Risk Insider: Joe Tocco

Ocean Warming Risk: Why Does it Matter to Insurance?

By: | October 4, 2016 • 2 min read
Currently Chief Executive of the Americas for XL Catlin’s insurance operation, Joe Tocco has enjoyed three decades in the insurance industry at various organizations. He is also a veteran of the U.S. Navy, where he served as a nuclear field service engineer. He can be reached at [email protected]

One of the things I’ve seen firsthand in my insurance career is the interrelated nature of risks; they rarely occur in isolation. A loss in one area often triggers or exacerbates others. Such is also the nature of our environment, where we are observing disturbing changes.

I was fortunate to have served in the U.S. Navy and have been awed ever since by the oceans’ vastness, power and complexity. Understanding the oceans is difficult. Astonishingly, humans have spent 100 times more hours on the moon than in the deepest part of Earth’s oceans.

A new report on ocean warming by the International Union for Conservation of Nature (IUCN), titled Explaining ocean warming: Causes, scale, effects and consequences describes the phenomenon as ‘one of the greatest hidden challenges of our generation.’ The analysis report has been compiled by 80 scientists from 12 countries.

Even though our planet has enough land area to accommodate more than 7 billion people, 71 percent of its surface is covered by water. Oceans have a critical influence on life as we know it – heating and cooling the planet, providing food and supporting global commerce, yet we have only recently started to understand them.

If science and nations are to mitigate climate change, we must clearly grasp how the decline in coral reef health, loss of polar ice, ocean warming, sea level rise and ocean acidification are affecting the people and property that the insurance industry helps to protect.

The report, which is sponsored by XL Catlin’s Deep Ocean Survey initiative, is the third in a series of scientific research programs to better understand the key indicators of climate change. One of the missions of the Survey is to pilot a systematic method for scientists around the world to assess ocean health. What we are learning so far has been startling:

  • Sea levels have risen about 20 centimeters (about 8 inches) since pre-industrial times. If carbon dioxide emissions continue at their current pace, sea levels will rise a further 99 cm (39 inches) by 2100.
  • Many of the world’s largest cities, including New York and London, are exposed to flooding from sea level rise.
  • Hundreds of millions of people will be forced to relocate if sea levels rise at the current rate.
  • In the United States alone, $500 billion of coastal property could be below sea level by the end of this century.
  • The ocean absorbs excess heat and carbon dioxide, and far more of that heat is now buried in the deep ocean, below 700 meters, than was found 20 years ago.
  • CO2 dissolves in seawater to form carbonic acid, increasing acidity. Since the beginning of the industrial revolution around 1750, the acidification of the ocean has increased 30 percent. That change has led to the destruction of coral reefs and many marine species.

Why should the insurance industry care about ocean warming? For one thing, we are in the risk business, and ocean warming represents enormous risks. To manage any risk, we first have to understand it.

If science and nations are to mitigate climate change, we must clearly grasp how the decline in coral reef health, loss of polar ice, ocean warming, sea level rise and ocean acidification are affecting the people and property that the insurance industry helps to protect.

As an industry built on managing risk, we must continue to study the risks facing our planet from climate change and work together to mitigate their effects. Let’s use our expertise in analyzing risk and helping rebuild lives and livelihoods to preserve opportunities for future generations.

2018 Most Dangerous Emerging Risks

Emerging Multipliers

It’s not that these risks are new; it’s that they’re coming at you at a volume and rate you never imagined before.
By: | April 9, 2018 • 3 min read

Underwriters have plenty to worry about, but there is one word that perhaps rattles them more than any other word. That word is aggregation.

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Aggregation, in the transferred or covered risk usage, represents the multiplying potential of a risk. For examples, we can look back to the asbestos claims that did so much damage to Lloyds’ of London names and syndicates in the mid-1990s.

More recently, underwriters expressed fears about the aggregation of risk from lawsuits by football players at various levels of the sport. Players, from Pee Wee on up to the NFL, claim to have suffered irreversible brain damage from hits to the head.

That risk scenario has yet to fully play out — it will be decades in doing so — but it is already producing claims in the billions.

This year’s edition of our national-award winning coverage of the Most Dangerous Emerging Risks focuses on risks that have always existed. The emergent — and more dangerous — piece to the puzzle is that these risks are now super-charged with risk multipliers.

Take reputational risk, for example. Businesses and individuals that were sharply managed have always protected their reputations fiercely. In days past, a lapse in ethics or morals could be extremely damaging to one’s reputation, but it might take days, weeks, even years of work by newspaper reporters, idle gossips or political enemies to dig it out and make it public.

Brand new technologies, brand new commercial covers. It all works well; until it doesn’t.

These days, the speed at which Internet connectedness and social media can spread information makes reputational risk an existential threat. Information that can stop a glittering career dead in its tracks can be shared by millions with a casual, thoughtless tap or swipe on their smartphones.

Aggregation of uninsured risk is another area of focus of our Most Dangerous Emerging Risks (MDER) coverage.

The beauty of the insurance model is that the business expands to cover personal and commercial risks as the world expands. The more cars on the planet, the more car insurance to sell.

The more people, the more life insurance. Brand new technologies, brand new commercial covers. It all works well; until it doesn’t.

As Risk & Insurance® associate editor Michelle Kerr and her sources point out, growing populations and rising property values, combined with an increase in high-severity catastrophes, threaten to push the insurance coverage gap to critical levels.

This aggregation of uninsured value got a recent proof in CAT-filled 2017. The global tally for natural disaster losses in 2017 was $330 billion; 60 percent of it was uninsured.

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This uninsured gap threatens to place unsustainable pressure on public resources and hamstring society’s ability to respond to natural disasters, which show no sign of slowing down or tempering.

A related threat, the combination of a failing infrastructure and increasing storm severity, marks our third MDER. This MDER looks at the largely uninsurable risk of business interruption that results not from damage to your property or your suppliers’ property, but to publicly maintained infrastructure that provides ingress and egress to your property. It’s a danger coming into shape more and more frequently.

As always, our goal in writing about these threats is not to engage in fear mongering. It’s to initiate and expand a dialogue that can hopefully result in better planning and mitigation, saving the lives and limbs of businesses here and around the world.

2018 Most Dangerous Emerging Risks

Critical Coverage Gap

Growing populations and rising property values, combined with an increase in high-severity catastrophes, are pushing the insurance protection gap to a critical level.

Climate Change as a Business Interruption Multiplier

Crumbling roads and bridges isolate companies and trigger business interruption losses.

 

Reputation’s Existential Threat

Social media — the very tool used to connect people in an instant — can threaten a business’s reputation just as quickly.

 

AI as a Risk Multiplier

AI has potential, but it comes with risks. Mitigating these risks helps insurers and insureds alike, enabling advances in almost every field.

 

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]