Claims

Preparing for Hail

Hailstorms present a growing threat, but insurers can minimize losses by studying storm data.
By: | November 2, 2016 • 7 min read

Hailstorms are expanding their geographic footprint in every direction.
In Texas, storms are striking as far south as San Antonio. While the city normally experiences one to five hailstorms per year — a moderate risk zone for hail — this year it had more than 30, according to data tracked by Liberty Mutual’s risk engineering arm.

Advertisement




“Hail activity has also been expanding more into the North and Northeast,” said Arindam Samanta, director, product management and innovation at Verisk Insurance Solutions.

“We’ve noticed it becoming more of a problem in parts of Ohio, Illinois and Minnesota, outside of traditional hail-prone areas.”

As these areas become more developed, more properties are built in hail’s path, increasing claim frequency and severity.

Areas on the west and south sides of Oklahoma City, for example, have largely transformed from wheat fields to sprawling suburban communities in the last 10 years.

Arindam Samanta, director, product management and innovation, Verisk Insurance Solutions

Arindam Samanta, director, product management and innovation, Verisk Insurance Solutions

“We know that the weather patterns responsible for the formation of hail are fairly consistent over certain geographic areas — the Great Plains states, the Rocky Mountain West, parts of the Midwest — but over time the expansion and aerial coverage of cities and suburbs throughout these regions have increased, so the number of properties in the path of these damaging hailstorms will increase,” said Curtis McDonald, product manager, weather verification services, CoreLogic.

The type of storm has changed too. Smaller stones with diameters of less than 2 inches combined with higher velocity winds wreak different types of damage than larger, denser stones.

Hail typically smashes up roofs, siding, skylights and roof-mounted equipment like refrigeration units. In 2016, though, wrecked air conditioner coils have constituted roughly 30 percent of hail damages.

The smaller hailstones have an easier time getting into the coils — which are fragile and susceptible to damage — but are not heavy enough to significantly damage roofing materials and sturdier equipment.

The costs associated with hail damage have also risen due to the expensive repair and replacement of air conditioning units that are either too old or too new. For out-of-date equipment, there may no longer be parts available, while newer units must adhere to eco-friendly guidelines that elevate their price.

Many newer A/C units are also custom-built, especially for large commercial properties, so the replacement process is not only costly, but time-consuming.

Commercial property insurers can build a defense strategy by arming themselves with data, and there are plenty of ways to gather it.

“For 200-ton to 500-ton air conditioning units, it could take three to four months to get a new unit built and installed. And sometimes roof modifications are necessary during that process,” said Ralph Tiede, vice president, commercial insurance, and manager, property risk engineering, at Liberty Mutual.

“The business interruption impact can be significant, and that’s one piece of the puzzle that risk managers may not think about,” Tiede said.

If a storm strikes in the middle of a hot Texas summer, then the property may need to shut down completely while it waits for the new unit.

Data-Driven Defense

Commercial property insurers can build a defense strategy by arming themselves with data, and there are plenty of ways to gather it.

Advertisement




The Insurance Institute for Business and Home Safety (IIBHS), a research organization funded by insurance companies, conducts storm simulations inside its massive laboratory in Chester County, S.C., firing lab-created hailstones from cannons into full-size buildings to study effects on roofing, siding and outdoor equipment.

The organization also conducts field testing using impact probes to analyze hailstone size and density, and radar to track weather patterns.

“The IIBHS supplies member companies [including Liberty Mutual] with the most up-to-date information. That’s critical, because otherwise we’d be left making risk mitigation recommendations to clients based on building codes that are years old and don’t reflect what’s happening today,” Tiede said.

Other analytics organizations provide similar real-time insights.

Verisk Analytics uses weather modeling and ground observations to complement its real-time weather monitoring data feed.

Ralph Tiede, vice president, commercial insurance, and manager, property risk engineering, at Liberty Mutual

Ralph Tiede, vice president, commercial insurance, and manager, property risk engineering, Liberty Mutual

“We use an extensive ground-based network, including dual-pol radars, which collect huge amounts of data on fast-moving storms every two to five minutes,” Samanta said. This helps to complete the picture of a property’s exposure and keep an accurate record of hail events.

Storm history, collated with industry-wide hail claims data, informs Verisk’s Hail Damage Score, which ranks a location on a scale from one to 10. Higher numbers indicate higher likelihood of exposure to past damaging hail events and the presence of pre-existing hail damage.

Such data can help insurers discern what to look for when conducting property inspections for potential new clients, and may lead them to decide that a location is too risky to underwrite.

112016_05_claims_hail_chartAnalytics firm CoreLogic also produces retrospective data using a proprietary forensic database that houses three years’ worth of storm data.

“At CoreLogic, we score properties based on the actual number of hail events that previously impacted it,” McDonald said. “It’s a tool underwriters can use when evaluating a new property or geographic area.”

But with hailstorms fanning into new regions and the resulting damage changing in nature, data based on past events may not suffice. Forward-looking probability metrics complete the risk picture.

“We’ll also run a 10,000-year simulation and look at the probability of hail 1 inch in diameter or greater impacting a specific property in the future,” McDonald said.

Other data points to consider are more property-specific: the types of building materials for roofing and siding, the number of roof-mounted equipment units and skylights, the age of the equipment, the current value of the building, and any mortgage or potential liens.

“High quality data is key in forming a basis for a view of risk in areas where it is still emerging,” Samanta of Verisk said.

Risk Mitigation

Hailstorm and property-specific data can aid insurers in multiple capacities, from initial assessments of a potential new client to risk mitigation recommendations to expeditious claims processing.

“We have specific guidelines for our engineers when they go out to do an assessment of a new building in an area prone to hailstorms and wind,” Tiede of Liberty Mutual said. “We will want them to look at specific things like the roof condition, roof-mounted equipment, and any maintenance programs in place.”

The engineers then report back to account managers, who use the information to customize pricing and deductible structures, and to develop specific risk mitigation recommendations.

“We built a proprietary hail tool where we’ll enter in all the property-specific data collected for us by our engineers, and it will show us the loss potential for that specific location.

“We pass that along to the account managers, who help clients develop and prioritize specific steps they can take to reduce their exposure,” Tiede said.

Recommendations can include installing factory-approved hail guards over air conditioning and heating units, replacing an old roof with stronger material, conducting regular roof maintenance and installing protection for skylights.

112016_05_claims_fact_chart

At about $250 each, “manufacturer-installed hail guards are a surprisingly inexpensive fix” that won’t compromise the unit’s efficiency, Tiede said.
Liberty Mutual’s tool also has the benefit of identifying customers who are doing their homework and have already taken steps to protect themselves.

“If we have a customer who is proactively taking these steps that could reduce loss expectancy, this might make them more attractive, which would likely be reflected in that risk’s pricing,” said Brent Chambers, underwriting consultant, national insurance property, Liberty Mutual.

“It’s a tool we can use to sharpen our quote.”

“Customers who are loss-conscious deserve some type of credit. If we can, we like to give them something back to demonstrate that we’re partners in this together,” Tiede said.

Advertisement




Insurers can also use weather monitoring systems to send out alerts to clients sitting in a storm’s path, advising them of immediate steps they can take to limit damage and providing them with a claims contact if a loss occurs.

“If they suffer serious damage, they may not be able to get inside the building or get access to their files where they keep their insurance information,” said Chambers.

“We send them the claims intake phone number to call so they have it right in front of them if they need it.”

When insureds are warned and prepared, claims can be filed and resolved more quickly.

“Hailstorms aren’t going to stop, and in fact we’re going to see more and more of them,” Tiede said. “2016 saw a lot of hail damage — about 5,400 storms this year, and it’s a risk the whole industry is waking up to.” &

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

Advertisement




That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

Advertisement




Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]