Starbucks benefits from their D&O in DEI lawsuit

Published September 2nd, 2022, by Kyle Langan

Starbucks Corp executives and directors have been sued over the entity’s efforts to promote diversity. The plaintiff, a Starbucks shareholder, alleges that these efforts insinuate racial discrimination because corporate policies require the company to make race-based decisions that benefit minorities and violate federal and state civil rights laws. [1]

“In a complaint filed on Tuesday, the National Center for Public Policy Research objected to Starbucks’ setting hiring goals for Blacks and other people of color, awarding contracts to ‘diverse’ suppliers and advertisers, and tying executive pay to diversity.” [2]

“Thirty-five current and former Starbucks executives and directors, including interim Chief Executive Howard Schultz, are among the defendants.” [3] The plaintiff claims that although these efforts appear diverse, equitable and inclusive, they actually harm the company and its owners. [4]

The only policy that would likely cover the exposure in this situation is directors’ and officers’ liability, also known as D&O. Does your current risk management strategy include management liability protection?  The more common General Liability policies do not pay for financial losses of a company, but management liability insurance can. Management liability policies include three main types: D&O, Employment Practices Liability (EPL), and Fiduciary Liability.

The oft-misunderstood coverage that will defend and finance this type of loss is D&O. It is an available safety net that your company can rely upon if you have it in your portfolio of protection, but sadly many companies may have overlooked, or never considered D&O.

Like the name implies, D&O indemnifies and defends for claims made against the entity, and those that serve on the board, as well as the company’s officers. [5] This policy type covers managerial decisions, or indecisions, that allegedly result in adverse consequences for both large and small companies alike. [6] This line of management liability protection is available to all company types: for profit, non-profit, private companies, and those publicly traded.

D&O should not be viewed as a company expense, but rather as an asset. An effective risk manager will break down the cost structure of this protection and implement a plan to prevent economic losses of this nature. Lastly, entity coverage covers claims that are made directly against the organization, as well as those individuals on the board and that hold a corporate office within it.

At least the officers and directors named in the above suit will be properly indemnified by their D&O policy; the big question is what if this suit landed on your desk come Tuesday morning?  Are you properly protected?

References

[1-4] Person, & Stempel, J. (2022, September 1). Starbucks executives, directors are sued over Diversity Policies. Reuters. Retrieved September 2, 2022, from https://www.reuters.com/business/retail-consumer/starbucks-executives-directors-are-sued-over-diversity-policies-2022-08-31/

[5-6] IRMI – Directors and officers liability insurance. Directors and Officers (D&O) Liability Insurance | Insurance Glossary Definition | IRMI.com. (n.d.). Retrieved September 28, 2021, from https://www.irmi.com/term/insurance-definitions/directors-and-officers-liability-insurance.

 

Advantages and Disadvantages of Captive Insurance

What is a captive?

“Captives are a form of alternative risk transfer. Commonly, they utilize a hybrid risk financing structure, meaning they both retain and transfer risk. A captive insurer is a subsidiary formed to insure the loss exposures of its parent company and the parent’s affiliates. Its primary purpose is to reduce the parent’s cost of risk” (Elliott, M. W., 2018).

“A single-parent captive (pure captive) is owned by one company that insures all or part of the loss exposures of that company or its subsidiaries. A group captive is a captive insurer owned by a group of companies, usually operating under similar businesses, rather than a single parent” (Elliott, M. W., 2018).

“To evaluate a captive insurance plan, a risk manager must understand its advantages and disadvantages.

Advantages

  • Reducing the cost of risk
  • Benefiting from cash flow
  • obtaining insurance not otherwise available
  • having direct access to reinsurers
  • negotiating with underwriters
  • centralizing loss retention
  • obtaining potential cash flow advantages on income taxes
  • controlling losses
  • obtaining rate equity

Disadvantages

  • Capital requirements and start-up costs
  • Sensitivity to losses
  • Pressure from parent company management
  • payment of premium taxes and residual market loadings” (Elliott, M. W., 2018).

References

Elliott, M. W. (2018). Risk Financing, 6th Edition. American Institute for Chartered Property Casualty Underwriters/Insurance Institute of America.

Advantages and Disadvantages of Captive Insurance

What is a captive?

“Captives are a form of alternative risk transfer. Commonly, they utilize a hybrid risk financing structure, meaning they both retain and transfer risk. A captive insurer is a subsidiary formed to insure the loss exposures of its parent company and the parent’s affiliates. Its primary purpose is to reduce the parent’s cost of risk” (Elliott, M. W., 2018).

“A single-parent captive (pure captive) is owned by one company that insures all or part of the loss exposures of that company or its subsidiaries. A group captive is a captive insurer owned by a group of companies, usually operating under similar businesses, rather than a single parent” (Elliott, M. W., 2018).

“To evaluate a captive insurance plan, a risk manager must understand its advantages and disadvantages.

Advantages

  • Reducing the cost of risk
  • Benefiting from cash flow
  • obtaining insurance not otherwise available
  • having direct access to reinsurers
  • negotiating with underwriters
  • centralizing loss retention
  • obtaining potential cash flow advantages on income taxes
  • controlling losses
  • obtaining rate equity

Disadvantages

  • Capital requirements and start-up costs
  • Sensitivity to losses
  • Pressure from parent company management
  • payment of premium taxes and residual market loadings” (Elliott, M. W., 2018).

References

Elliott, M. W. (2018). Risk Financing, 6th Edition. American Institute for Chartered Property Casualty Underwriters/Insurance Institute of America.

What you may not have considered in a hyperinflationary environment

Published July 11th, 2022 by Kyle Langan

Has your insurance broker reviewed your replacement cost valuations recently?

If not, you need to take action.

Walmart Distribution Center – March, 2022

Insureds commonly underreport values and it can have devastating results when a catastrophic (cat) loss arises. [1] A recent example of a cat loss is a fire at an Indiana Walmart distribution center, which is now closed for the foreseeable future. [2] “After the loss occurred, it was discovered that the building was undervalued by as much as $75 million.” [3] The increased cost of construction is an example of an inflationary factor that insureds must take into consideration for adequate protection of their properties. [4]

Boulder, CO Wildfires – December, 2021

In the aftermath of the 2021 wildfires in Colorado, property owners like Arturo Barrios discovered they were “severely underinsured.” [5] This may result in a $300,000 loss for Barrios; “insurance was in place, but it will not come close to covering the full cost of rebuilding.” [6]

According to the Colorado Division of Insurance, up to 67% of those filing claims in Boulder after the late 2021 fires did not have enough coverage. [7]

Let Conrey evaluate the structure of your protection to see if you are in the 67%.

Commercial Property Risk: An Ongoing Effort

Establishing adequate property insurance values is an “ongoing risk management activity that must be viewed independently of current market conditions.” [8] It is difficult to create appropriate building and contents values on a whim, when faced with stringent renewal conditions, “such as limits specific per location, coinsurance, and actual cash value loss settlement.” [9]

Therefore, your broker should structure property insurance programs continually through stewardship, obtain blanket limits, analyze coinsurance requirements and “set proper loss settlement valuations—replacement cost or actual cash value (replacement cost less physical depreciation).” [10]

Insureds must carefully ensure that values for buildings and contents are sufficient. [11] Valuations must also be “in sync with post-loss settlement expectations and the insurer’s policy mandated loss settlement obligations.” [12] These tools become essential when a loss arises because of timely proof of loss, documentation of items lost or damaged, and proper loss settlement from the insurer. [13] This is unlike the victims of the Colorado fires, who discovered improper coverage at the worst time: after the loss.

Property owners should envision the possibility of a cat loss that requires “permanent resumption of operations at a new building and permanent movement of [contents] to new or existing locations, thus changing values at many locations.” [14] This implements a proactive approach to property risk management.

Therefore, during the annual valuation process, these questions should be considered:

  • “Can we continue to operate at this location?
  • Will building ordinances require us to move?
  • Should operations and certain equipment be redeployed at other locations on a permanent basis?
  • How many of these ‘alternate’ premises costs will be subject to coverage?” [15]

If your broker is not raising these concerns about your business, or asking questions from a risk management lens, contact me at kylel@conreyins.com

“Determining the correct value of an insured asset pre-loss will greatly improve coverage and increase the potential for an insurance settlement that truly puts the insured in the same position post-loss as pre-loss”. [16] Correct commercial replacement cost valuations can prevent situations like the Walmart distribution center that was undervalued by $75 million, which, as a result, will not reopen for the foreseeable future. [17][18]

References

Austin, W. K. (2008, July). Insurance property valuation and loss settlement clauses-important considerations. Insurance Property Valuation and Loss Settlement Clauses | Expert Commentary | IRMI.com. Retrieved July 11, 2022, from https://www.irmi.com/articles/expert-commentary/insurance-property-valuation-and-loss-settlement-clauses

Brasch, S. (2022, July 7). They lost their home in the Marshall Fire. here’s where they stand six months later. Colorado Public Radio. Retrieved July 12, 2022, from https://www.cpr.org/2022/06/30/six-months-after-they-lost-their-home-in-marshall-fire/

Gallagher Property Market Update — Summer 2022. Ajg.com. (n.d.). Retrieved July 11, 2022, from https://www.ajg.com/us/news-and-insights/2022/jun/gallagher-property-market-update-summer-2022/

Georgiou, M. (2022, June 14). Underinsured homeowners struggle to rebuild after Boulder wildfires. Newsy. Retrieved July 12, 2022, from https://www.newsy.com/stories/fire-victims-warn-others-to-have-complete-insurance/

WLWT. (2022, May 2). Walmart distribution center in Indiana to close after massive warehouse fire. WLWT. Retrieved July 11, 2022, from https://www.wlwt.com/article/walmart-distribution-center-indiana-massive-warehouse-fire/39878850

[1, 3, 4, 17] Gallagher

[2, 18] WLWT

[5-7] Brasch

[8] IRMI

[9-16] Austin, W. K.

 

State of the Market: 2022’s Second Quarter Underway

Property and Casualty

Property and casualty insurances’ hard markets are poised to continue as the first quarter of 2022 is now behind us. “Even with many carriers reporting improved loss ratios and record earnings, tightening capacity and rate increases are not quite behind us” (Amwins, 2022).

Carriers continue to de-risk their portfolio by limiting their exposure to high-risk property perils and locations including Florida, wildfire-prone areas in California and Colorado, and coastal properties (Amwins, 2022).

For the casualty market, “carriers remain comfortable with the rate environment, attachment points and deployed capacity on individual accounts” (Amwins, 2022). On the reverse side of things, insureds should focus on their own capacity, as well as compliance and control. These are the three major components within a risk financing structure for an entity.

Liability

Insurers are actually offering some additional limits but keeping a close a eye on the “continuation of large settlements and judgements from sympathetic juries as social inflation will continue” (Amwins, 2022). For businesses, limiting exposure to Employment Practices Liability (EPL) Risk should be a high priority. Frequency and severity are increasing rapidly. For example, the Residential Mental Health and Substance Abuse Facility industry saw 380 EPL claims over the course of 2015 – 2020, totaling nearly $37M in losses (Advisen, 2020). Businesses should keep this trend on their radars and practice caution, especially in highly litigious states like California. Having strong company culture that encourages a healthy team-like atmosphere is the best way to reduce risk and prevent EPL losses, which arise when unhappy employees sue a company for its employment practices.

Reinsurance

“Insurers and reinsurers alike are re-evaluating their risk exposures in loss-prone regions and lines of business and are either exiting entirely or significantly limiting their capital deployment in those areas” (Amwins, 2022). Reinsurers like MunichRe pay massive amounts of losses after insurers’ retentions are exhausted, so the reinsurers will also exit markets that primary insurers are struggling to produce underwriting profits in.

Healthcare

“Market conditions for healthcare liability in the U.S. remain challenging as the industry continues to face lingering effects” of the pandemic; staffing shortfalls are a primary concern (Amwins, 2022). “Challenging classes have seen limited capacity available in the excess layer. Additionally, The London markets and syndicates are adding a cyber exclusion to their medical professional liability policies to address the issue of silent cyber” (Amwins, 2022). Cyber risk is commonly added as an exclusion on many policies, which is why entities should purchase stand-alone cyber policies that can address business interruption exposures that tail cyber losses. Cyber exposure is currently the most dynamic and emerging risk that companies across all industries face. To circle back to the Residential Mental Health Facility industry, it saw 389 cyber losses totaling $962M in damages from 2015 – 2020 (Advisen, 2020). It was the highest severity and second highest frequency of loss, behind medical malpractice.

Amwins is a leading London specialty insurance distributor. This article offered highlights from the company’s recently published report of the risk markets for Q2/Q3 2022. You can read the full article HERE.

References

Advisen Insurance data, media, and Technology. Advisen Ltd. (2020, April 29).   Retrieved January 31, 2022, from https://www.advisenltd.com/

Amwins: Q2/Q3 2022 state of the market. Amwins. (n.d.). Retrieved April 14, 2022, from https://www.amwins.com/resources-insights/article/q2-q3-2022-state-of-the-market#market-summaries

 

Defense Guide: Cyber Threats Spiked 70% in 2021

Ransomware payments by victims spiked 70 percent YoY in 2021; ransomware continues to hammer healthcare and education, but all industries are at risk (Holdeman, 2022). “Ransomware is a type of malicious software designed to block access to a computer system until a sum of money is paid” (Oxford). It is one of the many cyber threats plaguing U.S. businesses as of late.

Defense Guide for Commercial Cyber Risk:

 

Purchase cyber insurance

The only failsafe against cyber risk is protecting businesses with guaranteed indemnity when a loss arises. It is vital to structure an adequate risk financing plan with properly set limits and retentions.

Do you have a security awareness training program for employees?

Coalition recommends implementation as a vital defense mechanism.

Increase email security

A mail proxy can filter malicious emails (2021 Coalition).

Implement Multi-factor Authentication (MFA)

Google Authenticator can be used, for example. “Approximately 80% of email intrusion incidents happen because of weak or stolen passwords. One of the most effective methods to mitigate the risk of an email-based cybersecurity incident is to enable Multifactor Authentication” (2021 Coalition).

Maintain good data backups

Developing a contingency plan:

  • “What data should be backed up, and where it should be stored;
  • How frequently data backups should occur;
  • How quickly you could restore your data from that system in the event of an incident and at different times;
  • How you can test and iterate on your backup solution to ensure it’s working as intended and accommodates changing business needs” (2021 Coalition).
4 final tips:
  • Encrypt your data;
  • Update your software;
  • Use a password manager;
  • Scan for malicious software (2021 Coalition).

References

 

2021 Coalition Cybersecurity Guide. (n.d.). Retrieved May 24, 2022, from https://info.coalitioninc.com/rs/566-KWJ-784/images/DLC-2020-12-2021-Coalition-Cybersecurity-Guide.pdf

 

Holdeman, E. (2022, May 20). Hacking and ransomware remain a significant challenge. Continuity Professionals Pulse. Retrieved May 2022, from https://www.continuityprofessionalspulse.com/edition/weekly-authentication-benchmark-2022-05-14?open-article-id=21617021&article-title=hacking-and-ransomware-remain-a-significant-challenge&blog-domain=govtech.com&blog-title=disaster-zone

 

Oxford languages and google – english. Oxford Languages. (n.d.). Retrieved May 24, 2022, from https://languages.oup.com/google-dictionary-en/

 

Total Cost of Risk (TCOR): Are you measuring it?

Published February 25th, 2022 by Kyle Langan

Focus of TCOR: Profitability

It is vital for the financial health and longevity of an entity to account for, and understand the effect of all expenses on its profitability.

Companies may assume they understand and measure their expenses and profitability correctly, right?  This is commonly untrue.

Learn How to Measure: TCOR explained

Inherent in all company’s operations are risks, and with risk comes cost.

Here’s what TCOR is and what you need to know about it in order to prevent lost profits within your company:

Total Cost of Risk (TCOR) is the cost of managing risks and incurring losses. [1] Total cost of risk is the sum of all aspects of an organization’s operations that relate to risk, including retained (uninsured) losses and related loss adjustment expenses, third party / administrative costs, transfer costs, risk control costs, and indirect costs. [2]

Third-Party Costs include the expenses associated with buying insurance (premiums, taxes, and fees). These costs are determined by your effective policy types and claims experience. [3]

Losses are the largest source of commercial profit erosion. They are controllable with the placement of proper risk control mechanisms. Direct costs stem from losses through retained costs, deductibles, and uninsured losses. [4]

Indirect loss costs are the unbudgeted expenses of loss events caused by business interruption, disruption and/or reputational loss. They are calculated through an indirect loss cost factor – specific to industry group and risk category. This part of the equation is the most challenging – it is not commonly measured.

With the right risk control plan in place, there are significant opportunities to reduce your TCOR by working to mitigate losses.

TCOR, an example:

Ransomware attacks increased in 2021; evolving tactics of cybercriminals demonstrated their growing sophistication and threat to organizations globally. [5] These criminals increasingly expanded methods to extort money from mid-sized businesses. They threaten to publicly release stolen information and/or disrupt victims’ internet access.

A commercial victim of a cyber extortion loss will incur significant indirect costs, thereby increasing its TCOR. This results from stolen money, access disruption, or loss of data, time, and human capital.

Scenario: Large Addiction Treatment Center Faces Cyber Extortion

2,500 records of Personal Health Information (PHI) are hacked. This was the only loss it faced in 2021. The treatment center has a cyber risk policy insured by Lloyd’s of London. It offers protection with a $1,000,000 aggregate limit and a $10,000 deductible.

Third Party Costs

  • Risk Financing Premiums, Taxes, Fees = $7,500

Losses (Paid by Lloyd’s of London) [6] 

  • 1st party crisis services median loss = $564,930
  • 1st party legal costs = $48,185
  • 1st party regulatory costs = $13,292
  • 3rd party costs = $74,770
  • 1st party business interruption = $126,279 (Lloyd’s of London will have a specific policy language regarding business interruption indemnity)

Direct Costs: Deductibles, Retention, Uninsured Losses

  • $10,000 deductible

Indirect Loss Cost Factor:

  • Indirect Loss Cost factor for cyber risk in this industry = 1.00
    • The indirect loss cost factor measures wasted time, energy, and resources spent on the claim process and recovery from the loss. Indirect losses erode EBITDA margins, which is why your risk manager should provide a strategy for how to measure, and ultimately recapture them.
  • Initial loss = $827,456

Theoretically, a factor of 1.00 would mean the indirect losses would total an additional $827,456, equating to a total impact of $1,654,912.

However, because this is a single large ‘shock’ loss, we would cap the indirect losses at perhaps $200,000. That way, the friction is conservatively limited to $200,000. Most experts agree that there is an amount involved with handling the claim and the frictional costs, but there is usually a cap.

In conclusion, the addiction treatment center has an $827,456 loss — $817,456 that is covered by Lloyd’s of London, and a $10,000 self-insured deductible.

Additionally, it faces $200,000 in indirect losses that are eroding its bottom-line profitability. This is unaccounted for on an income statement, unless it is measured and quantified by your risk manager. Although it is uncommon, Conrey has this capability – email me at kylel@conreyins.com to have this calculated for your business.

Total loss with indirect loss cost factor = $1,027,456 (only $817,456 is covered by Lloyd’s of London)

Total Cost of Cyber Risk for the Addiction Treatment Center in 2021:

  • $217,500: 2021’s total cost of cyber risk for this addiction treatment center. Keep in mind, this number only accounts for cyber risk, but it still serves as a useful demonstration for calculating TCOR.
    • Risk Financing Premium = $7,500
    • Deductible = $10,000
    • Indirect Losses = ~ $200,000

Note: Separate from TCOR, is Existential Cost of Risk (XCOR) — existential cost of risk is the “premium” that would be charged by an insurer if a company insured all of its risk exposures. This can be considered the cost a company incurs to finance the risk of its continued existence. Not all business risks can be reasonably called “insurable,” but XCOR provides a proxy for such a cost. [7]

 

References

[1][2]

Cost of risk. Cost of Risk | Insurance Glossary Definition | IRMI.com. (n.d.). Retrieved February 28, 2022, from https://www.irmi.com/term/insurance-definitions/cost-of-risk

[3] — [4]

Data-driven client outcomes for the insurance industry. TCORCalc. (2019, July 28). Retrieved February 28, 2022, from https://tcorcalc.com/

[5]

Zank, A. (2022, February 11). Officials saw more ‘professional’ cybercriminals, more infrastructure attacks in 2021. Advisen – Risk Manager FPN. Retrieved February 28, 2022, from https://www.advisen.com/tools/fpnproc/fpns/articles_new_24/P/422217002.html?rid=422217002&list_id=24

[6]

Cyber overvue. (n.d.). Retrieved February 28, 2022, from https://cyberovervue.advisen.com/search

Existential cost of risk xcor. Existential Cost of Risk (XCOR) | Insurance Glossary Definition | IRMI.com. (n.d.). Retrieved February 28, 2022, from https://www.irmi.com/term/insurance-definitions/existential-cost-of-risk-xcor

 

COVID Court: Lakers’ Split Decision

Published March 30th, 2022 by Kyle Langan

LA Lakers vs. Chubb

In 2021, the Lakers sued Federal Insurance Co., a Chubb subsidiary. The team alleged losses in the tens of millions ($) in revenue due to closure of the Staples Center in March 2020 resulting from COVID stay-at-home orders issued by LA and California (Ayers, 2022). “The Lakers also incurred additional costs by installing new air filters, touchless bathroom fixtures, coverings for high-touch surfaces, and plexiglass dividers to prevent the spread of the virus” (Ayers, 2022).

The Western Division of the U.S. District Court for the Central District of California dismissed the Los Angeles Lakers’ “pandemic-related business interruption and civil authority claims, but allowed the team to pursue coverage for cleaning or repairing alleged property damage” (Ayers, 2022).

The Lakers successfully alleged a claim for property damage, based on “physically altered surfaces … that required cleaning or replacement before the Covered Properties were safe again” (Ayers, 2022).

The claims for business interruption or civil authority coverage were dismissed. Since 2020, insurers have frequently denied coverage for pandemic-related business interruption; this is due to the lack of property damage, or contract language that excludes viruses. For this ruling, precedent was heavily based on a case decided by the California Court of Appeals in late 2021 (Inns by the Sea v. Cal. Mut. Ins. Co.). It was ruled that repairing property damage alone did not dictate whether the team’s arena could reopen. Even with the repairs and alterations, “the Staples Center still could not have reopened until the State of California allowed it to reopen on April 15, 2021,” the Court noted (Ayers, 2022).

What is Civil Authority Coverage?

The team’s claims for civil authority coverage also failed – the Lakers argued that closures of nearby Metro stations constituted ‘prohibition of access’ but the Court found the orders “were aimed at limiting viral spread in the community, not at mitigating property damage at any specific facility” (Ayers, 2022). Civil authority coverage is included within business income/extra expense insurance forms; income losses arising as a direct result from actions of local police, fire, etc., may be covered (IRMI). “Orders made by civil authority must be the cause of the lack of access to insured premises (or the reason that normal operations cannot continue) due to damage caused by a peril covered under your policy. There must be an act of civil authority for coverage to apply; blocked access to a location alone is insufficient to trigger coverage” (IRMI). The International Risk Management Institute provides clarity on civil authority coverage, and why the court ruled against the Lakers. In this case, orders made by LA civil authority were not deemed the cause of loss because the orders were not aimed at mitigating property damage. Instead, the goal was public safety. More on business interruption coverage: commercial property insurance covering loss of income suffered by a business when damage to its premises by a covered cause of loss causes a slowdown or suspension of its operations (IRMI). It is vital for the financial health and longevity of companies (all sizes) to put this protection in place.

Is your broker providing guidance on business interruption and civil authority coverage? If the answer is no, shoot me an email at kylel@conreyins.com.

Turning Point?

Insurers continue to prevail in the majority of COVID-19 business interruption lawsuits, including on appeal. However, the Lakers’ look to gain a partial win in this case (which is much needed – the team is currently 11th in the West). The Lakers are rightfully exercising their right to pursue indemnity through timely purchased coverage. In doing so, courts are allowing them to proceed with the property damage and bad faith claims against Chubb, even though the NBA team’s business interruption claim was dismissed.

References

Ayers, E. (2022, March 21). La Lakers can pursue Covid property damage claim, court rules. Risk Manager FPN. Retrieved April 1, 2022, from https://www.advisen.com/tools/fpnproc/fpns/articles_new_24/P/426417879.html?rid=426417879&list_id=24

IRMI: The next level of business income coverage. The Next Level of Business Income Coverage | Expert Commentary | IRMI.com. (n.d.). Retrieved April 1, 2022, from https://www.irmi.com/articles/expert-commentary/the-next-level-of-business-income-coverage

Caution: Climate Risk in California

Published December 17th, 2021 by Kyle Langan

Although Southern California is famous for its mild winters, it does face unique risks of flooding, wind damage, and rain. This risk can lead to landslide and or infiltration from the outside to the inside of buildings.  Let’s first identify the root cause of why the upcoming winter season will be more severe than typical. Once understood, loss control recommendations can be made.

Good News and Bad News: Increased Snowpack

In August 2016, the Environmental Protection Agency warned of decreasing snowpack in California’s climate.[1] This problem is one of the endless negative impacts of climate change.

As the climate warms, less precipitation falls as snow. As a result, more snow melts during the winter, which decreases snowpack — the amount of snow that accumulates over the winter. Since the 1950s, snowpack has declined in California.[2]

However, 5 years later (December 2021), breaking news suggests a much-needed increase in snowpack for the Sierra Nevada is inbound.

A powerful storm system along the West Coast is dropping heavy snow in the mountains of the Sierra Nevada, and the Cascade Range.[3] The storm systems are excellent news for the drought-plagued region and its struggling mountain snowpack; without it, a resulting decrease in the extent of alpine tundra ecosystems could threaten some species.[4]

Mountain snow will be measured in feet with this storm, with more than five feet possible in the higher elevations of the Sierras.[5] “Total snow accumulations will be tremendous,” the National Weather Service in Sacramento wrote in a forecast discussion, calling it “easily the biggest snowstorm so far this season.” [6]

Warning

Although this storm system is great for the environment, it will be met with increased risk for property owners in California. The storm will bring positive change for California’s climate, but is simultaneously disruptive because of its potential flooding and impacts on travel.[7] Substantial wind and rain will enter lower elevations from the Pacific Northwest to Southern California.[8] The lower elevations of central California have the greatest risk of flooding, which does present unique risk to dwellings in the Sacramento and San Joaquin Valleys.[9]

Risk Management Techniques

Flood vents, floodplain management, and wind mitigation are all vital aspects of a risk control strategy for climate risk.

Flood Vents:

A flood vents are a useful guard against the buildup of excess moisture or water which are not healthy for structures to endure. They are permanent openings in walls that allow for the free passage of water. Flood Vents protect houses and buildings during floods by preventing hydrostatic pressure buildup that can destroy walls and foundations. This mitigation technique, allows floodwater to freely flow through an enclosure such as a crawlspace or garage.[10]

Characteristics of effective flood vents:

  • Free passage of water flows automatically in both directions without human intervention
  • Minimum of two openings
  • No higher than one foot above grade

Flood vents are useful for allowing for the automatic entry and exit of flood waters for an at-risk property. It is a “wet floodproofing” technique is required for residential buildings. Commercial buildings have the option to wet floodproof, which can be more cost-effective compared to dry floodproofing.[11] Dry floodproofing includes measures that make a structure watertight below the level that needs flood protection to prevent floodwaters from entering.  This type of floodproofing is often used to protect non-residential structures, water supplies, and sewage systems.[12]

Mitigation + Floodplain Management:

Further, property owners should also transfer risk to an insurer.

  • Purchase flood insurance
  • Look into Flood Hazard Areas (SFHA)
  • Look for Flood Insurance Route Maps (FIRM) near your area
Wind Mitigation:

Windstorm is normally a covered peril whether an organization purchases “named peril” or “all risks of loss” coverage.[13] Alternative options include a supplemental parametric insurance policy that pays out pre-agreed funds based on wind speeds.

Wind and water can cause damage to exterior walls, roofing as well as glass breakage and interior water damage.[14] In addition, damages to other insured property are at risk: docks, piers, landscaping, swimming pools, golf courses, tennis courts, outdoor restaurants/bars, etc. Damages to these areas drastically increased the amount of a potential claim.[15] Therefore, insurance policies that cover these exposures are important to consider. This way, indemnity is available if losses are present. If you are not certain if your assets are protected, contact Conrey.

[1-2] EPA

[3] Leonard

[4] EPA

[5-9] Leonard

[10-11] Smartvent.

[12] FEMA

[13-15] IRMI

References

EPA – What climate change means for California. (2016, August). Retrieved December 17, 2021, from <https://www.epa.gov/sites/production/files/2016-09/documents/climate-change-ca.pdf>

FAQs. SmartVent. (n.d.). Retrieved December 17, 2021, from <https://smartvent.com/resources/faq>

FEMA: Dry Floodproofing. Dry floodproofing. (n.d.). Retrieved December 17, 2021, from <https://emilms.fema.gov/IS321/HM0103040text.html>

Leonard, D. (2021, December 13). Storm blasting California with massive mountain snow and flooding rain. The Washington Post. Retrieved December 17, 2021, from <https://www.washingtonpost.com/weather/2021/12/13/california-rain-snow-atmospheric-river/>

Global Climate Change Causing Increased Fire Risk

Published January 14th, 2022 by Kyle Langan

Recent Wildfires

Recent wildfires in Colorado and California highlight concerning macro issues regarding climate change. According to NASA, 90 percent of biomass burning is human instigated; this contradicts a common perception that most wildfires are caused by acts of nature, such as lightning. [1] According to Dr. Joel Levine, a biomass burning expert at NASA, humans are at fault for macro-level harsher weather events. [2] The devastating Colorado wildfire from December 30, 2021, may cause $1 billion in insured losses. [3] The late-season wildfire destroyed nearly 1,000 buildings and homes as it swept through Boulder County, CO. The fire was fueled by months of unusually warm, dry weather and intense winds. [4] It ranks as the most destructive wildfire in the Colorado history — it burned 6,000 acres and nearly doubled the amount of damage and insured losses caused by Colorado’s October 2020 fire. [5] In Colorado, the wildfire season does not typically extend into the winter, as snow cover and cold temperatures prevent fire spread. Fire is part of a general trend of a lengthening fire season and drier fuels in the Western US due to climate change. [6]

This video below displays historic temperature changes visually with NASA data driven heat maps.

Video: Global Warming from 1880 to 2021 (NASA)

Inadequate Coverage?

In Colorado, insurers have opened a mobile insurance village to assist affected residents. [7]

Unfortunately, rebuilding costs for many policyholders may exceed their insurance limits. Labor shortages, supply chain disruption, and inflation have pushed construction costs to the upside. [8] For example, a property owner, whose home was destroyed in Colorado’s October 2020 wildfire, told the Wall Street Journal his policy limits of $900,000 and $700,000  for the dwellings fell short of the approximately $2 million in rebuilding and required upgrade costs. [9] Homeowners should check with their risk manager to confirm their homes’ replacement cost valuation is accurate and that coverage is adequate. In order to effectively manage the exposure they face, property owners must ensure protection is as adequate as believed. To verify this, and to seek a broad range of expert risk advisory, consult with Conrey.

California: PG&E Gets Blamed

In California, the even larger ‘Dixie Fire’ stripped forests and forced thousands from their homes after it began on July 13, 2021. [10] It burned a total of nearly 1 million acres through Northern California and destroyed 1,329 structures. [11] Sadly, it also caused one fatality. The Pacific Gas and Electric (PG&E) utility company has been blamed for the fire, after a tree fell on PG&E owned electrical distribution lines. [12] The blaze was the second-largest in California’s history; 963,000 acres is an area larger than New York City, Chicago, Dallas and Los Angeles combined. [13]

Current Levels of Atmospheric Carbon Dioxide (NASA):

Fire Harm Reduction

Cal Fire urged Californians to “remain vigilant and be prepared for wildfire,” after climate change continues to “turbocharge severe storms, floods and extreme weather across the United States.” [14]

PG&E said they will continue to be tenacious in their efforts to stop fire ignitions from its equipment and to ensure safety [15] In July of 2022, “the company plans to bury 10,000 miles of California power lines in an attempt to prevent its equipment from sparking wildfires, a project that would probably cost tens of billions of dollars and take well over a decade to complete”. [16]

Indoor Fire Mitigation – Tragedies Strike in PA, NY

In contrast, the Philadelphia area has recently faced two devastating tragedies related to indoor fires. On Christmas morning, a house fire occurred in Bucks County, Pennsylvania. It claimed the lives of a father and his two children. Quakertown Police Chief Scott McElree said early indications were that the fire started in the family’s Christmas tree. [17] The fire took the lives of Eric King, 40, his sons, Liam, 11, and Patrick, 8, and their two dogs. Eric’s wife Kristin and their oldest son Brady managed to escape before the fire destroyed their entire home. [18] The blaze was deadly because the fire started within the walls of property after the family’s Christmas tree ignited and burned the home and its contents. The pine tree, wrapped with lights and electrical wires contributed to the increased fuel load inside the home. Fuel load is the expected amount of combustible material in a given area (what is inside a property that can burn). The house’s increased fuel load was the cause of this heart-wrenching tragedy.

To make matters worse for the Philadelphia community, on January 5, in Fairmount, a 5-year-old child accidentally ignited a Christmas tree while playing with a lighter. Three women – Rosalee McDonald, Virginia Thomas and Quinsha White – and nine of their children died in the fire, according to family members. [19] The blaze was the deadliest fire in Philadelphia in more than a century. [20] None of the six smoke alarms found in the unit were functional, and only one was still installed. This tragedy had been the deadliest fire in years at a U.S. residential building, but was surpassed on Jan. 9 by a fire in a high-rise in New York City’s Bronx borough that killed 17 people, including several children. [21] Support the King Family here; Fairmount families here; and New York here.

Risk management applies to any and all situations. It is a vital aspect of life. To prevent situations like this from happening, it is recommended to decorate a fake tree when Christmas rolls around next year. Reducing fuel load is the best way to minimize fire risk and prevent ignition. Further, frequently ensure that smoke detectors are fully functional. Verifying the functionality of smoke detectors can reduce loss of life from fires. During any time of year, take steps to acknowledge what contributes to your home’s fuel load, and have a construction professional inspect walls to certify they are as fire resistive as they can be; this will limit the spread of fire if a blaze does start.

Works Cited

1-2: Dunbar (NASA).

3-9: Ayers, 2022.

10-16: Washington Post, 2022.

17-18: Solis, 2021.

19-21: Staff 6abc, 2022.

References

Ayers, E. (2022, January 10). Colorado wildfire insured losses to reach $1b, Modeler says. Risk Manager FPN. Retrieved January 15, 2022, from https://www.advisen.com/tools/fpnproc/fpns/articles_new_24/P/418750667.html?rid=418750667&list_id=24

Dunbar, B. (n.d.). Wildfires: A symptom of Climate Change. NASA. Retrieved January 15, 2022, from https://www.nasa.gov/topics/earth/features/wildfires.html

NASA. (2022, January 12). Climate change evidence: How do we know? NASA. Retrieved January 15, 2022, from https://climate.nasa.gov/evidence/

NASA. (2022, January 13). Video: Global warming from 1880 to 2021 – climate change: Vital signs of the planet. NASA. Retrieved January 15, 2022, from https://climate.nasa.gov/climate_resources/139/video-global-warming-from-1880-to-2021/

Solis, G. (2021, December 27). Christmas Day house fire kills father, 2 children in Quakertown, PA.. 6abc Philadelphia. Retrieved January 15, 2022, from https://6abc.com/quakertown-house-fire-father-and-sons-killed-eric-king-christmas-pennsylvania-tragedy/11390602/

Staff, 6abc D. (2022, January 12). ‘near certainty’ Fairmount Fire ignited when Christmas tree set ablaze, Philadelphia officials say. 6abc Philadelphia. Retrieved January 15, 2022, from https://6abc.com/fairmount-fire-atf-philadelphia-firefighters-north-23rd-street-investigation-philly-blaze/11454578/

Washington Post. (2022, January 5). PG&E equipment blamed for Dixie Fire that burned nearly 1 million acres in California . Risk manager FPN. Retrieved January 15, 2022, from https://www.advisen.com/tools/fpnproc/fpns/articles_new_24/P/418388483.html?rid=418388483&list_id=24