Changing Tides of Natural Disasters: Ways Underwriters Can Face Marketplace Turbulence

By: Michael Brown | October 22, 2022

Michael D. Brown, CPCU, CCRA, CRIS, ASLI, AU-M, ARe, AIT, ARM-E, AINS, ANFI, joined the commercial property department at Golden Bear Insurance Company in 2002 and has been managing it since 2013. He has published articles in many insurance publications and was selected as a Risk Management All Star by Risk & Insurance magazine in 2016 and as a Hot 100 Insurance Professional of 2019 by Insurance Business America.

In response to the rising number of property catastrophe losses in recent years, primary insurers and reinsurers are reconsidering their business plans and the lines of business that are underperforming — thereby creating upheaval and angst in the marketplace.

“When It Rains …”

Floods, hurricanes, wildfires and earthquakes are natural disasters that have been attracting the insurance industry’s attention in recent years.

Floods are the most frequent natural disaster in the United States. In fact, all 50 states have experienced flood losses in the past 10 years.

The formation of the National Flood Insurance Program (NFIP) in 1968 changed the insurance landscape for flood-exposed properties. The NFIP’s rating and pricing models charged policyholders in low-hazard zones higher rates than were actuarially required in order to help offset the lower rates paid by policyholders in the highest hazard zones. Even policyholders with properties that experienced repetitive flood losses received this subsidy.

In October 2021, the Federal Emergency Management Agency (FEMA) and the NFIP introduced Risk Rating 2.0, a rate structure that passes more of the cost of insuring high-hazard properties to the owners of those properties. Early estimates suggest that 77% of NFIP policyholders will see an increase in their flood rate, while 23% may see a reduction.

Risk Rating 2.0 should help minimize the amount of money the NFIP needs to borrow from the U.S. Treasury after large-scale disasters. Currently, the NFIP is more than $20 billion in debt to the U.S. Treasury, according to the Congressional Research Service.

Increased Severity

Hurricane frequency in the North Atlantic may not be much different now than it was 100 years ago, but the storms that have made landfall in recent years have packed more of a punch. Exacerbating hurricane severity is the steady development of coastal areas.

According to the National Oceanic and Atmospheric Administration (NOAA), 2020 marked the 10th consecutive year with 8 or more billion-dollar disasters. In 2017 alone, there were 16 separate billion-dollar-plus weather events in the U.S., which ultimately totaled $306.2 billion, per the United States Billion-Dollar Disaster Events 1980-2021 report by the National Centers for Environmental Information.

Wildfires in California have also become more severe in recent years. According to The Nature Conservancy, not only are total acres burned increasing over time, but the rate of increase in acres burned is also going up. In addition, wildfire season is getting longer. The number of wildfire ignitions and acres burned in November and December have increased fourfold in the most recent decade, compared with the previous three decades.

Not only has flood, hurricane and wildfire severity in the U.S. been increasing, it’s only a matter of time until California experiences its next big earthquake event. The U.S. Geological Survey and the University of California, Berkeley’s Seismology Laboratory believe that the Hayward Fault in Northern California is overdue for a significant earthquake event.

Swarms of microquakes in the Salton Sea area on the San Andreas Fault have raised concerns about the increased risk of a strong earthquake in that region, according to a 2020 U.S. Geological Survey report. The East California Shear Zone has also experienced thousands of measurable earthquakes in recent years, including magnitude 6.4 and 7.1 events in July 2019.

Recent years have also seen winter freezes in unusual places such as Texas, social justice protests and riots, pandemic business income losses, supply chain-related losses, social inflation and nuclear jury verdicts. Making a profit in this environment is increasingly difficult, and new storms seem to move in regularly.

What Lessons Have We Learned?

In addition to the increasing frequency and severity of natural disasters, the insurance industry is experiencing a talent gap. Senior staff members are retiring at a faster rate than new talent is being recruited, creating turbulence in the industry.

When times are tough, the industry tends to revert to the fundamentals. For example, it may concentrate on ideally insurable risk, which includes:

Pure, not speculative, risk
Fortuitous losses
Measurable and definite losses
Large numbers of exposure units
Independent exposure units
Losses that are not catastrophic
Affordable premiums

Standard insurers often shy away from catastrophe business because catastrophe risks do not fit the ideally insurable risk model upon which their business plan is based. Excess and surplus lines insurers inherit the business, but can they provide enough help?

It’s a complex problem with no simple solution. Each surplus lines insurer may be willing and able to accept some of the high-hazard, catastrophe-exposed business, but they can’t accept all of it. The specter of 112-year-old Merced Property & Casualty Company, driven into insolvency in the aftermath of the California Camp Fire of 2018, reminds the industry that worst-case scenarios remain possible.

Challenges and Solutions

Economic and environmental realities can’t be underwritten away, no matter how skilled the underwriter.

Underwriters often hear desperate pleas from insurance brokers to write coverage for clients who need it. The sentiment is understandable, and underwriters don’t like leaving property owners without insurance coverage.

But of course, an underwriter’s job is to write business that won’t bankrupt the insurer. A wood-frame building located deep in a wildfire zone, where fire service response is likely slow, probably cannot be insured profitably — at least not at a premium that the owner would consider affordable. Likewise, a building that has experienced repetitive flood losses would face the same situation.

Economic and environmental realities can’t be underwritten away, no matter how skilled the underwriter.

The real victims, of course, are the innocent insureds — those who take reasonable measures to reduce the frequency and severity of losses and operate their businesses in a responsible manner. These insureds are too often penalized for the less responsible behavior of others. Because it’s often unclear from insurance applications who is who, underwriters are sometimes forced to paint with a brush that is overly broad.

The challenges underwriters face today are not the same ones they faced 50 years ago. But that doesn’t mean they are insurmountable.

Underwriters now have more data than ever before. Cooperation and collaboration with IT professionals and programmers can lead to the development of internal systems that can help sift through data and winnow it down to useful information.

The challenges underwriters face today are not the same ones they faced 50 years ago.

Industry loss data, as well as internal loss data, can be analyzed more rapidly than ever before to provide guidance when setting goals and targets. Several catastrophe models are commercially available, and many reinsurers have proprietary models that they use to manage their exposures — and sometimes even to help primary insurers.

These tools are useful and informative, but they have one significant limitation: The models are developed using historical catastrophe data. As such, they tend to underperform in circumstances involving unprecedented losses, such as Hurricane Katrina in 2005.

Because unprecedented events are not represented in the historical data set, statistical models are unlikely to predict them. Current model methodology uses game theory and heuristics to combat this limitation, so model results and future catastrophes may be more closely aligned than in the past.

Underwriters face daunting challenges, but they now have tools and analytics available to help them. Add these advances to underwriting discipline, pricing discipline and open communication with insureds — which remain the most effective ways for underwriters to control risks — and underwriters have the best formula for weathering the next inevitable round of storms. &

This article was originally published in “Insights: A professional Journal by the CPCU Society.”

Dangerous Jobs: Why Health Screenings Are Critical to Protect Firefighters

The implementation of an annual wellness-fitness program can improve firefighter fitness and ultimately help save lives.

By: Concentra | May 1, 2024

It’s impossible to ignore the great risks taken by firefighters. They experience injuries in large numbers and there is significant loss of life. Almost half of this loss of life is due to cardiovascular events. Additionally, studies suggest that there is an increased risk of the development of certain cancers.

These brave men and women put their lives on the line to rescue and protect others. They won’t hesitate to run into a burning building while wearing heavy gear and carrying heavy equipment in order to save lives.

“Their job requires a combination of performance, mobility, strength and endurance, and it often exposes them to environmental hazards and psychosocial hazards as well,” said Dr. Latha Brubaker, senior vice president of medical operations at Concentra.

“Being a firefighter can be physically difficult, it can be dangerous, and the impact of fighting fires and rescue can have a behavioral health impact, as well.”

Given the physical and emotional challenges associated with their jobs, firefighters need to be in top physical condition. Regular holistic health screenings and preventive conditioning programs can help protect these heroes, ensuring they have long careers serving their communities.

A Dangerous Job

Dr. Latha Brubaker, Senior Vice President Medical Operations at Concentra

To understand the physical and mental health threats firefighters face, it’s important to examine how firefighting exposes them to a number of different risks. Their job is physically taxing. They must wear heavy gear to protect them from high-temperature exposure while rescuing people and pets. They have to climb ladders and stairs during rescue operations. Although wearing masks to limit these exposures, firefighters can inhale smoke and be exposed to harmful chemicals and environmental toxins, increasing their risk of certain cancers.

“Firefighters have to climb ladders and stairs, all the while hauling very heavy and unruly fire hoses and wearing very heavy equipment and PPE,” Brubaker said.

While completing these physically demanding tasks, firefighters can inhale smoke and other environmental toxins, increasing their risks of certain cancers. A study of 30,000 firefighters spanning from 1950 to 2009 found that firefighters were 9% more likely to be diagnosed with cancer and 14% more likely to die from the disease than the general population.

Outside of the physically taxing elements, firefighters often work in distressing circumstances. There may be thoughts of the personal risks taken to save others. They witness significant injuries and loss of life.

All of these situations have the potential to be emotionally distressing for firefighters. That’s why a number of states — including California, Tennessee, Florida and Georgia — have passed or are considering passing laws that include PTSD benefits under workers’ comp coverage for firefighters.

“We’ve really doubled down on our commitment to behavioral health, and we’ve gone so far as to partner with some third-party resources that have expanded our ability to provide behavioral health support,” said Chris Studebaker, senior director of onsite preventive services at Concentra.

Protecting Firefighter Health

Chris Studebaker, Senior Director of Onsite Preventive Services at Concentra

Unlike in other professions, it’s hard to reduce the number of physical and environmental hazards a firefighter faces on the job. Yes, PPE can go a long way in protecting firefighters from burns and other injuries, but the physical demands are also extreme. Firefighters are wrangling heavy fire hoses to stop the damage. In addition, they are often lifting people and maneuvering in confined or challenging spaces.

In order to make sure firefighters are up to the task, many departments conduct annual physical health assessments so that they can be certain their firefighters are physically and mentally prepared for the job. Medical personnel follow the guidelines provided by the National Fire Protection Association (NFPA) Standard 1582 on Comprehensive Occupational Medicine Programs for Fire Departments which helps them determine if there is a condition present that may prevent a firefighter from performing their essential job functions.

The Joint Labor Management Wellness-Fitness Initiative, comprised of two major fire service organizations, worked to develop a comprehensive wellness-fitness program. Based on this initiative, NFPA developed standards regulating these programs. This resulted in the suggestion of adding cancer screening, fitness assessments, and behavioral health screening to the periodic health assessments of firefighters.

“Some fire departments are now asking us to perform cancer screening,” Brubaker said. “Cancer screening recommendations are made by the US Preventive Services Task Force, for example, and are based on a systematic review of scientific evidence published in peer-reviewed journals. When determining the appropriate screening tests, it is important to review the USPSTF recommendations with the understanding of the potential additional risks amongst firefighters for certain cancers.

Sleep health is another area of issue in the fire service due to the 24 or 48-hour shift schedule and the mental strain and stress of the job.

Beyond screenings, firehouses can opt to partner with providers of on-site health services, including physical therapists who can work collaboratively with employers to develop and implement injury-prevention programs. Known as “tactical athlete programs” because their rigor is like that of the training a pro athlete would undergo, these solutions can help catch injuries before they become severe and help keep firefighters’ bodies functioning optimally to enable them to perform their job.

Wearable technologies, too, are likely to play a role in keeping firefighters safe in the future: “We’re seeing the use of wearable tech sensors that look at environmental exposures and heat. And now the technologies can even track their sleep health” Studebaker said. “I think the future of wearable tech is going to shift away from discrete individual devices and more towards garment-based sensors.”

A Trusted Partner for Firefighter Physicals

The physical rigor required to fight fires combined with the emotional stressors present in the job mean that employers need to put extra care into guarding firefighters’ health and safety. Firefighters should undergo regular physical exams, and Concentra is just the partner they need to conduct these physicals.

Concentra clinicians perform examinations, imaging, and lab tests that meet the National Fire Protection Association standards.

Firefighters who undergo these examinations will complete a physical fitness test that assesses their lifting, pushing, pulling, carrying, climbing and other abilities. These kinds of assessments can guard against musculoskeletal injuries common in the industry.

Should an injury occur, the clinician utilizes a conservative treatment approach, with an emphasis on active rehabilitation. Since firefighters are in safety sensitive positions, opioids are usually avoided.

“Musculoskeletal injuries can be managed without the use of opioids,” Brubaker said. “Our approach is a conservative one with the use of physical therapy, when appropriate, and anti-inflammatory medication, if needed. We try to avoid prescribing opioids. Opioids are typically unnecessary.”

A Concentra clinician will perform lab tests including a complete blood count, comprehensive metabolic panel, lipid panel, and urinalysis as well as TB tests. They will do alcohol and drug tests. They will perform audiograms, pulmonary function tests, chest X-rays and EKGs. They will complete a cardiovascular risk assessment and depending on age and the level of risks, a stress test will be performed either at the onsite clinic or a cardiology office.

“It’s important for us to make sure in the first place that they’re healthy from a cardiovascular perspective, that they’re healthy from a respiratory perspective,” Studebaker said.

Behavioral health screening and cancer screening can be performed at Concentra Onsite Health clinics. Clinicians can conduct screenings for six cancers firefighters are at elevated risk for: colorectal, prostate, skin, blood, thyroid and bladder.

Concentra Onsite Health clinicians assess firefighters’ health holistically — something that is essential for a job that is both physically and emotionally taxing. By providing whole-person care, Concentra Onsite Health aims to guard firefighters’ health so that they can come home to their families after a day of protecting others.

“Most firefighters are very passionate about the work they do. They are vital members of their community and take risks every day to keep these communities safe. The work of a firefighter can have an adverse impact on their long-term health and well-being. It is equally vital that we take care of our firefighters and do what we can to improve their overall health.”

To learn more, visit: https://www.concentra.com/

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

Concentra® is America’s leading provider of occupational medicine, delivering work-related injury care, physical therapy, and workforce health services from nearly 520 Concentra medical centers and more than 150 onsite clinics at employer locations nationwide.