Climate/Change/Sustainability/ESG
Cat models scrutinized as storm losses rise
A series of costly severe convective storms in the first five months of this year — on the back of record insured losses for such storms in the U.S. in 2023 — is prompting questions about whether catastrophe models are accurately estimating the peril.
Most severe convective storm damage affects residential properties, but recent hail and tornado events have drawn attention to commercial properties and to aggregation exposures, experts say.
A tornado damaged a FedEx facility in Portage, Michigan, last month, and Dollar Tree Inc. disclosed that a tornado outbreak on April 27 caused significant damage to a 1 million-square-foot distribution center in Marietta, Oklahoma. Dollar Tree said it expected most of the damage to be covered by its property and inventory insurance. A tornado in Nebraska in April narrowly missed the Fort Calhoun nuclear power plant south of Blair.
Severe convective storms are generally understood to include a range of hazards, including large hail, tornadoes and derechos or straight-line winds.
Michael LaRocca, New York-based head property & specialty North America for Swiss Re Corporate Solutions, part of Swiss Re Ltd., said the reinsurer deploys a sophisticated severe convective storm model but that it has been challenged.
Globally, insured losses from severe convective storms in 2023 totaled a record $64 billion with 85% of the losses in the U.S., according to Swiss Re. Rising exposures due to economic and population growth and urbanization are driving the losses higher, and inflation has also been a prominent factor.
“That figure is tremendous. We’re now looking at the model and saying, ‘Is it accurate?’” Mr. LaRocca said, adding Swiss Re is reviewing the model to see what changes may be needed.
European countries, including France and Italy, were also hit by severe convective storms last year, he said.
Some models may not capture all the damage caused by severe convective storm systems, said Karen Clark, founder and CEO of Boston-based catastrophe modeler Karen Clark & Co.
“Severe weather happens over wide areas every day and you still get damage even if you don’t have a tornado or even if you don’t have large hail,” she said.
KCC’s severe convective storm reference model incorporates 30 gigabytes of data daily and captures the damage outside of areas where tornadoes are reported, Ms. Clark said.
“You can have 40-mile-, 50-mile-an-hour winds. Trees fall over. Our models … account for all the loss,” she said. FULL COMMENTARY
Greater Chance of Major Hurricane on the East Coast This Year, But Less in Gulf, Scientist Says
Multiple computer models from forecasting organizations across the globe have predicted a very active hurricane season starting next month, spelling trouble for much of the coastal Southeastern tates.
The models are probably going to be proven correct, said Phil Klotzbach, a senior research scientist at one of the best known of those organizations, the Department of Atmospheric Science at Colorado State University. FULL ARTICLE
News
Warren Buffett's PacifiCorp utility reaches $178 million wildfire settlement
PacifiCorp, a utility owned by billionaire Warren Buffett's Berkshire Hathaway (BRKa.N), opens new tab, said on Monday it agreed to pay $178 million to resolve claims by 403 plaintiffs arising from two Oregon wildfires in 2020.
PacifiCorp now settled nearly 1,500 claims arising from the Labor Day weekend fires with individuals and businesses in Oregon and northern California. The latest settlements cover victims of the Beachie Creek and Echo Mountain Complex fires in northwestern Oregon.
PacifiCorp said the "vast majority" of plaintiffs opted out of class-action litigation where other plaintiffs are seeking at least $30 billion. The Portland, Oregon utility views that amount as excessive, but plans to continue settling "all reasonable claims." It has agreed to pay more than $900 million to wildfire victims, and through March 31 had $2.4 billion of projected losses. Victims blame PacifiCorp for failing to shut down power lines during a windstorm.
PacifiCorp is a unit of Berkshire Hathaway Energy, which is 92% owned by Berkshire Hathaway, the Omaha, Nebraska-based conglomerate run by Buffett since 1965.
AXA XL reorganizes insurance operation in the Americas to better align with client needs
AXA XL has reorganized its insurance underwriting operations in the Americas, aligning under three business segments – Large Commercial, Mid-Market and Professional.
According to Lucy Pilko, Americas CEO, "After taking a close look at our structure, we're making changes to our regional model to optimize how we work and how our brokers and clients work with us. We're organizing ourselves with the client in mind, giving our brokers and clients an easy access point to all product lines."
To serve the multiline insurance needs of AXA XL's largest clients in U.S., Bermuda, and Canada, the Americas' Large Commercial business segment brings together Casualty, Property, Cyber, Construction & Energy, and Specialty product lines, including Aviation and Marine, along with Wholesale Solutions, inclusive of E&S and Programs. The new business segment is led by Donna Nadeau as Head of Large Commercial. Ms. Nadeau assumes this new role after most recently serving as the Americas' Chief Underwriting Officer. She brings more than three decades of industry experience.
"Our Mid-Market underwriting operation, led by Matthew Waters as Head of Mid-Market successfully launched last year. This business is dedicated to meeting the property & casualty insurance needs of businesses with less than $1 Billion in revenue. Now, in this realignment, we're bringing together more product lines for our mid-size clients and extending our offering to mid-size businesses in Canada," noted Ms. Pilko. "We're pleased to add Environmental, Inland Marine, and Excess & Lead Umbrella for mid-size clients, along with mid-size Construction capabilities together under this segment."
Commentary/Opinion
AIG ‘A Different Company’ Poised to Grow in E&S and More: CEO Zaffino
AIG is “a different company” today than it was when CEO Peter Zaffino joined the company in 2017, but like the old AIG, the new one is poised to grow again, he said.
Zaffino, who confirmed that growth efforts started two years ago, described AIG’s trajectory and the state of the E&S market during a fireside chat with Autonomous Research Insurance Analyst Ryan Tunis at a fireside chat at Bernstein’s 40th Annual Strategic Decisions Conference this week. FULL INTERVIEW
“Just to level set—I’ve said this before, the [AIG] portfolio from 2008 to 2018 lost $30 billion. That has not been done in our industry and you survived,” he said.
Rethinking Property Insurance
In the face of high insurance premiums, here are six steps to mitigate risk and make yourself as appealing as possible to insurers:
The difficult economic and climatic conditions of the past few years have created a challenging environment for commercial property owners. Despite an improvement in reinsurance capacity since the financially devastating year of 2022, underwriters continue to face headwinds, and conditions remain less favorable than in past years.
Inflation and other macroeconomic pressures are not helping. Significant increases in structural steel and concrete products have been particularly challenging for builders and played a major role in ballooning construction costs. Meanwhile, construction wages have risen by 22% over the past four years, roughly matching the general level of inflation. These difficulties are exacerbated by labor shortages within the industry, with 77% of contractors reporting difficulties in sourcing skilled workers for building projects. All this has inevitably led to delayed construction timelines and higher business interruption costs.
Scott Honer is a property and casualty loss control consultant for OneDigital
Regulators ponder two options to toughen reinsurance reserving standards
State insurance regulators picked up discussions Thursday on proposals to better test the assets backing billion-dollar offshore reinsurance deals.
The Life Actuarial Task Force meeting agenda included discussion of comments received on a proposal to tighten asset adequacy testing for life insurers entering reinsurance agreements. The reinsurance issue emerged in February after a pair of regulators issued the the proposal.
But the American Academy of Actuaries introduced a second option in its comment letter, an option that divided the academy into two camps. Alan J. Routhenstein is president of Routhenstein & Co. and also co-chair of the academy’s Asset Adequacy and Reinsurance Issues Task Force. He submitted his own comments apart from the academy endorsing the second option, which is based on confidential disclosures.
"My concern is that the exposed approach lacks actuarial credibility because of the excessive reliance on hypothetical assumptions except for a very limited scope of transactions," Routhenstein explained.
In its letter, the academy explained the disclosure option favored by some of its members as “a confidential filing … directing any non-exempt insurer to offer additional disclosures addressing specific areas of concern.”
NJ court considers: Are e-scooter riders 'pedestrians?'
A "pedestrian" as defined in N.J.S.A. 39:6A-2(a) is any person who is injured while occupying, entering into, or alighting from a vehicle (a) propelled by other than muscular power and (b) designed primarily for use on highways, rails or tracks. Mandatory PIP coverage in motor vehicle policies must be provided if the injured person matches that definition in the statute.
Motorcycle riders do not qualify for PIP benefits because motorcycles are not automobiles. N.J.S.A. 39:1-1. Bicyclists are deemed "pedestrians," although bicycles are propelled by muscle power, because the Legislature wanted to give bicyclists PIP coverage. On the other hand, operators of mopeds, although peddled for the purpose of engaging the motor, are not pedestrians. N.J.S.A. 39:6A-2(h).
But there is another category of vehicles, known as low-speed electric scooters (LSES), and this is what the court had before it in Goyco. Plaintiff David Goyco was injured while operating an LSES, a vehicle that has two wheels connected by a floor board, handlebars, a headlight, brake light, speedometer and electric motor. Goyco claimed PIP benefits under his automobile liability policy and Progressive denied the claim because an LSES (1) does not meet the definition of "automobile" and (2) because Goyco could not be considered a "pedestrian" by statutory definition. The court held that such an LSES was neither a motor vehicle nor a bicycle powered by human propulsion.
InsurTech/M&A/Finance💰/Collaboration
InsurTech NY Opens Applications for Digital MGA Lab Cohort III
InsurTech NY, the leading InsurTech community in North America, is pleased to announce it opened applications for its Digital MGA Lab Cohort Three.
Applications for the third cohort will be accepted from May 15 through July 15, providing an opportunity for startups to develop insurance products in record time. The program is tailored to assist founders who have developed a proprietary underwriting advantage in building and launching an MGA (Managing General Agency) in North America. Ideal candidates include digital brokers, UK or EU MGAs, or analytics startups. Startups will be accepted at any funding stage from pre-seed to pre-IPO.
"We have accelerated 20 digital MGAs to date across all lines of business," said David Gritz, Managing Director of InsurTech NY. "Our program is a proven process to get MGAs live with new products in half the typical time. We can support both pre-market and in-market MGAs."
The 12-week Lab is tailored to address the specific needs of MGAs. It focuses on the critical areas of development including actuarial modeling, risk capacity, and product distribution. The Lab is backed by mentors who have helped scale MGAs to $100M+ in premiums at recognized InsurTechs including Clearcover, Hippo, Root, and Next.
BrokerTech Ventures launches insurtech course
BrokerTech Ventures and the National Alliance for Insurance Education & Research have launched an insurtech course to bridge the knowledge gap on the industry.
Introduction to Insurance for Insurtech Professionals was created to provide insurtech professionals with a solid foundation in insurance principles. It will also foster better understanding and collaboration within the industry.
In addition, this partnership utilises BrokerTech Ventures' expansive network and innovation to enhance educational outreach.
The new course also addresses a critical need within the insurtech community. As professionals push the boundaries of technology and innovation, they often encounter challenges due to a lack of fundamental insurance knowledge. As a result, this can hinder effective communication and implementation of groundbreaking ideas within traditional insurance frameworks.
"Insurance is one of the greatest industries out there, and education is critical in transferring knowledge to those new to our industry - or those continuing their learning journey. The National Alliance is creating world class educational curriculum, and BrokerTech Ventures is honored to play a role in partnering to develop insurtech and innovation content," said Dan Keough, chairman & CEO of Holmes Murphy, co-CEO of BrokerTech Ventures.
"Our new course is meticulously crafted to address these challenges," stated Mitch Dunford, CMO for The National Alliance for Insurance Education & Research. "By providing insurtech professionals with a robust understanding of basic insurance concepts, terminologies, the regulatory landscape, and the impacts of new technologies, we are setting the stage for more impactful innovations and collaborations in the industry."
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