Storms Return

A year ago, our team highlighted the powerful December 2021 storm system along the West Coast as it dropped heavy snow in the mountains of the Sierra Nevada, and the Cascade Range (Leonard, 2021).

The storm systems were 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. (EPA, 2016).

Fast forward to January 2023, and the Sierra snowpack has ballooned to more than double its usual size for this time of year! “A flurry of storms unloaded historic amounts of rain and snow across California over the past month. The deluges, fueled by a parade of atmospheric rivers, filled reservoirs and have improved drought conditions across large swaths of the state” (Lee, 2023). The snow will continue to replenish California’s water supplies as it melts during the warmer months. This is great news for the environment, however, just as we pointed out a year ago, this does bring increased risk for property owners in California. The storm could disrupt travel and damage buildings due to potential flooding. The replenished snowpack sets the stage for potential “flood issues as we move through the snowmelt season, said Michael Anderson, state climatologist with the California Department of Water Resources, at a media briefing on Jan. 16″ (Lee, 2023). Rain falling on snow, in particular, can cause a rapid melt that overwhelms downstream rivers and reservoirs” (Lee, 2023).

It’s Over, Right?

Historically, immense snowfalls in the mountains of the Western United States can cause more flooding in Mexico, Baja California, Arizona, and New Mexico in the spring and summer following winter storms, like in the 1862 flood “that killed thousands, wiped out mines and ranches, and submerged the state capital” (Becker, 2018). This event was capped by a warm intense storm that melted the high snow load, and the resulting snow-melt flood was disastrous (Becker, 2018).

Risk Management Techniques

Reach out to us (kylel@conreyins.com) for help with your flood control systems. 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 (FAQs SmartVent).

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 (FAQs SmartVent). 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 (FEMA).

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

 

References

Becker, R. (2018, May 26). The hardest part of preparing for disasters is overcoming human nature. The Verge. Retrieved February 15, 2023, from https://www.theverge.com/2018/5/26/17321100/the-big-ones-natural-disasters-lucy-jones-earthquakes-hurricanes-volcanoes-floods

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>

Lee, J. (2023, February 1). California’s snowpack may face an emerging risk that scientists are just discovering. San Francisco Chronicle. Retrieved February 10, 2023, from https://www.sfchronicle.com/weather/article/california-snowpack-wildfire-17747578.php#:~:text=The%20new%20study%20reported%20that,and%20the%20Desert%20Research%20Institute.

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

Wikimedia Foundation. (2023, January 29). Great flood of 1862. Wikipedia. Retrieved February 15, 2023, from https://en.wikipedia.org/wiki/Great_Flood_of_1862#cite_note-Verge_2018_story-5

It is a sign of tough times when even the insurance companies are struggling. Inflation is driving up auto insurance losses and combined ratios. The amplified insurance claims have inflated at an even faster pace than the Consumer Price Index (CPI) and the premiums charged by carriers. [1]

According to the American Property Casualty Insurance Association, auto insurers saw $14.9 billion in overall capital losses for Q1 2022. [2] Additionally, Loss Adjustment Expenses (LAE) increased 10% in the first quarter 2022. [3]

The reasons for the capital losses, instead of insurers’ typical gains, were increased frequency and severity of losses. [4] US private passenger auto losses spiked 25% in 2021 from 2020. [5] Claim severity reached a record $5,743 in Q1 2022, up 36.5% from 2020 Q1. [6] The average bodily injury claim severity is up 24.2% in this same period. [7]

Insurers are bleeding as a result, as the increase in premiums was “far below the rate of escalating losses.” [8] The worst part? These trends are expected to continue into 2023 or longer. [9]

What does this mean for you as an auto insurance buyer? Bodily injury claim severity is up, therefore, state minimum limits are not adequate. Inflation does not only apply to food and energy; it spans across a multitude of prices. This includes the cost of insurance claims, which have outpaced premiums and CPI. Consult with us to review your limit adequacy.

References

[1] – [9]

The New Normal? Auto Insurers Continue to Struggle with Inflation. American Property Casualty Insurance Association. (n.d.). Retrieved November 4, 2022, from https://www.apci.org/media/news-releases/release/73542/

 

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.

 

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.