3 Wildfire Resilience Considerations You Can’t Ignore

By: Steve Hernandez | August 17, 2021

Steve serves as Senior Vice President, Risk Control for CNA. In this role, he is responsible for strategic direction and leadership of Risk Control for CNA's $2.8 billion commercial property and casualty business, which is comprised of Business Insurance (smaller commercial accounts) and Commercial Insurance (middle market and risk management accounts). This includes developing Risk Control products and services that align with CNA's commercial underwriting strategies.

Wildfires are a growing global threat to people and property due to persistent drought, warmer low temperatures, periodic high winds and excessive dried vegetation in forests and grasslands.

Beyond just climate and wildland vegetation conditions, communities, businesses and even key infrastructure continue to proliferate in near wildland areas, known as the wildland-urban interface, further increasing the risk.

There is especially great concern about the potential for catastrophic fires as a result of persistent drought in the Western United States this year. According to the Insurance Information Institute and the U.S. Drought Monitor, 95% of land in the Western U.S. is experiencing moderate to severe drought.

The early season Bootleg Fire in Oregon and Dixie Fire in California have already jointly consumed more than 600,000 acres, driven by extremely dry fuels, which is often a byproduct of sustained drought conditions.

The statistics are clear: it has never been more important for businesses to implement strategies that can improve wildfire resilience of their buildings and operations.

In order to effectively manage wildfire risk, business leaders must have an understanding of their operational exposure to wildfire. Wildfires can threaten a structure or building via wind-blown embers, direct contact by flames, as well as radiant heat.

Interestingly, embers are the leading cause of structure loss during a wildfire; wind-blown embers can ignite buildings and vegetation as far as 2 miles from the fire itself. Reviewing Fire Hazard Severity Zones Maps of their local or regional area is a good place to start when trying to understand the potential risk for each of their operating locations.

Additionally, practical steps can increase the resilience of building structures, protect employees and improve a company’s ability to respond and recover from wildfires. There are three key areas to consider:

1) Defensible Space

Creating defensible space, or an area clear of combustibles around the perimeter of buildings, is a cost-effective way to protect structures from a wildfire.

This can also minimize the chances of a fire spreading into nearby wildland areas and provides a clear space for firefighters to do their job effectively.

Defensible space zones extend from the outside perimeter up to 100 feet from the building, but the area within 5 feet, sometimes referred to as the Ember Resistant Zone, is particularly important because of the risks of ember ignition in this area.

Removing or pruning combustible shrubs and trees, relocating combustible storage, cleaning gutters, removing vehicles, and maintaining low grass clearances are just some of the ways to reduce fire loading in this space.

2) Wildfire Resistant Construction

Wildfire resistant construction refers to the flame, or fire-resistant building materials that can slow down or prevent fire and embers from impacting a structure.

Structural features vulnerable to wildfires could include exterior walls, exterior glazing, open vents, chimneys and roof assemblies.

Companies can take steps, such as installing ember screens for soffit and gable vents and other openings, avoiding the use of combustible roofs, and protecting vulnerable windows and other glazing. This, combined with defensible space techniques, can help reduce the risk to structures when a wildfire nears.

3) Resilience Programs

Time is of the essence when a wildfire occurs, as fires can spread quickly, especially when driven by wind or high fuel loads.

An incident response plan that considers wildfire emergencies should be updated regularly and tested at least annually. This plan, of course, is not just about protecting property. Incident response plans consider employee safety procedures too, such as evacuation routes and emergency communications.

Like most risk management programs, preparedness is the anchor to business resilience. It is unlikely to eliminate the possibility of business disruptions, such as wildfires, but companies can properly prepare for them.

In order to grow and thrive in an uncertain risk environment, preparation can help a company absorb, adapt and be resilient to these types of disruptive events – ultimately improving operations after each incident.

Take time to reflect on the past wildfire seasons as well as closely monitor the current season, using all of these events to equip your business with the right knowledge and the most effective risk management tools. &

How a Carrier Partner Can Help Navigate a Challenging Management and Professional Liability Market

A combination of a choppy economy with increased claims frequency and severity could lead to rate increases in the Management & Professional Liability market.

By: Risk & Insurance | April 3, 2024

Rates in the management & professional liability (M&PL) markets were on the rise from 2020 to early 2023 and are now falling rapidly.

M&PL divisions manage a number of different insurance products including management liability (D&O), professional liability (E&O), employment practices liability (EPL), fiduciary liability policies, cyber, etc. In 2023 and into 2024, a big influence on the marketplace has been the extremely aggressive and softening public company D&O market.

Though these rates have been softening for management liability, that may change over the next few years as companies continue to adjust their business models motivated by economic uncertainty. Layoffs were up nearly 200% last year, Forbes reported, even as other recession indicators, like the inflation rate, improved. A recession could lead to an increased claim activity and force carriers to raise rates.

“Whenever there is a meaningful downturn in the economy, we tend to see claim frequency pop up,” said George Schalick, Jr., senior vice president of the Management and Professional Liability Division at Philadelphia Insurance Companies (PHLY).

With continued fiscal uncertainty, businesses potentially already burdened with pandemic-related claims should seek a carrier with a long history in M&PL products. They will provide much-needed risk management guidance and be better positioned to support their insureds during market fluctuations.

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Philadelphia Insurance Companies. The editorial staff of Risk & Insurance had no role in its preparation.