Hailstorms Grow Less Predictable and More Expensive
Hailstorms increased in frequency and severity over the last 20 years, largely a result of climate change and more extreme weather conditions. Insurance costs are spiking as a result, too.
Hail causes about $1 billion in damage to crops and property in the United States every year, according to the National Oceanic Atmospheric Administration (NOAA).
In 2015, NOAA’s Severe Storms database recorded 5,411 major hailstorms. The worst affected area was Texas, with 783 hailstorms.
“The hardest part for some customers has been that there have been successive hailstorms.” — Jill Dalton, managing director, Aon Global Risk Consulting
This year, hailstorms in late March and April are expected to result in total losses to vehicles, homes and businesses in north San Antonio and Bexar County of more than $2 billion, according to the Insurance Council of Texas.
San Antonio’s first hailstorm on April 12 became the costliest hailstorm in Texas history, the council said.
Between 2000 and 2013, U.S. insurers paid out almost $54 billion in claims from hail losses, and 70 percent of the losses occurred in just the last six years, said a report by Verisk Insurance Solutions.
The average claim severity was also 65 percent higher during that period, than from 2000 to 2007, the report said. Most losses were from broken windows and roof damage.
Added to that, hailstorms are increasingly harder to forecast and are occurring in unlikely places, with reports of hail this year in warmer climates such as South Florida.
Trying to Better Understand How Hail is Produced
Now, insurers and scientists are trying to better understand how hail is produced and take steps to mitigate damage.
“The hardest part for some customers has been that there have been successive hailstorms,” Jill Dalton, managing director at Aon Global Risk Consulting.
“When it happens over such a short period of time, as in the case of the recent Texas hailstorms, it’s hard to deduce what was damage from the first storm versus the third or fourth storm.”
Steve Bowen, director at Aon Benfield’s Impact Forecasting team, said that the location and intensity of the hailstorm were the most important factors in determining the magnitude of hail damage.
For example, if a hailstorm hits a more densely populated area it is likely to cause more damage.
“It is really important to emphasize that the total number of hail reports does not necessarily correlate to either higher or lower level of losses,” he said.
He said that, overall, insurable damage resulting from severe convective storms in the United States increased by 6.5 percent above the rate of inflation annually since 1980, most of which was attributed to hailstorms.
“The research done will also enable us to characterize the event in order to forecast future storms more effectively.” — Ian Giammanco, lead research meteorologist, IBHS Research Center
The Insurance Institute of Business & Home Safety (IBHS), a consortium of insurers, has been working with the National Center for Atmospheric Research in Boulder, Colo., to find ways to strengthen homes and businesses against hail damage.
“Overall hail losses are going up and a lot of it is to do with that fact that we are simply putting a lot more stuff in the path of storms nowadays,” said Ian Giammanco, lead research meteorologist at the IBHS Research Center.
“So, moving forward now, risk mitigation strategies are going to become much more important and that can be achieved with improved product and testing to ensure that they are properly hail resistant.
“The research done will also enable us to characterize the event in order to forecast future storms more effectively.”
Take Steps to Reduce Losses
Lynne McChristian, Florida representative for the Insurance Information Institute, said that given the difference in quality of roofing materials in terms of impact resistance, it was paramount to invest in the proper type of covering.
Others steps include making sure that the roof is fully secured.
The insurance industry has an Underwriters Laboratory standard for roofing material with four classes of impact level. Class 4 is the most resistant. In some cases, insurers will provide a discount for roofs made with hail resistant materials.
After the event, it is important to assess any damage and protect property against further damage by covering broken windows and plugging holes in the roof.
Most property insurance policies will cover against hail damage, as will comprehensive auto coverage.
“A hailstorm is a typically covered loss included as a named peril,” said Dalton.
She added that usually there are no policy limits on hail and most coverage is subject to a deductible.
In hail prone areas, such as Texas and South Carolina, the deductible is higher than for other perils. However, both states have a fund to provide hail coverage in areas where it is not available in the private market.
After the event, it is important to assess any damage and protect property against further damage by covering broken windows and plugging holes in the roof.
It is also key to file claims as soon as possible and to keep any receipts for purchases made for immediate repairs and to then submit them to your insurer.
Their emergence has been hailed as a “game changer” and “the biggest discussion topic in insurance.” Inspired by developments in the consumer marketplace, connected personal protection equipment, or “wearables,” can track a variety of employee risk factors and generate data so powerful that many believe it will revolutionize workplace safety procedures and risk modeling.
Health-related wearables such as the FitBit are taking the consumer market by storm, but far more powerful technology is being developed and implemented in commercial settings, from heavy industry to aviation, logistics and manufacturing.
Mining giant Rio Tinto is an early adopter of wearables, providing its workers with a “SmartCap” that measures brainwaves to detect fatigue. Honeywell and Intel recently released a prototype of their “Connected Worker” solution for industrial workers and first responders, which uses a hub of sensors to track workers’ location, vital signs, motion and exposure to hazardous gases.
Whether in the form of vests, caps, glasses or materials, it is now possible to generate valuable data that brings risk managers and insurers closer to workplace risk than ever before. It is hoped these insights should in turn help safety supervisors improve workplace design and procedure, foster safer worker behaviors and reduce workers’ compensation claims.
Having observed several pilot studies closely, David Bassi, former head of innovation and risk consulting, casualty for AIG, said safety wearables could reduce losses by up to 50 percent in some situations.
“The test cases are so compelling, it’s just a matter of scalability,” he said.
“The explosion will come pretty quickly. Virtually everyone I know in a safety role at a big company is interested in participating in a pilot or thinking about how to incorporate this kind of technology into their workplace.”
With demand strong, supply growing and costs coming down, the final piece of the puzzle is the insurance market, which insureds hope will begin to offer responsive pricing, customized products and client incentives once wearables’ benefits begin to be realized.
“In an age when data is becoming ever more critical for the insurance industry, this is huge,” said Michael Sillat, CEO of WKFC Underwriting Managers (part of Ryan Specialty Group). “A lot of the technology being developed is only being spoken about and is not available in the marketplace, but it has certainly grabbed my attention and that of many of my peers,” he said.
“Connected devices are going to have profound implications for the commercial property casualty insurance world, and wearables in particular are going to be very important in improving worker safety,” said Lex Baugh, president of casualty at AIG, which recently invested in wearable tech firm Human Condition Safety.
Nigel Walsh, vice president of CapGemini, expects more partnerships of this ilk, and heralds the ability to interact and advise on a daily, hourly or real-time basis as “game changing” for insurers.
“Insurers will no longer be claims paying companies — they will become better risk managers. When you provide value-added service and insight driven out of IoT, rather than just changing the price, you create real engagement and real value,” he said.
However, insurers don’t make knee-jerk adjustments to their terms or pricing, so for now organizations will need to take something of a leap of faith, and invest in wearables knowing it may take a number of years for improved loss experience to yield premium reductions.
The costs associated with implementing wearables into the workplace vary hugely, from a few dollars for the most rudimentary device up to millions for enterprise solutions including real-time feedback loops, network operation centers and the latest wearable technology. While the cost of equipment and data capacity continues to slowly decline, companies will need to think carefully before investing.
Rachel Michael, senior consultant in Aon Global Risk Consulting’s ergonomics practice group, said there are “no excuses” for not knowing the location and well-being of workers in hazardous jobs like firefighting or mining, for whom even expensive investments will be worthwhile, but she pointed out that companies should be sure they have done all they can to improve workplace ergonomics prior to investing.
“If an employer is palletizing 30-lb. boxes at ground level, do they really need a wearable spinal loading measurement system to determine whether this is bad?
You could save lots of time and money if you fix your line first,” she said.
Data management is also a concern — both in coping with the sheer volume of data (which Bassi said runs on some pilots into exabytes per week) and also avoiding what Michael terms “death by data” — having reams of information at your disposal but no clear plan of action.
Before a wearable technology is even considered, Michael said a planning discussion including the risk manager, HR, IT and possibly several other departments must take place. “You need to understand how much and what type of data is to be collected, how it is to be used, and what changes can be driven with the outcomes,” she said.
And companies should be prepared in case data raises uncomfortable truths, she added.
“If you hook all your workers up to smart caps and find that they are all suffering fatigue, are you willing to shut down your operations?” Michael asked, noting that this would be all but impossible in industries such as health care, firefighting or aviation.
Wearables are faced with various other challenges — from unions raising objections over potential worker discomfort or invasion of privacy, to workers becoming over-reliant on or overconfident because of the technology, or even the potential health risks associated with prolonged proximity to sensors and WiFi.
Then there are the questions around liability. If a worker with known heart issues has a heart attack on the job, could an employer tracking the vital signs be deemed negligent for not acting on warning signs? Would companies use wearables to offload responsibility for unsafe practices and workplace injury on their staff?
Ultimately, this highly promising technology should offer a win-win for insureds and insurers alike, but it can only be successful if the data is used effectively and risk managers enforce best practices through training, education and procedures.
“If all we do is sit back at the end of the week and look at the data, we’ve missed the opportunity,” said Michael.
To Keep Cool in a Crisis, Companies Need a Comprehensive Solution
Threats against corporate security come in many forms, from intentional acts of violence to civil unrest to cyber-attacks. The perpetrators don’t discriminate by company size or sector, and the consequences can range from several thousand dollars lost to several lives lost.
The recent shooting in an Orlando nightclub that killed 49, for example, or last year’s San Bernardino shooting that killed 14, are somber reminders that terrorism and violence can erupt anywhere and in any type of business. In addition to loss of life, violence can translate into business interruption and property damage. In Ferguson, Mo., riots lead to over $4 million in property damage.
Cyber-attacks have also become commonplace, with hackers infiltrating private networks to steal data or hold it ransom.
Is your organization prepared for these risks?
“A lot of companies have a crisis response plan on paper, but they don’t have outside resources to come to their aid if there is an incident,” said Reggie Gibbs, Underwriter and Product Manager, Starr Companies.
Mid-size companies especially tend to lack comprehensive insurance coverage and crisis management services for a variety of security events due either to limited resources or an underestimation of their exposure.
Starr Companies’ Cyber and Terror Response (CTR) solution provides three coverages as well as crisis response services tailored to meet the needs of these companies. Each of its components addresses a common security threat.
“We don’t just want to indemnify the security risks our clients face; we want to help them actively manage them.”
— Reggie Gibbs, Underwriter & Product Manager, Starr Companies
Terror and Political Violence
“Political violence can be defined as a strike, riot, protest, or any type of unrest that gets out of hand and turns violent,” said Gibbs, who specializes in terrorism and political violence, workplace violence, and crisis management.
In the case of the Ferguson protests, any first party property damage or third party liability incurred by the disruption would be covered under the terrorism and political violence segment of the CTR solution.
In the case of a terror attack, organizations cannot necessarily rely on TRIA to pick up property losses. In the case of the Orlando shooting, for example, the likelihood of TRIA being invoked is low because property damage will not meet the threshold for coverage to kick in.
TRIA, reauthorized in 2015, provides a federal insurance backstop in the event of a terror attack. The U.S. Secretary of the Treasury, U.S. Attorney General, and U.S. Secretary of Homeland Security must declare an attack to be an act of terrorism, and property damage must exceed $5 million to trigger TRIA.
“We would still view the Orlando shooting as an act of terror, however, because of who the shooter claimed he was working for regardless if the ties to terror groups are clear or not. Therefore, our coverage would apply,” Gibbs said. Even if TRIA was enacted, however, companies would still have a lot of pieces to pick up following an attack. They may have injured or deceased employees, or face legal action from third parties.
For these situations, and any other incident of violence not driven by terrorism, the workplace violence component of Starr’s CTR solution would act as an umbrella to cover other liabilities such as legal liability, loss of life benefits, psychiatric care, and other crisis response services.
One such incident struck a Boston-area Bertucci’s in early May. An attacker wielding a knife drove his car into a Boston shopping mall before making his way into the nearby restaurant. He killed five, including restaurant workers and patrons.
“There was no ideological or political motivation behind it. He was just deranged.” Gibbs said. “Our workplace violence coverage can handle the loss of life benefits for both the employees and patrons killed in situations like this one.”
In the best cases, though, violence can be prevented altogether.
“If an employee reports a stalking threat, the policy would cover the expense of security guards,” Gibbs said. “In this case, it’s more of a pre-workplace violence coverage. It would de-escalate the situation.”
Attacks can also be non-physical.
Cyber extortion in particular is on the rise. Phishing scams lead employees to click on malicious links, unknowingly downloading ransomware onto their internal networks. The cyber criminals then hold companies’ networks ransom, asking for a sum of money in return for the release of data or to prevent a business interruption. The ransoms can be low — amounts that organizations can afford to pay.
“The hackers don’t want to attract the attention of law enforcement or regulatory agencies,” said Annamaria Landaverde, National Cyber Practice Leader & Professional Liability Underwriting Manager, Starr Companies. Landaverde specializes in the cyber component of the CTR coverage. “The FBI may not get involved if someone asks for $5,000. They are more likely to get involved if someone asks for $5 million.”
Since companies are not required by law to report cyber extortion —like they are for data breaches — many choose simply to pay the ransom and move on without generating any negative news headlines.
“The hackers don’t want to attract the attention of any law enforcement or regulatory agencies. The F.B.I. won’t get involved if someone asks for $5,000. They will get involved if someone asks for $5 million.”
— Annamaria Landaverde, National Cyber Practice Leader & Underwriting Manager, Professional Liability Division, Starr Companies
“A California medical center recently had an incident like this where the hackers asked for $17,000 in ransom,” Landaverde said,” but the amounts can vary.”
While the ransom itself may seem manageable, many companies fail to recognize other costs associated with the identification and removal of the malware from their system. There may also be costs associated with forensics investigations, legal experts, public relations firms, third party lawsuits, and notification and credit monitoring.
“The cyber arm of the CTR coverage extends to liability that an organization would suffer as a result of a breach, or failure of security of the insured’s network,” Landaverde said. That includes not just cyber extortion, but outright data theft or denial-of-service attacks.
Crisis Management Services
“We don’t just want to indemnify the security risks our clients face; we want to help them actively manage them,” Gibbs said.
The fourth component of Starr’s CTR solution – crisis response — provides two outside consultants to insureds, with one specializing in “hard” security services like guards or instances of cyber extortion, and another focusing on crisis communications.
Without these outside services, there is only so much insurance can do in the aftermath of a crisis. Experienced consultants provide a range of security preparedness and response services to complement coverage and help insureds recover from an episode of violence or cyber event.
“From a communications perspective, our consultants can manage the public relations front to create clear and consistent messaging, but they can also stay in touch with families after a terror or other violent attack to make sure everyone stays informed,” Gibbs said.
They also serve as a first point of contact for insureds immediately after an event. If they need guidance quickly, consultants await at the ready.
“When a client purchases the product, they get a 24-hour hotline set up with one of our consultancies,” he said. “They can report an incident at any time, and our consultant will help either resolve a situation or deal with the aftermath in whatever way they can.”
While the Cyber and Terror Response package provides a comprehensive solution tailored for mid-size companies, Starr also offers standalone cyber liability and crisis management coverage on a primary and excess basis.
“For companies with greater exposure to a particular type of risk, or who simply want higher limits or greater customization, we have those standalone polices.” Landaverde said.
For more information on Starr Companies’ Cyber and Terror Response solution, visit https://www.starrcompanies.com/Insurance/CyberAndTerrorResponse.
Starr Companies is the worldwide marketing name for the operating insurance and travel assistance companies and subsidiaries of Starr International Company, Inc. and for the investment business of C. V. Starr & Co., Inc. and its subsidiaries.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Starr Companies. The editorial staff of Risk & Insurance had no role in its preparation.