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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Market Outlook

A Buyer’s Market

Except for cyber, risk managers can expect declining insurance premiums.
By: | November 9, 2015 • 4 min read
Close up of female accountant or banker making calculations

Cyber and errors and omissions (E&O) insurance rates will spike in 2016 — some by as much as 150 percent — driven by the growing threat of hacking and data theft, according to the latest market report by Willis.


Overall property and casualty premiums, however, will continue to soften as a result of benign losses and overcapacity, the global insurance broker said in its “2016 Marketplace Realities” report.

In total, Willis expects rates in 2016 to decline in 10 lines, including property, casualty and aviation.

However, cyber and E&O buck that trend, with cyber premiums expected to increase by up to 15 percent in general, and by between 10 percent and 150 percent for point-of-sale retailers and large health care companies.

Smaller organizations with revenues of less than $1 billion face lower increases, said Willis.

“There’s a recognition that because there’s a high frequency of events there will be more demand for coverage as people realize that they are vulnerable to cyber attacks.” — Meyer Shields, managing director, Keefe, Bruyette & Woods

Meyer Shields, managing director at Keefe, Bruyette & Woods Inc. at Stifel Financial Corp., said that cyber rates will continue to climb as a result of the high frequency of breaches.

“There’s a recognition that because there’s a high frequency of events there will be more demand for coverage as people realize that they are vulnerable to cyber attacks,” he said.

With total annual cyber premiums expected to reach $20 billion by 2025, according to industry experts, Willis said that underwriting requirements have continued to rise.

Insurers are also increasing retentions, reducing capacity and exiting certain lines, the broker said.

Excess cyber losses have also caused some markets to stop writing large accounts, while others have ramped up their premiums in upper layers of $75 million plus placements.


Willis said that those sectors at risk from large claims and litigation will continue to see the most upward pressure on rates, such as large technology companies dealing with expanding global privacy laws.

As a result of increasing cyber exposures, Willis said that some carriers have decided to withdraw from the retail, health care and financial institution sectors, as well as E&O programs that include cyber coverage.

Chris Lane, US placement leader at Marsh, said that while rates were decreasing on an aggregate basis, cyber is the exception.

He said “there is a big uptake in coverage by clients, while carriers are driving some rates up as a result of the recent losses experienced, particularly in the retail space.”

As for other lines, he expects “modest to single digit rate decrease across the board.”

“In property, it’s probably a higher single digit decrease and some of the casualty lines might be flat, as are financial lines.”

Soft Market Continues

The continued soft market, meanwhile, has been exacerbated by an increase in consolidation, driven by low interest rates and a benign year for catastrophes, — a trend that is expected to continue in 2016, said the Willis report.

“Marketplace forces have changed the size and shape of the pieces of the risk management puzzle to an extent we have not seen for some time.” — Matt Keeping, chief broking officer, Willis North America

“Marketplace forces have changed the size and shape of the pieces of the risk management puzzle to an extent we have not seen for some time,” said Matt Keeping, chief broking officer for Willis North America.

“The key force driving this change in the market is consolidation.”

“A smaller market with fewer, larger players also opens up the field to newcomers that can focus on smaller, specialized niches in areas of potential growth,” he said.

The report went on to say that while property rates will continue to fall, primary casualty rates for most buyers are declining for the first time in the current soft market.

Premiums for general liability are expected to fall by up to 5 percent and in umbrella/excess by up to 10 percent.

Property rates, on the other hand, should fall by 10 percent to 12.5 percent for non-catastrophe risks and by 12.5 percent to 15 percent for catastrophe risks, said Willis.

Most auto insurance buyers can also expect premium decreases of up to 10 percent, while airline insurance is expected to fall by 15 percent to 20 percent after the industry absorbed the major losses from 2014, according to Willis.

“We continued to hear from our members that this a buyers’ market,” said Ken Crerar, president and CEO, The Council of Insurance Agents & Brokers

The Council of Insurance Agents & Brokers likewise reported that commercial P&C rates continued to decline across all lines by an average of 3.1 percent during the third quarter of 2015. The biggest decrease was in large accounts, which dropped by 4.1 percent.

“We continued to hear from our members that this a buyers’ market,” said The Council’s president and CEO Ken Crerar.

Andrew Colannino, vice president of P/C at A.M. Best, said that the rating outlook for commercial lines in 2016 remained negative.

“There are going to be more downgrades than upgrades for commercial lines and the vast majority of ratings are going to be affirmations,” he said.


“There’s a now widening divide between the strong performers and the underperformers.

“For that second group, there’s going to be an increasing number of reserve charges amongst those carriers – a lot of them haven’t made the proper investments in technology, data and analytics and therefore some are at a competitive disadvantage.”

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him 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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