Coral Reefs Endangered
A “global coral bleaching event” is underway, according to ocean scientists. It is only the third one in recorded history.
Coral reefs — fragile but complex underwater ecosystems that often are called “the rainforest of the sea” – help dissipate wave energy by as much as 90 percent during storms, making them an important barrier to coastal flooding.
“When coral is stressed by changes in conditions such as temperature, light or nutrients, they expel the symbiotic algae living in their tissues, causing them to turn completely white,” according to the National Oceanic and Atmospheric Administration (NOAA).
If the algae loss is prolonged, the coral eventually dies, it said.
“Coral reefs are like canaries in a coal mine.” — Chip Cunliffe, external programs manager, XL Catlin
In addition to helping protect communities from flooding, coral reefs also help support approximately 25 percent of all marine species and affect the livelihoods of 500 million people and income worth more than $30 billion generated by industries such as fishing and tourism.
Coral is also used in the pharmaceutical industry to make drugs that treat some heart disease and cancers.
“Coral reefs are like canaries in a coal mine,” said Chip Cunliffe, XL Catlin’s external programs manager. “Oceans are changing, fairly rapidly, so we think. We as a business are intent on trying to understand the impact of these changes.”
One sobering reason to be concerned about the loss of coral reefs, Cunliffe said, is that property damage from wave action in Bermuda would increase from $500 million to $2 billion over 10 years if its coral reefs were lost.
“And that’s just Bermuda,” he said. “Look at Florida or Australia … places that have big financial centers or population. You’re looking at major losses.”
The world’s coral reefs are in a dramatic state of decline — more than 40 percent of the world’s coral has been lost over the last 30 years due to pollution, destructive fishing and climate change. What’s worse, scientists said, is the decline is expected to continue.
“What really has us concerned is this [coral-bleaching] event has been going on for over a year and is likely to last another year,” said Dr. Mark Eakin, NOAA coral reef watch coordinator.
“We know changes are occurring,” said Mike Maran, chief scientist at XL Catlin, which was a member of the scientific consortium that confirmed the coral bleaching event. “What we don’t know is the speed at which they are changing. We need to have forward insight. This contributes to that data.”
XL Catlin launched a Seaview Survey mission in 2012 to scientifically record the world’s coral reefs and reveal them in high-resolution, 360-degree panoramic images.
The world’s coral reefs are in a dramatic state of decline — more than 40 percent of the world’s coral has been lost over the last 30 years due to pollution, destructive fishing and climate change.
A 30-member team has spent the last three years surveying 32 reefs in 26 countries, including the entire length of the Great Barrier Reef, the remote Coral Sea, the Caribbean islands and Bermuda, and the waters of Southeast Asia. More than 1 million high-definition images have been recorded.
NOAA has been working with the XL Catlin Seaview Survey team to gather the data needed to better understand the extent of this bleaching event and how to effectively address it, Eakin said.
Cunliffe said it is appropriate XL Catlin is taking such a prominent role in the research, considering the whole concept of insurance was developed in the 17th century by Lloyd’s of London to protect against losses in the shipping industry.
“This is a link back to that,” he said. “We need more data to understand the complex risks that we are underwriting.
“What really has us concerned is this [coral-bleaching] event has been going on for over a year and is likely to last another year.” — Dr. Mark Eakin, coral reef watch coordinator, NOAA
“We know more about the moon than we do our own oceans,” Cunliffe said. “We’ve only mapped 1.5 percent of the sea floor. We know very little other than change is happening quickly.
“It’s necessary for us as a business to fill that data gap.”
By monitoring the reefs over time, Cunliffe said, the survey will help scientists, policymakers and the public at large understand the issues reefs are facing and work out what needs to be done to protect them now and into the future.
While the coral bleaching event probably won’t change rating models for now, the data will provide a valuable baseline that can be used for the next 20 years to assess how risk is going to change and how to advise clients to mitigate those risks.
The Seaview Survey is XL Catlin’s second major scientific sponsorship. It also sponsored an Arctic Survey that investigated sea-loss ice in the Arctic Ocean between 2009 and 2011.
That Sinking Feeling
Whether you buy into prevailing theories on climate change and mankind’s influence on the environment or not, few deny that human action is exacerbating a worrying trend of land subsidence.
Groundwater extraction diminishes subterranean water levels and is thought to be playing a major role in the sinking of land in locations around the globe, including the U.S.
In its most extreme form, subsidence can lead to building collapse or the formation of sinkholes, which can result in total property losses and casualties. But a much bigger, quieter concern is the gradual sinking of coastal cities, which in combination with accelerating sea level rise (SLR) is putting billions of dollars of property at risk.
Some experts warn that more commercial properties than we think may be exposed to flooding and structural damage in the event of storm surge.
Storm surges are becoming more violent, and urban development is robbing rain and floodwater of natural drainage routes while insured values continue to rise. Some experts warn that more commercial properties than we think may be exposed to flooding and structural damage in the event of storm surge.
“These risks are significant and carry the potential for large claims,” said Mark Way, head of sustainability, Americas, for Swiss Re, whose “2015 SONAR Report” highlighted soil subsidence as an “underestimated risk” not adequately factored into many CAT models and property insurance portfolios.
“It’s not potential sinkholes that keep risk managers awake at night — it’s the potential for 10 or 15 feet of flood water,” said Lou Gritzo, vice president at research-based insurer FM Global.
But it’s not just property at risk. The hidden danger lies in the potential impact on supply chains, he said.
“Risk managers should think about where their products are coming from and have a contingency plan in place in case a storm affects one of their supplier’s locations or a port their supplies are coming through.”
With U.S. businesses increasingly globally connected, this is a pertinent point.
Way noted that in some parts of the world, cities are sinking 10 times faster than sea levels are rising — Thailand has sunk over three feet since the 1970s; Jakarta may be the fastest sinking megacity, having sunk more than 12 feet in 35 years; while in France, subsidence-related losses have increased by more than 50 percent in the two decades prior to 2011, he said.
Yet, American risk managers are, on the whole, relatively ill-informed on the creeping effects of land subsidence and SLR, which can vary significantly depending on location. Hotspots in the U.S. include areas with significant coastal infrastructure such as New Orleans, New York, New Jersey, D.C.-Virginia, and parts of Florida and Texas.
“There is still a relative lack of awareness of the scale of the problem among businesses – even those operating in areas where there could be substantial risk,” said Ray Monteith, senior vice president of HUB International’s risk services division.
“SLR and land subsidence are relatively slow onset events, measured in incremental changes. There is a tendency for this kind of risk to creep up on people, and there is a failure to act.”
Florida-based Andrew Kiernan, senior director of captive services at Franklin Street, noted that his home state has a high concentration of wealth built not on rock, but sand.
“People continue to build right up to the water’s edge,” he said. “Miami Beach has extremely tall condos containing levels of multimillion dollar units on a sandbar that may not have existed 300 years ago. Palm Beach exists on a sandbar measured not in miles, but yards.”
“It is hard to quantify future risk because we can’t predict the level of future development and subsequently changes in exposed values. Similarly there is some uncertainty in the rate of change to the hazard.” — Andy Castaldi, head of catastrophe perils, Americas, Swiss Re,
Andy Castaldi, head of catastrophe perils, Americas, for Swiss Re, agreed that short term thinking is blinding people to the potential long term consequences.
“It is hard to quantify future risk because we can’t predict the level of future development and subsequently changes in exposed values. Similarly there is some uncertainty in the rate of change to the hazard,” he said.
“Nevertheless, we are aware of it and are trying to educate civil planners to think about the risk 10, 20 or 50 years down the road. You can’t build for today without thinking about tomorrow.”
Recent storm and flood catastrophes have at least prompted many businesses in areas with heightened flood risk to take defensive measures such as moving data and other valuable assets above ground level. The floodwall business is also booming in Florida in particular, Kiernan said.
While brokers and insurers may help companies identify potential risks and mitigation measures, SLR and subsidence are largely ignored as far as property insurance coverage is concerned.
“As of yet, the washing away of foundations is hardly factored into underwriting pricing — people worry more about glass windows and roofs,” said Kiernan.
Monteith said there may be “significant challenges” in obtaining flood coverage for damages related to the slow onset of SLR and subsidence as there would be no clear flood “event” to account for the loss.
“This is something any business owner should be aware of and speak to their insurance representatives about,” he said.
Kiernan explained, however, that the inclusion of “earth movement” rather than “earthquake” in policy wordings is a key differentiator. Earth movement covers a broad range of perils, including sinkholes and land subsidence, whereas earthquake covers only losses from tectonic shifts — a small but vital consideration if a property is to be covered against the potential effects of SLR and subsidence.
“It is important to make sure your policy is clear on what it does and doesn’t cover — for example, earth movement or earthquake cover. Are you clear on what the differences are? You better be,” said Duncan Ellis, Marsh’s U.S. property practice leader.
Gritzo urged risk managers to “double and triple check” the scope of their property coverage.
“Sit down with your insurer and throw out some scenarios — ‘What happens if a storm comes through and washes 10 feet of water into my building? What is covered and what isn’t?’ Those are great questions.”
Ultimately, the best defense is for property owners to take ownership of their risk management — from ensuring the right due diligence is conducted prior to developing land or purchasing a property (flood risk information should be obtainable from either local, regional or national government agencies, for example), through to bolstering physical flood defenses.
“We urge business owners to take control of their own destiny,” said Gritzo. “There are more certified physical loss prevention products out there to keep water out of your building than ever before, and we can thank Superstorm Sandy for that — it motivated manufacturers to come up with new innovative solutions.
“We recommend putting defenses up to the 500-year flood level — there is a 0.2 percent probability of this occurring each year. At the minimum, you should have a response plan. It doesn’t take long to put one together and every company should have one.”
In 50 years, cities like Miami and New Orleans could look very different than they do today.
Lawmakers and developers would be foolish to ignore SLR and subsidence when building coastal centers, and there is no time like the present for risk managers to begin taking steps to minimize their exposure.
When the Going Gets Rough, the Smart Come to Aspen Insurance
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.
Mitchell 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.”
Aspen’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.