Through these nonprofits, IICF will provide funds for recovery support, temporary shelter and basic necessities, along with non-perishable food, toiletry items and diapers for children impacted by the storm.
“The insurance industry is rooted in helping others at their time of need,” said Bill Ross, CEO of IICF. “As tens of thousands of Floridians struggle to recover from the devastation of Hurricane Ian, we as an industry are moved to support those impacted through charitable giving.”
Litigation costs could add between $10 billion and $20 billion to insured losses from Hurricane Ian, adding to the woes of Florida’s already struggling homeowners’ insurance market, says Mark Friedlander Triple-I’s corporate communications director.
Early estimates put Ian’s insured losses above $50 billion.
“Based on the past history of lawsuits following Florida hurricanes and the state’s very litigious environment, we expect a large volume of lawsuits to be filed in the wake of Hurricane Ian,” Friedlander said in an interview with Insurance BusinessAmerica.
Most suits are expected to involve the distinction between flood and windstorm losses. Standard homeowners’ policies exclude flood-related damage from coverage, but differentiating between wind and flood damage in the aftermath of a major hurricane can be challenging.
Flood insurance is available from FEMA’s National Flood Insurance Program, as well as from a growing number of private carriers.
Trial attorneys are “already on the ground” and soliciting business in some of the hardest hit areas, Friedlander said. “This will be a key element in the solvency of struggling regional insurers who are already facing financial challenges.”
Six Florida-based insurers have already failed this year. Florida accounts for 79 percent of all U.S. homeowners’ claims litigation despite representing only 9 percent of insurance claims, according to figures shared by the Florida governor’s office. Litigation has contributed to double-digit premium-rate increases for home insurance in recent years, with Florida’s average annual home-insurance premium of $4,231 being among the nation’s highest.
“Floridians are seeing homeowners’ insurance become costlier and scarcer because for years the state has been the home of too much litigation and too many fraudulent roof-replacement schemes,” Triple-I CEO Sean Kevelighan said. “These two factors contributed enormously to the net underwriting losses Florida’s homeowners’ insurers cumulatively incurred between 2017 and 2021.”
Trevor Burgess, CEO of Neptune Flood Insurance, a St. Petersburg, Fla.-based private flood insurer, said that in all locations pummeled by Ian, the percentage of homes covered by flood policies is down from five years ago. Friedlander told Fox Weather that, while more than 50 percent of properties along Florida’s western Gulf Coast are insured for flood, “inland…the take-up rates for flood insurance are below five percent.”
While Florida is at particularly severe and persistent risk of hurricane-related flooding, the protection gap is by no means unique to the Sunshine State. Inland flooding due to hurricanes is causing increased damage and losses nationwide – often in areas where homeowners tend not to buy flood insurance.
In the days after Hurricane Ida made landfall in August 2021, massive amounts of rain fell in inland, flooding subway lines and streets in New York and New Jersey. More than 40 people were killed in those states and Pennsylvania as basement apartments suddenly filled with water. In the hardest-hit areas, flood insurance take-up rates were under five percent.
Damaging floods that hit Eastern Kentucky in late July 2022 and led to the deaths of 38 people also were largely uninsured against. A mere 1 percent of properties in the counties most affected by the flooding have federal flood insurance.
“We’ve seen some pretty significant changes in the impact of flooding from hurricanes, very far inland,” Keith Wolfe, Swiss Re’s president for U.S. property and casualty, said in a recent Triple-I Executive Exchange. “Hurricanes have just behaved very differently in the past five years, once they come on shore, from what we’ve seen in the past 20.”
Kousky, associate vice president for economics and policy at the Environmental Defense Fund and a Triple-I non-resident scholar, is not engaging in hyperbole when she writes:
“The past few years have seen the largest wildfires on record in places across the globe, from California to Australia. We have seen the earliest formed hurricanes, the strongest storms, the most storms in a year, and the deadliest storm surges. We’ve seen record-breaking rainfall. We’ve experienced the hottest summers, the hottest days, and the hottest nights. We’ve also seen a pandemic sweep the globe, as well as the largest and most sophisticated cyberattack to date.”
If you’re a regular reader of the Triple-I Blog and the Resilience Blog on Triple-I’s Resilience Accelerator website, you’ve already had a sampling of the “new normal” Kousky describes. She is well qualified to explain these complex risks, having previously served as director of policy research and engagement and as executive director of the University of Pennsylvania’s Wharton Risk Center.
Kousky’s academic work goes deep into disaster insurance markets, disaster finance, climate risk management, and policy approaches for increasing resilience. She has published numerous articles, reports, and book chapters on the economics and policy of climate risk and is frequently cited in mainstream and business media.
And she can write, which — as anyone who has slogged through as many academic papers and insurance trade publications as I have can tell you – is a major differentiator.
Kousky has managed to produce something of a unicorn: a book on disaster insurance that anyone who cares about understanding our increasingly interconnected and disaster-prone world can read and learn from. Rather than dive straight into the deep weeds of modeling, pricing, and reserving, Kousky begins by clearly describing the global disaster landscape, articulating the threats and their costs, and explaining what insurance is – and, perhaps most important, what it isn’t – in terms the lay reader can easily identify with:
“By making regular premium payments – certain small losses – insureds are then protected against big losses by receiving compensation when those losses occur. In this way, you can think of insurance as moving money from the good times, when there are no disasters, to the bad times when a disaster happens. You pay a bit in the good times to receive money in the bad times.”
As to what insurance is not, Kousky writes:
“Insurance is not risk reduction…. It needs to go hand in hand with investments to actually reduce risks. At a household level, it could be upgrading to a fortified roof if you live on the hurricane-prone coast… When risks are reduced, insurance is cheaper, such that risk reduction is a critical complement to insurance. We need both.”
When she does get into the taller grass of insurance market structures and operations, regulations, and technically complex aspects of risk transfer beyond insurance, Kousky gives the reader fair warning.
Insurance professionals might choose to skip over some of the familiar industry history and fundamentals, but I found them interesting and – again, a tribute to Kousky’s writing – not at all painful. Her elaboration on the five “ideal criteria for insurability” and discussion of “thin-tail” versus “fat-tail” risks provides a helpful touchstone for insurance generalists like me.
“Insurability is not a yes/no proposition, but a spectrum,” Kousky reminds us, “from easier-to-insure risks, like auto collisions, to difficult-to-insure risks, like destructive earthquakes and hurricanes, to the almost-impossible-to-insure risks, like war.”
Untangling and quantifying these perils and developing strategies to address them will be at the heart of risk management in a warmer, wetter, increasingly chaotic world.
Kousky’s book does a solid job of describing what is being done, what’s working and what isn’t; the challenges of insurance availability and affordability; the opportunities and limitations of risk-transfer mechanisms; the importance of markets, public policy, and individual initiative; and the promise of innovation.
Severe hurricane damage in recent years has led to major losses by writers of Louisiana homeowners’ insurance and to the insolvency of eight insurers.
Louisiana homeowners’ insurers had a combined ratio of 461.9 in 2021. Combined ratio represents the difference between claims and expenses paid and premiums collected by insurers. A combined ratio below 100 represents an underwriting profit, and a ratio above 100 represents a loss.
With earned premium of nearly $2 billion, the 461.9 combined ratio means the industry experienced a $7.2 billion underwriting loss in 2021. As Triple-I Chief Insurance Officer Dale Porfilio puts it, “It would take 24 years of achieving a combined ratio of 85 for homeowners’ insurance writers in Louisiana to return to positive profitability.”
In 2020, Hurricanes Delta, Laura, and Zeta all caused major damage, resulting in a large number of insurance claims. Through September 30, 2021, there were 323,727 insurance claims of all types for these storms. Insurers paid or reserved $9.1 billion for Laura alone. Additionally, Hurricane Ida, which occurred in 2021, generated 460,709 insurance claims of all types through June 30, 2022, with insurers having paid or reserved $13.1 billion for that storm.
Eight Louisiana homeowner insurers already have become insolvent, and at least 12 companies have submitted withdrawal notices to Louisiana’s Department of Insurance, a preliminary measure needed to leave the state. This has forced tens of thousands of homeowners to depend on the state’s insurer of last resort, Louisiana Citizens Property Insurance Corp.
The market is struggling so much that Louisiana Insurance Commissioner Jim Donelon has called the current circumstances a “crisis.”
In response, the Louisiana Insurance Guaranty Association (LIGA) has begun to restructure its management of claims for policyholders of insolvent insurers using property estimating technology from Verisk, a global data analytics provider.
“Seamless coordination with independent adjusting firms has become critical as we work to help hurricane victims throughout Louisiana rebuild their homes and return to normal,” said John Wells, executive director of LIGA.
More work to be done
A 2020 Triple-I Consumer poll found that 27 percent of homeowners said they had flood insurance, which indicates a record high. However, this figure is greater than National Flood Insurance Program (NFIP) estimates. As the Triple-I notes, homeowners may not understand what flood coverage is and how it works — specifically, that flood damage is not covered under standard homeowners’ and renters’ insurance policies. Flood coverage is available as a separate policy from the National Flood Insurance Program (NFIP), administered by the Federal Emergency Management Agency (FEMA), and from many private insurers
As storms continue to wreak major damage across vulnerable areas, homeowners and flood insurance are more important than ever. But risk transfer alone is not enough.
“Risk transfer is just one tool in the resilience toolkit,” says Triple-I CEO Sean Kevelighan. “Our understanding of loss trends and expertise in assessing and quantifying risk must be joined at the hip to technology, public policy, finance, and science. We need to partner with communities and businesses at every level to promote a broad resilience mindset focused on pre-emptive mitigation and rapid recovery.”
By Max Dorfman, Research Writer, Triple-I (07/14/2022)
Home construction and maintenance costs are on the rise, and homeowners should be factoring these trends into their insurance decisions – especially as risks related to weather and climate intensify.
Rising interest rates and persistent disruptions in the building-materials supply chain can affect repair and replacement costs for purposes of homeowners’ insurance. However, a recent American Property Casualty Insurance Association (APCIA) survey found that approximately two-thirds of insured homeowners could be without key additional coverages – including automatic inflation guard, extended replacement cost, and building code/ordinance coverage – that could more effectively protect their investment.
“Inflation, recent supply chain issues, and increased demand for skilled labor and construction materials following unprecedented natural disasters in the last two years have contributed to a significant increase in the costs to rebuild homes and businesses,” said Karen Collins, assistant vice president of personal lines at APCIA. “It is imperative that homeowners review and, if needed, update their insurance prior to hurricane season to keep pace with rising costs.”
Most homeowners’ policies today cover replacement cost for structural damage, but it’s wise to check your policy – especially if you have an older home. A replacement cost policy will pay for the repair or replacement of damaged property with materials of similar kind and quality.
The limits of your policy typically appear on the Declarations Page under Section I, Coverages, A. Dwelling. Your insurer will pay up to this amount to rebuild your home. If the limits of your homeowners’ policy haven’t changed since you bought your home, you may be underinsured – even if you haven’t made any upgrades.
Many insurance policies include an “inflation guard” clause that automatically adjusts the limit to reflect current construction costs in your area when policies are renewed. If your policy doesn’t include this clause, see if you can purchase it as an endorsement.
Adding to the threat and potential costs is the steady growth in natural catastrophe losses in recent decades. This year’s Atlantic hurricane season is expected to be “well above average,” and wildfires are starting earlier, inflicting greater losses, occurring in more states, and taking more time to suppress.
Triple-I offers tips on how to properly insure your home for a disaster— which is all the more important given current market conditions, and the escalating threat of catastrophe.
Two U.S. agencies have agreed to explore the potential need for a federal mechanism – analogous to the one put into place for terrorism insurance after the 9/11 attacks – to address the growing cybersecurity threat to critical infrastructure. The perceived need to do so speaks to the growing complexity and interrelatedness of this and other risks facing governments, businesses, and communities today.
“Cyber insurance and the Terrorism Risk Insurance Program (TRIP)—the government backstop for losses from terrorism—are both limited in their ability to cover potentially catastrophic losses from systemic cyberattacks,” the GAO report says. “Cyber insurance can offset costs from some of the most common cyber risks, such as data breaches and ransomware. However, private insurers have been taking steps to limit their potential losses from systemic cyber events.”
Insurers are excluding coverage for losses from cyber warfare and infrastructure outages, the report notes, and cyberattacks may not meet TRIP’s criteria to be certified as terrorism.
As we’ve previously reported, some in the national security world have compared U.S. cybersecurity preparedness today to its readiness for terrorist acts prior to the 9/11. Before Sept. 11, 2001, terrorism coverage was included in most commercial property policies as a “silent” peril – not specifically excluded and, therefore, covered. Afterward, insurers began excluding terrorist acts from policies, and the U.S. government established the Terrorism Risk Insurance Act (TRIA) to stabilize the market. TRIA created TRIP as a temporary system of shared public and private compensation for certain insured losses resulting from a certified act of terrorism.
Treasury administers the program, which has to be periodically reauthorized. TRIP has been renewed four times – in 2005, 2007, 2015, and 2019 – and the backstop has never yet been triggered.
The GAO recommendation that a similar solution be considered for cyber risk highlights the potential insufficiency of traditional risk-transfer products to address increasingly complex and costly threats. Alongside terrorism and cyber, we’ve experienced – and continue to experience – the myriad perils of pandemic, with its assorted impacts on the global supply chain, driving behavior, business interruption and remote work practices, and the economy. Even if those challenges moderate, we will continue to face what is perhaps the most entangled set of risks on the planet: those associated with climate and extreme weather.
One only has to look as far as Florida, where the insurance market is on the brink of failure as writers of homeowners coverage begin to go into receivership and global reinsurers reassess their appetite for providing capacity in that hurricane-prone, fraud- and litigation-plagued state. Or, one could follow the wildfire activity in recent years; or flood loss trends, increasingly creating problems inland, where flood insurance purchase rates tend to be lower than in coastal areas; or insured losses due to severe convective storms, which have been rising in parallel with losses from hurricanes.
Fortunately, many states are taking steps – often with partners, including the insurance industry – to anticipate and mitigate such risks. Much is being done, but much work remains to change behaviors, best practices, and public policies in ways that will reduce risks and improve availability and affordability of coverage.
By Loretta Worters, Vice President, Media Relations, Triple-I
More than $1 billion in lightning-caused U.S. homeowners insurance claims were paid out in 2021 to 60,000-plus policyholders, with 40 percent of that figure ($522 million) attributable to California alone, according to Triple-I.
Based on national insurance claims data, the Triple-I found:
The total value of claims in 2021 were down more than 36 percent from 2020 but increased more than 43 percent since 2017, from $916.6 million to more than $1.3 billion;
The average number of lightning-caused U.S. homeowners insurance claims fell more than 15 percent between 2020 and 2021, continuing a downward trend since 2017 of more than 28 percent; and
The average cost per claim was also down 25 percent from 2020 (28,885 to 21,578), but the five-year trend shows the average cost per claim has doubled, to $21,578 from $10,781.
The average cost per claim is volatile from year to year, but it has been particularly high in the past two years because of lightning fires throughout the country, the Triple-I noted.
Not only does lightning result in deadly fires it can cause severe damage to appliances, electronics, computers and equipment, phone systems, electrical fixtures, and the electrical foundation of a home. The resulting damage may be far more significant than a homeowner realizes. Supply-chain delays are also sending appliances and electronics prices higher.
Florida—the state with the most thunderstorms—remained the top state for number of lightning claims in 2021, with 5,339, followed by Texas, Georgia, and California, respectively. California, which had 3,381 lightning claims, had the highest average cost per claim at $154,574, the second year to have an impact on the Golden State.
Creating a new layer of federal oversight would neither enhance nor standardize the climate-related disclosures U.S. insurers make to investors, Triple-I said in a letter to the U.S. Securities and Exchange Commission (SEC).
“The U.S. property and casualty industry supports and can play a constructive role in advancing transparency around weather- and climate-related risks,” Triple-I CEO Sean Kevelighan and Chief Insurance Officer Dale Porfilio wrote. “Indeed, as financial first responders, insurers have a strong ethical and financial interest in facilitating the transition to a lower-carbon economy and in promoting resilience during that transition.”
But adding a new layer of federal oversight to the existing regulatory structure would complicate insurer operations “while providing little to no benefit toward reducing greenhouse gas emissions and adapting to near-term conditions and perils,” the letter said.
The U.S. insurance industry is regulated in more than 50 jurisdictions, receiving more governance and regulatory oversight than any other type of financial service. More than 80 percent of insurers’ investments are in fixed-income – mostly municipal – securities.
“The SEC’s effort overlaps significantly with those of other entities,” Kevelighan and Porfilio wrote, mentioning the National Association of Insurance Commissioners (NAIC) and the states that regulate insurance, as well as the Treasury Department’s Federal Insurance Office (FIO). “Assessing Scope 3 emissions would be particularly onerous for insurers due to the fact that they cover diverse personal and commercial assets and activities, over which they have no control – further, there is currently no accepted methodology for insurers to measure their underwriting-related Scope 3 emissions, which makes the SEC’s proposed requirement premature for our industry.”
Scope 3 emissions are the result of activities from assets neither owned nor controlled by the reporting organization, according to the U.S. Environmental Protection Agency (EPA).
Triple-I recommended that the NAIC climate risk disclosure survey serve as the primary reporting regime for all insurers, allowing for consistent enforcement across ownership structures (public, private, and mutual) while avoiding unnecessary complexity and expenses.
“Property and casualty insurers are no strangers to climate and extreme-weather risk. We may not always have talked about the issue in those terms, but our industry has long had a financial stake in the issue. Consider the fact that insured losses caused by natural disasters have grown by nearly 700 percent since the 1980s and that four of the five costliest natural disasters in U.S. history occurred over the past decade.The industry is committed to disclosure of climate-related exposures, as such information will be integral to insurers’ ability to accurately and reliably underwrite such risks and make better-informed investment decisions,” Kevelighan and Porfilio wrote.
By Max Dorfman, Research Writer, Triple-I (06/08/2022)
Nearly three-quarters of property and casualty policyholders consider climate change a “primary concern,” and more than 80 percent of individual and small-commercial clients say they’ve taken at least one key sustainability action in the past year, according to a report by Capgemini, a technology services and consulting company, and EFMA, a global nonprofit established by banks and insurers.
Still, the report found not enough action is being taken to combat these issues, with a mere 8 percent of insurers surveyed considered “resilience champions,” which the report defined as possessing “strong governance, advanced data analysis capabilities, a strong focus on risk prevention, and promote resilience through their underwriting and investment strategies.”
The report emphasizes the economic losses associated with climate, which it says have grown by 250 percent in the last 30 years. With this in mind, 73 percent of policyholders said they consider climate change one of their primary concerns, compared with 40 percent of insurers.
The report recommended three policies that could assist in creating climate resiliency among insurers:
Making climate resilience part of corporate sustainability, with C-suite executives assigned clear roles for accountability;
Closing the gap between long-term and short-term goals across a company’s value chain; and
Redesigning technology strategies with product innovation, customer experience, and corporate citizenship, utilizing advancements like machine learning and quantum computing
“The impact of climate change is forcing insurers to step up and play a greater role in mitigating risks,” said Seth Rachlin, global insurance industry leader for Capgemini. “Insurers who prioritize focus on sustainability will be making smart long-term business decisions that will positively impact their future relevance and growth. The key is to match innovative risk transfers with risk prevention and assign accountability within an executive team to ensure goals are top of mind.”
A global problem
Recent floods in South Africa, scorching heat in India and Pakistan, and increasingly dangerous hurricanes in the United States all exemplify the dangers of changing climate patterns. As Efma CEO John Berry said, “While most insurers acknowledge climate change’s impact, there is more to be done in terms of demonstrative actions to develop climate resiliency strategies. As customers continue to pay closer attention to the impact of climate change on their lives, insurers need to highlight their own commitment by evolving their offerings to both recognize the fundamental role sustainability plays in our industry and to stay competitive in an ever-changing market.”
Data is key
The report says embedding climate strategies into their operating and business models is essential for “future-focused insurers,” but it adds that that requires “fundamental changes, such as revising data strategy, focusing on risk prevention, and moving beyond exclusions in underwriting and investments.”
The report finds that only 35 percent of insurers have adopted advanced data analysis tools, such as machine-learning-based pricing and risk models, which it called “critical to unlocking new data potential and enabling more accurate risk assessments.”
Insurers, regulators, and members of Congress have expressed concern about proposed changes in how Standard & Poor’s Global Ratings defines “available capital” in its rating criteria. Specifically, S&P would no longer consider certain debt to be counted as available for purposes of rating insurers’ financial strength and ability to pay claims.
“Disruptive” and an “overuse of market power” is how the Association of Bermuda Insurers and Reinsurers (ABIR) described the measure in an 18-page letter to S&P, which has requested comments by April 29 on its proposed methodology and assumptions for analyzing the risk-based capital adequacy of insurers and reinsurers.
S&P’s proposed changes, in ABIR’s view, would lead to the sudden removal of billions of dollars overnight that otherwise would be available to underwrite catastrophe risk – a sector in which average insured losses have risen nearly 700 percent since the 1980s.
“This debt is viewed as capital by the regulators,” ABIR CEO John Huff says in a news release. “If carriers are forced to restructure debt, they’ll get less favorable terms today. Any replacement debt will increase financial leverage, which is counter to the stability people seek from a rating agency.”
ABIR points out ambiguity in the timing of the rollout of the planned changes, saying, “Insurers and reinsurers will have no time to respond to the new debt treatment before S&P has indicated the changes will go into effect.”
“There is no glide path or grandfathering,” Huff says. “It’s just a cliff. “
Bermuda’s insurers urge the rating agency to provide a transition period for any such changes, as well as grandfathering debt that already is in place.
“If there’s a transition plan, we can work within that,” Huff says. “But having this so abrupt is quite disruptive. Standard & Poor’s should be adding stability, not causing disruption.”