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Property Damage

Hailstorms Grow Less Predictable and More Expensive

Hailstorms are happening more often and striking more severely. The insurance industry is trying to find ways to mitigate the damage.
By: | July 18, 2016 • 4 min read

Hailstorms increased in frequency and severity over the last 20 years, largely a result of climate change and more extreme weather conditions. Insurance costs are spiking as a result, too.

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Hail causes about $1 billion in damage to crops and property in the United States every year, according to the National Oceanic Atmospheric Administration (NOAA).

In 2015, NOAA’s Severe Storms database recorded 5,411 major hailstorms. The worst affected area was Texas, with 783 hailstorms.

“The hardest part for some customers has been that there have been successive hailstorms.” — Jill Dalton, managing director, Aon Global Risk Consulting

This year, hailstorms in late March and April are expected to result in total losses to vehicles, homes and businesses in north San Antonio and Bexar County of more than $2 billion, according to the Insurance Council of Texas.

San Antonio’s first hailstorm on April 12 became the costliest hailstorm in Texas history, the council said.

Between 2000 and 2013, U.S. insurers paid out almost $54 billion in claims from hail losses, and 70 percent of the losses occurred in just the last six years, said a report by Verisk Insurance Solutions.

The average claim severity was also 65 percent higher during that period, than from 2000 to 2007, the report said. Most losses were from broken windows and roof damage.

Added to that, hailstorms are increasingly harder to forecast and are occurring in unlikely places, with reports of hail this year in warmer climates such as South Florida.

Trying to Better Understand How Hail is Produced

Jill Dalton, managing director, Aon Global Risk Consulting

Jill Dalton, managing director, Aon Global Risk Consulting

Now, insurers and scientists are trying to better understand how hail is produced and take steps to mitigate damage.

“The hardest part for some customers has been that there have been successive hailstorms,” Jill Dalton, managing director at Aon Global Risk Consulting.

“When it happens over such a short period of time, as in the case of the recent Texas hailstorms, it’s hard to deduce what was damage from the first storm versus the third or fourth storm.”

Steve Bowen, director at Aon Benfield’s Impact Forecasting team, said that the location and intensity of the hailstorm were the most important factors in determining the magnitude of hail damage.

For example, if a hailstorm hits a more densely populated area it is likely to cause more damage.

“It is really important to emphasize that the total number of hail reports does not necessarily correlate to either higher or lower level of losses,” he said.

He said that, overall, insurable damage resulting from severe convective storms in the United States increased by 6.5 percent above the rate of inflation annually since 1980, most of which was attributed to hailstorms.

“The research done will also enable us to characterize the event in order to forecast future storms more effectively.” — Ian Giammanco, lead research meteorologist, IBHS Research Center

The Insurance Institute of Business & Home Safety (IBHS), a consortium of insurers, has been working with the National Center for Atmospheric Research in Boulder, Colo., to find ways to strengthen homes and businesses against hail damage.

Ian Giammanco, lead research meteorologist, IBHS Research Center

Ian Giammanco, lead research meteorologist, IBHS Research Center

“Overall hail losses are going up and a lot of it is to do with that fact that we are simply putting a lot more stuff in the path of storms nowadays,” said Ian Giammanco, lead research meteorologist at the IBHS Research Center.

“So, moving forward now, risk mitigation strategies are going to become much more important and that can be achieved with improved product and testing to ensure that they are properly hail resistant.

“The research done will also enable us to characterize the event in order to forecast future storms more effectively.”

Take Steps to Reduce Losses

Lynne McChristian, Florida representative for the Insurance Information Institute, said that given the difference in quality of roofing materials in terms of impact resistance, it was paramount to invest in the proper type of covering.

Others steps include making sure that the roof is fully secured.

The insurance industry has an Underwriters Laboratory standard for roofing material with four classes of impact level. Class 4 is the most resistant. In some cases, insurers will provide a discount for roofs made with hail resistant materials.

After the event, it is important to assess any damage and protect property against further damage by covering broken windows and plugging holes in the roof.

Most property insurance policies will cover against hail damage, as will comprehensive auto coverage.

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“A hailstorm is a typically covered loss included as a named peril,” said Dalton.

She added that usually there are no policy limits on hail and most coverage is subject to a deductible.

In hail prone areas, such as Texas and South Carolina, the deductible is higher than for other perils. However, both states have a fund to provide hail coverage in areas where it is not available in the private market.

After the event, it is important to assess any damage and protect property against further damage by covering broken windows and plugging holes in the roof.

It is also key to file claims as soon as possible and to keep any receipts for purchases made for immediate repairs and to then submit them to your insurer.

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Cyber Resilience

No, Seriously. You Need a Comprehensive Cyber Incident Response Plan Before It’s Too Late.

Awareness of cyber risk is increasing, but some companies may be neglecting to prepare adequate response plans that could save them millions. 
By: | June 1, 2018 • 7 min read

To minimize the financial and reputational damage from a cyber attack, it is absolutely critical that businesses have a cyber incident response plan.

“Sadly, not all yet do,” said David Legassick, head of life sciences, tech and cyber, CNA Hardy.

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In the event of a breach, a company must be able to quickly identify and contain the problem, assess the level of impact, communicate internally and externally, recover where possible any lost data or functionality needed to resume business operations and act quickly to manage potential reputational risk.

This can only be achieved with help from the right external experts and the design and practice of a well-honed internal response.

The first step a company must take, said Legassick, is to understand its cyber exposures through asset identification, classification, risk assessment and protection measures, both technological and human.

According to Raf Sanchez, international breach response manager, Beazley, cyber-response plans should be flexible and applicable to a wide range of incidents, “not just a list of consecutive steps.”

They also should bring together key stakeholders and specify end goals.

Jason J. Hogg, CEO, Aon Cyber Solutions

With bad actors becoming increasingly sophisticated and often acting in groups, attack vectors can hit companies from multiple angles simultaneously, meaning a holistic approach is essential, agreed Jason J. Hogg, CEO, Aon Cyber Solutions.

“Collaboration is key — you have to take silos down and work in a cross-functional manner.”

This means assembling a response team including individuals from IT, legal, operations, risk management, HR, finance and the board — each of whom must be well drilled in their responsibilities in the event of a breach.

“You can’t pick your players on the day of the game,” said Hogg. “Response times are critical, so speed and timing are of the essence. You should also have a very clear communication plan to keep the CEO and board of directors informed of recommended courses of action and timing expectations.”

People on the incident response team must have sufficient technical skills and access to critical third parties to be able to make decisions and move to contain incidents fast. Knowledge of the company’s data and network topology is also key, said Legassick.

“Perhaps most important of all,” he added, “is to capture in detail how, when, where and why an incident occurred so there is a feedback loop that ensures each threat makes the cyber defense stronger.”

Cyber insurance can play a key role by providing a range of experts such as forensic analysts to help manage a cyber breach quickly and effectively (as well as PR and legal help). However, the learning process should begin before a breach occurs.

Practice Makes Perfect

“Any incident response plan is only as strong as the practice that goes into it,” explained Mike Peters, vice president, IT, RIMS — who also conducts stress testing through his firm Sentinel Cyber Defense Advisors.

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Unless companies have an ethical hacker or certified information security officer on board who can conduct sophisticated simulated attacks, Peters recommended they hire third-party experts to test their networks for weaknesses, remediate these issues and retest again for vulnerabilities that haven’t been patched or have newly appeared.

“You need to plan for every type of threat that’s out there,” he added.

Hogg agreed that bringing third parties in to conduct tests brings “fresh thinking, best practice and cross-pollination of learnings from testing plans across a multitude of industries and enterprises.”

“Collaboration is key — you have to take silos down and work in a cross-functional manner.” — Jason J. Hogg, CEO, Aon Cyber Solutions

Legassick added that companies should test their plans at least annually, updating procedures whenever there is a significant change in business activity, technology or location.

“As companies expand, cyber security is not always front of mind, but new operations and territories all expose a company to new risks.”

For smaller companies that might not have the resources or the expertise to develop an internal cyber response plan from whole cloth, some carriers offer their own cyber risk resources online.

Evan Fenaroli, an underwriting product manager with the Philadelphia Insurance Companies (PHLY), said his company hosts an eRiskHub, which gives PHLY clients a place to start looking for cyber event response answers.

That includes access to a pool of attorneys who can guide company executives in creating a plan.

“It’s something at the highest level that needs to be a priority,” Fenaroli said. For those just getting started, Fenaroli provided a checklist for consideration:

  • Purchase cyber insurance, read the policy and understand its notice requirements.
  • Work with an attorney to develop a cyber event response plan that you can customize to your business.
  • Identify stakeholders within the company who will own the plan and its execution.
  • Find outside forensics experts that the company can call in an emergency.
  • Identify a public relations expert who can be called in the case of an event that could be leaked to the press or otherwise become newsworthy.

“When all of these things fall into place, the outcome is far better in that there isn’t a panic,” said Fenaroli, who, like others, recommends the plan be tested at least annually.

Cyber’s Physical Threat

With the digital and physical worlds converging due to the rise of the Internet of Things, Hogg reminded companies: “You can’t just test in the virtual world — testing physical end-point security is critical too.”

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How that testing is communicated to underwriters should also be a key focus, said Rich DePiero, head of cyber, North America, Swiss Re Corporate Solutions.

Don’t just report on what went well; it’s far more believable for an underwriter to hear what didn’t go well, he said.

“If I hear a client say it is perfect and then I look at some of the results of the responses to breaches last year, there is a disconnect. Help us understand what you learned and what you worked out. You want things to fail during these incident response tests, because that is how we learn,” he explained.

“Bringing in these outside firms, detailing what they learned and defining roles and responsibilities in the event of an incident is really the best practice, and we are seeing more and more companies do that.”

Support from the Board

Good cyber protection is built around a combination of process, technology, learning and people. While not every cyber incident needs to be reported to the boardroom, senior management has a key role in creating a culture of planning and risk awareness.

David Legassick, head of life sciences, tech and cyber, CNA Hardy

“Cyber is a boardroom risk. If it is not taken seriously at boardroom level, you are more than likely to suffer a network breach,” Legassick said.

However, getting board buy-in or buy-in from the C-suite is not always easy.

“C-suite executives often put off testing crisis plans as they get in the way of the day job. The irony here is obvious given how disruptive an incident can be,” said Sanchez.

“The C-suite must demonstrate its support for incident response planning and that it expects staff at all levels of the organization to play their part in recovering from serious incidents.”

“What these people need from the board is support,” said Jill Salmon, New York-based vice president, head of cyber/tech/MPL, Berkshire Hathaway Specialty Insurance.

“I don’t know that the information security folks are looking for direction from the board as much as they are looking for support from a resources standpoint and a visibility standpoint.

“They’ve got to be aware of what they need and they need to have the money to be able to build it up to that level,” she said.

Without that support, according to Legassick, failure to empower and encourage the IT team to manage cyber threats holistically through integration with the rest of the organization, particularly risk managers, becomes a common mistake.

He also warned that “blame culture” can prevent staff from escalating problems to management in a timely manner.

Collaboration and Communication

Given that cyber incident response truly is a team effort, it is therefore essential that a culture of collaboration, preparation and practice is embedded from the top down.

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One of the biggest tripping points for companies — and an area that has done the most damage from a reputational perspective — is in how quickly and effectively the company communicates to the public in the aftermath of a cyber event.

Salmon said of all the cyber incident response plans she has seen, the companies that have impressed her most are those that have written mock press releases and rehearsed how they are going to respond to the media in the aftermath of an event.

“We have seen so many companies trip up in that regard,” she said. “There have been examples of companies taking too long and then not explaining why it took them so long. It’s like any other crisis — the way that you are communicating it to the public is really important.” &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected] Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]