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Sponsored Content by BHSI

What Property Underwriters Can Learn From Life Insurers

Property risks, like people, may seem similar on the surface. But asking the right questions reveals their unique characteristics.
By: | April 7, 2017 • 3 min read

Before two 35-year-old men purchase $500,000 life insurance policies, a prospective insurer asks each of them many questions. Knowing the average lifespan is 76.7 years, the underwriter will collect dozens of additional data points to differentiate each of the men from the ‘average’ risk.  They consider elements of each individual’s lifestyle (e.g., does he smoke, exercise, take medications?), occupation and finances. The insurer will learn the candidate’s and his family’s complete medical history. Each man will undergo a clinical exam by a medical practitioner.

Now consider that these two men instead are risk managers looking to purchase $100 million in property catastrophe insurance for their company’s headquarters. A prospective underwriter has exponentially more capital at stake. Yet very few questions are asked. The workup will likely consider only the building’s construction (concrete versus steel), size, and location, and potentially some ‘secondary’ characteristics of the building.

What’s wrong with this picture?

Property risks may seem very similar on the surface. But in actuality, seemingly comparable structures can perform very differently in a flood, hurricane or earthquake.


These 6 buildings all fall into a similar underwriting classification of tall buildings, with some differences because of construction type, age, and location.  But the actual performance of each of these buildings under severe perils will likely be different due to their specific design and construction characteristics that cannot be discerned in the standard information provided with typical property insurance submissions.

Photographs purchased from stock.adobe.com

 

The Need for Informed Underwriting

Akshay Gupta, Berkshire Hathaway Specialty Insurance

At Berkshire Hathaway Specialty Insurance, we believe that property underwriters should compile much more relevant information on a risk. For example, structural and geotechnical engineering details for earthquake exposed risks.

When more questions are asked and more relevant information is acquired, underwriting is more informed and everybody wins: Properties engineered to specifically withstand severe hazards can be differentiated from the ‘average,’ and priced accordingly.  (For instance, beyond the automatic discounts applied for retrofitting in an earthquake zone.) When the true exposure is understood, informed decisions can be made on limits purchased, and in some cases measures can be taken to mitigate future losses.

Watch video:
Seemingly similar buildings have markedly different performance rates in a catastrophe because one of them is retrofitted.

This video shows two model residential dwellings undergoing earthquake simulation testing in Japan. While the two structures seem identical on the surface, they have markedly different capacities. Imagine the difference at the skyscraper level.

Video provided by the National Research Institute for Earth Science and Disaster Prevention and E-Defense Hyogo Earthquake Engineering Research Center, also available at www.bosai.go.jp/hyogo/ehyogo/research/movie/movie-detail.html#10

Sanjay Godhwani, Berkshire Hathaway Specialty Insurance

From an underwriting standpoint, it’s sometimes as simple as asking more relevant questions to determine how the building would perform in the face of various natural hazards. For example, to assess performance in a flood event, we would want to know the finished floor elevation of the building, presence of a basement, and values and type of assets in the basement. For the earthquake peril, we would want to understand, among other design and construction details, retrofit details to properly credit the building for what has been implemented. To understand how a building would perform in a hurricane, we inquire about the exterior envelope (e.g., cladding, windows, roofing) as well as design, condition and retrofits.

When more science and engineering are correctly integrated into property underwriting, all property risks benefit. At BHSI, our informed approach to property underwriting enables us to deploy our market-leading capacity in ways that provide our customers with stable, sustainable solutions for the long-term.

This article was produced by Berkshire Hathaway Specialty Insurance and not the Risk & Insurance® editorial team.



Berkshire Hathaway Specialty Insurance (www.bhspecialty.com) provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, medical stop loss and homeowners insurance.

More from Risk & Insurance

More from Risk & Insurance

High Net Worth

High Net Worth Clients Live in CAT Zones. Here’s What Their Resiliency Plan Should Include

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.

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Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”

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Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.

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“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]