Rising Threats in the Public Sector
In Orange, Texas, a March public meeting to review storm surge suppression options for the Gulf Coast Community Protection and Recovery District had to be rescheduled to April 14 because of — wait for it — widespread flooding.
Irony aside, nearly 140 miles of the Sabine River flooded for four days, closing down almost all major roads that crossed this watery Texas-Louisiana border.
The flood and delayed meeting are a clear example about the very real impact climate change is having on low-lying areas all around the U.S. coasts. The Texas Governor’s Commission for Disaster Recovery and Renewal program estimates that it may cost as much as $11 billion to protect that area of the Gulf Coast.
“Nobody is sticking their head in the ground as far as I can see.” — William F. Becker, national public sector practice leader, Aon Risk Solutions
That’s a good investment, however, since Hurricane Ike in 2008 wrought $29 billion in property damage, making it the most expensive storm in the state’s history and the third costliest in the country, according to the Texas Engineering Extension Service report.
Texas officials are not alone in facing such challenges.
Coastal communities such as New York City, Norfolk, Va., Miami-Dade County, and Seattle lie at or below sea level, making them vulnerable to storm surges and flooding, especially in the face of the rising sea levels and increased storm activity predicted for the coming decades.
The key question for the public sector is how to affordably protect both residential and business properties as well as public infrastructure such as roads, bridges, utilities, water treatment plants, and other assets.
For many communities, the answer is to do more accurate risk modeling; do short- and long-term planning; build traditional “gray” defenses such as dams, levees, walls, and sea gates as well as natural “green” defenses to reduce storm surge impact; and work with insurers and reinsurers to rebound from losses made inevitable by climate change.
“Nobody is sticking their head in the ground as far as I can see,” said William F. Becker, Aon Risk Solutions’ national public sector practice leader. Instead, communities are balancing what can be done over the next few decades with current engineering and technology, while keeping an eye out for what may be possible with new technology by the year 2100.
However, budgetary pressures make many large-scale projects unaffordable, so public entities are maintaining the current infrastructure as best they can for now, said Becker, whose company also helps to administer the National Flood Insurance Program (NFIP).
Some cities have begun implementing protective strategies with a lower price tag, such as prohibiting land clearing near flood-prone areas, planning for public green spaces to absorb water, elevating streets over time, providing dunes on the coast, and heightening sea walls, among other solutions.
Tackling the problem with small, affordable strategies will give public sector organizations more time “until new and highly technical strategies can save these critical vital communities going forward,” Becker said.
Others are looking to partnerships to broaden their access to solutions.
One example is Miami-Dade County, which launched an innovative program in partnership with The Nature Conservancy (TNC), catastrophe modeler Risk Management Solutions (RMS), engineering company CH2M, and the American Red Cross/Red Crescent’s Global Disaster Preparedness Center.
The collaborators will work on various aspects of two demonstration projects that will measure the effects of green defenses such as salt marshes and mangrove forests in protecting the region from the severe storms that arise in the Atlantic’s Hurricane Alley.
This is the latest research project that RMS undertook to help model the protective impact of biological defenses. Working with communities on both coasts — including Norfolk, Va., and the Seattle region’s Puget Sound — “RMS has begun showing how we can quantify the reduction in risk using our storm surge modeling capability for coastal risks,” said the modeler’s Chief Research Officer Robert Muir-Wood.
“Our [modeling looks at] the full sweep of potential hurricanes and the storm surges they generate, and takes it all the way through to the damage and the quantified loss to property, which may be inland of the coastal areas,” Muir-Wood explained.
“We can actually quantify the benefits of one form of coastal defense [marshes]. That opens up a much bigger conversation to not only other classes of biological defenses but also to think through how can you combine a mixture of biological and gray defenses to provide really good protection.”
This kind of assessment is critical for communities to understand the complete impact of storms on local government budgets, noted Kathy Baughman McLeod, managing director of TNC’s coastal risk and investment.
“We have found that local governments and governments in general don’t know what their risk is,” said McLeod. “And then, when they make [storm-related] repairs, they pay for it out of all different buckets [such as public works, parks and recreation, etc.].
“When we ask, ‘What are you spending each year?’ they don’t know. They have the awareness but the [quantitative analysis] is not there.”
Impact on Rates
TNC’s project will help develop trusted metrics about both green and gray defenses that can eventually be adopted to set more accurate NFIP prices and quantify total risk. In addition, on April 1, the Federal Emergency Management Agency (FEMA) implemented more rigorous guidelines for accurately assessing flood risk to help set more appropriate insurance rates.
While property owners and local governments in some communities will pay higher rates that are more commensurate with the actual risk, communities that adopt better defense strategies will see their rates decrease.
While climate change may have the greatest impact on coastal communities, the interior of the U.S. will face changing weather patterns as well.
For example, New Orleans got good news from FEMA in April, nearly 11 years after Hurricane Katrina devastated the city. With about $14.6 billion in improvements made by the U.S. Army Corps of Engineers, the below-sea-level area now has a new defensive ring of protective levees, floodwalls, and floodgates.
Work is continuing on renovations to the city’s drainage system as well. For many residents and businesses, the new maps mean lower insurance rates.
Muir-Wood said expect to see more municipalities and other public organizations create the position of chief resilience officer, just as Miami-Dade County, Norfolk, San Francisco, New Orleans and other cities have done with the support of the Rockefeller Foundation as part of its 100 Resilient Cities project.
This new office will coordinate work across departments and jurisdictions as well as with outside organizations to plan for and respond to weather-related events as well as other threats, such as fire, tornadoes or civil unrest.
Another trend, he said, is that catastrophe modeling tools previously used solely for insurance risk assessment will become more commonplace for big cities, letting them conduct a cost-benefit analysis for various alternative actions to reduce that risk.
Finally, understanding weather-related exposures is still going to be critical for public sector entities, said Joe Caufield, chief underwriting officer for OneBeacon’s government risk operation.
“Some information is presented in a highly dramatic fashion,” he said. “The feedback we hear is that risk managers and city managers are overwhelmed by [threats] and don’t see them as actionable … but we don’t encounter too many climate change deniers.”
Instead, public sector organizations are studying their exposure for critical assets such as wastewater management facilities and 911 communications centers. They’re making plans for protection and upgrading, especially if the facilities are right on the edge of FEMA flood map outlines that may not have been updated in 40 years.
One thing to remember about climate change, Caufield noted, is that while it may have the greatest impact on coastal communities, they are not the only areas that will have to contend with climate threats.
The interior of the U.S. will face changing weather patterns as well, especially with greater temperature variations between severe cold and increased heat. That equals a more severe spring tornado season. &
On the Front Lines
As the United Nation’s Paris Climate Conference results are debated, some in the insurance industry have taken leadership roles in advocating for change while working with clients to address the problem.
At least nine insurers have been cited by Ceres – a nonprofit organization founded by investors, companies, and environmental public interest groups after the Exxon Valdez oil spill – for providing leadership in the battle to manage climate change.
Insurers and reinsurers, after all, are on the front lines of providing financial recovery after hurricanes, floods, wildfires, tornadoes and winter storms, which many in the scientific community believe are increasing due to high levels of carbon dioxide in the atmosphere.
“As we learn more and more things about the fragile environment we live in, we have an obligation to take action.” — Joseph L. Boren, chairman of the environmental product line, Ironshore Holdings (U.S.) Inc.
“As we learn more and more things about the fragile environment we live in, we have an obligation to take action,” said Joseph L. Boren, chairman of the environmental product line at Ironshore Holdings (U.S.) Inc.
Insurers at the forefront of action are developing risk models as a way to stay ahead of change – as well as reducing their own organization’s carbon footprint. They are involved in discussions about climate change initiatives, and they are working on ways to promote or favor clean energy use among clients.
Need to Adapt
Until now, the industry has largely seen climate change through the prism of extreme weather events, said Frank Nutter, president of the Reinsurance Association of America (RAA).
“When [insurers] think about what they should do about climate change or extreme weather events, they will focus on ways to reduce those losses,” he said, through advocating for building code changes or adjusting their insurance capacity in risk-prone regions.
“Adaptation is the name of the game.”
But more and more, insurers and industry groups are choosing to take on an advocacy stance, he said.
The RAA works closely with a number of environmental groups such as the National Wildlife Federation and the Nature Conservancy on ways it can support local communities to preserve natural habitats as a way to reduce losses.
“Natural habitats tend to impact the potential consequences of storm surge or extreme weather — the Mississippi Delta around New Orleans would be a good example of that,” he said.
While Swiss Re does not engage lobbyists to work on the issue, it does regularly converse with individuals “at various levels of government, up and down the chain within the industry and outside the industry” on climate change issues, said Mark Way, senior vice president and head of sustainable development in the Americas.
Follow the Water
Louis Gritzo, vice president of research for FM Global, said companies must “follow the water” to understand the risks.
In addition to polar and glacial ice melting causing sea levels to rise – which has been more significant in the Gulf and the Southeast – there’s also been an increase in the intensity (but not the frequency) of rainstorms in North America overall, he said.
Half the U.S. is within one county of the coastline or the Great Lakes, yet development and infrastructure continues to increase in such exposed areas, he said.
“One thing that Superstorm Sandy proved was that multiple ways of preventing flood damage were needed,” Gritzo said.
Sandy caused an unprecedented 14-foot storm surge, eclipsing the 10-foot record set in 1960, and resulted in more than $68 billion in total losses (over $29 billion in insured losses) and 210 deaths.
Billion Dollar Risks
Climate concerns can be split into three categories: higher sea levels, warmer climates and extreme heat, according to The Risky Business Project, a nonpartisan nonprofit founded to understand and communicate the impact of climate change on U.S. business.
In the next 15 years, U.S. coastal areas may see up to $35 billion in damage each year because of higher sea levels and storm surges from hurricanes and other storms, according to the group’s report done in conjunction with the economic research firm Rhodium Group, which specializes in analyzing disruptive global trends; Risk Management Solutions (RMS); and leading climate scientists.
In 2050, “between $66 billion and $106 billion worth of existing coastal property will likely be below sea level nationwide, with $238 billion to $507 billion worth of property below sea level by 2100,” the report predicted.
The sea level rises will be higher on average along the Southeast and Atlantic coasts.
As for warmer climates, it could lead to a loss of 10 percent in crop yields for corn, wheat, soy and cotton in the Midwest and South during the next five to 25 years if farmers can’t adapt.
At the same time, farmers further north and in the Great Plains may see an increase in productivity for these crops but these shifts will have an adverse impact on individual farming communities most vulnerable to projected climatic changes, it said.
“We try very hard to pay close attention to how our business operates in economic and also in social responsibility [terms].” –Jay Bruns, vice president for public policy and corporate responsibility, The Hartford
Extreme heat, the third focus, especially in the Southwest, Southeast, and Upper Midwest, will threaten labor productivity, human health and energy systems, according to the Risky Business Project.
By the middle of this century, the number of days with temperatures over 95 degrees Fahrenheit will double or triple the 30-year average. That will increase demand on regional power generation, as air conditioning becomes a necessity for larger parts of the country. It also may threaten the health and productivity of outdoor workers.
“The project has not called for specific action related to climate,” Nutter said, “but they have recognized that our government often struggles to deal with this issue and private industry [is] often doing a lot to protect their own property, to look at their own footprint.
“They just recognize that this is an issue that … the business community could be and, in some cases, is already dealing with proactively. They put a lot of resources behind the need to do more.”
Changing a Risky Future
Swiss Re got involved with climate change risk assessment and advocacy some 25 years ago, said Way.
Since then, the company has been examining the impact made by its own company as well as the risks of society as a whole.
“We’ve been looking at what kind of products would be most appropriate to either deal with the severe weather impacts or the transition from a high- to a low-carbon economy, so you have things like insurance for renewable energy and clean technologies,” he said.
The company also has regular discussions with clients and shares examples of what can be done about climate change.
It actively encourages corporations to participate in carbon-reduction/carbon-neutral programs, and it, along with three dozen or so companies, including Ikea, Walmart, Starbucks and P&G, have committed to reaching a goal of 100 percent renewable energy for their power requirements.
The Hartford also tries to lead on the issue through advocacy and customer programs.
“We try very hard to pay close attention to how our business operates in economic and also in social responsibility [terms],” said Jay Bruns, The Hartford’s vice president for public policy and corporate responsibility.
To help clients become more sustainable, The Hartford offers a wide variety of credits, discounts and additional coverages for hybrid and electric vehicles, energy-efficient building materials and equipment, renewable energy equipment, and other green-friendly initiatives.
Like Swiss Re and others, The Hartford sees its own efforts to reduce carbon use as important in taking a leadership role, as well as making its own business more sustainable.
The company set an initial goal of reducing its operation’s greenhouse gases by 15 percent from 2007 to 2017, but met that goal in just three years and subsequently met two more reduction goals. As of 2014, The Hartford managed to reduce its emissions by 50 percent.
Swiss Re launched a Greenhouse Neutral Program in 2003 to commit “to going carbon neutral, which we’ve actually been since 2007,” Way said.
“We also have a program called COYOU2 which [provides a] financial subsidy to our staff if they want to invest in low carbon technology, such as an electric or hybrid car, solar heating, installing [high efficiency] windows,” and other items.
Reducing the Carbon Footprint
FM Global cites its engineer-driven underwriting and risk management solutions and property loss prevention research as a way to help clients address their carbon footprint.
“We were the first ones to have loss prevention guidance for green roofs and we have [had those] for solar panels and wind turbines for a long time,” said Gritzo.
“If you want a green building to be really green, it has to last. It has to not just be sustainable in terms of the energy use but it has to be able to withstand typical fire and emissions hazards and natural hazards in the area.
“An enterprise risk management strategy should have a response plan for every hazard for which [the company is] subjected, as well as supply chain analysis, and [a plan for] working with local authorities so people managing facilities in certain locations can understand what local authorities can and can’t do.
“When a catastrophe hits, it’s not the time to be swapping business cards,” said Gritzo.
“You need to have relationships with local authorities before [the catastrophe], whether it is a flood or a windstorm.”
Ceres recommends several steps for insurers and their clients:
• Implement climate risk oversight at the board and C-suite levels;
• Integrate climate risk into ERM frameworks;
• Deepen understanding of climate change scenarios and impacts;
• Engage with key stakeholders (including policyholders) on climate risk;
• Participate in joint industry initiatives on climate risk;
• Integrate climate change considerations into catastrophe models; and
• Consider correlated climate risks in investments.
Boren remains optimistic that the U.S. and international community will join with global insurers and the business community to effectively combat climate change.
He recalled that while he studied environmental science in Los Angeles in 1969, he didn’t see the sky for about 10 days because of the heavy smog hanging over the valley.
“Then, one day, when I walked out of my apartment, I could see the mountains and finally understood why people said California was so beautiful,” said Boren.
It took a while, but eventually sustainable changes such as requiring catalytic converters on gasoline vehicles helped turned the area back into a sunny paradise.
Responding to climate change will be similar, requiring slow but steady changes on the part of the insurance industry and its corporate customers
Advocacy: The Impact of Continuous Triage
In the world of workers’ compensation, timing is everything. Many studies have shown that the earlier a workplace incident or injury is acted upon, the more successful the results*. However, there is further evidence indicating there is even more of an impact seen when a claim is not only filed promptly, but also effective triage is conducted and management of the claim takes place consistently through closure.
Typically, every program incorporates a form of early intervention. But then what? While it is common knowledge that early claims reporting and medical treatment are the most critical parts of a claim, if left alone after management, an injured worker could – and often does – fall through the cracks.
All Claims Paths are Not Created Equal
Even with early intervention and the best intentions of the adjuster, things can still go wrong. What if we could follow one injury down two paths, resulting in two entirely different outcomes? This case study illustrates the difference between two claims management processes – one of proactive, continuous claims triage and one of inactivity after initial intervention – and the impact, or lack thereof, it can have on the outcome of a claim. By addressing all indicators, effective triage can drastically change the trajectory of a claim.
While working at a factory, David, a 40-year-old employee, experienced sudden shoulder pain while lifting a heavy box. He reported the incident to his supervisor, who contacted their 24/7 triage call center to report the incident. After speaking with a triage nurse, the nurse recommended he go to an occupational medicine clinic for further evaluation, based on his self-reported symptoms of significant swelling, a lack of range of motion and a pain level described as greater than “8.”
The physician diagnosed David with a shoulder sprain and prescribed two weeks of rest, ice and prescription strength ibuprofen. He restricted David from any lifting over his head.
By all accounts, early intervention was working. Utilizing 24/7 nurse triage, there was no lag time between the incident and care. David received timely medical attention and had a treatment plan in place within one day.
A critical factor in any program is a return to work date, yet David was not given a return to work date from the physician at the occupational medicine clinic; therefore, no date was entered in the system.
One small, crucial detail needs just as much attention as when an incident is initially reported. What happens the third week of a claim is just as important as what happens on the day the injury occurs. Involvement with a claim must take place through claim closure and not just at initial triage.
The Same Old Story
After three weeks of physical therapy, no further medical interventions and a lack of communication from his adjuster, David returned to his physician complaining of continued pain. The physician encouraged him to continue physical therapy to improve his mobility and added an opioid prescription to help with his pain.
At home, with no return to work in sight, David became depressed and continued to experience pain in his shoulder. He scheduled an appointment with the physician months later, stating physical therapy was not helping. Since David’s pain had not subsided, the physician ordered an MRI, which came back negative, and wrote David a prescription for medication to manage his depression. The physician referred him to an orthopedic specialist and wrote him a new prescription for additional opioids to address his pain…
Costly medical interventions continued to accrue for the employer and the surmounting risk of the claim continued to go unmanaged. His claim was much more severe than anyone knew.
What if his injury had been managed?
A Model Example
Using a claims system that incorporated a predictive modeling rules engine, the adjuster was immediately prompted to retrieve a return to work date from the physician. Therefore, David’s file was flagged and submitted for a further level of nurse triage intervention and validation. A nurse contacted the physician and verified that there was no return to work date listed on the medical file because the physician’s initial assessment restricted David to no lifting.
As a result of these triage validations, further interventions were needed and a telephonic case manager was assigned to help coordinate care and pursue a proactive return to work plan. Working with the physical therapist and treating physician resulted in a change in David’s medication and a modified physical therapy regimen.
After a few weeks, David reported an improvement in his mobility and his pain level was a “3,” thus prompting the case manager’s request for a re-evaluation. After his assessment, the physician lifted the restriction, allowing David to lift 10 pounds overhead. With this revision, David was able to return to work at modified duty right away. Within six weeks he returned to full duty.
With access to all of the David’s data and a rules engine to keep adjusters on top of the claim, the medical interventions that were needed for his recovery were validated, therefore effectively managing his recovery by continuing to triage his claim. By coordinating care plans with the physician and the physical therapist, and involving a case manager early on, the active management of David’s claim enabled him to remain engaged in his recovery. There was no lapse in communication, treatment or activity.
After 24/7 nurse triage is conducted and an injured worker receives initial care, CorVel’s claims system, CareMC, conducts continuous triage of all data points collected at claim inception and throughout the life of a claim utilizing its integrated rules engine. Predictive indicators send alerts to prompt the adjuster to take action when needed until the claim is closed – not just at the beginning of the claim.
This predictive modeling tool flags potentially complex claims with the risk for high exposure, marking claims that need intervention so that CorVel can assign appropriate resources to mitigate risk.
Claims triage is constant – that is the necessary model. Even on an adjuster’s best day, humans aren’t perfect. A rules engine helps flag things that people can miss. A combination of predictive systems and human intervention ensures claims management is never stagnant – that there is no lapse in communication, activity or treatment. With an advocacy team in the form of an adjuster empowered by a powerful rules engine and a case manager looking out for the best care, injured employees remain engaged in their recovery. By perpetuating patient advocacy, continuous triage reduces claim severity and improves claim outcomes, returning injured workers to the workforce and reducing payors’ risk.