By Kate Smith
Be prepared. That’s the single most important path toward resiliency, according to experts who convened in June for a conference on the subject.
Part of that preparation means being adequately insured against natural disasters such as hurricanes and floods, according to participants in the New York Recovery and Resilience Leadership Forum, held at the New York Stock Exchange. That also goes for insurance companies that provide primary cover; they need reinsurance.
“It’s important [to] remind as many people as we can about the need to prepare, to prepare themselves physically and financially,” said Stephen Weinstein, senior vice president of event sponsor RenaissanceRe Holdings. “What we hope to accomplish is to bring leaders together to share their understanding, their views and their best thoughts as to how our most disaster-exposed communities can be more resilient.”
This year’s conference location was selected because the New York City region was hit particularly hard by Superstorm Sandy in 2012.
“Sandy highlighted the fact that floods driven by a storm surge can have a massive impact on commercial insurance,” said RenRe President David Marra. “Resiliency against catastrophes is such a key element of everyday life. It affects the public sector, the private sector.”
Prevention Over Response
Governments can help improve resiliency by changing the timing of their involvement in disasters, said Collin O’Mara, CEO of the National Wildlife Foundation. “Traditionally, government has played the role of bailing people out after the fact,” O’Mara said. “The role I think they should be playing is doing more on the preventative side, trying to encourage communities to invest in more natural resource investments—things like the wetlands and dunes that are going to protect those communities. Having better building codes. Really making those investments that are going to make people safer, rather than worrying about paying out the back end.”
SmarterSafer spokesperson Jenn Fogel-Bublick agreed. SmarterSafer.org is a national coalition that promotes environmentally responsible, fiscally sound approaches to natural catastrophe policy.
“We need to look at focusing more on pre-disaster mitigation and resilience as opposed to post-disaster,” Fogel-Bublick said. “What we need to be doing is more planning and more spending on the front end, which will save money on the back end, after a storm.”
More accurate mapping and modeling also will improve resiliency, as would reforming the National Flood Insurance Program, Fogel-Bublick said. “We need to take subsidies out of the rate structure and focus on reducing people’s risk as opposed to reducing their flood insurance rates,” she said.
Fogel-Bublick and others point to a bill, currently making its way through Congress, that would dramatically change the flood insurance landscape and improve resiliency. “Legislation … would ensure people in flood plains in harm’s way can have access to private sector flood insurance policies as opposed to just the National Flood Insurance Program,” explained Fogel-Bublick.“We think that will help, because if you’re going to choose a private policy, it’s going to be because there are better prices or better coverages. Right now the private sector’s doing some really interesting work around better mapping, better modeling and better risk analysis.”
“We think there’s a great place for the private market capacity that’s out there in the insurance world to come and lower prices and give consumers more choices,” said John Huff, president of the National Association of Insurance Commissioners. “Up to this point, they’ve essentially been restricted to the National Flood Insurance Program, but there are many opportunities out there in the private market.”
Consumer Prep
Julie Rochman, CEO of Insurance Institute for Business and Home Safety, said consumers can improve resiliency by better preparing for weather disasters. Some basic steps, she said: understanding insurance policies, checking home inventory in the event of a loss, and making home improvements to reduce the likelihood of major damage during a storm.
“Selfishly, I’d like to see all the insurance companies out there, both primary and reinsurers, be using our information,” she said of www.disastersafety.org.“We have a lot of really good free information for businesses and homeowners about what they can do to better prepare their structure, better prepare their families, better prepare their business operations so that if the worst does happen, they can recover more fully and more quickly.”
This year could be a particularly busy one for hurricanes, given regular changes in ocean patterns, according to Craig Tillman, president of WeatherPredict Consulting. At focus during the forum, he noted, were extreme wind and flood associated with hurricanes, both storm surge and rain that could go inland.
To maximize resiliency, insurers need to better understand their exposures to these and other perils, he said.
“There’s a multidimensional problem that insurers have in quantifying their risk,” Tillman said. “But understanding the detail of their exposures starts to allow us to get a much better differentiation risk to risk, understanding the characteristics. How old is the roof? How well is that roof anchored to the walls?”
Best in Class
The poster child for resiliency just might be Bermuda, known as well for its hurricanes as its preparation for them.
“Bermuda is hit by a hurricane every three years, a bad hurricane every 10 years,” said Bradley Kading, executive director of the Association of Bermuda Insurers and Reinsurers. “That leads to a culture of storm preparation.”
That means strong building codes that allow residents to shelter in place during storms, and insurance—for both consumers and insurance companies. “Everyone is insured because they know that there’s a real risk of damage, and yet they know that their houses are built strongly,” Kading said. “The insurance reflects the benefit of those strong building codes.”
Bermuda is so well-prepared for natural disasters, business is back to normal within days of a Category 3 hurricane, Kading said.
Complacency, however, remains a constant battle, whether it is Americans who haven’t seen a big storm in years or even Bermudans, said Bermuda Premier Michael Dunkley. “It’s part of human nature,’’ Dunkley said. “Quite naturally it will happen to people over time, especially when things are quiet. In Bermuda, that’s something that we try to guard against as much as we can.
“We gear up before the season. We talk about the predictions for the season. We talk about being prepared and what is required,” Dunkley said. “Complacency and the lack of being prepared will create a much bigger challenge for all the communities. That’s something we want to avoid.”
Insurance companies can improve planning and resiliency on two fronts, Dunkley said. “First, you have your local insurance industry that will insure you, so your house, or your boat or your business or whatever you want to insure. Those companies need to go get reinsurance. Luckily in Bermuda we have a very high percentage of people who have insurance, and then the insurance companies are reinsured.
“What I would like to stress for people on the mainland here in the U.S. is to get good insurance, and for those insurance companies to go get great reinsurance,” Dunkley said. “That’s a strength of what we offer in Bermuda with our big cat reinsurance companies. … It does work because from one catastrophe to the next those claims have been paid on time. It has helped communities, families get back on track.”
For more coverage of the New York Recovery and Resilience Leadership Forum, please visit: http://www.ambest.tv.
This article was originally published in the September 2016 issue of Best’s Review.