Hurricane Hanna leaves wind damage and flooding in its wake

Hurricane Hanna, 2020’s first Atlantic basin hurricane, made landfall during the late afternoon of Saturday July 25 as a Category 1 storm on the Corpus Christi, Texas, coast. It struck Padre Island with winds of 90 mph.

The Corpus Christi area dodged the hurricane’s heavier rain bands, but the storm still caused significant flooding and damage. Thousands were without power late July 26 as crews worked overtime to make repairs and Texas Governor Greg Abbott issued an emergency declaration for 32 counties.

By Sunday evening, the storm was downgraded to a tropical depression, with maximum sustained winds of 35 mph, and was slowly dying over the mountains of northern Mexico.

CoreLogic, a real estate data analytics provider, estimated that over 14,000 homes are at risk from Hurricane Hanna’s storm surge.

Flood damage to a home, a renter’s possessions, or a business is generally covered under FEMA National Flood Insurance Program (NFIP) policies, if the homeowner, renter, or business has purchased one. Several private insurers also offer flood insurance.

Insured Losses
Due to Civil Unrest
Seen Nearing 1992 Levels

Insured losses related to civil disorder in 2020 are on their way toward a level not seen since 1992, according to estimates by insurance industry analysts. 

On May 26, 2020, protests and riots broke out in response to the death of George Floyd while in Minneapolis police custody and spread to another 140 U.S. cities. By June 4, at least 40 cities in 23 states had imposed curfews, and rioting resulted in at least six deaths. National Guard were called in at least 21 states and Washington, D.C. 

Property Claim Services (PCS) a unit of a Verisk Analytics, has designated the Minneapolis riots a catastrophe. This was the first time PCS has compiled insured losses for a civil disorder event since the Baltimore riots of April 2015. Insured losses in the Baltimore unrest – following the funeral for Freddie Gray, a 25-year-old who died in police custody – fell short of $25 million when it occurred, PCS’s threshold for a catastrophe.  

The 2020 activity, spanning May 26 through June 8 and including more than 20 states with significant losses, is the first time since 1992 that PCS has declared a civil disorder event a catastrophe. The 1992 riots in Los Angeles, after a jury acquitted Los Angeles Police Department officers for using excessive force in the arrest and beating of Rodney King, caused $775 million in insured losses, according to PCS – or about $1.4 billion in 2020 dollars. 

Insured losses for the most recent event are not yet available from PCS. Preliminary estimates from industry analysts put the losses in the range of $500 million to $900 million.

Those estimates will likely change as insurers are resurveyed and data is refined. 

With protests and clashes with police continuing in Portland, Ore., and elsewhere, and President Trump threatening to send federal troops to quell the disorder in some cities, no end seems to be in sight for this costly string of civil disturbances.  

COVID-19 and Shipping Risk

The shipping industry has largely proved resilient to the coronavirus outbreak, and insurance claims related to risks of the sea could be reduced as fewer vessels venture out, insurer Allianz reports in its Safety and Shipping Review 2020

However, new challenges have emerged that could lead to more claims. 

“One of the biggest issues,” Allianz reports, “has been the inability to change crews easily because of pandemic restrictions.” 

Crew relief is essential to ensuring the safety and health of seafarers. Fatigued crew members make errors that Allianz says contribute to 75 percent to 96 percent of marine incidents. Damaged goods and containers account for more than one in five shipping claims. 

“The pandemic has heightened the risk environment around high-value and temperature-sensitive goods in particular as supply chains have come under pressure, cargo-handling companies have shut down abruptly, and ports operated under restrictions,” Allianz says. 

COVID-19 also has made it hard to obtain parts and materials like lubricants that are essential to maintenance and repair. This could make ships and the equipment on board them less safe, potentially leading to groundings or collisions. 

Such an outcome could impede or reverse the industry’s steadily improving safety record.  

The number of total losses of large ships fell in 2019 to 41, Allianz reported – “the lowest total this century and a close to 70% fall over 10 years.” 

The insurer credits improved ship design, technology, regulation, and risk management as contributing to the long-term reduction in losses. 

But improved technology can be a two-edged sword as vessels become more reliant on computers and software, making them vulnerable to cyber incursions. The coronavirus outbreak has affected this risk, too, Allianz says, reporting that companies have faced a 400% increase in attempted cyber-attacks since the pandemic began.  

Lightning Rounds: Investing in disaster and risk management technology

The Insurance Information Institute (Triple-I) yesterday hosted a webinar showcasing technology companies whose products mitigate the impact of severe weather on homeowners, businesses and communities. This is the first in a series of Lightning Rounds – fast-paced pitch panels for insurance and non-insurance investors.

The webinar is part of the Resilience Accelerator initiative, a collaboration of Triple-I, ResilientH2O Partners and The Cannon

During the Lightning Rounds, pre-vetted technology companies, equipment suppliers, integrated solution providers, and large-scale project development teams present their unique value propositions.

This Round’s focus was flood prevention. Shelly Klose, CEO of True Flood Risk described the company’s AI-driven risk management platform that provides individual property data, geolocation intelligence and risk scores related to flood risk in real-time without an on-site inspection. Tasha Nielsen Fuller, CEO of FloodFrame USA, presented a system which is installed underground around a structure, and automatically deploys in a flood, protecting the structure. Rahel Abraham, Founder and Chief Executive Officer of ClimaGuard, was inspired to invent a water-resistant wrapping for vehicles and other possessions when her own vehicle was flooded during Hurricane Harvey.

To view a recording of the webinar click on the video above.

Webinar overview

Part 1: A view from the C-Suite: Identifying the right technology and risk solutions

Brian Gaab, Strategy & Innovation, CSAA Insurance Group, a AAA Insurer

Susan Holliday, Senior Advisor, International Finance Corporation | The World Bank Group

Matthew T. Schneider, Co-CEO, Aon Risk Solutions, M&A and Transaction Solutions

Michel Leonard, PhD, CBE (Moderator), Senior Economist & Vice President, The Insurance Information Institute

Part 2: Use Cases: Bringing to market flood management solutions

Presenting Companies:

Shelly Klose, Founder and Chief Executive Officer, True Flood Risk

Tasha Nielsen Fuller, Chief Executive Officer, FloodFrame USA

Rahel Abraham, Founder and Chief Executive Officer, ClimaGuard

Panelists:

Brian Gaab, Strategy & Innovation, CSAA Insurance Group, a AAA Insurer

Susan Holliday, Senior Advisor, International Finance Corporation | The World Bank Group

Matthew T. Schneider, Co-CEO, Aon Risk Solutions, M&A and Transaction Solutions

Remington Tonar, Chief Resilience Officer and Senior Advisor, The Cannon

Richard Seline (Moderator), Managing Partner, ResilientH2O Partners

Wrap-up: COVID-19
and Workers Comp

Lauded for their service and hailed as heroes, essential workers who become infected with the coronavirus on the job have no guarantee in most states that they’ll qualify for workers compensation to cover lost wages and medical care, Associated Press reports

Fewer than one-third of the states have enacted policies that shift the burden of proof for coverage of job-related COVID-19 so workers like first responders and nurses don’t have to show they got sick by reporting for a risky assignment. 

And for most employees going back to job sites as the economy reopens, there’s even less protection than for essential workers. In nearly all states, they have to prove they got the virus on the job to qualify for workers comp. 

Workers comp is not health insurance, or an unemployment benefit. In exchange for coverage, workers give up the right to sue their employers for job-related harms. Employers pay premiums to support the system. Complex rules differ from state to state. 

Dealing with job-related injuries is fairly straightforward, but diseases have always been trickier for workers’ comp, and COVID-19 seems to be in a class of its own. 

“You don’t know per se where you inhaled that breath whereby you became infected,” said Bill Smith, president of the Workers’ Injury Law & Advocacy Group, a professional association of lawyers representing workers.  

Read more: 

Families of health workers killed by COVID-19 fight for denied workers comp benefits (Philadelphia Inquirer, July 16, 2020) 

Workers comp in the new world of the COVID-19 pandemic (Law.com, July 16, 2020) 

Report: Sharp drop in California workers’ comp premiums expected from COVID-19 (Insurance Journal, July 14, 2020) 

Triple-I: Insurers Poised to Withstand Challenging Economic Times

The economic uncertainty brought about by COVID-19 has impacted the U.S. insurance industry’s investment portfolios this year yet insurers cumulatively entered 2020 in a strong financial condition, according to a just-released Insurance Information Institute (Triple-I) Economic Snapshot report.

“The good news is the industry is well positioned to provide the safety net we need,” said Dr. Steven Weisbart, Chief Economist and Senior Vice President, Triple-I. “We recognize there’s been deterioration in investment income during the past few months, but the industry was financially strong before the pandemic hit. If a vaccine is discovered, most economists believe the economy will have little trouble bouncing back. Until then, it’s just going to be a longer process than we originally thought.”

The financial fortunes of the U.S.’s property/casualty (P/C) insurers are generally tied to the U.S.’s Gross Domestic Product (GDP) as auto, home, and business (e.g., construction, workers compensation (w/c)) activity are reflective of the economy’s overall health.

Weisbart says while a combination of government restrictions and personal fear is delaying economic recovery, the insurance industry has been able to provide some relief and flexibility for its private-passenger auto insurance policyholders. More than $14 billion in premium relief had been offered to the nation’s drivers in 2020 as of the end of May, a Triple-I analysis found, and insurers continue to monitor the claims experience of motorists.

The Triple-I report shows some additional positive news for insurers. For example, during the past four years the number of owner-occupied homes has risen following a decade during which there was no increase. This is significant for the P/C insurance industry because virtually every owner-occupied home has homeowners insurance while only about half of renters buy renters insurance.

Pandemic-related changes may also affect workers compensation insurance as some states consider changes to the way w/c claims are processed for front-line workers, such as those in health care and law enforcement. On the other hand, some economists suggest w/c claims may experience a decrease due to the number of people working from home.

The Economic Snapshot’s special topic section focuses on life insurance. Although this sector generated its largest pre-tax operating loss of any quarter in at least 18 years, deaths due to the COVID-19 virus weren’t responsible. Instead, the plunge in interest rates was so steep and is expected to last so long that the industry booked an unprecedented increase in aggregate reserves. Reserves rose to $103.5 billion—a $57 billion increase since the third quarter of 2019.

A copy of the 2Q 2020 P/C Industry Economic Snapshot is available to Triple-I members by logging into the members-only portal at www.iii.org.  Please contact members@iii.org for log in instructions, or information about membership.

Hurricane Modeling: High-Tech Meets
Local Insight

Sophisticated computer modeling has led to great advances in forecasting weather-related disasters and their potential human toll and economic impact. The predictive power of these models has given insurers comfort writing coverage for risks – like flood – that were once considered untouchable and enabled them to develop innovative products.  

It can be tempting to think of hurricane forecasting and modeling as being all about high-resolution images, big data, and elaborate algorithms. While these technologies are critical to developing and implementing effective models, they depend heavily on local knowledge and “boots on the ground.” 

“After an event, we quickly send engineers to survey structural damage and look for linkages to the storm’s characteristics,” said Jeff Waters, senior product manager for risk modeler RMS. “Information gathered by our people on the ground is incorporated into our reconstruction of the event to help us identify drivers of the damage and inform our models.” 

Waters recounted how, in the wake of Hurricane Maria in 2017, an RMS team arrived in Puerto Rico on October 3 – 13 days after landfall – to validate a modeled loss estimate. During the week the team spent on the island, they found that damage to insured buildings was less than expected for a storm of Maria’s magnitude. They also observed that most insured buildings featured bunker-style reinforced-concrete construction and flat concrete roofs.  

“These buildings performed very well,” Waters said. “Reinforced concrete prevents significant structural damage, and, with less drywall and tiled flooring, interior damage from water intrusion is limited. Wood and light-metal structures – which tend to be in older neighborhoods where fewer properties are insured – fared far worse.”  

Such ground-level information not only helped validate RMS’s loss estimate – it also contributes to the model’s continuous improvement. You can read a more detailed account on the RMS blog. 

Recent research illustrates how advances in geospatial technologies allow qualitative local knowledge to be incorporated into mathematical models to evaluate potential outcomes of restoration and protection projects and support plans for mitigation and recovery.  Local knowledge mapping is one such approach to marrying modern technology and the advanced analysis it facilitates to the experiences of the individuals, communities, and businesses most affected by natural disasters. 

Mangroves and Reefs: Insurance Can Help Protect Our Protectors

Hurricanes and storm-related flooding are responsible for the bulk of damage from disasters in the United States, accounting for annual economic losses of about $54 billion, according to the Congressional Budget Office (CBO).  

These losses have been on the rise, due, in large part, to increased coastal development. More, bigger homes, more valuables inside them, more cars and infrastructure – these all can contribute to bigger losses. The CBO estimates that a combination of private insurance for wind damage, federal flood insurance, and federal disaster assistance would cover about 50 percent of losses to the residential sector and 40 percent of  commercial sector losses. 

Recent research illustrates the benefits provided by mangroves, barrier islands, and coral reefs – natural features that frequently fall victim to development – in terms of limiting storm damage. In many places, mangroves are the first line of defense, their aerial roots helping to reduce erosion and dissipate storm surge. A healthy coral reef can reduce up to 97 percent of a wave’s energy before it hits the shore. Reefs — especially those that have been weakened by pollution, disease, overfishing, and ocean acidification — can be damaged by severe storms, reducing the protection they offer for coastal communities. 

In Florida, a recent study found, mangroves alone prevented $1.5 billion in direct flood damages and protected over half a million people during Hurricane Irma in 2017, reducing damages by nearly 25% in counties with mangroves. Another study found that mangroves actively prevent more than $65 billion in property damage and protect over 15 million people every year worldwide.  

A separate study quantified the global flood-prevention benefits of coral reefs at $4.3 billion.  

Such estimates invite debate, but even if these endangered systems provided a fraction of the loss prevention estimated, wouldn’t you think coastal communities and the insurance industry would be investing in protecting them? 

Well, they’re beginning to.  

The Mexican state of Quintana Roo has partnered with hotel owners, the Nature Conservancy, and the National Parks Commission to pilot a conservation strategy that involves coral reef insurance. The insurance component – a one-year parametric policy – pays out if wind speeds in excess of 100 knots hit a predefined area. Unlike traditional insurance, which pays for damage if it occurs, parametric insurance pays claims when specific conditions are met – regardless of whether damage is incurred. Without the need for claims adjustment, policyholders quickly get their benefit and can begin their recovery. In the case of the coral reef coverage, the swift payout will allow for quick damage assessments, debris removal, and initial repairs to be carried out.  

Similar approaches could be applied to protecting mangroves, commercial fish stocks that can be harmed by overfishing or habitat loss, or other intrinsically valuable assets that are hard to insure with traditional approaches.  

Colorado State University issues updated forecast for 2020 hurricane activity

The 2020 Atlantic hurricane season activity is still projected to be “well above average,” according to Triple-I non-resident scholar, Dr. Phil Klotzbach.

Dr. Klotzbach, an atmospheric scientist at Colorado State University (CSU), and his team issued an updated forecast on July 7. They project the 2020 Atlantic hurricane season will have 20 named storms (up from 19 in the previous forecast), nine hurricanes, and four major hurricanes.

The 20 named storms include the storms that have already formed. An average season has 12 named storms, six hurricanes and three major hurricanes.

The active season is driven in part by low odds of El Niño conditions in the summer/fall and well above average sea surface temperatures in the tropical Atlantic. The warm waters fuel tropical cyclones.

Please click on the links below for Triple-I’s hurricane preparedness guides:


National Hurricane Preparedness Week
Hurricane Season Insurance Guide
How to Prepare for Hurricane Season
What to do When a Hurricane Threatens
Video: Create a Home Inventory
Video: Hurricane Insurance Guide

Based on gas consumption, we’re nearly back to driving at pre-pandemic/recession levels

By Dr. Steven Weisbart, Chief Economist, Insurance Information Institute

The U.S. Energy Information Administration (EIA) publishes extensive data on petroleum production, refining and supplies to users, with some data provided on a weekly basis. Gasoline supplied to retailers is not quite the same as gasoline consumed but it is close. And gasoline consumed is not exactly the same as miles driven but it is close.  Consequently these data can indicate how much people are driving, sooner than we get data on the frequency and severity of collisions. Still, one benefit of tracking these data is that they are published in a timely way.

As a baseline, consider gasoline supplied in the first 12 weeks of 2020, compared to the comparable weeks in 2019 (Figure 1). Although this comparison can be affected by changes in prices from year to year as well as changes in weather (and possibly other differences between the two periods), we can assume that these differences are small and do not obscure longer-term trends.

The graph shows some week-to-week variation, but basically the same—or maybe a little less—gas supplied in 2020 vs. 2019.

Then the pandemic—and the start of the recession caused by fighting it—happened. Driving was sharply curtailed, and auto insurers instituted programs for refunding premiums to reflect this change. Figure 2 adds to Figure 1 the percentage change in year-over-year supplies of gas for the rest of March and all of April 2020.

But in May some states began relaxing various restrictions, and driving began to return to near-pre-pandemic/recession levels, as Figure 3 shows.

At this point there is no way to know what caused this spike in gas usage, but some speculate that any or all of the following could be responsible:

•        States are moving to more permissive stages of lockdown, resulting in more travel, especially to beaches and other outdoor activities

•        People who once took public transportation are now choosing to drive, thereby lessening exposure to the virus that might result from travel on mass transit

•        Warmer weather months are traditionally a time for more driving

•        The price of gas continues to be unusually low, making driving less burdensome than the prior year.