Category Archives: Disaster Preparedness

“Silent” Echoes of 9/11
in Today’s Management
of Cyber-Related Risks

“The cyber landscape to me looks a lot like the counterterrorism landscape did before 9/11.”
Garrett Graff , historian and journalist

Before Sept. 11, 2001, terrorism coverage was included in most commercial property policies as a “silent” peril – not specifically excluded, 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 requires insurers to make terrorism coverage available to commercial policyholders but doesn’t require policyholders to buy it. Originally created as three-year program allowing the federal government to share losses due to terrorist attacks with insurers, it has been renewed four times: in 200520072015, and 2019.  

An evolving risk

Terrorism risk has evolved in complexity and scope, and some in the national security world have compared U.S. cybersecurity preparedness today to its readiness for terrorist acts two decades ago.

“The cyber landscape to me looks a lot like the counterterrorism landscape did before 9/11,” historian and journalist Garrett Graff said during a recent Homeland Security Committee event at which scholars and former 9/11 Commission members urged lawmakers to increase funding for the Cybersecurity and Infrastructure Security Agency (CISA) and other federal agencies focused on preventing attacks.

Cyber is more complicated, said Amy Zegart, co-director of Stanford University’s Center for International Security and Cooperation, due to the private sector’s role “as both a victim and a threat vector. There are more people in the U.S. protecting our national parks than there are in CISA protecting our critical infrastructure.”  Cyberattacks like the one on the Colonial Pipeline underscore this reality.

When TRIA was reauthorized in 2019, a crucial component was the mandate for the Government Accountability Office (GAO) to make recommendations to Congress on amending the act to address cyberthreats. The trillion-dollar infrastructure bill now being considered in Congress proposes $1.9 billion for cybersecurity, with more than half set aside for state, local, and tribal governments. It would establish a Cyber Response and Recovery Fund for use by CISA.

“Silent cyber”

Like terrorism before 9/11, much cyber risk remains silent. Silent cyber – also called “non-affirmative cyber” – refers to potential losses stemming from policies not designed to cover cyber-related hazards. If silent cyber isn’t addressed, insurer solvency could be affected, ultimately hurting policyholders. 

The United Kingdom’s Prudential Regulation Authority in 2019 sent a letter to all U.K. insurers saying they must have “action plans to reduce the unintended exposure” to non-affirmative cyber. Later that year, Lloyd’s issued a bulletin mandating clarity on all policies as to whether cyber risk is covered. This led many insurers to exclude cyber or include it and price the risk accordingly. 

“Other regulators and the rating agencies have been less vocal about the issue” writes Willis Towers Watson,  “and, until recently, efforts to address silent cyber have been limited.” Some insurers – most notably in the specialty mutual sector – updated their policies in the mid-2010s to provide clarity on cyber. But, until recently, movement elsewhere has been sporadic, Willis writes.

Event-driven action

The recent proliferation of ransomware attacks leading to business interruption has led to cyber insurance – which began as a diversifying, secondary line – becoming a primary insurance-purchasing consideration. Unfortunately, while policies are available, many policyholders still incorrectly expect to be covered under their property and liability policies. Confusion around cyber coverage can lead to unexpected gaps.

“In a best-case scenario, a cyber incident may trigger coverage under multiple policies and increase the available total limit to respond to a covered event,” said Adam Lantrip, CAC Specialty’s cyber practice leader. “In a more common scenario, multiple policies may be triggered but not coordinate with one another, and the policyholder spends more on legal fees than the cost of having purchased standalone cyber insurance in the first place.”

Cyber risk will only grow in significance, complexity, and cost as the world becomes more wired and interdependent. The costs of cyberattacks are potentially massive and need to be mitigated in advance.

From the Triple-I blog

Emerging Cyber Terrorism Threats and the Federal Terrorism Risk Insurance Act

A World Without TRIA:  Formation of a Federal Terrorism Insurance Backstop

Brokers, Policyholders Need Greater Clarity on Cyber Coverage

Cyber Risk Gets Real, Demands New Approaches

Businesses Large and Small Need to Be Cyber Resilient in a COVID-19 World

Victimized Twice? Firms Paying Cyber Ransom Could Face U.S. Penalties

From Risk & Insurance (an affiliate of The Institutes and sister organization to Triple-I)

Silent Cyber Will Sabotage Your Insurance Policy if You Don’t Watch Out. Here’s What Risk Managers Should Keep Top of Mind

Insurance, Evac Plans
Are Key for Wildfire Safety, Resilience

The formation of nine large wildfires this week—three in Washington, two in California and Oregon, and one each in Idaho and Montana—highlight the importance of having an evacuation plan and the right coverage.

“Insurers are fulfilling their traditional role as the nation’s financial first responders as thousands of Americans evacuate in the West,” said Triple-I CEO Sean Kevelighan.  “Wildfires are actively burning millions of acres, and as we are seeing these regions becoming more populated, it will be critical to focus on rebuilding communities in a more resilient manner, as well as make changes to public policies that are hindering the ability to clean and remove tinder which are fueling the devastation.”

Triple-I’s Resilience Accelerator demonstrates the power of insurance as a force for resilience.  It does so by telling the story of how insurance coverage helps governments, businesses, and individuals recover faster and more completely after catastrophes.  The Resilience Accelerator also links to HazardHub, an organization that assesses the wildfire risks individual properties face nationwide.

The National Interagency Fire Center (NIFC) reported yesterday that 1.95 million acres have burned in the U.S. during 2021. California’s Antelope, Dixie, McFarland, and Monument Fires grew by thousands of acres over the past few days, the NIFC added. 

Oregon’s Bootleg fire, which has been burning along the Oregon and California border since July 6, continues to challenge firefighters while new blazes emerge.

“We are running firefighting operations through the day and all through the night,” said Joe Hessel, incident commander. “We are looking at sustained battle for the foreseeable future.”

A standard homeowners insurance policy covers wildfire-caused property damage to a home’s structure and its outbuildings (e.g., garage), as well as the personal belongings housed on the premises.  A renter’s insurance policy covers the renter’s personal belongings. If a residence has been rendered temporarily uninhabitable by a wildfire, standard homeowners and renters insurance policies provide additional living expenses (ALE).

Triple-I offers the following tips to those who live in a wildfire-prone community.

  • Have an evacuation plan
  • Check with your insurer to see if you’re eligible to collect ALE. Some states allow ALE claims to be filed in the event of mandatory evacuations. Be sure to save hotel and restaurant receipts
  • File a claim with your insurer as soon as you are aware of damages to your property
  • Take photos of damage prior to making repairs
  • When making either temporary or permanent repairs, save receipts to give to your insurance claim adjuster
  • Only use licensed contractors to make repairs and beware of contractor fraud
  • Fire-damaged autos are covered under the optional comprehensive coverage on your auto policy

RELATED LINKS:

Article: Wildfires: Insurance and Recovery Resources

Video:  Triple-I Tips During Evacuation Orders

Atlantic Hurricane Season Forecast
Reduced Slightly

Colorado State University (CSU) hurricane researchers have slightly reduced their forecast for 2021 Atlantic hurricane activity in an August 5 update.

The CSU Tropical Meteorology Project team, led by Triple-I non-resident scholar Dr. Phil Klotzbach,  predicts 18 named storms this year (down from 20 in the previous forecast), eight of which are expected to become hurricanes (down from nine). Four of the hurricanes are expected to be “major” (Category 3, 4, or 5).

Despite the slight drop in the number of storms, the 2021 hurricane season – which runs from June 1 to November 30 — is forecast to be above average and follows a record-breaking 2020 season. An average season has 14 named storms, seven hurricanes and three major hurricanes.

Is California Serious About Wildfire Risk?

Wildfire is a critical risk facing California, but at least one insurance industry leader argues that the state government isn’t taking it seriously enough.

“Yes, the governor has committed some $2 billion dollars to wildfire budget items,” writes John Norwood of Norwood Associates LLC in an Insurance Journal Op-Ed piece. “These include $404.8 million to hire staff and purchase firefighting equipment; $1.128 billion for forest management, such as thinning and prescribed burns; and $616 million to community investments.”

The details can be found in the Wildfire and Climate Change Fact Sheet provided by the governor’s office.

“However,” the Op-Ed continues, “if you compare that commitment of dollars to the list of other budget allocations the governor has just signed, it appears the administration and the Legislature determined the wildfire problem was only as worthy as some of the lower-priority budget allocations, like cleaning up trash ($1.5 billion) and paying-off delinquent water and electrical bills ($2 billion).”

Norwood is one of California’s top legislative advocates and managing partner of Norwood Associates.  He is considered the leader in the state’s insurance, financial services, and small business sector.

Rising insurance costs

Wildfires over the past five years have burned millions of acres in California, destroyed entire towns, wiped out well over 10,000 homes, killed scores of residents, and blanketed the state with unhealthy air.

“California homeowners and businesses are paying five- and six-figure premiums for property insurance, and that is only when they can find insurance at any price,” Norwood writes. “California’s largest industries – agriculture  and wine production – are being devastated by the lack of available insurance.”

And yet, he continues, “the $2 billion dollars committed to wildfire risks doesn’t even make it into the top five issues in the state based on the budget allocation committed to the fight.”

Role of reinsurance

Reinsurers — which insure insurers — are crucial to how the world handles natural disasters. As the frequency and severity of small-scale disasters increase, they’re having to pay more attention. S&P Global observes that “around one-half of the reinsurers we rate reduced their exposure in absolute terms, with very few players taking on additional catastrophe risk.”

It adds that this “de-risking trend” among reinsurers has been particularly visible in North America in recent years.

Without reinsurance, primary insurance rates must rise as properties in some areas become uninsurable.

Norwood argues that availability and affordability of property insurance are unlikely to change until the global reinsurance market believes California is serious about addressing its wildfire risks and there are demonstrable results in reducing the number and severity of wildfires in the state.

Without the reinsurance market backing California property/casualty insurance companies, there will continue to be an availability crisis in the state for property insurance and prices for such coverage will continue to increase substantially to the detriment of California’s homeowners and businesses.

As Nat Cat Losses Mount,
A Resilience Mindset Matters More Than Ever

Insurance is essential for individuals, businesses, and communities to recover quickly from natural  catastrophes – but perils have evolved to a point at which risk transfer, though necessary, isn’t enough to ensure resilience.

Triple-I CEO Sean Kevelighan said during a that better insured communities recover more quickly but “the long-term resilience of both the communities impacted by natural catastrophes and of the industry itself depend on preparedness and improved risk mitigation.”  He was one of three panelists participating in the webinar.

“Something’s Got to Give”

Insured U.S. natural catastrophe losses totaled $67 billion in 2020 after an Atlantic hurricane season which included 30 named storms, record-setting wildfires in California, Colorado, and the Pacific Northwest, and a severe derecho in Iowa. This year’s hurricane season looks to be more severe; the Bootleg wildfire in Oregon – so large and intense it has begun to create its own weather and is affecting air quality as far east as New York City – isn’t  expected to be fully contained until late November; and these disasters are taking place on the heels of devastating winter storms in the first quarter.

As Kevelighan put it in his panel remarks, pointing to a 700 percent increase in insurer loss costs since the 1980s, “Something’s got to give.”

“As the country’s financial first responders,” he said, “insurers are not just responsible for providing relief to the communities affected by natural disasters, but also planning for potential catastrophes to come.”  

One of the ways insurers do this, he said, is by building the industry’s cumulative policyholders’ surplus—the amount of money remaining after insurers’ collective liabilities are subtracted from their assets. At year-end 2020, the U.S. policyholders’ surplus stood at a record-high $914.3 billion.

Mitigate and educate

The role of the insurance industry has grown beyond merely taking on risks to educating the public, regulators, and corporate decision makers on the changing nature of risk and driving a resilience mindset characterized by a focus on pre-emptive mitigation and rapid recovery. Triple-I and a host of other insurance industry organizations have played a key role in promoting public-private partnerships and using advanced data and analytics to understand and address hazards in advance.

For example, Triple-I’s online Resilience Accelerator provides access to data and risk maps that empowers the public to assess and prepare for risks specific to their own communities.

This webinar, co-presented by The Institutes’ Griffith Foundation and the Insurance Regulator Education Foundation, included panelists Hanna Grant, Head of the Secretariat, Access to Insurance Initiative; and Dr. Abhishek Varma, Associate Professor, Finance, Insurance and Law, Illinois State University. It was moderated by James Jones, Executive Director, Katie School of Insurance and Financial Services, Illinois State University.

Webinar highlights:

Unethical Contractors Emerge After Disasters; Know How to Avoid Them

Natural disasters create opportunities for unethical contractors, and consumers need to be on the alert.

Post-disaster repair scams typically start when a contractor makes an unsolicited visit to a homeowner and pressures the homeowner to pay the contractor their insurance claim money – then disappear without doing the work.

Triple-I is teaming up with the National Insurance Crime Bureau (NICB) during the NICB’s Contractor Fraud Awareness Week (July 12-16) to educate the public about such frauds and how to avoid them.

Before hiring any contractor, consumers affected by a natural disaster should call their insurer. There’s no need to rush into an agreement. Homeowners should inspect all work and make sure they are satisfied before paying. Most contractors will require a reasonable down payment, but no payments should be made until a written contract is in place.

The NICB offers these tips to homeowners before hiring a contractor:

  • Be wary of anyone knocking on your door offering unsolicited repairs to your home. 
  • Be suspicious of any contractor who rushes you or says the government endorses them.
  • Shop around for a contractor by getting recommendations from people you trust.
  • Get three written estimates for the work and compare bids.
  • Check a contractor’s credentials with the Better Business Bureau.
  • Always ask for a written contract that clearly states everything the contractor will do.
  • Never sign a contract with blank spaces because it could be altered afterward.
  • Never pay for work up front and avoid paying with cash; use either a check or credit card.

The NICB Post-Disaster Contractor Search Checklist explains the contractor hiring process step by step.  Anyone with information concerning insurance fraud or vehicle theft can report it anonymously by calling toll-free 800-TEL-NICB (800-835-6422) or submitting a form to the NICB.

“Acting as communities’ financial first responders, insurers rebuild damaged homes, cars, and lives after a natural disaster,” said Triple-I CEO Sean Kevelighan.  “The Insurance Information Institute is proud to join forces with the NICB to educate consumers and communities about how to best prepare and recover economically.”

“Victims of disasters are under tremendous stress as they are often pulled from their homes, fight heavy traffic attempting to get to safety, all while leaving their home and belongings behind,” said NICB President and CEO David Glawe. “When they go home, they are exhausted and strained, a time when they are most susceptible to these fraudulent schemes.”

RELATED LINKS:

Article: Insurance Fraud

Facts & Statistics: Insurance Fraud

Dear California:
As You Prep for Wildfire, Don’t Neglect Quake Risk

It’s important for people living in earthquake-prone areas to remember that standard homeowners and renters insurance don’t cover most earthquake damage.

For this reason, Janet Ruiz, Triple-I’s California-based director of strategic communication, advises people in the state to consider buying a policy that, at a minimum, covers the structure, building code upgrades, and emergency repairs.

“You can also get coverage for additional living expenses and personal property, and some companies even cover damaged swimming pools or masonry veneer,” Ruiz writes in a recent Op-Ed in The San Diego Union-Tribune.

As the South Napa and Ridgecrest earthquakes – in 2014 and 2019, respectively – recede from memory and wildfire readiness and resilience seem the more immediate need, Ruiz reminds Californians that even relatively mild tremors can inflict costly damage. She therefore encourages residents to reduce their risk through education, mitigation, and insurance.

There are a number of earthquake insurance providers in California. Many participate in the California Earthquake Authority (CEA), but some non-CEA insurers also provide options to help protect Californians from financial loss.

“CEA offers premium discounts to policyholders who have retrofitted, or strengthened, their older homes to help them better withstand shaking,” Ruiz writes.

In a separate Op-Ed, CEA CEO Glenn Pomeroy advises on retro-fitting older homes to be more quake resistant and resilient. Older homes – especially those built before 1980 – are more susceptible to earthquake damage because they predate modern seismic building codes. According to U.S. Census data, more than 53 percent of the housing units in San Diego County fall into that category of being built before 1980 and could be in need of retrofitting.

Seismic retrofitting can be straightforward and often not as expensive as homeowners might think. Depending on the type of retrofit needed, the work can usually be done in a couple of days, with costs ranging from $3,000 to $7,000.

“Compared to the potential cost of repairing an earthquake-damaged home,” Pomeroy writes, “spending a smaller amount of money to help prevent damage can help avoid a much bigger repair bill after an earthquake. Whatever the cost, it is a relatively small price to pay to protect the value of your home and, more importantly, make it safer for your family.”

Particularly important as the need for pandemic social distancing continues, Pomeroy points out, “Homeowners can remain inside their dwelling as workers do the job without entering the residence.”

IBHS Ranks Building Codes as Above-Average Hurricane Season Approaches

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

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

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

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

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

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

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

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

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

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

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

More information from Triple-I

Hurricane Season: More Than Just Wind and Water

Flood: Beyond Risk Transfer

Modern Building Codes Would Prevent Billions in Catastrophe Losses

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

Millions Saved in Japan by Good Engineering and Government Building Codes