Catastrophe Claims

Saturated: Claims Flood in After Harvey Exits

For more than a week, Tropical Storm Harvey left devastation in its wake. What will businesses face in the aftermath?
By: | September 5, 2017 • 8 min read

Tropical Storm Harvey hit the southeastern shore of Texas late Friday night as a Category 4 hurricane, then was soon downgraded to a tropical storm.

Yet its classification held no weight on the cities below — rivers lined what once were streets; citizens evacuated in boatloads; 50 inches of rain poured down from the skies as Harvey slowly dredged its way onto land and continued into Louisiana and Mississippi.

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The storm passed, but the total destruction Harvey caused remains to be seen. While Texas grapples with the biggest hurricane-turned-tropical-storm to breach its shores, insurance agencies are inundated with the influx of residential and commercial claims.

“I can’t put a number to it,” Bentley Laytin, senior vice president of operational strategy and innovation at Engle Martin & Associates, said of the scale of claims. “We’re seeing auto claims for flooding, wind damage, spoilage claims. Houston is the biggest hit, and there’s limited access to the city.”

Crawford Catastrophe Services deployed its induction team to Austin and has a team of 5,000 adjustors on hand to help with claims from Harvey. To date, the claims adjustor received almost 10,000 calls. Crawford expects that number to rise significantly as the storm passes and people return to their homes and businesses.

Ken Tolson, CEO of U.S. Property & Casualty at Crawford & Company, said, “Our number one priority is to respond quickly and in a highly co-ordinated fashion once we can get access to the worst affected locations. Initial indications are that the majority of claims will be caused by the rising flood waters with wind damage having a lesser impact.”

Sheri Wilson, national property claims director, Lockton

Areas in Texas, including Corpus Christi, Galveston, Beaumont, Austin and the surrounding cities, saw the wind, storm surge and flood damage up close. Harvey shut down over 16.5 percent of U.S. refining capacity, according to Goldman Sachs, and at least 20 refineries have closed down or reduced operations to date, according to the Department of Energy.

“I live in Dallas,” said Sheri Wilson, national property claims director for Lockton. “We’re about 300 miles away, and we can’t buy gas. Harvey is going to affect the supply chain.”

The storm also created a temporary slowdown in retail sales, construction spending and industrial production. According to the Lloyd’s of London insurance markets, the construction and shipping industries will also likely bear the brunt of the commercial damage.

Damage Done

More than 50 percent of properties, both residential and commercial, not in designated flood zones are at high to moderate risk of flooding, according to CoreLogic.

Karen Clark & Company estimates the total industry-insured loss will be about $15 billion. RMS, in a preliminary analysis, estimated economic losses as high as $70 to 90 billion in wind, storm surge and inland flood damage dished out by Harvey.

Crawford’s global chief operating officer, Rohit Verma, expects to see the highest winds claims volume from Nueces County, while the highest flood claims volume is expected to come from Harris and Galveston counties.

“I live in Dallas. We’re about 300 miles away, and we can’t buy gas. Harvey is going to affect the supply chain.” — Sheri Wilson, national property claims director, Lockton

“Wind damage is expected to be minimal, with most of the rebuilding work due to flooding,” he said. “Large parts of Houston are still inaccessible, but we are looking for ways to access these areas as quickly as possible.”

Insurer Novae added that it was too soon to comment on the scale of the losses.

“We have to assess any insurance coverages that might apply,” said Lockton’s Wilson. She predicts numerous business disruption claims in addition to property damage. Power outages, interruptions from mandatory shut downs, flooding and the state mandated curfew have all cut in to business’ daily functions.

Business interruption, agreed Laytin, is going to come into play.

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“We don’t know how bad it will be or how long it will take,” he said, “but we do anticipate it.”

Once the storm moves out, Crawford said it will be ready to receive requests for forensic accounting services to support business interruption analyses.

“Sadly, this emphasises the vulnerability of our key industries and the hundreds of thousands of U.S. citizens who work in them to the effects of catastrophic weather,” added Tolson.

Assessing Without Access

“Houston is flat; Louisiana is a bowl. Because of the area affected, it doesn’t drain. That’s keeping the proper resources from getting in,” said Wilson.

Over the course of six days, Harvey dumped an estimated 27 trillion gallons of water onto Texas and Louisiana. The flooding is so vast and the affected population so scattered that it’s difficult to say what damages commercial properties might face once the water drains.

“This is particularly true in relation to Houston, where rainfall has left thousands of homes and businesses unoccupied. It is important to remember that we are witnessing catastrophic flooding at the very heart of the country’s energy industry,” said Tolson.

Laytin echoed, “The adjusters living near or even living in the areas affected by this event, who have lost their homes, are dealing with regular life.

“The ability to get around and get a job done is a challenge right now.”

Social media played a huge role in the search and rescue efforts during the storm. Now that the sun is starting to shine, technology will continue to play a role in servicing this area and its people.

“We’re in more of a technological environment,” said Laytin. “Drones are important. They’ll be a great safety feature. Instead of sending an adjuster onto a roof, they can do the assessment from the ground.”

Video feed and mobile estimating will keep business owners informed and updated on what their adjusters are finding. These tools will also help in documenting property damage in the aftermath of Harvey.

Crawford has 2,000 drone operators standing by to carry out roof and property inspections once the Federal Aviation Administration lifts flight restrictions.

While planning to have some drones involved, Lockton’s method is to be side-by-side with their customers while assessing the damage.

“We are the technology,” said Wilson.

Reporting Claims and Following Procedure

Regardless, Texas business owners need to be ever-vigilant as they begin to process their claims.

Stephen L. Moll, partner, Insurance Recovery Group co-leader, Reed Smith LLP

“The volume of claims coming in will be unprecedented,” said Stephen L. Moll, co-head of Reed Smith’s Insurance Recovery Group in the Houston Office. “Policyholders need to document their claims each and every step of the way.”

Moll also noted that, in addition to property claims, business interruption claims will be a large component of the losses suffered.

“It will be months before businesses are up and running again.”

Among the businesses reaching out to Reed Smith, Moll and his insurance recovery partner, Jim Cooper, said that the industries run the gamut, from energy to entertainment. Construction firms, hotels, restaurants, oil refineries, banks — the water is preventing people from their means of making a living.

One thing driving commercial claims in the wake of Harvey is Texas House Bill 1774. In May, Gov. Greg Abbott of Texas signed into law new legal parameters surrounding weather-related insurance claims.

“This new act was intended to address perceived abuses in residential hail storm claims,” said Cooper. “Unfortunately, the impact of the legislation goes beyond residential hail claims. It impacts commercial policyholders on all types of weather-related events.”

Cooper explained that the law mainly affects the prompt payment statute in Texas. Before, an 18 percent penalty rate greeted insurers slow to pay weather-related claims. Now, it’s a 10 percent rate.

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One thing to note, however — this law is not expected to impact the insurance claims process; any lawsuit stemming from a claim might bear the weight of the law’s restrictions.

Cooper and Moll advised that businesses should determine if they have an insurance policy which provides coverage for business losses and property damages caused by Harvey.

“Knowing your policy is very important before making your claim,” said Cooper.

“When reviewing your policy, look for flood and wind sublimits, deductibles and deadlines for filing proof of loss,” added Moll.

Additionally, businesses and their adjusters should keep photographic record and video of the damages.

A Risky Hurricane Season

The Climate Prediction Center predicted that 2017 would be the busiest hurricane season in 7 years, with a likelihood of 11 to 17 named storms. An estimated five to nine of these storms are projected to reach hurricane status, with winds of 74 mph or higher.

Jim Cooper, partner, Insurance Recovery Group co-leader, Reed Smith LLP

So far, five tropical storms and three hurricanes, including Harvey, bubbled up in the Atlantic. Currently, forecasters are tracking Hurricane Irma, a hurricane rolling up from the Cabo Verde Islands toward the Caribbean that was classified as a CAT 5 on Sept. 5.

“Our thoughts and prayers go out to those who have sadly lost their lives, and Crawford will be doing everything it can to support people in returning to their homes as quickly as possible,” said Tolson.

Reed Smith’s Cooper and Moll, who are right in the thick of Harvey’s aftermath, have seen firsthand not only the destruction, but also the comradery and kindness the storm has brought.

“The Houston community at large has responded with so much support,” said Moll.

“Events like Harvey are devastating to the people in the area,” said Laytin. “I don’t think anyone could have prepared more than what they did. Everyone did the best they could under the circumstances.” &

Additional reporting by contributing writer Alex Wright.
Autumn Heisler is the digital producer and a staff writer at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.

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Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.


R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.

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We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?

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Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.

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Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now an where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.

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More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]