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.
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
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.
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
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.
Working at Dominick’s Finer Foods bagging groceries. Shortly after I was hired, I was promoted to [cashier] and then to a management position. It taught me great responsibility and it helped me develop the leadership skills I still carry today.
R&I: How did you come to work in risk management?
While working for Hyatt Regency McCormick Place Hotel, one of my responsibilities was to oversee the administration of claims. This led to a business relationship with the director of risk management of the organization who actually owned the property. Ultimately, a position became available in her department and the rest is history.
R&I: What is the risk management community doing right?
The risk management community is doing a phenomenal job in professional development and creating great opportunities for risk managers to network. The development of relationships in this industry is vitally important and by providing opportunities for risk managers to come together and speak about their experiences and challenges is what enables many of us to be able to do our jobs even more effectively.
R&I: What could the risk management community be doing a better job of?
Attracting, educating and retaining young talent. There is this preconceived notion that the insurance industry and risk management are boring and there could be nothing further from the truth.
R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?
In my 20 years in the industry, the biggest change in risk management and the insurance industry are the various types of risk we look to insure against. Many risks that exist today were not even on our radar 20 years ago.
R&I: What insurance carrier do you have the highest opinion of?
FM Global. They have been our property carrier for a great number of years and in my opinion are the best in the business.
R&I: Are you optimistic about the US economy or pessimistic and why?
I am optimistic that policies will be put in place with the new administration that will be good for the economy and business.
R&I: What emerging commercial risk most concerns you?
The commercial risks that are of most concern to me are cyber risks, business interruption, and any form of a health epidemic on a global scale. We are dealing with new exposures and new risks that we are truly not ready for.
R&I: Who is your mentor and why?
My mother has played a significant role in shaping my ideals and values. She truly instilled a very strong work ethic in me. However, there are many men and women in business who have mentored me and have had a significant impact on me and my career as well.
R&I: What have you accomplished that you are proudest of?
I am most proud of making the decision a couple of years ago to return to school and obtain my [MBA]. It took a lot of prayer, dedication and determination to accomplish this while still working a full time job, being involved in my church, studying abroad and maintaining a household.
R&I: What is your favorite book or movie?
“Heaven Is For Real” by Todd Burpo and Lynn Vincent. I loved the book and the movie.
R&I: What’s the best restaurant you’ve ever eaten at?
A French restaurant in Paris, France named Les Noces de Jeannette Restaurant à Paris. It was the most amazing food and brings back such great memories.
R&I: What is the most unusual/interesting place you have ever visited?
Israel. My husband and I just returned a few days ago and spent time in Jerusalem, Nazareth, Jericho and Jordan. It was an absolutely amazing experience. We did everything from riding camels to taking boat rides on the Sea of Galilee to attending concerts sitting on the Temple steps. The trip was absolutely life changing.
R&I: What is the riskiest activity you ever engaged in?
Many, many years ago … I went parasailing in the Caribbean. I had a great experience and didn’t think about the risk at the time because I was young, single and free. Looking back, I don’t know that I would make the same decision today.
R&I: What about this work do you find the most fulfilling or rewarding?
I would have to say the relationships and partnerships I have developed with insurance carriers, brokers and other professionals in the industry. To have wonderful working relationships with such a vast array of talented individuals who are so knowledgeable and to have some of those relationships develop into true friendships is very rewarding.
R&I: What do your friends and family think you do?
My friends and family have a general idea that my position involves claims and insurance. However, I don’t think they fully understand the magnitude of my responsibilities and the direct impact it has on my organization, which experiences more than 9 million visitors a year.