Risk Insider: Matthew Nielsen

Privatizing Flood Insurance in the U.S.

By: | November 18, 2015 • 2 min read
Matthew Nielsen, a meteorologist and geographer with a great deal of experience in climate hazard models, is Senior Director, Global Governmental and Regulatory Affairs at RMS. He can be reached at [email protected]

Any serious gambler always understands the odds before he makes a bet. He studies the risks, puts up the collateral, and hopes for a win. If the stakes are too great, he holds on to his capital and waits for a more attractive wager.

We, as American homeowners, do the same when it comes to setting down our roots. We do our best to understand risks in our neighborhoods. Is there substantial crime? How are the schools? Are property taxes high? But do we know enough about the risks that threaten to destroy our homes and desecrate our treasured possessions?

When it comes to understanding exposure to flooding in the United States, the answer is ‘no.’

Flood maps put together by FEMA are a good start, but many questions remain. Both homeowners and insurers alike find themselves without the tools they need to fix the gap in flood coverage, leaving the bulk of flood insurance to be paid out by the federal government.

While not much is known about the elusive X-zone, this is probably where the private insurance market should first look for clues on how to get flood policies out of the NFIP.

So what can be done to help unveil the elusive nature of flood risk?

FEMA designates several types of flood zones; the most widely known are the A and V zones used in the 1-in-100 year flood areas.

The X-zones, however, are much less understood. While flood insurance isn’t compulsory in the X-zones, flood risk still exists. It is in these zones that up to 20 percent of governmental National Flood Insurance Program (NFIP) policies exist. But how much do we really know about X-zone risk? What compels homeowners to buy insurance in these zones when it is not required?

While not much is known about the elusive X-zone, this is probably where the private insurance market should first look for clues on how to get flood policies out of the NFIP.

While we can get information on the number of policies in the X-zone by state, there is more work to be done to understand the types of properties being underwritten. X-zones may be attractive to private insurers because the risk is much lower than in the A and V zones, and the pricing may also be competitive with FEMA.

This will allow the industry to understand how to navigate the process of expanding their flood portfolios, and prepare them for the more daunting task of depopulating the A and V zones.

To start this process, the industry needs a way to understand more about the potential market in the X-zone. Catastrophe modelers have the capability to help with this endeavor, as they have with identifying and categorizing exposure in developing insurance markets across the world.

These modelers will be needed to initiate the process of quantifying risk in these areas, allowing the market to better understand how they can expand into this largely untapped market.

As private insurers search for strategies on where to look to start their flood programs, they may want to heed the age-old saying that “X marks the spot.”

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2015 NWCDC

Predicting Claims Severity

Models analyze variables at intake and afterward to identify claims that may become adverse.
By: | November 13, 2015 • 2 min read

Using predictive modeling in workers’ compensation cases isn’t a magic wand but it is a valuable tool.

“What models do is identify a claim before you may know it’s a bad claim,” said Frank Murray, senior vice president, claims, ESIS, at a November 12 session, “Optimizing Predictive Modeling: Georgia-Pacific’s Experience” at the National Workers’ Compensation and Disability Conference® and Expo.

“This is a powerful tool.” — Tim Starks, director of casualty, Georgia Pacific

Modeling, said Tim Starks, director of casualty, Georgia Pacific, “helps us put the blinders on and focus on the right cases where we can make the best impact.”

“This is a powerful tool,” he said, cautioning, however, that “it’s not a panacea. It’s not a magic tool.”

The data is important, he said, but the company must use the data to “get resources mobilized in the right way.”

Predictive modeling, Starks said, doesn’t necessarily change the claims process, but it accelerates it so outcomes are improved. It also doesn’t replace the knowledge of claims adjusters, he said, noting that his company relies on both the model and an adjusters’ experience.

Each claim receives a severity score for probability of cost. The model takes into account up to 20 variables related to the claim – such as age, body part injured, comorbid conditions and facility location, as well as text mining the intake notes — to determine the likelihood of an adverse development.

A model of claims open at three months forecasts the likelihood that the claims may breach $100,000; for claims open at 12 months, it focuses on the $250,000 level.

In the three years the 12-month model has been in effect, ESIS has seen $4.7 million in savings on open claims, and $3.56 million in savings on closed claims, Murray said.

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]
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Sponsored: Aspen Insurance

When the Going Gets Rough, the Smart Come to Aspen Insurance

Aspen’s products liability team excels at solving tough problems and building long-term relationships.
By: | November 2, 2015 • 5 min read

Sometimes, renewals don’t go as expected.

Perhaps your company experienced a particularly costly claim last year. Or maybe it was just one too many smaller incidents that added to a long claims history.

No matter the cause, few words are scarier to hear this time of year than, “Renewal denied.”

But new options are now emerging for companies that are willing to tackle their product liability challenges head-on.

Aspen Insurance’s products liability team – underwriters, loss control engineers and claims professionals – welcome clients who have been denied coverage from other, more traditional carriers.

“For our team, we view our best opportunities to be with clients who have specific problems to solve. In these cases, we leverage our deep expertise and integrated team approach to help the client identify root causes and fix issues,” said Roxanne Mitchell, Aspen U.S. Insurance’s executive vice president and chief casualty officer.

“The result is a much improved product or manufacturing process and the start of a new business relationship that we can grow for many years to come.”

“We want to work with insureds as partners, long after a problem has been resolved. We seek clients who are going to stick with us, just as we will with them. As the insured’s experience improves over time, pricing will improve with it.”
— Roxanne Mitchell, Executive Vice President, Chief Casualty Officer, Aspen Insurance

Of course, this specialized approach is not applicable to all situations and clients. Aspen Insurance only offers coverage if the team is confident the problems can be solved and that the client genuinely wants to engage in improving their business and moving forward.

“Our robust and detailed problem-solving approach quickly identifies pressing issues. Once we know what it will take to rectify the problem, it’s up to the client to make the investments and take the necessary actions,” added Mitchell. “As a specialty carrier operating within the E&S market, we have the ability to develop custom-tailored solutions to unique and complex problems.”

For clients who are eager to learn from managing through a unique, pressing issue, and apply the consequential lessons to improve, Aspen Insurance can be their best, and sometimes only, insurance friend.

The Strategy: Collaboration from Underwriting, Claims and Loss Control

Aspen offers a proven combination of experienced underwriting professionals collaborating with the company’s outstanding loss control/risk engineering and seasoned claims experts.

“We deliver experts who understand the industries in which they work, which is another critical differentiator for us,” Mitchell said.

Mitchell described the Aspen underwriting process as a team approach. In diagnosing the causes of a specific problem, the Aspen team thoroughly vets the client’s claims history, talks to the broker about the exposures and circumstances, peruses user manuals and manufacturing processes, evaluates the supply chain structure – whatever needs to be done to get to the root of a problem.

“Aspen pulls from every resource we have in our arsenal,” she said.

After the Aspen team explores the underlying reason(s) and root cause(s) producing the client’s problem in the first place, it will offer a solution along with corresponding price and coverage specifics.

“We have a very specific business appetite and approach,” Mitchell said. “We don’t treat products liability as a commodity.”

As noted, a major component of Aspen’s approach is that they seek to work with clients who are equally interested in solving their problems and put in the work required to reach that end.

Aspen_SponsoredContentMitchell cited two recent client examples of manufacturers of expensive products that could endure large claim losses but had some serious problems that needed to be solved.

A conveyor systems manufacturer had a few unexpected large claims and lost its coverage in the traditional insurance market. The manufacturer never managed a product recall in the past, and Aspen’s loss control engineers dug into why several systems failed. Aspen also helped the company alert customers about the impending repairs.

Another company that manufactured firetrucks had three or four large losses, when telescoping ladders collapsed, resulting in serious injuries. The company’s claim history was clean until this particular product defect. When Aspen researched the issue, it found that the specific metal and welding used to make the telescoping ladders didn’t have the required torque to keep the ladders from collapsing.

Both companies worked with Aspen to correct the issues. Problem solved.

“It is so important that our clients are willing to actively engage in finding out what is causing their losses so they can learn from the experience,” Mitchell said.

Apart from the company’s problem-solving philosophy, Mitchell said, the willingness to allow qualified clients to manage their own claims is the second biggest reason companies come to Aspen.

“We are willing to work with clients who have demonstrated the expertise to handle their own claims — with our monitoring — rather than hiring a TPA,” she said. “It is a useful option that can save them money.”

Mitchell explained that customers who stay with Aspen for the long-term can be confident that Aspen will help them – whatever the challenge. For instance, if they need a coverage modification for a new product that they bring to market, Aspen can help make it happen. Mitchell noted, “We pride ourselves on the ability to develop custom-tailored solutions to address the complex and challenging risks that our clients face.”

Long-term Relationships

Aspen_SponsoredContentAspen’s desire to help solve difficult client problems comes with a caveat, but one that benefits both Aspen and the insured: It wants to move forward as a true partner – one with clear long-term relationship potential.

In a nutshell, Aspen’s products liability worldview is to partner with a manufacturer who is facing a difficult situation with claims or coverage, help them solve that problem, and then, engage in a long-term, committed relationship with the client.

“We want to work with insureds as partners, long after a problem has been resolved,” she said. “We seek clients who are going to stick with us, just as we will with them. As the insured’s experience improves over time, pricing will improve with it. This partnership approach can be a clear win-win.”

This article is provided for news and information purposes only and does not necessarily represent Aspen’s views and does constitute legal advice. This article reflects the opinion of the author at the time it was written taking into account market, regulatory and other conditions at the time of writing which may change over time. Aspen does not undertake a duty to update the article.


This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Aspen Insurance. The editorial staff of Risk & Insurance had no role in its preparation.

Aspen Insurance is a business segment of Aspen Insurance Holdings Limited.
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