Category Archives: Disaster Preparedness

Hurricanes Drive Louisiana Insured Losses, Insurer Insolvencies

Max Dorfman, Research Writer, Triple-I

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.”

Next steps

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

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.”

As Building Costs Grow, Consider Your Homeowners’ Coverage

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.

Lightning Sparks
More Than $1 Billion
in Homeowners Claims
Over Five Years

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. 

The outsized 2020 insured loss payout number nationwide was caused in part by California’s CZU August Complex fire, which was sparked by lighting.  The multiple blazes impacted Santa Cruz and San Mateo counties and caused at least one fatality. Alaska is currently fighting a wildfire in the southwest part of the state due to lighting. 

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. 

Report: Policyholders
See Climate as a
‘Primary Concern’

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
Push Back on Changes
In S&P Rating Criteria

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.”

Members of the U.S. House of Representatives and Senate, along with the U.S. state insurance regulators, through the National Association of Insurance Commissioners, have expressed similar concerns about S&P’s proposed change in its rating criteria.

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.”

Earthquakes:
You Can’t Predict Them, But You Can Prepare

By Max Dorfman, Research Writer, Triple-I

“Neither the United States Geological Survey (USGS) nor any other scientists have accurately predicted a major earthquake,” according to a recent post in the California Residential Mitigation Program (CRMP) blog. “And scientists do not expect to be able to predict earthquakes in the future. However, USGS scientists can calculate the probability  that a significant earthquake will occur in a specific area within a certain number of years.”

CRMP is a joint powers authority formed by its members, the California Earthquake Authority and the California Governor’s Office of Emergency Services.

Forecasting earthquakes directly before they occur is not possible – and the risk of a large earthquake remains high. With more than 15,000 known faults in California – more than 500 categorized as “active” – and most Californians living within 30 miles of an active fault, no one in the Golden State is immune to earthquake risk. 

With this in mind, the United States government has been working toward greater quake preparedness. The USGS recently released a report, UCERF3: A New Earthquake Forecast for California’s Complex System,projecting a 93 percent probability of one or more magnitude 6.7 quake or greater hitting Southern California over the  30-year period that began  in 2014. Additionally, the USGS predicts that, over the same period, there is more than a 99 percent chance of at least one magnitude 6.7 or greater earthquakes occurring in all of California.

What can you do to prepare?

ShakeAlert is a tool that helps Californians provide an initial alert concerning an imminent tremor. This early warning system delivers information that on earthquakes moments after it is begun, such as the expected intensity of ground shaking, and warning people who may be affected.

Additionally, retrofitting older homes – particularly those built before 1980, which predate modern seismic building codes – can help create more quake-resistant and resilient residences. Indeed, U.S. Census data found that than 53 percent of the housing units in San Diego County fall into that category.

As wildfires and other climate-related events continue to capture headlines, it’s important that homeowners and businesses in quake-prone areas do not neglect earthquake preparation. Most standard homeowners and renters insurance don’t cover most earthquake damage. However, with the right tools and information, people can better prepare for tremors, keeping themselves and their homes safe.

Weather, Supply Chain, Inflation Drive Up Commercial Property Insurance Prices

By Max Dorfman, Research Writer, Triple-I

Construction material costs rose dramatically in 2021, altering the underwriting and pricing of commercial property insurance. A recent report by Westchester – Chubb’s excess and surplus specialty product group – details the causes of rising commercial property insurance prices and how they can be mitigated.

The report cites three main factors driving the increase:

  • More frequent and severe insured losses due to extreme weather;
  • A supply chain crisis that has generated higher costs for construction materials; and
  • Rising inflation, which totaled nearly 7 percent in December 2021 from the previous year’s period and is the largest one-year increase in the past 40 years.

Weather, extreme and unpredictable

According to NOAA National Centers for Environmental Information, there were 20 weather-related disasters with losses exceeding $1 billion occurred in the United States between January and September 2021. Between 1980 and 2020, the average number of these types of losses was seven.

In the first half of 2021, about $42 billion in insured property losses were recorded by the insurance industry, representing the highest figure in a decade, according to Swiss Re.

Despite this dramatic rise in losses, the report says, catastrophe risk models “may not fully capture the potential losses attributable to unusual weather events like the December 2021 tornado outbreak, Hurricane Ida, and Winter Storm Uri.” The unpredictability of these storms, alongside a need for better hydrological, topological, and geospatial data gathering and analysis, continues to pose a threat for insurers trying to anticipate risks associated with commercial properties.

Supply chain

2021 also saw a fluctuation of pricing changes for many materials — particularly those used for building – courtesy of the pandemic’s disruption of the global supply chain. Although the exorbitant lumber prices fell in the second half of the year, the prices of materials like copper piping and tubing dramatically increased, according to the report. This posed a challenge for insurers to approximate future costs for underwriting and pricing purposes. 

If an unexpected major storm hits a heavily populated region, thousands of homes may need to be repaired or replaced at the same time, pushing the cost of goods and labor – and, ultimately, insurance – even higher. In November 2021, the report says, it was estimated that commercial properties were undervalued for insurance underwriting purposes by more than 30 percent.

Inflation

In addition to pandemic-driven cost increases, underwriters are concerned about the broader inflation picture and its potential impact on interest rates.

“High inflation of the 1970s and early 1980s, for example, adversely affected the industry, resulting in weaker underwriting performance and reserve levels,” the report says. “Rising interest rates, on the other hand, deteriorated the value of fixed income assets.”

Economists recently polled by Reuters said they expect the U.S. Federal Reserve to tighten monetary policy to tame persistently high inflation at a much faster pace than they believed a month earlier.

 Where do we go from here?

Westchester’s report offers several strategies to help combat rising commercial property insurance costs:

  • Insurers, reinsurers, modeling firms, brokers, and risk managers need to develop more accurate and near-real-time data on building condition, drainage systems, real estate trends, and access to construction materials and labor;
  • Risk managers and property owners should consider entering agreements with contractors before weather events to ensure that materials and services are available when the need arises;
  • To ensure more comprehensive underwriting of a building’s replacement value, more frequent and in-depth property damage risk appraisals from qualified sources are needed; and
  • Insurers should consider upgrading loss prevention services provided to commercial property owners and rewarding policyholders with discounts and credits for taking certain risk-mitigation measures.

Flood: An Insurable Peril That’s Underinsured

By John Novaria, Managing Director, Amplify

This year’s hurricanes have served as a wakeup call about the importance of flood insurance and the fact that not enough people have it. Only 1 in 6 homes in the United States is insured against flood, yet 90 percent of natural catastrophes in the country involve flooding.

More of the population is moving into flood-prone areas. Not only does this increased residential and commercial development put more people in harm’s way, it reduces the amount of land available to absorb excess water. This means more homes and businesses inundated, more contents damaged or destroyed, and more vehicles immersed.

Nowadays, flooding tends to cause more costly damage than wind. An average storm year will generate uninsured losses of $10 billion due to flooding, compared to insured losses of $5 billion.

“One of the most frustrating things for our industry related to flood is that this is actually an insurable peril and it’s broadly uninsured,” said Keith Wolfe, president of U.S. property & casualty insurance at Swiss Re. Wolf recently spoke with Triple-I CEO Sean Kevelighan, in the latest edition of Triple-I’s Executive Exchange, about closing the flood-protection gap.

That’s changing, however, as the public and private sectors work together to improve consumer behavior and harden communities. The private market is slowly but surely closing the flood protection gap as it emerges as a viable complement to the National Flood Insurance Program.

Improvements in modeling are making this peril more insurable, and private companies are recognizing the flood-insurance opportunity and entering the market. According to Swiss Re, flood represents a $1.1 billion growth opportunity for insurers.

Insurer Declined to Renew your Homeowners Policy? You Have Options

By Maria Sassian, Triple-I consultant

In high-risk areas like the West Coast with its wildfires and Florida with its hurricanes and floods, insurance non-renewals are on the rise as insurers attempt to limit their exposure to future losses. Homeowners insurance protects your most valuable possession, so the prospect of getting a notice that your policy will not be renewed can be nerve-racking.  

But don’t panic if that happens – you have options.

Know the difference between cancellation and non-renewal

There is a big difference between an insurance company canceling a policy and choosing not to renew it. Insurance companies can’t cancel a policy that has been in force for more than 60 days except when:

Nonrenewal is a different matter. Either you or your insurance company can decide not to renew the policy when it expires. Depending on the state you live in, your insurance company must give you a certain number of days’ notice and explain the reason for not renewing before it drops your policy.

Question the non-renewal

If you think the reason the insurance company provided for non-renewing is unfair or want a further explanation, call the company.  You may get an opportunity to keep your coverage by verifying that you’ve taken risk mitigation measures such as replacing the roof or removing flammable materials near your house.

If your policy isn’t renewed because of a failed inspection, making the proper updates could help you maintain coverage.

Shop around for another policy

If your insurer insists on non-renewing, shop around for a new policy. Here are some tips from Triple-I’s How to Save Money on Your Homeowners Insurance guide:

  • Ask friends and relatives for recommendations for insurers and then do your due diligence.
  • Contact the state insurance department to find out whether they make available consumer complaint ratios by company. If they do, check into the insurers you’re considering doing business with.
  • Check the financial health of prospective insurance companies by using ratings from independent rating agencies and consulting consumer magazines for reviews.
  • For price quotes, call companies directly or access information online. Your state insurance department may also provide comparisons of prices charged by major insurers.
  • Get quotes from at least three companies.
  • Don’t shop based on price alone. Remember, you’ll be dealing with this company in the event of an accident or other emergency. When you need to file a claim you’ll want an insurer that provides good customer service, so test that while you’re shopping, and choose a company whose representatives take the time to address your questions and concerns.

Explore your state’s shared market option

If you’ve shopped around and can’t find coverage, you may need to turn to the state-run shared market. Many states offer Fair Access to Insurance Requirements (FAIR) policies for high-risk homes, or beach and windstorm plans for coastal properties. These policies offer limited coverage and are often more expensive than a standard home policy from a private insurer.

For more comprehensive coverage, homeowners in California may purchase a “difference in conditions” policy that complements FAIR Plan coverage.

Look into surplus lines

The surplus lines market, which is comprised of highly specialized insurers, exists to provide coverage that is not available through licensed insurers in the standard market. Each state has surplus lines regulations and each surplus lines company is overseen for solvency by its home state.

Available surplus lines companies vary by state. Speak with an insurance agent or broker about surplus lines if you’ve been rejected by at least three other insurers.

Non-renewals in disaster-prone areas

 State regulators are pushing back against the non-renewal trend by placing moratoriums on non-renewals for certain zip codes, as happened in California recently, or for certain companies, as is the case in Louisiana.

Whether the decision not to renew is yours or your insurer’s, don’t put off shopping for a new policy. You don’t want coverage on your home to lapse.

Relocated Due to Ida?
You Might Be Covered
for Additional Living Expenses

Standard homeowners and renters insurance policies include additional living expenses (ALE) coverage. ALE pays the costs of living away from home—above and beyond your customary expenses— if you cannot live at home due to damage caused by an insured event that makes the home temporarily uninhabitable.

What expenses are typically covered by ALE?

ALE covers living expenses incurred by you so your household can maintain its normal standard of living.  These expenses could include:

  • Temporary housing
  • Moving costs
  • Grocery or restaurant bills 
  • Storage costs
  • Laundry expenses
  • Transportation (e.g., if your temporary home requires a longer commute)
  • Parking fees
  • Pet boarding

Your homeowners policy’s ALE coverage is usually equal to 20 percent of your home’s insured value—a home insured for $200,000, for instance, may have ALE coverage of up to $40,000—or limited to a certain timeframe (e.g., no more than 12 months).

What about Damage from Hurricane Ida?

Standard ALE coverage should be triggered if damage from a covered peril (e.g., wind and rain) caused the home to be uninhabitable. In addition, some companies provide ALE coverage when policyholders leave their home or apartment due to mandatory evacuation orders. Policyholders should speak with their insurance professional to confirm whether their policy provides ALE coverage for their situation.

As a reminder, standard homeowners insurance policies typically do not provide coverage for flood damage. The National Flood Insurance Program (NFIP) covers physical damage from flood but does not include ALE. Some privately sold flood policies offer ALE following flood losses. 

What Other Help Is Available?

Federal assistance has been made available through the Federal Emergency Management Agency (FEMA). On September 2, FEMA announced they will cover hotel expenses for survivors of Hurricane Ida with damaged homes or dwellings in 25 parishes in southeast Louisiana.

The program, known as Transitional Sheltering Assistance, will provide survivors with short-term housing free-of-charge as they recover from the Category 4 storm. Survivors must first register with FEMA at disasterassistance.gov or by calling the FEMA helpline at 800-621-3362. Those wishing to take advantage of the program must find and book their own hotel rooms. Participating hotels are listed at www.femaevachotels.com.