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What Property Insurers Can Learn From Life Insurers – Part II

When customers are informed on the issues that can impact their flood risk, they are better positioned to manage the risk and avoid unanticipated large losses.
By: | March 1, 2018 • 4 min read

Part II in a Series: Lessons for Flood Risk Management
(Read Part I here)

A life insurer is considering policies for two men, both 35 years old and similarly overweight based on standard height and weight charts. Upon initial assessment, they present similar risk, meriting similar premiums. But as clinical data comes in, it becomes clear that while they weigh about the same, one man is an athlete with significant muscle mass and low cholesterol; the other carries more weight around his mid-section and has high cholesterol, making him a much greater risk. The two policies now carry significantly different premiums.  

Now consider two inland flood underwriters assessing two similar looking multi-story structures. Common practice will typically examine (1) where each building sits on a FEMA flood map (which categorizes wide swaths of land based on flood hazard) and (2) what, if any, past flood losses the building has seen. In this case both buildings are categorized as being in Zone “X” by FEMA, and both have little in the way of past losses.

If the property underwriter stops there, the risks appear very much the same. But much of the story will remain untold. As with the life insurance underwriting scenario, more relevant data specific to the buildings can create pivotal differentiation between risks and reduce surprises when the flood event occurs.

Flood Zone ≠ Flood Risk

Two buildings may fall into the same large flood zone, but could react quite differently in a flood, resulting in markedly different losses and recovery times.  
Photo credit: Julie Dermansky

Traditional flood models measure the potential flood depth (for each return period) at a building’s location relative to its ground elevation. However, the elevation level of a building’s finished first floor can vary significantly from the underlying ground level. This distinction is important in determining how much flooding could be expected in a particular building and can make two structures in the same large flood zone markedly different flood risks.

Additionally, what’s inside the building – and where – matters too.  One building may have a basement, while another may not. One may house critical mechanical, electrical, and plumbing (MEP) systems in the basement. The other may house these systems on higher floors.  All else being similar between the two buildings, the one with MEP systems on higher floors will likely fare much better in a flooding event.

Akshay Gupta, Berkshire Hathaway Specialty Insurance

Hurricane Sandy underscored the massive damage, particularly time element losses, that can result when floodwaters, and more so saltwater, swamp MEP systems. Major city skyscrapers were taken out of commission for months in some cases due to basement and ground floor flooding that would have been relatively inconsequential – had it not been for the MEP systems housed there.

More recently, when Hurricane Harvey dropped more than 40 inches of rainfall in Houston, many commercial assets suffered significant loss, primarily business interruption, due to flooding of underground parking lots and basements. One particular asset was spared major structural damage, but floodwaters flowed into its underground parking lot and the basement — which housed mechanical and electrical equipment. Despite dodging major structural damage, the facility is not expected to resume normal operations until nearly a year after the event – a costly interruption that would have been greatly minimized if critical systems were above grade.

While elevating the habitable space for an entire structure can minimize potential damages, such a move is costly for many existing commercial buildings. It is, however, observed at industrial facilities where critical assets, such as MCCs, can be entirely elevated. Moving critical systems and higher value items from a lower level floor to a higher one is a more economical way to mitigate potential flood damage and help ensure business continuity for conventional commercial buildings.

Awareness = Avoidance

Sanjay Godhwani, Berkshire Hathaway Specialty Insurance

At BHSI, we believe that when customers are informed on the issues that can impact inland (or hurricane induced) flood exposure, they are better positioned to manage the risk and avoid unanticipated large losses.  When we work closely with our customers to assess flood risks, they can be confident that they are receiving the best possible pricing and limits for their particular exposure.

Our flood insurance pricing algorithm is built to differentiate flood risk based on how high a building’s finished floor is relative to the adjacent ground (i.e., bare ground level versus finished floor level.) We always inquire whether a location has a basement; the answer can result in a significantly different premium for a customer. We also differentiate flood risks by examining each building’s floor-by-floor TIV distribution.  This allows us to give credit (or premium discounts) to buildings that have critical systems located on higher floors.

It’s all part of our commitment to help customers mitigate their flood losses and ensure that they secure the right flood coverage for their risk, at the right price, year after year.

To learn more, visit https://bhspecialty.com/.

The information contained herein is for general informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any product or service. Any description set forth herein does not include all policy terms, conditions and exclusions. Please refer to the actual policy for complete details of coverage and exclusions.


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 Report: Manufacturing

More Robots Enter Into Manufacturing Industry

With more jobs utilizing technology advancements, manufacturing turns to cobots to help ease talent gaps.
By: | May 1, 2018 • 6 min read

The U.S. manufacturing industry is at a crossroads.

Faced with a shortfall of as many as two million workers between now and 2025, the sector needs to either reinvent itself by making it a more attractive career choice for college and high school graduates or face extinction. It also needs to shed its image as a dull, unfashionable place to work, where employees are stuck in dead-end repetitive jobs.


Added to that are the multiple risks caused by the increasing use of automation, sensors and collaborative robots (cobots) in the manufacturing process, including product defects and worker injuries. That’s not to mention the increased exposure to cyber attacks as manufacturers and their facilities become more globally interconnected through the use of smart technology.

If the industry wishes to continue to move forward at its current rapid pace, then manufacturers need to work with schools, governments and the community to provide educational outreach and apprenticeship programs. They must change the perception of the industry and attract new talent. They also need to understand and to mitigate the risks presented by the increased use of technology in the manufacturing process.

“Loss of knowledge due to movement of experienced workers, negative perception of the manufacturing industry and shortages of STEM (science, technology, engineering and math) and skilled production workers are driving the talent gap,” said Ben Dollar, principal, Deloitte Consulting.

“The risks associated with this are broad and span the entire value chain — [including]  limitations to innovation, product development, meeting production goals, developing suppliers, meeting customer demand and quality.”

The Talent Gap

Manufacturing companies are rapidly expanding. With too few skilled workers coming in to fill newly created positions, the talent gap is widening. That has been exacerbated by the gradual drain of knowledge and expertise as baby boomers retire and a decline in technical education programs in public high schools.

Ben Dollar, principal, Deloitte Consulting

“Most of the millennials want to work for an Amazon, Google or Yahoo, because they seem like fun places to work and there’s a real sense of community involvement,” said Dan Holden, manager of corporate risk and insurance, Daimler Trucks North America. “In contrast, the manufacturing industry represents the ‘old school’ where your father and grandfather used to work.

“But nothing could be further from the truth: We offer almost limitless opportunities in engineering and IT, working in fields such as electric cars and autonomous driving.”

To dispel this myth, Holden said Daimler’s Educational Outreach Program assists qualified organizations that support public high school educational programs in STEM, CTE (career technical education) and skilled trades’ career development.

It also runs weeklong technology schools in its manufacturing facilities to encourage students to consider manufacturing as a vocation, he said.

“It’s all essentially a way of introducing ourselves to the younger generation and to present them with an alternative and rewarding career choice,” he said. “It also gives us the opportunity to get across the message that just because we make heavy duty equipment doesn’t mean we can’t be a fun and educational place to work.”

Rise of the Cobot

Automation undoubtedly helps manufacturers increase output and improve efficiency by streamlining production lines. But it’s fraught with its own set of risks, including technical failure, a compromised manufacturing process or worse — shutting down entire assembly lines.


More technologically advanced machines also require more skilled workers to operate and maintain them. Their absence can in turn hinder the development of new manufacturing products and processes.

Christina Villena, vice president of risk solutions, The Hanover Insurance Group, said the main risk of using cobots is bodily injury to their human coworkers. These cobots are robots that share a physical workspace and interact with humans. To overcome the problem of potential injury, Villena said, cobots are placed in safety cages or use force-limited technology to prevent hazardous contact.

“With advancements in technology, such as the Cloud, there are going to be a host of cyber and other risks associated with them.” — David Carlson, U.S. manufacturing and automobile practice leader, Marsh

“Technology must be in place to prevent cobots from exerting excessive force against a human or exposing them to hazardous tools or chemicals,” she said. “Traditional robots operate within a safety cage to prevent dangerous contact. Failure or absence of these guards has led to injuries and even fatalities.”

The increasing use of interconnected devices and the Cloud to control and collect data from industrial control systems can also leave manufacturers exposed to hacking, said David Carlson, Marsh’s U.S. manufacturing and automobile practice leader. Given the relatively new nature of cyber as a risk, however, he said coverage is still a gray area that must be assessed further.

“With advancements in technology, such as the Cloud, there are going to be a host of cyber and other risks associated with them,” he said. “Therefore, companies need to think beyond the traditional risks, such as workers’ compensation and product liability.”

Another threat, said Bill Spiers, vice president, risk control consulting practice leader, Lockton Companies, is any malfunction of the software used to operate cobots. Then there is the machine not being able to cope with the increased workload when production is ramped up, he said.

“If your software goes wrong, it can stop the machine working or indeed the whole manufacturing process,” he said. “[Or] you might have a worker who is paid by how much they can produce in an hour who decides to turn up the dial, causing the machine to go into overdrive and malfunction.”

Potential Solutions

Spiers said risk managers need to produce a heatmap of their potential exposures in the workplace attached to the use of cobots in the manufacturing process, including safety and business interruption. This can also extend to cyber liability, he said.

“You need to understand the risk, if it’s controllable and, indeed, if it’s insurable,” he said. “By carrying out a full risk assessment, you can determine all of the relevant issues and prioritize them accordingly.”

By using collective learning to understand these issues, Joseph Mayo, president, JW Mayo Consulting, said companies can improve their safety and manufacturing processes.

“Companies need to work collaboratively as an industry to understand this new technology and the problems associated with it.” — Joseph Mayo, president, JW Mayo Consulting

“Companies need to work collaboratively as an industry to understand this new technology and the problems associated with it,” Mayo said. “They can also use detective controls to anticipate these issues and react accordingly by ensuring they have the appropriate controls and coverage in place to deal with them.”


Manufacturing risks today extend beyond traditional coverage, like workers’ compensation, property, equipment breakdown, automobile, general liability and business interruption, to new risks, such as cyber liability.

It’s key to use a specialized broker and carrier with extensive knowledge and experience of the industry’s unique risks.

Stacie Graham, senior vice president and general manager, Liberty Mutual’s national insurance central division, said there are five key steps companies need to take to protect themselves and their employees against these risks. They include teaching them how to use the equipment properly, maintaining the same high quality of product and having a back-up location, as well as having the right contractual insurance policy language in place and plugging any potential coverage gaps.

“Risk managers need to work closely with their broker and carrier to make sure that they have the right contractual controls in place,” she said. “Secondly, they need to carry out on-site visits to make sure that they have the right safety practices and to identify the potential claims that they need to mitigate against.” &

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]