Property Risk

That Sinking Feeling

Many coastal U.S. cities are sinking, while sea levels are rising. Commercial property owners may be more exposed to flood risk than they realize.
By: | September 14, 2015 • 6 min read

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.

090152015_18_sinking_sidebarYet, 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.

Invisible Threat

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.

 Andrew Kiernan, senior director of captive services, Franklin Street

Andrew Kiernan, senior director of captive services, Franklin Street

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.

Antony Ireland is a London-based financial journalist. He can be reached at [email protected]
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Risk Insider: Matthew Nielsen

California Dreamin’

By: | August 6, 2015 • 3 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]

It’s no secret that California has been suffering through a record-breaking drought that has plagued the state for over four years.  Reservoirs have been emptied, fields have been fallowed, and citizens are worried.

And while lawns across the state are turning brown in the blistering summer heat, good news has begun to appear for a potential savior to California’s water woes:  El Nino.

El Nino, identified by anomalous warming of the waters in the central Pacific Ocean, has been known to significantly affect the weather across North America.

El Nino is typically associated with quiet hurricane seasons in the Atlantic, warm winters in the eastern U.S., and stormier conditions in the West. It is often noted for causing substantial warming of the ocean off of California, Oregon, and Washington.

While improvements have been added to many vulnerable areas, such as the strengthening of levees around Sacramento, many of these flood defenses have yet to be put to the test.

So far this year, warm sea surface temperature anomalies have reached up to 5 degrees F in areas of California, leading to sightings of exotic sea life that typically live off the coast of Mexico and areas further south.

There’s no denying that some previous El Nino winters have brought torrential rainfall to the Golden State.

The 1997/1998 event brought twice the normal rainfall to many areas, along with devastating floods.  Rivers and lakes across the state were inundated by persistent rainfall, spilling water over floodwalls, rupturing levees, and soaking low lying areas.

While improvements have been added to many vulnerable areas, such as the strengthening of levees around Sacramento, many of these flood defenses have yet to be put to the test.

Flood insurance penetration remains low, and losses caused by a stormy winter are most likely to be carried by homeowners themselves.  Even though the National Flood Insurance Program is in place to provide up to $250,000 of dwelling coverage and $100,000 in contents coverage for single family residences, the average California home is worth over $400,000 (source:  Trulia).

This leaves a gap in the insurance to value ratio that many homeowners may not realize.

Making matters worse, this year’s wildfire season in California has also been active. Nearly 3,900 fires have been reported, burning almost 70,000 acres.  Two out of the three largest fires in California’s history have occurred during this major drought, leaving massive burn scars in their wake.

If this year’s El Nino event causes heavy rainfall, as in years past, these scorched areas could become highly susceptible to landslides.  The New Year’s Day Floods of 1997 caused a major mudslide in the burn scar along the American River, closing U.S. 50 through the Sierra Nevada Mountains for a month.  These floods also caused two levee failures in the Sacramento Valley, flooding what was then mostly farmland.

These welcome rains will hopefully put a dent in the drought across California, but they may also leave some homeowners ‘underwater.’  Years of extreme drought and devastating wildfires have left California vulnerable and unprepared for further disaster.

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It’s all in the Code: Five Essential Characteristics of HCPCS that Influence Outcomes

Keep in mind these five critical elements of HCPCS that can impact payers and claimants alike.
By: | October 1, 2015 • 5 min read

Payers are no stranger to codes. Claim and policy administration systems are filled with them. Moreover, whether designating claim type, feature, branch office, policy term, type of injury, or another classification, their use facilitates consistency and understanding. Codes also guide clinical and financial decision-making. At the foundation of medical cost management are three code sets. The International Statistical Classification of Diseases and Related Health Problems (ICD) diagnostic and procedure codes, ICD-10-CM and ICD-10-PCS respectively, are used to classify diseases, disorders, injuries, infections, and symptoms. National Drug Codes (NDCs) help ensure claimants received the correct strength, dosage form, and type of medication. Their use also helps pharmacists recognize the difference between products that may look or sound alike. Yet another useful code set is the Healthcare Common Procedure Coding System (HCPCS) created to identify services, products, and procedures rendered for the condition. It is on this code set we will focus.

When processing ancillary benefits in workers’ compensation and auto no-fault, HCPCS can determine whether the item is considered medically necessary and therefore, available to the claimant and otherwise related to the compensable condition. Codes can also affect the reimbursement amount. Thus, if a coding error is made, there can be significant adverse impacts to payers and claimants alike. For example, the vendor could stop supplying the item based on insufficient reimbursement, or the payer could deny the product or service completely. Both are detrimental to the claimant or overall claim outcomes. Coding errors may also result in claim leakage if applied incorrectly or misunderstood in the review process. It is therefore essential that payers be mindful of five essential characteristics of HCPCS.

#1 – HCPCS are generic

Like pharmaceuticals, there are many different providers and manufacturers of similar durable medical equipment (DME) items. However, HCPCS are not specific to brand and usually hundreds of different products can fall under the same HCPCS. In addition, some codes include certain services, such as evaluations and fitting fees, whereas some codes do not. For example, some health HCPCS rarely indicate the actual services being provided in the home, such as wound care or home infusion, but instead simply indicate an RN or LPN visit.

#2 – Unit of measure influences coding

Some supply codes have very specific units of measure, which can result in HCPCS quantities that are not whole numbers and can result in mathematical errors or rounding. For example, HCPCS code A4450 has a unit of measure of ‘per 18 square inches’ and is assigned to a roll of tape that is 2 inches by 5.4 yards, equaling 388.8 square inches. The quantity for this HCPCS code would therefore be 21.6. Additionally, some HCPCS codes specify ‘per pair’ or ‘each,’ so understanding the actual supply is important to determine the appropriate quantity.

# 3 – Sometimes, there is not a specific code

Centers for Medicare and Medicaid Services (CMS) has created a number of miscellaneous codes that have generic definitions and can be used when no other CPT or HCPCS code matches the description of the product or service provided. Miscellaneous codes can be easily abused either unintentionally due to lack of time and knowledge, or intentionally by a provider seeking a higher reimbursement rate. This is because miscellaneous codes typically do not carry a fee schedule due to their versatility and, therefore, may be reimbursed at higher amounts than a non-miscellaneous code. For example, K0108 defines a ‘wheelchair component or accessory, not otherwise specified;’ however, most wheelchair parts have a specific code outside of this one which could be more appropriate while also carrying a lower allowable amount.

#4 – Supplemental modifiers are useful

A supplemental modifier or identifier is a billing value that further clarifies the HCPCS/CPT code by telling the payer more about the billed product or service. Their application influences reimbursement because fee schedules largely differ depending on which modifier is reported. A rental (RR) for example, does not warrant the same reimbursement as a purchase (NU) yet both a purchase and rental of the same product carry the same HCPCS. Consider the following codes, K0001 = ‘STANDARD WHEELCHAIR’, K0001 RR = ‘STANDARD WHEELCHAIR’ that has been rented, and K0001 NU = ‘STANDARD WHEELCHAIR’ that has been purchased. Depending on the fee schedule, reimbursement could be $45 or $500.

Modifiers are also useful because they can define the unit of measure. By default, a HCPCS with a modifier of ‘RR’ is a rental per month. However, in some cases a provider may bill for a device daily and therefore interpret the fee schedule as daily rather than monthly. In this scenario, the provider may bill with a daily unit of measure, billing a quantity of 30 instead of the allowable amount of one. For devices that are rented daily, such as a negative pressure wound therapy device or continuous passive motion device, it is important to understand the unit of measure being used (monthly or daily) and be mindful that the daily billing exceeds the monthly allowable.


# 5 – The diagnosis influences allowable amounts

Some HCPCS change based on the diagnosis of the injured person and therefore, the allowable amount may fluctuate. For example, depth-inlay shoes are coded as an Orthotic (L – code) if the patient does not have a diabetic diagnosis and is using the shoes for orthopedic reasons. The same depth-inlay shoe may be used for a diabetic patient, but it would warrant an A-code, which can have a higher reimbursement level.

Influencing outcomes

The use of coding assists claims professionals in compensability decisions, guides clinical decision-making, informs point-of-sale utilization controls, influences claim handling policies and procedures, and provides a valuable data point in statistical and analytics models. Moreover, their use facilitates better clinical and financial claim management in terms of payments that are more accurate, greater processing efficiency and consistency, and improved clinical management as a result of better understanding the medical condition(s) associated with the claim and the various therapies in use. Remaining mindful of the aforementioned five essential characteristics of HCPCS can therefore not only mitigate claim leakage but also achieve a better outcome.

This article was produced by Helios and not the Risk & Insurance® editorial team.

Helios brings the focus of workers’ compensation and auto no-fault Pharmacy Benefit Management, Ancillary, and Settlement Solutions back to where it belongs—the injured person. This comes with a passion and intensity on delivering value beyond just the transactional savings for which we excel. To learn how our creative and innovative tools, expertise, and industry leadership can help your business shine, visit
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