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5 Reasons to Update Your Disaster Plan Now

Harvey, Irma and Maria highlighted key risks property owners may be overlooking in their crisis management plans. With another active season on the horizon, the time to prepare is now.
By: | June 1, 2018 • 6 min read

With the 2018 hurricane season underway, communities impacted by the historic 2017 season have just barely recovered. And forecasters say we may be in for a repeat.

Despite the Atlantic’s colder-than-normal temperatures during winter, scientists surmise they will warm rapidly throughout the summer. Combined with cool Pacific waters, it’s a recipe for punishing storms. Of course, early predictions are never 100-percent accurate; after all, was there any modeler who foresaw the triple threat of Harvey, Irma and Maria?

“Catastrophes are going to happen. It’s not a question of if, but when. You have to be prepared no matter what the forecast says,” said Dean Owens, AIG’s Head of Property and Special Risk Claims, U.S. and Canada.

Last year’s storms did, however, offer some lessons in crisis management. Their aftermath illuminated five critically overlooked risks that companies should consider in their response and recovery plans before disaster strikes this year.

1. Flood Control Actions May Actually Increase Flood Risk

Dean Owens, Head of Property and Special Risk Claims, U.S. and Canada

As Hurricane Harvey dumped feet of rain onto Houston residents and businesses, rapidly rising water levels placed excessive pressure on the city’s reservoir walls. The Army Corps of Engineers decided to proactively release water from the reservoirs to prevent a catastrophic collapse. Though the move mitigated larger-scale damage, it also increased flooding of thousands of structures in the immediate area.

“They were trying to be proactive, but it may have caused some damage that otherwise may not have happened,” Owens said. “Homes and businesses in the area experienced flooding as a result of flood control operations. That’s not a consequence most people would think about.”

“If you’re located downstream from a flood control project, how might that impact flooding on your property? What can you do to prevent it?”

Potential mitigation solutions could include temporary barriers that can be quickly and easily assembled. After Harvey, for example, some Houston residents implemented canvas barriers that can be easily set up around a property and keep out flood waters as high as three feet.

2. Lack of Electricity and Accessibility Hinder Repairs Indefinitely

Most crisis management plans will detail how a company can best prepare for an impending storm and prevent as much damage as possible. But not all will consider the post-storm conditions that could hinder their recovery efforts.

Access is one issue.

“On an island like Puerto Rico, logistics are a challenge. If ports and airports are damaged, how will you get resources there?” Owens said. Even in a landlocked city, roads and highways may be too flooded or debris-covered for repair crews to get through. After Hurricane Sandy in 2012, for example, vehicle restrictions made it difficult for adjusters to get into New York City.

“It was difficult to move around because of all the debris,” Owens said.

Lack of power may also present an ongoing problem. After Maria struck Puerto Rico in September, the island remained in the dark for months.

“You have to be prepared to not just weather the storm, but to deal with whatever the aftermath will be weeks or months after,” Owens said. “Make sure you have access to fuel and generators, so you can at least turn the lights on and survey your damage.”

3. High Demand Means High Prices for Labor and Materials

After any major storm, there will be a surge in demand for skilled labor, materials, and claim adjusters.

“Everyone needs a contractor, and all of the contractors need sheet rock and plywood and roof materials. That demand drives up the price of those materials, so you might be paying double what you anticipated, depending on how widespread the damage is and how quick you were in ordering those materials,” Owens said.

In a multi-storm scenario like Harvey, Irma and Maria, remediation companies and adjusters will be all the more stretched.

If a company has storage space offsite, it should consider stockpiling some materials before a storm to avoid the rush in the aftermath. It should also consider local providers who may not be under the same pressure as national firms to respond to disasters in other areas.

“Sometimes the guy around the corner can do a great job for you, and he’s right there,” Owens said.

4. Affected Workers Might Not Return Immediately

A disaster response plan should designate a chain of command and provide instruction for all employees. But a workforce dealing with damage to their own homes and the same struggles with lack of infrastructure or electricity may be unable to perform their designated duties.

“You have to think about employee care at the same time you’re trying to get your facility back up and running,” Owens said.

A crisis management plan should establish a method and timeframe for communication after a storm so employees can relay their circumstances to managers and those in charge of executing the recovery plan.

5. Disrupted Supply Chain Spells Big Business Interruption Loss

Even companies outside of hurricane-prone coastal regions need to be attuned to these risks if they have suppliers who may be affected. Sitting outside of a storm’s path can lull businesses into a false sense of security.

“If you have a sole-source supplier in a heavily-damaged region, you could potentially have a significant contingent business interruption claim,” Owens said.

Major auto companies experienced this after the Thailand floods of 2011, which inflicted heavy damage to component parts suppliers in the region. The health care industry experienced similar ripples after Hurricane Maria knocked out pharmaceutical manufacturers in Puerto Rico, where medicine constitutes the majority of exports.

“Sometimes the conversation about engaging backup suppliers doesn’t happen until the event occurs,” Owens said. “By that time the damage is done.”

Reliable and Well-Resourced Support

Even the best-laid plans, though, can fail if a company does not have the liquidity to get the supplies and labor they need to set recovery efforts in motion. Having the support of a well-resourced insurer is critical to any crisis management strategy.

After Harvey, AIG advanced $60 million in initial payments to impacted insureds within the first 30 days, and about $15 million to insureds impacted by Irma in the first 30 days.

“No matter how large the loss, we follow through on our Claims Promise. Once we agree on a damage estimate, we forward 50 percent of agreed debris removal, property damage repairs and extra expenses within seven days,” Owens said. “This supports our clients’ cash flow and business continuity.”

AIG’s roughly 500 in-house property engineers are deployed locally and work in the field with clients, ensuring a quick claim turnaround. Forensic accounting teams work with clients specifically on business interruption losses, which for some companies may be larger than their property loss.

“Some of the resources that were brought to bear for Harvey, Irma and Maria were getting stretched thin before Maria even happened, but that was not an issue for AIG,” Owens said.

“If you’re going to place your trust in a carrier, you want that carrier to be able to respond no matter how many events that you have.”

To learn more, visit https://www.aig.com/business/insurance/property.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with AIG. The editorial staff of Risk & Insurance had no role in its preparation.




AIG is a leading international insurance organization serving customers in more than 100 countries.

More from Risk & Insurance

More from Risk & Insurance

Insurtech

Kiss Your Annual Renewal Goodbye; On-Demand Insurance Challenges the Traditional Policy

Gig workers' unique insurance needs drive delivery of on-demand coverage.
By: | September 14, 2018 • 6 min read

The gig economy is growing. Nearly six million Americans, or 3.8 percent of the U.S. workforce, now have “contingent” work arrangements, with a further 10.6 million in categories such as independent contractors, on-call workers or temporary help agency staff and for-contract firms, often with well-known names such as Uber, Lyft and Airbnb.

Scott Walchek, founding chairman and CEO, Trōv

The number of Americans owning a drone is also increasing — one recent survey suggested as much as one in 12 of the population — sparking vigorous debate on how regulation should apply to where and when the devices operate.

Add to this other 21st century societal changes, such as consumers’ appetite for other electronic gadgets and the advent of autonomous vehicles. It’s clear that the cover offered by the annually renewable traditional insurance policy is often not fit for purpose. Helped by the sophistication of insurance technology, the response has been an expanding range of ‘on-demand’ covers.

The term ‘on-demand’ is open to various interpretations. For Scott Walchek, founding chairman and CEO of pioneering on-demand insurance platform Trōv, it’s about “giving people agency over the items they own and enabling them to turn on insurance cover whenever they want for whatever they want — often for just a single item.”

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“On-demand represents a whole new behavior and attitude towards insurance, which for years has very much been a case of ‘get it and forget it,’ ” said Walchek.

Trōv’s mobile app enables users to insure just a single item, such as a laptop, whenever they wish and to also select the period of cover required. When ready to buy insurance, they then snap a picture of the sales receipt or product code of the item they want covered.

Welcoming Trōv: A New On-Demand Arrival

While Walchek, who set up Trōv in 2012, stressed it’s a technology company and not an insurance company, it has attracted industry giants such as AXA and Munich Re as partners. Trōv began the U.S. roll-out of its on-demand personal property products this summer by launching in Arizona, having already established itself in Australia and the United Kingdom.

“Australia and the UK were great testing grounds, thanks to their single regulatory authorities,” said Walchek. “Trōv is already approved in 45 states, and we expect to complete the process in all by November.

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group.” – Scott Walchek, founding chairman and CEO, Trōv

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group,” he added.

“But a mass of tectonic societal shifts is also impacting older generations — on-demand cover fits the new ways in which they work, particularly the ‘untethered’ who aren’t always in the same workplace or using the same device. So we see on-demand going into societal lifestyle changes.”

Wooing Baby Boomers

In addition to its backing for Trōv, across the Atlantic, AXA has partnered with Insurtech start-up By Miles, launching a pay-as-you-go car insurance policy in the UK. The product is promoted as low-cost car insurance for drivers who travel no more than 140 miles per week, or 7,000 miles annually.

“Due to the growing need for these products, companies such as Marmalade — cover for learner drivers — and Cuvva — cover for part-time drivers — have also increased in popularity, and we expect to see more enter the market in the near future,” said AXA UK’s head of telematics, Katy Simpson.

Simpson confirmed that the new products’ initial appeal is to younger motorists, who are more regular users of new technology, while older drivers are warier about sharing too much personal information. However, she expects this to change as on-demand products become more prevalent.

“Looking at mileage-based insurance, such as By Miles specifically, it’s actually older generations who are most likely to save money, as the use of their vehicles tends to decline. Our job is therefore to not only create more customer-centric products but also highlight their benefits to everyone.”

Another Insurtech ready to partner with long-established names is New York-based Slice Labs, which in the UK is working with Legal & General to enter the homeshare insurance market, recently announcing that XL Catlin will use its insurance cloud services platform to create the world’s first on-demand cyber insurance solution.

“For our cyber product, we were looking for a partner on the fintech side, which dovetailed perfectly with what Slice was trying to do,” said John Coletti, head of XL Catlin’s cyber insurance team.

“The premise of selling cyber insurance to small businesses needs a platform such as that provided by Slice — we can get to customers in a discrete, seamless manner, and the partnership offers potential to open up other products.”

Slice Labs’ CEO Tim Attia added: “You can roll up on-demand cover in many different areas, ranging from contract workers to vacation rentals.

“The next leap forward will be provided by the new economy, which will create a range of new risks for on-demand insurance to respond to. McKinsey forecasts that by 2025, ecosystems will account for 30 percent of global premium revenue.

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“When you’re a start-up, you can innovate and question long-held assumptions, but you don’t have the scale that an insurer can provide,” said Attia. “Our platform works well in getting new products out to the market and is scalable.”

Slice Labs is now reviewing the emerging markets, which aren’t hampered by “old, outdated infrastructures,” and plans to test the water via a hackathon in southeast Asia.

Collaboration Vs Competition

Insurtech-insurer collaborations suggest that the industry noted the banking sector’s experience, which names the tech disruptors before deciding partnerships, made greater sense commercially.

“It’s an interesting correlation,” said Slice’s managing director for marketing, Emily Kosick.

“I believe the trend worth calling out is that the window for insurers to innovate is much shorter, thanks to the banking sector’s efforts to offer omni-channel banking, incorporating mobile devices and, more recently, intelligent assistants like Alexa for personal banking.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.”

As with fintechs in banking, Insurtechs initially focused on the retail segment, with 75 percent of business in personal lines and the remainder in the commercial segment.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.” — Emily Kosick, managing director, marketing, Slice

Those proportions may be set to change, with innovations such as digital commercial insurance brokerage Embroker’s recent launch of the first digital D&O liability insurance policy, designed for venture capital-backed tech start-ups and reinsured by Munich Re.

Embroker said coverage that formerly took weeks to obtain is now available instantly.

“We focus on three main issues in developing new digital business — what is the customer’s pain point, what is the expense ratio and does it lend itself to algorithmic underwriting?” said CEO Matt Miller. “Workers’ compensation is another obvious class of insurance that can benefit from this approach.”

Jason Griswold, co-founder and chief operating officer of Insurtech REIN, highlighted further opportunities: “I’d add a third category to personal and business lines and that’s business-to-business-to-consumer. It’s there we see the biggest opportunities for partnering with major ecosystems generating large numbers of insureds and also big volumes of data.”

For now, insurers are accommodating Insurtech disruption. Will that change?

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“Insurtechs have focused on products that regulators can understand easily and for which there is clear existing legislation, with consumer protection and insurer solvency the two issues of paramount importance,” noted Shawn Hanson, litigation partner at law firm Akin Gump.

“In time, we could see the disruptors partner with reinsurers rather than primary carriers. Another possibility is the likes of Amazon, Alphabet, Facebook and Apple, with their massive balance sheets, deciding to link up with a reinsurer,” he said.

“You can imagine one of them finding a good Insurtech and buying it, much as Amazon’s purchase of Whole Foods gave it entry into the retail sector.” &

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at riskletters.com.