Withstanding the Storm
The impact of a hurricane or severe windstorm can be devastating.
The risk of damage to your property is even greater if you’re in a hurricane-prone state like Florida, as in the case of Miami-Dade County Public Schools (M-DCPS).
Between 2004 and 2014, M-DCPS, which owns $10 billion worth of property, received more than $30 million in assistance from the Federal Emergency Management Agency (FEMA) for damage caused by windstorms or hurricanes.
But last year, FEMA published new guidance that essentially reduced funding for properties that had received assistance in the past. If damage was caused by the same peril, FEMA would reduce its assistance by the amount required for the previous disaster, regardless of the deductible.
That’s where Scott Clark, the recently retired risk and benefits officer of M-CDPS, stepped in. To plug the gap, Clark drew up a three-year program with Swiss Re based on a parametric model of coverage.
The new “storm policy,” effective from May 1, provided a limit of $10 million per loss, with a three-year aggregate limit of $20 million. The policy is triggered by wind speeds in excess of 87.5 mph on a weighted basis.
M-DCPS is believed to be the only public entity in the U.S. that has purchased such coverage to address its FEMA shortfall.
This was in addition to a rolling three-year base windstorm property policy that provided a 10 percent to 15 percent no-claims bonus for every storm-free year, net of commissions.
“The problem was that at the time we didn’t have the ability to secure coverage for every property, and we were already spending $25 million to $30 million on property insurance as it was,” said Clark, who is a former Risk and Insurance Management Society president and director.
“So we started looking at the alternatives and that is where we brought in Swiss Re. They came up with a solution that would monitor wind speeds across all of the ZIP codes that our properties were in.
“Provided there was a sustained wind speed of 87.5mph in that area and we could provide out of pocket expenses, the policy would be triggered and pay out $10 million per loss.”
“The problem was that at the time we didn’t have the ability to secure coverage for every property, and we were already spending $25 million to $30 million on property insurance as it was.” — Scott Clark, recently retired risk and benefits officer, Miami-Dade County Public Schools
He added: “Over the last years, since there have been no significant windstorms, year after year we have made savings of 10 percent to 15 percent in the property marketplace through the no-claims bonus.
“On top of that, we have seen a 10 percent to 12 percent increase in the total insurable value of our properties, translating into an overall saving of 20 percent every year.”
“Scott is one of those amazing people who can jump from topic to topic,” said Kathy Silver, vice president at Insurance Consultants. “One minute he can discuss a complex health insurance problem, then walk into a property insurance meeting and not miss a beat. He consistently challenged himself and the people he worked with to consider new solutions and ideas.” &
A-Plus in Risk Management
James Colorado Robertson, assistant director of risk management at Louisiana State University, bleeds his alma mater’s colors, purple and gold.
The fighting Tiger enrolled at LSU as an undergraduate student in 2003 and never left.
He obtained two degrees there, was hired to create the university’s enterprise risk management plan before he graduated and helped build the first stand-alone public higher education insurance program in Louisiana in 25 years.
“Risk management finds you,” Robertson said. “I don’t think you find risk management.”
When he became an LSU employee, new legislation allowed the university to self-insure for the first time in 25 years.
Insurance autonomy would reduce costs so the college could reinvest its savings to benefit its 31,000 students. But the process was harder and filled with more challenges than anyone predicted, including approval and certification from the five different state offices.
Extensive negotiations, more than 1,200 pages of plans, and the daunting task of placing and creating the many contractual arrangements that other insureds take for granted: brokerage service, third party administration, loss control services, insurance market relationships and many more.
Workers’ compensation was also newly written to insure more than 13,000 full-time employees.
Robertson also drafted an entirely new set of risk management policies for LSU and introduced a Total Cost of Risk Model to demonstrate the value of investment in risk management.
“He wants LSU to be empowered by risk management,” said Nancy Sylvester, managing partner, public sector at Arthur J. Gallagher & Co., who has worked with Robertson for about five years.
“Every day I go to work, I take the passion and thankfulness for what LSU has given me and I try to return that by doing the best job I can do in risk management.” — James Colorado Robertson, assistant director, risk management, Louisiana State University
“I don’t want you to think I was out there doing this alone,” Robertson said. “If it wasn’t for the vision and commitment our senior leadership provided, I don’t think any of this would have been possible.”
“Colorado has been a vital component in the development and success of LSU risk management,” said Brian T. Nichols, associate vice president for administration and IT, and CIO at LSU. “I believe it is this commitment and passion that has allowed Colorado to lead some of the most innovative improvements to the risk management program at LSU.”
Last year, Robertson led the effort to place the first foreign travel policy for LSU employees while also driving improvements to foreign casualty and response programs.
It was a timely move that came into play this summer when four LSU students were in Nice, France, celebrating Bastille Day and a terrorist plowed a truck into crowded streets killing 84. The students were unharmed, but the new protocol enabled LSU to contact them immediately and offer counseling if needed.
“Every day I go to work, I take the passion and thankfulness for what LSU has given me and I try to return that by doing the best job I can do in risk management.” &
Using Data to Get Through Hail and Back
4,600 hailstorms have rained down on the U.S. as of the end of July according to the National Oceanic and Atmospheric Administration. And these storms have left damage behind, cracking unprotected skylights, damaging exterior siding, dimpling rooftops and destroying HVAC systems.
While storm frequency is almost on par with last year’s 5,400, the rest of the picture isn’t quite the same. For example, the hail zone seems to be shifting south. San Antonio, Texas, a “moderate” hazard hail zone area, typically sees four or five hail storms a year, on average. Year to date, more than 30 storms have been reported. Overall, Texas has suffered nearly 20 percent of all hail storms this year.
Liberty Mutual’s Ralph Tiede discusses the risk hail poses to large commercial property owners.
The resulting damage is different too, with air conditioning (AC) units accounting for more than a third of the insurance industry’s losses, a greater proportion than in previous years. “In some cases, we’ve seen properties that sustained no roof damage but had heavily damaged AC systems. This may be a result of smaller hail stone size coupled with high winds,” noted Ralph Tiede, Vice President of Commercial Insurance and Manager of Property Risk Engineering at Liberty Mutual.
Despite the shifting trends, however, these losses are largely preventable if commercial property owners understand their exposures and take steps to mitigate them. By partnering with the right insurer, a company can gain access to the industry-leading resources and expertise to make it happen.
Understanding the Risk through Data
A property owner might know that his property is located in an area prone to hail, but could underestimate the extent of damage a storm could cause. Exposed skylights, solar panels, satellite dishes and other roof-mounted equipment can translate to serious losses.
Three trends that have emerged this hail season.
This is where Liberty Mutual’s property loss control engineers offer critical guidance for customers with large property exposures.
“Our property loss control engineers go out and inspect locations to develop loss estimates,” said Tiede. “They’re looking at the age and condition of the roof, the material it’s made of, and whether equipment is exposed or if there are adequate safeguards in place.”
Liberty Mutual can combine this detail with the hail data it has collected for more than 14 years and use this extensive library to help customers understand their exposures. The company’s proprietary hail tool looks at customer-specific factors, such as roof type, age, condition and geocodes, to better identify potential losses from hail. The tool provides a more detailed view of hail exposure on a micro level, as opposed to more traditional macro views based on zip codes.
“This way, we’re not just looking at a location’s exposure, we’re looking at an account’s cumulative hail exposure and providing a better understanding of where the risk is concentrated,” Tiede said.
Having a good understanding of a company’s specific exposure helps the broker, buyer, and insurer develop an effective insurance program. “Two customers may be in the same area, but if one’s building has a hail resistant roof, protected skylights, and hail guards for HVAC equipment and the other’s has unprotected sky lights and no hail guards or screens on rooftop equipment, they are going to have different levels of exposure. In both scenarios, we can design an insurance program that fits the customer’s situation and helps control the total cost of property risk,” said Brent Chambers, Underwriting Consultant for National Insurance Property at Liberty Mutual.
A Liberty Mutual property loss control engineer consults with the customer on ways to reduce or mitigate the exposure from hail so that the customer can make an informed decision as to where to deploy capital. “It’s not just about protecting a building’s roof and rooftop equipment. Roof damage can lead to extensive water damage inside a building and in some cases disrupt service, both of which can be costly for a business. By focusing on locations with the most exposure, a risk manager is better able to mitigate future losses,” said Tiede.
Actions commercial property owners can take to mitigate the risk of hail-related damage.
Liberty Mutual property loss control engineers also provide recommendations specific to each location. “We know that hail guards work, so we encourage clients to use those to protect HVAC equipment,” said Ronnie Smith, Senior Account Engineer for National Insurance Property at Liberty Mutual. “Condenser coils in air conditioning systems are fragile and easily damaged, and units don’t necessarily come with built-in protection. It’s important for property owners to take this step proactively to prevent a loss.”
The average cost to fix a condenser coil is $500, but replacing a coil can run at least $500 per ton of cooling, a measurement of air conditioning capacity that refers to the amount of heat needed to melt a ton of ice over a 24-hour period. As one ton of cooling typically covers about 250 square feet of interior space, replacement costs can quickly add up.
Replacing an entire AC unit can run more than $1,000 per ton of cooling. In a 250,000 square foot property, the replacement could easily reach $1 million. Given the increase in hail-related AC damage this year, these are numbers worth knowing.
Other risk mitigation recommendations include regular roof maintenance, such as inspections and repairs to small damages like blisters and installing protective screens over skylights.
“If a roof needs replacing, we also suggest using materials that have been tested and approved by an independent certification laboratory and are durable enough to fit the location’s exposures,” Tiede said. “The last thing a commercial property owner wants is to replace a roof again six months after it’s installed. Experience has shown that ballasted-type roofs are the most resistant to hail damage.”
Using Data to Develop Solutions
When a property owner has an understanding of the size of its exposure and potential losses, it is better able to work with its agent or broker and insurer to develop an insurance program to manage and mitigate potential risks.
“The data and advice we provide help clients focus on the largest risks and better mitigate that exposure,” Smith said. “The more data you have, the more you can understand your risk on a granular level and manage it.”
This data-driven approach to preparedness makes Liberty particularly well-suited to serve large commercial properties with multiple locations in high risk areas.
Prices for roof and air conditioning repairs and replacements have risen over last year, Tiede said, and are likely to grow more expensive as older equipment becomes obsolete. Property owners will be forced to buy newer, pricier replacements than perhaps they had originally planned for.
And if this year’s storm trends are any indication, hail is sometimes an unpredictable foe.
Amidst these shifting trends, the value of an insurer’s expertise in identifying, mitigating and managing hail exposure will be immeasurable to large commercial property owners.
For more information about Liberty Mutual’s commercial property coverage, visit https://business.libertymutualgroup.com/business-insurance.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.