Florence dumped at least 30 inches of rain in parts of North Carolina, setting a record in the state for rain from a hurricane.
Catastrophe modelers have estimated that insured losses from Hurricane Florence could range from $2.5 billion to $5.0 billion, excluding National Flood Insurance Program losses. Worryingly, it’s been estimated that somewhere between 70 percent and 85 percent of flood losses are uninsured (get flood insurance, everybody).
Hurricane Michael: Michael became a strong Category 4 storm on October 10 and made landfall shortly afterward in the Florida panhandle. The storm registered wind speeds just under Category 5-level speeds, making Michael perhaps the strongest hurricane to ever hit the Florida panhandle.
Catastrophe modelers estimated that insured losses from Hurricane Michael could range from $6 billion to $10 billion.
(The loss numbers for both hurricanes are subject to change, since losses are still being adjusted and paid out.)
In comparison, the Property Claims Services (PCS) unit of ISO estimates that insured losses from Hurricane Harvey will top $14 billion. PCS estimates that insured losses from Hurricane Irma will be more than $20 billion.
At a high level, the 2018 season was bad – but compared to last year, it could also have been a whole lot worse. Not that that’s any comfort to people who lost homes or family members. Hopefully 2019 will be calmer.
In Phoenix last week, I did what insurance folks do in Phoenix. I hunted down an autonomous vehicle. I even took a picture:
The ‘W’ on the rear window stands for Waymo, the Google/Alphabet division that is probably the leader in developing driverless technologies.
Depending on which insurance thought leader you talk to, driverless vehicles will revolutionize our business or destroy it. I’m a skeptic: We will have driverless cars; everyone will use them, but not for another 20-plus years; and they will not be the death of auto insurance.
Google’s not-so-secret testing facility is just south of Phoenix, in Chandler. I couldn’t find it on Google Maps (it’s a secret, surprise surprise), but I could find Chandler City Hall. In an adjoining lot sat three or four bubble-headed Waymos. They are eerily identical Chrysler Pacifica minivans. Each is white. Each has the same bubble brain on the same spot of the hood and the same aqua-and-sea-green W logo. And, though they are white, the desert sun reveals no hint of grime.
The December issue of the I.I.I.’s Latest Studies digest is now available.
In this issue: Swiss Re on global economic and insurance outlook, Deloitte on insurtech trends and insights, Headwaters Economics on building wildfire-resistant homes, Allianz on their climate and energy monitor, and much more…
You probably remember the “Sand Palace,” the lone house standing after Hurricane Michael made landfall in the Florida panhandle in October.
It’s a powerful story about one man’s stand against nature’s destructive power. But the Sand Palace is also a story about insurance.
There are generally two aspects of insurance. One is to pay out claims to make people whole again after a loss. Another is to incentivize behavior that makes those losses less likely to happen. In insurance-speak, we call that “mitigation.”
Consider the Sand Palace in that context. According to an AIR Worldwide analysis, the house was built to be even more resilient than Florida’s already-stringent building codes: reinforced concrete, limited windows, minimal space below the roof to prevent uplift, a first floor 15 feet above ground, and more.
AIR analyzed how this construction fared during the hurricane. The structure’s features reduced wind losses by about 90 percent compared to other homes. Plus, the height of the building significantly reduced any storm surge damage.
This led AIR to conclude that “the Sand Palace is an excellent case study of the impact of mitigating features for use in risk reduction.” Presumably, the house also made an excellent risk for an insurer to cover.
It’s fair to ask, though: at what cost resilience? These kinds of reinforcements can cost tens of thousands of dollars, which can be out of reach for many homeowners.
But that’s probably where insurance can play a role. For example, is there a potential for insurers to offer economic incentives or discounts to homeowners to make their houses resistant to hurricane-force floods and winds? This incentive could be particularly effective in a world where climate change events might cause insurers to raise their premiums to account for higher risks. (That’s why many argue that insurance can play a crucial role in helping to combat the effects of climate change.)
It’s not always easy to say where the intersection between the costs and benefits of mitigation is. That’ll be up to the individual insurer and their insureds. But if done right, mitigation can be a win-win strategy. Insurers don’t have to pay out as much money for losses. Consumers don’t have to pay as much for their insurance. And the world can be made a safer, more resilient place.