Uninsured Losses Continue to Rise from Nat Cats. These Emerging Resiliency Approaches Can Help

Natural catastrophes are growing in severity, resulting in an increase in uninsured losses. Numerous technologies are emerging to aid resiliency.
By: | June 13, 2019

Fires, floods, earthquakes, mudslides and more are damaging businesses for extended periods. In total, insured losses due to natural catastrophes in 2018 were $90 billion — a scary number. Even more terrifying: Total losses were $225 billion.

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It doesn’t help, either, that these natural catastrophes are growing in intensity and adding to the gap between insured and uninsured losses.

In 2017, the U.S. experienced 71,499 wildfires. Approximately 10 million acres burned. The California Department of Insurance reported insurance claims from October through December equalling close to $12 billion. It was the costliest fire season on record.

Then 2018’s wildfires happened.

There were fewer fires in total, but a prolonged dry season led to deadlier flames: The Camp Fire, breaking the record for the deadliest and most destructive fire in the state, burned 153,000 acres and 18,800 structures in 2018. Eighty-eight people died. The California Department of Insurance reported another year of insurance claims equaling $12 billion.

And it’s not just wildfires; in the last few years, hurricanes too have battered U.S. shores. The Insurance Information Institute estimated about 70% to 80% of 2018’s Hurricane Florence claims were uninsured.

The Midwest had one of its harshest winters in recent history, where “the coldest temperatures in almost two decades … spread into the northern and central U.S.,” according to the National Weather Service. Residents were advised to stay indoors and refrain from breathing deeply.

Heavy spring rains further led to flooding in this same region, which caused a total of $2.9 billion in property damage.

“The increased number of natural catastrophes in the recent years around the world is the leading driver of CAT losses for insurers,” said Laura Drabik, group vice president of business innovation, Guidewire.

And each catastrophe presents a spectrum of losses: business interruption claims; loss of vital infrastructure; pollutants and other environmental concerns; higher chances of mold and mildew festering in the aftermath; public health concerns and the potential spreading of disease.

(Pools of stagnant water become breeding grounds for mosquitoes — after Hurricane Katrina, a doubling of West Nile disease cases was seen in the hurricane-affected areas of Louisiana and Mississippi, Forbes reported.)

Insurers and insureds alike are developing and embracing ways to mitigate the impact a storm may continue to have long after it has passed.

Here’s where engineering, resilience and business continuity planning come in; and their importance is growing more pressing every year.

Reviewing Traditional Means

“Traditionally, insureds have focused their resiliency on insurance coverage, making sure that their business and their infrastructure are insured,” said Drabik.

But, she added, “while traditional methods are effective in helping manage the immediate impact of catastrophes, often forgotten is the long-term impact of these events.”

Laura Drabik, group vice president of business innovation, Guidewire

Business interruption, for example, is a big one: Business Continuity Institute’s Business Continuity and Resilience Report 2018 found that the average cost of a severe business interruption was $350,000 last year.

Companies surveyed for the report responded that extreme weather is contributing to expanding BI over the long term, ranking it the fourth biggest threat in the next 12 months.

Ken Katz, national property risk control director at Travelers, told Risk & Insurance® last month that “the cascading impacts of some risks are still often misunderstood. People know a hurricane causes wind and flood damage, but there is less thought about the effect on telecoms or the inability of people to get to places in the aftermath, which also can affect businesses.”

For risk managers, who are also traditionally trained in the proper protocols and procedures following a catastrophic event, a bigger emphasis is needed on planning for business interruption, Drabik said.

“These costs are even greater following a catastrophe,” she explained.

“This is a result of companies relying heavily on technology that may have gone down due to falling power lines, internet and other outages as a result of the catastrophe.”

Puerto Rico, for example, which was devastated by 2017’s Hurricane Maria, is still working to build itself back up to where it was before the storm hit — nearly two years later.

So what tools are at insureds’ fingertips to better manage CAT risks? What methods are in place for long-term resilience?

Working in Real-Time With Risk Managers

Keeping infrastructure intact during an event is a surefire way to keep a business running. But that’s not the only means to keep things going.

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“In the past, because of flooding, wind damage, etc., we’ve seen companies left at a standstill,” said Jonathan Salter, head of global property risk engineering,  AXA XL Risk Consulting.

“Having contingency plans in place gives companies considerable flexibility and resilience. After some of the storms that we’ve seen, this means plenty to the company itself, but it also means a lot to its employees and its community, and everyone’s overall ability to make a quick recovery.”

As part of its own efforts to help,  AXA XL Risk Consulting built SiteForward, a platform that offers a suite of risk management capabilities and tools to its clients. It’s one way Salter and his team are keeping businesses prepared.

SiteForward enables risk managers to see changes occurring during natural catastrophes, anywhere in the world, in real-time.

“Keeping this kind of collective surveillance on all of their facilities allows [clients] to act quickly and deploy necessary resources to reinforce property protection — that may mean moving supplies in storage to higher ground if there is a danger of flooding; or clearing bush and debris if they see themselves in the path of a wildfire,” explained Salter.

Preparing for today’s severe storms is a process of continuous improvement. That means working to help track any actionable loss prevention tactic available.

“A proper combination of infrastructural resilience, business protocols and insurance coverage are needed to help companies avoid long-term effects of catastrophes.” — Laura Drabik, group vice president of business innovation, Guidewire

“Also, being able to run reports that summarize these strategies, the cost of implementation and the cost of incurred and/or potential losses, allows risk managers to clearly communicate with senior leadership,” he said.

“This can be very helpful in mobilizing support for loss prevention strategies that are designed to keep business operational after NAT CAT events.”

Technology and Resiliency

SiteForward is just one new contingency planning tool; technology like this is playing a huge role in resiliency efforts and advancements as well.

“Thanks to enhanced imaging, more accessible field evaluations and improved data models, CAT preparedness has become more accurate, helping ensure businesses are prepared,” said Drabik.

“Also, with technology playing a critical role in disaster response, insurers are able to focus more on their role in helping prepare for future catastrophes.”

Drones and digital imaging are two big technologies helping insurers advance in their event preparedness. Both before and after a storm rolls through, these technologies help insurers and risk managers better assess risks from the ground and in seconds.

Some additional tools:

  • WeGoLook — an on-demand field service provider that can provide both access to fleets and “lookers” who are readily available to capture data and assess risks;
  • Livegenic — a real-time video solutions company that provides immediate imaging and assessment of damage to insurers;
  • Chatbots — which enable quick communication between insurers and risk managers following a catastrophe;
  • Kespry — a drone-based system that claims adjusters can use to safely inspect a roof to appraise a property safely from the ground using a screen, like an iPad; and
  • Aerial and satellite imaging — where both insurers and risk managers can gain access to off-limit areas.

“Like many areas of business, having more data available and organized in such a way that we can make wise, information-based decisions is helping advance resiliency and business continuity strategies before and after CAT events,” added Salter.

Always Prepared

To put it simply — long-term planning supports long-term resilience, Salter said.

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“It’s important that all interested parties, including risk managers, insurers and Insurtechs, collaborate as efficiently as possible on solutions,” added Drabik.

“Each group has a different perspective on what’s needed and what’s possible, and through collaboration they can account for each other’s blind spots to help address catastrophes quicker and prevent further damage in the future.

“A proper combination of infrastructural resilience, business protocols and insurance coverage are needed to help companies avoid long-term effects of catastrophes,” she said.

“There is no such thing as being ‘too’ protected.” &

Autumn Heisler is the content strategist at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Scenario

The Betrayal of Elizabeth

In this Risk Scenario, Risk & Insurance explores what might happen in the event a telemedicine or similar home health visit violates a patient's privacy. What consequences await when a young girl's tele visit goes viral?
By: | October 12, 2020
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.

PART ONE: CRACKS IN THE FOUNDATION

Elizabeth Cunningham seemingly had it all. The daughter of two well-established professionals — her father was a personal injury attorney, her mother, also an attorney, had her own estate planning practice — she grew up in a house in Maryland horse country with lots of love and the financial security that can iron out at least some of life’s problems.

Tall, good-looking and talented, Elizabeth was moving through her junior year at the University of Pennsylvania in seemingly good order; check that, very good order, by all appearances.

Her pre-med grades were outstanding. Despite the heavy load of her course work, she’d even managed to place in the Penn Relays in the mile, in the spring of her sophomore season, in May of 2019.

But the winter of 2019/2020 brought challenges, challenges that festered below the surface, known only to her and a couple of close friends.

First came betrayal at the hands of her boyfriend, Tom, right around Thanksgiving. She saw a message pop up on his phone from Rebecca, a young woman she thought was their friend. As it turned out, Rebecca and Tom had been intimate together, and both seemed game to do it again.

Reeling, her holiday mood shattered and her relationship with Tom fractured, Elizabeth was beset by deep feelings of anxiety. As the winter gray became more dense and forbidding, the anxiety grew.

Fed up, she broke up with Tom just after Christmas. What looked like a promising start to 2020 now didn’t feel as joyous.

Right around the end of the year, she plucked a copy of her father’s New York Times from the table in his study. A budding physician, her eyes were drawn to a piece about an outbreak of a highly contagious virus in Wuhan, China.

“Sounds dreadful,” she said to herself.

Within three months, anxiety gnawed at Elizabeth daily as she sat cloistered in her family’s house in Bel Air, Maryland.

It didn’t help matters that her brother, Billy, a high school senior and a constant thorn in her side, was cloistered with her.

She felt like she was suffocating.

One night in early May, feeling shutdown and unable to bring herself to tell her parents about her true condition, Elizabeth reached out to her family physician for help.

Dr. Johnson had been Elizabeth’s doctor for a number of years and, being from a small town, Elizabeth had grown up and gone to school with Dr. Johnson’s son Evan. In fact, back in high school, Evan had asked Elizabeth out once. Not interested, Elizabeth had declined Evan’s advances and did not give this a second thought.

Dr. Johnson’s practice had recently been acquired by a Virginia-based hospital system, Medwell, so when Elizabeth called the office, she was first patched through to Medwell’s receptionist/scheduling service. Within 30 minutes, an online Telehealth consult had been arranged for her to speak directly with Dr. Johnson.

Due to the pandemic, Dr. Johnson called from the office in her home. The doctor was kind. She was practiced.

“So can you tell me what’s going on?” she said.

Elizabeth took a deep breath. She tried to fight what was happening. But she could not. Tears started streaming down her face.

“It’s just… It’s just…” she managed to stammer.

The doctor waited patiently. “It’s okay,” she said. “Just take your time.”

Elizabeth took a deep breath. “It’s like I can’t manage my own mind anymore. It’s nonstop. It won’t turn off…”

More tears streamed down her face.

Patiently, with compassion, the doctor walked Elizabeth through what she might be experiencing. The doctor recommended a follow-up with Medwell’s psychology department.

“Okay,” Elizabeth said, some semblance of relief passing through her.

Unbeknownst to Dr. Johnson, her office door had not been completely closed. During the telehealth call, Evan stopped by his mother’s office to ask her a question. Before knocking he overheard Elizabeth talking and decided to listen in.

PART TWO: BETRAYAL

As Elizabeth was finding the courage to open up to Dr. Johnson about her psychological condition, Evan was recording her with his smartphone through a crack in the doorway.

Spurred by who knows what — his attraction to her, his irritation at being rejected, the idleness of the COVID quarantine — it really didn’t matter. Evan posted his recording of Elizabeth to his Instagram feed.

#CantManageMyMind, #CrazyGirl, #HelpMeDoctorImBeautiful is just some of what followed.

Elizabeth and Evan were both well-liked and very well connected on social media. The posts, shares and reactions that followed Evan’s digital betrayal numbered in the hundreds. Each one of them a knife into the already troubled soul of Elizabeth Cunningham.

By noon of the following day, her well-connected father unleashed the dogs of war.

Rand Davis, the risk manager for the Medwell Health System, a 15-hospital health care company based in Alexandria, Virginia was just finishing lunch when he got a call from the company’s general counsel, Emily Vittorio.

“Yes?” Rand said. He and Emily were accustomed to being quick and blunt with each other. They didn’t have time for much else.

“I just picked up a notice of intent to sue from a personal injury attorney in Bel Air, Maryland. It seems his daughter was in a teleconference with one of our docs. She was experiencing anxiety, the daughter that is. The doctor’s son recorded the call and posted it to social media.”

“Great. Thanks, kid,” Rand said.

“His attorneys want to initiate a discovery dialogue on Monday,” Emily said.

It was Thursday. Rand’s dreams of slipping onto his fishing boat over the weekend evaporated, just like that. He closed his eyes and tilted his face up to the heavens.

Wasn’t it enough that he and the other members of the C-suite fought tooth and nail to keep thousands of people safe and treat them during the COVID-crisis?

He’d watched the explosion in the use of telemedicine with a mixture of awe and alarm. On the one hand, they were saving lives. On the other hand, they were opening themselves to exposures under the Health Insurance Portability and Accountability Act. He just knew it.

He and his colleagues tried to do the right thing. But what they were doing, overwhelmed as they were, was simply not enough.

PART THREE: FALLING DOMINOES

Within the space of two weeks, the torture suffered by Elizabeth Cunningham grew into a class action against Medwell.

In addition to the violation of her privacy, the investigation by Mr. Cunningham’s attorneys revealed the following:

Medwell’s telemedicine component, as needed and well-intended as it was, lacked a viable informed consent protocol.

The consultation with Elizabeth, and as it turned out, hundreds of additional patients in Maryland, Pennsylvania and West Virginia, violated telemedicine regulations in all three states.

Numerous practitioners in the system took part in teleconferences with patients in states in which they were not credentialed to provide that service.

Even if Evan hadn’t cracked open Dr. Johnson’s door and surreptitiously recorded her conversation with Elizabeth, the Medwell telehealth system was found to be insecure — yet another violation of HIPAA.

The amount sought in the class action was $100 million. In an era of social inflation, with jury awards that were once unthinkable becoming commonplace, Medwell was standing squarely in the crosshairs of a liability jury decision that was going to devour entire towers of its insurance program.

Adding another layer of certain pain to the equation was that the case would be heard in Baltimore, a jurisdiction where plaintiffs’ attorneys tended to dance out of courtrooms with millions in their pockets.

That fall, Rand sat with his broker on a call with a specialty insurer, talking about renewals of the group’s general liability, cyber and professional liability programs.

“Yeah, we were kind of hoping to keep the increases on all three at less than 25%,” the broker said breezily.

There was a long silence from the underwriters at the other end of the phone.

“To be honest, we’re borderline about being able to offer you any cover at all,” one of the lead underwriters said.

Rand just sat silently and waited for another shoe to drop.

“Well, what can you do?” the broker said, with hope draining from his voice.

The conversation that followed would propel Rand and his broker on the difficult, next to impossible path of trying to find coverage, with general liability underwriters in full retreat, professional liability underwriters looking for double digit increases and cyber underwriters asking very pointed questions about the health system’s risk management.

Elizabeth, a strong young woman with a good support network, would eventually recover from the damage done to her.

Medwell’s relationships with the insurance markets looked like it almost never would. &

Bar-Lessons-Learned---Partner's-Content-V1b

Risk & Insurance® partnered with Allied World to produce this scenario. Below are Allied World’s recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance.®.

The use of telehealth has exponentially accelerated with the advent of COVID-19. Few health care providers were prepared for this shift. Health care organizations should confirm that Telehealth coverage is included in their Medical Professional, General Liability and Cyber policies, and to what extent. Concerns around Telehealth focus on HIPAA compliance and the internal policies in place to meet the federal and state standards and best practices for privacy and quality care. As states open businesses and the crisis abates, will pre-COVID-19 telehealth policies and regulations once again be enforced?

Risk Management Considerations:

The same ethical and standard of care issues around caring for patients face-to-face in an office apply in telehealth settings:

  • maintain a strong patient-physician relationship;
  • protect patient privacy; and
  • seek the best possible outcome.

Telehealth can create challenges around “informed consent.” It is critical to inform patients of the potential benefits and risks of telehealth (including privacy and security), ensure the use of HIPAA compliant platforms and make sure there is a good level of understanding of the scope of telehealth. Providers must be aware of the regulatory and licensure requirements in the state where the patient is located, as well as those of the state in which they are licensed.

A professional and private environment should be maintained for patient privacy and confidentiality. Best practices must be in place and followed. Medical professionals who engage in telehealth should be fully trained in operating the technology. Patients must also be instructed in its use and provided instructions on what to do if there are technical difficulties.

This case study is for illustrative purposes only and is not intended to be a summary of, and does not in any way vary, the actual coverage available to a policyholder under any insurance policy. Actual coverage for specific claims will be determined by the actual policy language and will be based on the specific facts and circumstances of the claim. Consult your insurance advisors or legal counsel for guidance on your organization’s policies and coverage matters and other issues specific to your organization.

This information is provided as a general overview for agents and brokers. Coverage will be underwritten by an insurance subsidiary of Allied World Assurance Company Holdings, Ltd, a Fairfax company (“Allied World”). Such subsidiaries currently carry an A.M. Best rating of “A” (Excellent), a Moody’s rating of “A3” (Good) and a Standard & Poor’s rating of “A-” (Strong), as applicable. Coverage is offered only through licensed agents and brokers. Actual coverage may vary and is subject to policy language as issued. Coverage may not be available in all jurisdictions. Risk management services are provided or arranged through AWAC Services Company, a member company of Allied World. © 2020 Allied World Assurance Company Holdings, Ltd. All rights reserved.




Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]