By Gregory DL Morris, an independent business journalist with more than 20 years' experience covering finance, industry and commerce worldwide.
As tornadoes swept through Alabama in late January, they destroyed lives, homes and businesses in the area for the second time in less than a year. The storms that killed two people in Jefferson County came roughly eight months after a swarm of twisters killed 128 people in Alabama and a total of 337 across several states on April 27-28.
The National Weather Service Storm Center reported 137 separate tornadoes in the April disaster, including 66 in Alabama and 38 in Mississippi. It was a serious test of underwriters' catastrophe response, and the January storms were an opportunity to test how the risk management lessons of the year before were applied.
The first lesson was a modification of how risk managers at all levels viewed the likelihood and intensity of the tornadoes. "We do have a tornado track through Alabama," said Art Faulkner, director of the Alabama Emergency Management Agency. "We have had threats from tornadoes before, but we have never seen the types of massive storms that we had in 2011. Our state has had more EF-5 tornadoes [the largest and most powerful category] in the past two years than we had in the entire previous decade."
The twisters exemplified a particularly tough year for the state, which saw more declared disasters than any other year in its history. In 2011, 23,000 buildings were destroyed or heavily damaged, he said, and the January storms damaged 1,500 to 2,000.
One of the important lessons from the 2011 disaster and applied this year, was a better sense of which damaged structures were worth saving and repairing, and which would be wiser to demolish. "That was one big difference this time," said Faulkner. "We got quick responses from insurers both times, but in the communities we knew better what to try to save or not. The combined involvement of insurance companies was a big help."
Zurich North America, the 4th largest property/casualty insurer in the U.S., was in the thick of the response. It only writes commercial lines, and swung its catastrophe team into service for the 2011 storms. That included experts in business interruption and builders risk, as specializations in particular demand.
"What was striking for me," said Rick Morgan, Zurich's senior vice president for property claims, "is that we think of the windstorm season in terms of hurricanes, and this event came out of season. We also think of tornadoes as violent, destructive, deadly storms, but very localized, and very sporadic. The damage can be severe, but tends to be isolated, not widespread like a flood or hurricane."
Morgan did not consider the area underinsured, at least in commercial terms, but said that his adjusters found very uneasy clients. "People were just not used to these types of things. And on top of where the economy was at the time, people were extremely anxious."
To help train for such a situation, Zurich's catastrophe teams get sensitivity training, on top of their professional areas of expertise. "We have to be sensitive to the whole community's losses, not just those of our insureds," he said.
While the losses in either set of storms did not stress Zurich, Morgan said the company did increase its capacity and resources both in terms of underwriting and in its ability to respond. In particular, the carrier expanded its portfolio of mitigation contractors such as water removal and site remediation. "We also have had internal discussions with our underwriters and risk engineers."
While most of the fatalities in the 2011 storms were in the Southeast, the storm cells covered an even larger area. One tornado seriously damaged Lambert-St. Louis International Airport, for which Chartis Commercial Insurance is a major carrier.
"We have learned that the key to a quick response in wind events is to have as much location data in advance as possible," said George Stratts, president of global property for Chartis. "Because we had data already in place for Lambert Field, we were able to have a check for $10 million in the hands of the insured within 48 hours."
In the wake of the storms each time, as Chartis agents and adjustors gather information, they also support insureds' risk mitigation. "We look at appropriate levels of coverage not just for the property and building, but contents, business interruption, and other exposures," said Stratts. "We also consider common sense details, such as items that could be projectiles and protection for the building envelope."
February 6, 2012
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