At the recent Private Risk Management Conference in New Orleans, Dan Reynolds, editor in chief of Risk & Insurance, caught up with Jason Ott, President of Aon Private Risk Management.  What follows is a transcript of that discussion, edited for length and clarity.

Risk & Insurance: Thanks for meeting with us Jason. Climate change is certainly affecting risk exposures across the board. What considerations should your high-net-worth clients be aware of in this area?

Jason Ott: First, let me share some important data. From July 2023 to August 2024, we experienced consecutive record-breaking months of heat on a global basis.

2024 was the warmest year on record, and this is creating significant issues with climate patterns. In California, drought conditions combined with multiple other factors have led to devastating wildfires.

Additionally, we’re seeing storms that are moving much faster and forming more rapidly than in previous years.

Hurricane Erick from earlier this year is a prime example. It escalated from a tropical storm to a 145-mile-per-hour Category 4 hurricane in just twenty hours. That storm hit on the Pacific side of Mexico.

Hurricane Milton exemplifies the rapid intensification we’re seeing — it went from a tropical storm to a Category 5 hurricane in the Gulf in just 48 hours before slowing down and becoming less organized as it approached the coast. This global warming trend is particularly impacting high-net-worth clients, as many of them are located on the coasts and in western regions.

At the same time, we’re witnessing a significant shift in tornado alley.  It’s no longer hitting the same places it did from the 1950’s through the 1980’s. Since the mid-80s we have seen a shift eastward. While Oklahoma remains affected, the activity is now moving toward Arkansas, North Louisiana, Alabama, Mississippi, Kentucky, Southern Missouri, Southern Illinois and Southern Indiana.

This shift has resulted in more billion-dollar catastrophic events in the center of the country. In 2024 alone, there were seven tornadoes and ten storms — including winter storms, freezes, and summer convective storms — that each caused at least $1 billion worth of damage. We’re seeing climate impacts affecting every region across the country.

R&I: How are shifting weather patterns and increasing storm intensity affecting high-net-worth families’ ability to track and manage their property exposures across multiple homes?

JO: People are accustomed to rate changes and coverage modifications on the coast — this has been happening for the past twenty years, so it’s not surprising. What’s becoming more prevalent is the impact in the center of the country, from Texas straight through Minnesota. We’re seeing deductibles being implemented on roofs for wind and hail damage, along with significant price increases in regions where the Midwest traditionally experienced flat rates.

The cost per $100 to insure a home used to be relatively cheap in these areas. However, over the last few years, we’ve witnessed many states experiencing 15% to 30% rate increases multiple years in a row.

Families are asking us what’s happening and why they’re seeing these changes. They understand the challenges in coastal areas like California and Florida, but they’re questioning why cities like Chicago and Saint Louis are being affected. We’re showing them data about these storms, and we’re also seeing an increase in derechos — weather phenomena that were virtually unheard of until recently.

I grew up in Iowa, where 70 mile-per-hour straight-line winds are almost equivalent to a Category 1 hurricane, though obviously not sustained for as long. The critical difference is that homes in Iowa aren’t built to the same standards as those on the coasts, so we’re seeing significantly more damage from these events.

The same pattern applies to flooding. Hurricanes Helene and Milton were primarily flood events, which surprised many. While they certainly hit Florida, many insurance claims weren’t filed because damages didn’t meet the deductible thresholds outlined in policies.

The real devastation occurred when these storms moved inland and caused catastrophic flooding. I never would have anticipated that level of flash flooding in areas so far from the coast.

R&I: What advice are you providing high-net-worth clients regarding fire risk mitigation and resource allocation for home improvements?

JO: You really need to evaluate each specific location based on where you are in the country because risks differ significantly by region. When we’re looking at a home in California, we focus on creating defensible space and ensuring all combustibles are moved away from the structure.

We’ve proactively reviewed our book of business and identified clients with wood shake roofs. Even in the Northeast, we’re recommending that people explore alternatives for their wood roofs. This preventive approach helps mitigate potential fire risks and other weather-related damages before they become costly claims.

Unfortunately, wildfire risk is becoming increasingly location-specific across regions not traditionally associated with this hazard. In California, we have seen clients building new homes who are taking a conscious approach to risk mitigation. If they have ample space on their property, they can create defensible space and create systems to help with mudflow and water flow hazards that often accompany wildfire events.

Homeowners are actually building gully systems to divert mudflow from previous wildfires. The goal is to redirect the mudflow away from homes should it occur. This is the first time I’m seeing this type of mitigation infrastructure being implemented.

We’re also seeing clients use drones to map the topography of their land and work with their estate managers on a comprehensive maintenance calendar. This is particularly common among high-end property owners who are taking a proactive approach to risk management.

There’s what I call passive maintenance, which involves monthly tasks like clearing vegetation and keeping the property free of combustibles. Then there’s the more active approach, which includes replacing roofs, replacing exterior wood elements, and installing ember-resistant vents in the home. Both strategies work together to create a comprehensive fire prevention plan.

R&I: How are exposures changing for homeowners whose properties have been remapped?

JO: We’re seeing significant changes with clients in Florida who built their homes 10 to 15 years ago. Some of these properties originally had positive elevation based on FEMA maps, but subsequent remapping has left them negatively elevated. They are now more susceptible to flooding issues than they once were.

This is particularly problematic for clients on Florida’s West Coast who have negatively elevated garages containing $1 million to $2 million worth of vehicles. When storms approach, having a plan is critical. In fact, some carriers are now mandating that when clients add new vehicles — especially high-value vehicles — they must have an alternate storage location with positive elevation and a method to transport the vehicles there when a storm is coming.

This is the first time we’ve seen such requirements, and they’re being driven by Hurricane Ian. The storm resulted in numerous large auto losses, many due to negative elevation or vehicles registered in the Midwest that happened to be in Florida at the time.

R&I: What is the evolving landscape of cyber risk for high-net-worth individuals, and how are insurance carriers responding to this threat?

JO: It’s very easy to add cyber coverage onto high-net-worth homeowners or liability policies by endorsement. It provides some level of coverage, though it might not be enough for the events occurring to high-net-worth individuals, but it’s there and it’s affordable.

We see an incredibly low take-up rate — very, very low. I’ve been digging deep to figure out why that is. The coverage offerings have gotten significantly better from the core high-net-worth carriers over the last five years, but we’ve also seen incredible rate increases on personal lines portfolios over that time.

When you’re going into a renewal and presenting a homeowner’s policy that already has a 20% rate increase, trying to add cyber coverage for $500 to $1,500 becomes challenging. Even though it’s a small portion of the overall spend, it doesn’t align with the client’s objectives. They’re upset about the rate increase, trying to save money, and then you’re offering additional coverages they can add.

Many consumers believe they already have adequate coverage through their credit cards or banks. This misconception leads them to think they’re already protected and don’t need additional insurance.

R&I: How do cyber insurance rates for high-net-worth individuals compare to the commercial market, particularly given that commercial rates have moderated significantly over the past four to five years following initial market corrections?

JO: Actually, rates for high-net-worth cyber coverage have stayed relatively flat, while the coverage has improved. relatively inexpensive compared to what we’ve seen historically.

But no one wants to add that coverage when they’ve already experienced large increases on their homeowners insurance. They don’t want to add another $1,500 to their premiums. This would mean their rate increase of 20% over last year would jump based on the added premium and coverage if they elected to purchase the coverage.

Premium fatigue is definitely a factor. The other key difference in the commercial world is that a significant part of why businesses purchase cyber policies is to cover their consumers. This consumer protection aspect is a major driver in the commercial cyber insurance market.

R&I: What distinguishes cyber coverage for family offices from traditional personal insurance?

JO: Cyber coverage isn’t something we typically have on the personal side. When we’re working with family offices — people who have offices dedicated just to preserving family wealth — we offer cyber coverage for the business, though many of them initially say it doesn’t really apply to them.

While certain sections may not be applicable to family offices, there are important coverages that are offered to help protect the business and the family. Another important part of the offering is to gain access to experts who can help mitigate whatever issues might arise for the family office. This type of coverage is distinctly different from coverage offered on a personal insurance policy.

R&I: Would you care to talk about the cybersecurity services Aon provides to protect high-net-worth families and their households?

JO: We have extensive resources available for our clients. We connect them with specialized consultants who spend time on-site at the family house, at all of the households, and at the family office if there is one.

These consultants also dedicate time to training household members on how to maintain what I call good Internet hygiene.

My greatest concern is that there will be a major cyberattack in the United States, and we will have many consumers without coverage. When that happens, coverage will immediately dry up and become very difficult to obtain. People who have coverage will be grandfathered in.

I don’t mean to be alarmist, but I believe it’s a matter of when, not if. If I’m thinking proactively about the future, getting some form of cyber coverage in place now is critical. Even if it’s just an endorsement added to your homeowners’ policy with $100,000 or $250,000 worth of cyber coverage, it’s better than nothing, and then you have it.  &