Category Archives: Disaster Preparedness

I.I.I. Joint Industry Forum Town Hall: How Insurance Can Help Build Resilient Communities

By Sean Kevelighan, CEO, the Insurance Information Institute

 

For centuries, the insurance industry has helped communities and individuals rebuild after losses and catastrophes. But as the threats of natural catastrophes grow, the industry is well-positioned to do more than just help rebuild shattered lives. We can help lessen the impacts of natural catastrophes before they even happen. At the I.I.I. we call it “resilience” – stronger homes, better emergency response, better risk management tools.

I am pleased to say that the insurance industry is already leading the way forward in helping to build resilient communities. At this year’s I.I.I. Joint Industry Forum, Mitch Landrieu, former lieutenant governor of Louisiana and two-term mayor of New Orleans, led a townhall discussion on resilience – what it means and how insurance can help.

Landrieu was joined by some of the top insurance experts in this space: Phil Klotzbach, research scientist, Department of Atmospheric Science at Colorado State University and I.I.I. non-resident scholar; John Rollins, FCAS, MAAA, actuary, Milliman; Keith Wolfe, president, U.S. Property & Casualty, Swiss Re; Roy Wright, president and CEO, Insurance Institute for Business & Home Safety; and Rohit Verma, global chief operating officer at Crawford & Company.

Landrieu himself knows a thing or two about the power of resilience. He was on the ground when Hurricane Katrina hit New Orleans and he helped lead the effort to rebuild the city in the aftermath.

I was especially struck by how the storm changed his entire mindset around preparedness and resilience. “It shifted from hoping something bad wasn’t going to happen to expecting it to happen, and to building social and physical resilience and to prepare ourselves, so that if something happens we’re stronger and in a better position to respond.”

Unfortunately, this story is all too common: people often only appreciate the need for resilience after the disaster. The insurance industry can and should change that.  Our panelists pointed out several ways insurance can help build community resilience:

  • Improving catastrophe modeling to identify and quantify exposures to help insurers, policymakers, and consumers make resilience-focused decisions.
  • Educating consumers to better understand the risks they’re exposed to – and what kind of insurance they need to protect themselves.
  • Encouraging consumers to invest in mitigation through premium discounts and other incentives.
  • Working in public/private partnerships with local and state governments for insurance affordability and community mitigation initiatives, including better building codes to create a more resilient built environment.

But there are many hurdles still to overcome.

  • Mitigation can be expensive for some risks. For example, installing wind-resistant roofs is relatively affordable and easy to do. But elevating already-built houses above flood levels is another story entirely.
  • Catastrophe models are increasingly viable for some risks (like flood), but not others (like wildfires).
  • Many consumers are still in the dark about how their insurance works. Take flood: 43 percent of homeowners incorrectly think they’re covered for floods. And only 15 percent of homeowners had flood insurance.

A resilient America won’t be built in a day. But the insurance industry will be a crucial player in making our communities ready – so that when the next hurricane hits, the next wildfire breaks out, or the next earthquake strikes, there is less that needs to be rebuilt and more people whose lives and livelihoods were saved from destruction.

Everyone wins – insurers, insurance customers, and society – in a more resilient world.

The “Sand Palace”: A Poster-Child for Resilience

You probably remember the “Sand Palace,” the lone house standing after Hurricane Michael made landfall in the Florida panhandle in October.

It’s a powerful story about one man’s stand against nature’s destructive power. But the Sand Palace is also a story about insurance.

There are generally two aspects of insurance. One is to pay out claims to make people whole again after a loss. Another is to incentivize behavior that makes those losses less likely to happen. In insurance-speak, we call that “mitigation.”

Consider the Sand Palace in that context. According to an AIR Worldwide analysis, the house was built to be even more resilient than Florida’s already-stringent building codes: reinforced concrete, limited windows, minimal space below the roof to prevent uplift, a first floor 15 feet above ground, and more.

AIR analyzed how this construction fared during the hurricane. The structure’s features reduced wind losses by about 90 percent compared to other homes. Plus, the height of the building significantly reduced any storm surge damage.

This led AIR to conclude that “the Sand Palace is an excellent case study of the impact of mitigating features for use in risk reduction.” Presumably, the house also made an excellent risk for an insurer to cover.

It’s fair to ask, though: at what cost resilience? These kinds of reinforcements can cost tens of thousands of dollars, which can be out of reach for many homeowners.

But that’s probably where insurance can play a role. For example, is there a potential for insurers to offer economic incentives or discounts to homeowners to make their houses resistant to hurricane-force floods and winds? This incentive could be particularly effective in a world where climate change events might cause insurers to raise their premiums to account for higher risks. (That’s why many argue that insurance can play a crucial role in helping to combat the effects of climate change.)

It’s not always easy to say where the intersection between the costs and benefits of mitigation is. That’ll be up to the individual insurer and their insureds. But if done right, mitigation can be a win-win strategy. Insurers don’t have to pay out as much money for losses. Consumers don’t have to pay as much for their insurance. And the world can be made a safer, more resilient place.

Mobile claims units are on the ground in Panama City to assist insurance customers impacted by Hurricane Michael

Earlier in the week, Lynne McChristian, our I.I.I. representative based in Tallahassee, wrote about her  life in the aftermath of Hurricane Michael. Today she returns with a follow-up post.

 By Lynne McChristian

Tallahassee, FL – We were six days without power; it felt longer. Two back-to-back days of record-breaking October temperatures peaking at 90 degrees. The generator was a godsend, even if it was not powering air conditioning, only the refrigerator, an oxygen concentrator for my ailing mother, and random lights. I was trying to keep only one light on at a time to minimize the number of gasoline refills required for the generator.

At dusk, however, it became too dim for mom to navigate the house, so we flipped on more lights – and that meant refilling the generator every 8-10 hours. It ran out of gas at approximately 2:30 a.m. two nights in a row. The first night, I gassed it up in the pitch darkness with a camping light resting on the hood of my car. The second night the generator sat silent, to be refilled at daylight.

I highly recommend having a portable generator ready in advance, rather than waiting (as I did) until you experience two days without power. Here are a few models that FEMA recommends.

On Monday, I drove to Panama City to connect with insurers, many of whom had been on the scene since Sunday. Fleets of insurance company mobile claims units were in multiple places in the area, including a Lowe’s parking lot where claims adjusters from Allstate, USAA and Met Life were helping people start the insurance claims process.

Insurance claim checks were being written on the spot to storm victims for preliminary damage and for additional living expenses. I tried to drive further into town to tour the most severely damaged areas, but traffic was at a crawl. Perhaps the traffic snarl was a combination of residents trying to get back to their homes, those coming to render aid – and the curious. It felt more chaotic as fire trucks and ambulances, law enforcement vehicles and Florida Highway Patrol escorts for utility trucks were splitting through traffic and edging along the shoulder of the road. It was clear the area was still in disaster response mode, not recovery.

Panama City Beach is a tourist area about 10 miles Panama City. On Monday it was a ghost town. Beach Front Road had blocks of mainly empty hotels, closed shops, shuttered amusements, and an occasional restaurant serving meals mainly on their outside patios. It was eerie. Bay County instituted a curfew from 6 p.m. to 6 a.m.

Back in Tallahassee, 95 percent of residents had power by Tuesday. This city known for its tree-shaded canopy roads has a great deal of that canopy lying flat alongside the road, waiting for crews to haul it away. In areas hardest hit by Hurricane Michael, the road to normalcy will be a long one. Insurers are serving policyholders throughout the affected regions – to help people recover and rebuild.

Lynne McChristian, is I.I.I.’s Florida Representative, and Assistant Lecturer and Executive Director of the Center for Risk Management Education & Research at Florida State University’s College of Business.

Hurricane Michael’s trail of destruction

Our guest blogger, Lynne McChristian, is an I.I.I. representative based in Tallahassee, about 100 miles from where Hurricane Michael came to shore.

 By Lynne McChristian

After a major natural disaster, there are various levels of survivor conditions – ranging from total devastation to mild inconvenience. In comparison to what people are experiencing in Mexico Beach and the Panama City areas of Florida, my inconveniences are extremely inconsequential. I was asked for a first-person account, and here’s where things stand on a Sunday afternoon.

In my Tallahassee neighborhood, we have been without power since about 2:20 p.m. on Wednesday. This is Day 5 of powerlessness. The air conditioners are silent in the 88-degree heat, but the rumble of portable generators is a bit overbearing, especially at night. The choice is to keep the refrigerator contents cool, or sleep.

At least we have that option and a place to sleep, whereas so many do not. Immediately after the storm, about 90% of the town was without electricity. What makes Tallahassee a beautiful part of the state is the same thing that makes it vulnerable to high winds. Decades old, stately oak trees and towering pines offer shady respite one day, and following a major storm, they become something altogether different – a barrier to returning to a comfort zone.

All over town, trees are twisted up in power lines.  The utility company has a goal of restoring power to most before the weekend is over – and so we wait. On Sunday night, 30 percent of residents still do not have power, and I among them.

I am the owner of a brand-new generator. For some, the purchase is a gamble. Bet on a fast recovery or spend $700 on a bulky tool, use it once and store it forever. My purchase was a risk management decision; my mom turned 95 last week, and she lives with me. The generator gives me confidence that she will have the steady stream of oxygen from the concentrator she uses, so it was a wise purchase in my situation. Thanks, Home Depot, for restocking the generators multiple times to aid.

Streets are clear here in the state capitol, lined with mounds and mounds of tree trunks and tree limbs. Many gas stations are out of gas. It’s an inconvenience; that is all. The focus of recovery is on the countless others who would look at this town’s Hurricane Michael experience and think it barely a blip. By comparison, it is.

 

Lynne McChristian, is I.I.I.’s Florida Representative, and  Assistant Lecturer and Executive Director of the  Center for Risk Management Education & Research at Florida State University’s College of Business.

Before you sign anything, talk to your agent

is this guy legit?

Were you well-prepared for Hurricane Michael? Good. Hurricanes are extremely dangerous.

But if you’re not careful, what happens after the storm can be just as harmful as the hurricane itself.

Beware the shady contractor. It’s a terrible story: someone’s home is damaged from a hurricane. A contractor shows up at their property and offers to complete immediate emergency repairs. All the homeowner needs to do is sign some paperwork and, the contractor assures them, their insurance company will pay for the repairs – easy as that!

Wrong. Shady contractors are not your friend. If you live in Florida, then the paperwork they want you to sign is often an “assignment of benefits” (AOB), a document that gives the contractor the right to receive payouts from your insurance company directly for repairs. (You can read all about how it works – or doesn’t work, as the case may be – on the Florida state website.)

Fraud is real and rampant. In the worst-case scenario, the shady contractor makes minimal or no repairs to the person’s home at all, but they’ll file a large claim with the insurance company anyway. If the fraudster is lucky, they’ll get the insurance payout and skip town. Meanwhile, the house is still ruined, and the homeowner didn’t get help to fix it.

Your home could go unrepaired for weeks, even months. Or the shady contractor will do unnecessary repair work, like ripping apart the kitchen because of “potential mold damage.” He promises to re-install the kitchen – but in the meantime, he bills the insurance company and the insurer pays. Sometimes, the contractor won’t reinstall the kitchen, often on some pretext or other.

This has especially been a huge problem in Florida. You can read some AOB abuse horror stories on the Consumer Protection Coalition website.

There are a lot of scams out there. Not all shady contractors are using AOBs. The Florida Department of Financial Services has also issued warnings about fraudsters who offer to provide repairs for cash – and then never provide repairs.

Talk to your agent before signing anything. Never, ever sign anything before you talk to your insurance company. Especially not if a contractor is putting up red flags, like pressuring you into signing an AOB or demanding large repair deposits up front. Contrary to what the contractor might say, you do not need to sign an AOB to get your home repaired or your insurance claim processed.

Instead, call your insurer. Many insurers will dispatch approved companies to complete emergency repairs on your property. And you’ll still be in control of your insurance policy, which hopefully will make you whole again. No shady contractors needed.

Hurricane Florence – property losses and insurance implications

Approximately 758,657 homes in North Carolina, South Carolina and Virginia with a reconstruction cost value (RCV) of approximately $170.2 billion are at potential risk of storm surge damage from Hurricane Florence, according to a Corelogic® release.

As we continue to keep a close watch on Hurricane Florence, we’ve put together a list of our content to help understand the insurance implications of storm related property losses.

Hurricane Florence – Home preparedness tips

Hurricane Florence is expected to make landfall along the Southeast or Mid-Atlantic coast as a category 4 storm on September 13.

According to computer model forecasts, Florence will come ashore in Southeast North Carolina, although slight variations could alter the path of the storm that will affect areas of the nation that are far away from the location of its landfall.

A state of emergency has been declared in South Carolina, North Carolina and Virginia in order to mobilize resources to mitigate the effects of the storm. If you are in the path of the storm, plan your evacuation route ahead of time!

Below are just a few steps you can take to protect your home:

  • Cut weak branches and trees that could fall on your house and keep shrubbery trimmed.
  • Hurricane force winds can turn landscaping materials into missiles that can break windows and doors. Much of the property damage associated with hurricanes occurs after the windstorm, when rain enters structures through broken windows, doors, and openings in the roof.
  • If you don’t have storm shutters to protect your windows from breakage, fit plywood panels to your windows, which can be nailed to window frames when a storm approaches.
  • Make sure exterior doors are hurricane-proof and have at least three hinges and a dead bolt lock that is at least one-inch long.
  • Seal outside wall openings such as vents, outdoor electrical outlets, garden hose bibs and locations where cables or pipes go through the wall. Use a high quality urethane-based caulk to prevent water penetration.
  • If you live in a mobile home, make sure you know how to secure it against high winds and be sure to review your mobile home insurance policy.
  • If you have a boat on a trailer, know how to anchor the trailer to the ground or house—and review your boat insurance policy.
  • If you have a swimming pool, lower the water level (additional tips here.)

For more detail on what to do when a hurricane threatens click here.

Lloyd’s City Risk Index: $546 billion at risk from 22 threats

As the world’s population becomes increasingly concentrated in cities, they become more vulnerable to risk events. To understand the risk, Lloyd’s compiled a City Risk Index, detailing the threat landscape for the world’s leading 279 cities.

The index estimates how much economic output (GDP@Risk) a city could potentially lose due to 22 different threats ranging from stock market crash to solar storm.

Here are some highlights from the report:

  • Across all 279 cities, $546.50 billion is at risk from all 22 threats.
  • Man-made threats account for 59 percent of the total GDP@Risk – with market crash the largest single threat, with cities exposed to losses of $103.33 billion on an annual basis.
  • The 10 cities with the highest exposure have a combined $126.82 billion of GDP@Risk, almost a quarter of the global total, with Tokyo standing to lose more than any other city.
  • Climate-related risks account for $122.98 billion of GDP under threat, and this sum will grow as extreme weather events grow in frequency and severity.
  • If cities were to improve their resilience, global GDP exposure to loss would drop by $73.4 billion.

CoreLogic: 6.9 million homes worth over $1 trillion at risk for storm surge in 2018

Weather experts, including I.I.I. non-resident scholar, Dr. Phil Klotzbach, are predicting a slightly below average hurricane season for 2018, but that does not mean that the dangers of potential storm damage are negligible.

CoreLogic, an analytics company, released its annual Storm Surge report on June 5. The report found that along the Gulf and Atlantic Coasts, about 6.9 million coastal homes worth over $1 trillion are at risk. CoreLogic estimates reconstruction costs for 2018 increased 6.6 percent from a year ago, mirroring increased regional construction, equipment, and labor costs.

The Atlantic Coast has more than 3.9 million homes at risk of storm surge with reconstruction cost value of more than $1 trillion, up by about $30 billion from 2017. Gulf Coast homes with the same risk total more than 3 million, with more than $609 billion in potential exposure to total destruction damage, a $16 billion increase compared to 2017.

The reconstruction cost value is calculated based on 100 percent destruction of the residential structure, using the combined cost of construction materials, equipment and labor costs.

The Ellicott City Flood: Rebuilding Begins with Resilience

By Sean Kevelighan, CEO, Insurance Information Institute

On May 27, for the second time in three years, Ellicott City, Maryland was ravaged by what meteorologists term a “1,000-year flood”—this while some businesses were still celebrating the one-year anniversary of their reopening after the August 2016 catastrophe.

As affected households and businesses assess the damage and pledge to rebuild (or to relocate) after this deadly event, one fact looms largest: that 1,000- or 100-year floods now seem to strike with numbing regularity. The time has come, then, for communities and individuals to accept this paradigm shift by embracing resilience.

Local, state and federal governments have a wide range of tools at their disposal to effectuate resilience, including public policy solutions and rebuilding/retooling critical infrastructure to withstand greater stresses. However, for business owners, homeowners, and renters, the most important step they can take is to close the “coverage gaps” that expose them to massive uninsured losses that can delay or prevent recovery. And for regulators and insurers, this creates an excellent opportunity for public/private solutions to meet this growing challenge head-on.