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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

Risk Management

The Profession

This senior risk manager values his role in helping Varian Medical Systems support research and technologies in the fight against cancer.
By: | September 12, 2017 • 5 min read

R&I: What was your first job?

When I was 15 years old I had a summer job working for the city of Plentywood, mowing grass in the parks and ballfields, emptying garbage cans, hauling waste to the dump, painting crosswalk lines.  A great job for a teenager but I thought getting a college degree and working in an air-conditioned office would be a good plan long term.

R&I: How did you come to work in risk management?

I was enrolled in the University of Montana as a general business student, and I wanted to declare a more specialized major during my sophomore year. I was working for my dad at his insurance agency over the summer, and taking new agent training coursework on property/casualty risks in my spare time, so I had an appreciation for insurance. My dad suggested I research risk management for a career, and I transferred sight unseen to the University of Georgia to enroll in their risk management program. I did an internship as a senior with the risk management department at Sulzer Medica, and they offered me a full time job.

R&I: What could the risk management community be doing a better job of?

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We need to do a better job of saying yes. We tend to want to say no to many risks, but there are upside benefits to some risks. If we initiate a collaborative exercise with the risk owners — people who may have unique knowledge about that particular risk — and include a cross section of people from other corporate functions, you can do an effective job of taking the risk apart to analyze it, figure out a way to manage that exposure, and then reap the upside benefits while reducing the downside exposure. That can be done with new products and new service offerings, when there isn’t coverage available for a risk. It’s asking, is there anything we can do to reduce the risk without transferring it?

R&I: What emerging commercial risk most concerns you?

Cyber liability. There’s so much at stake and the bad guys are getting more resourceful every day. At Varian, our first approach is to try to make our systems and products more resilient, so we’re trying to direct resources to preventing it from happening in the first place. It’s a huge reputation risk if one of our products or systems were compromised, so we want to avoid that at all costs.

We need to do a better job of saying yes. We tend to want to say no to many risks, but there are upside benefits to some risks.

R&I: What insurance carrier do you have the highest opinion of?

I’ve worked with a number of great ones over the years. We’ve enjoyed a great property insurance relationship with Zurich. Their loss control services are very valuable to us. On the umbrella liability side, it’s been great partnering with companies like Swiss Re and Berkley Life Sciences because they’ve put in the time and effort to understand our unique risk exposures.

R&I: How much business do you do direct versus going through a broker?

One hundred percent through a broker. I view our broker as an extension of our risk management team. We benefit from each team member’s respective area of expertise and experience.

R&I: Is the contingent commission controversy overblown?

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I think so. The brokers were kind of villainized by Spitzer. I think it’s fair for brokers and insurers to make a reasonable profit, and if a portion of their profit came from contingent commissions, I’m fine with that. But I do appreciate the transparency and disclosure that came out as a result of the fiasco.

R&I: Are you optimistic about the US economy or pessimistic and why?

David Collins, Senior Manager, Risk Management, Varian Medical Systems Inc.

While we might be doing fine here in the U.S. from an economic perspective, the Middle East is a mess, and we’re living with nuclear threat from North Korea. But hope springs eternal, so I’m cautiously optimistic. I’m hoping saner minds prevail and our leaders throughout the world work together to make things better.

R&I: Who is your mentor and why?

My Dad got me started down the insurance and risk path. I’ve also been fortunate to work for or with a number of University of Georgia alumni who’ve been mentors for me. I’ve worked side by side with Karen Epermanis, Michael Rousseau, and Elisha Finney. And I’ve worked with Daniel Dean in his capacity as a broker.

R&I: What have you accomplished that you are proudest of?

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Raising my kids. I have a 15-year-old and 12-year-old, and they’re making mom and dad proud of the people they’re turning into.

On a professional level, a recent one would be the creation and implementation of our global travel risk program, which was a combined effort between security, travel and risk functions.

We have a huge team of service personnel around the world, traveling to customer sites to do maintenance and repair. We needed a way to track, monitor and communicate with them. We may need to make security arrangements or vet their lodging in some circumstances.

R&I: What do your friends and family think you do?

My 12-year-old son thought my job responsibilities could be summed up as a “professional worrier.” And that’s not too far off.

R&I: What about this work do you find the most fulfilling or rewarding?

Varian’s mission is to focus energy on saving lives. Proper administration of the risk function puts the company in a better position to financially support research that improves products and capabilities, helps to educate health care providers and support cancer care in general. It means more lives saved from a terrible disease. I’m proud to contribute toward that.

When you meet someone whose cancer has been successfully treated with one of our products, it’s a powerful reward.




Katie Siegel is an associate editor at Risk & Insurance®. She can be reached at [email protected]