Tag Archives: Hurricane

Here We Go Again

Well it was a nice lull while it lasted.  For better than ten years following the chaos caused by Katrina and other mid-2000s hurricanes, North America has enjoyed pretty tame hurricane seasons, with the notable exception of Superstorm Sandy in 2012.  Then along came Harvey last month.  Now we’re staring down mega-hurricane Irma about to descend on Florida.  As if two major hurricanes in only two weeks isn’t bad enough, Jose lurks out there in the Atlantic though it looks like we may dodge that bullet.  All of this and we’ve still got more than a month left in the hurricane season.

Cue the media hysteria.  I realize that we live in the era of the 24-hour news cycle, and Jim Cantore would be an utterly lost soul if he weren’t firmly ensconced at ground zero of every major storm.  We’ve had never-ending 24-hour coverage of Harvey’s development, Harvey’s landfall, Harvey’s aftermath, Irma’s development, preparations for Irma, and we’ll be hearing about Harvey and Irma for the next several weeks.  I do not intend to minimize the human tragedy of these storms, but I am wary of the indictments that will inevitably flow from all this media hype.  We’re already seeing it…

Predictably, climate change is already being linked with the current roster of storms, such as in this doozy of an article from Newsweek.  The article relies on alleged climate data manipulator Michael Mann.  I hope all of you Florida evacuees heading north on I-75 realize that you’re setting the stage for the next Irma as your internal combustion engine idles in the traffic jam.  Talk about a Catch-22.

The Wall Street Journal recently highlighted hurricane deductibles as the reason that many hurricane victims will find themselves shouldering 1-2% of their hurricane loss.  The slant of the article (and others like it) portrays insurers as greedy companies looking to stick it to their policyholders at every turn.  Let me see if I have this straight.  My beautiful Florida home suffers a $500,000 hurricane loss, and I’m distraught that I have to cover $10,000 of that loss out of my own pocket before my insurer covers the remaining $490,000?  Sure, $10,000 is a chunk of change, but would I have really wanted to pay the actuarially-mandated premium to have hurricane insurance with first dollar coverage (assuming I could even find such coverage)?  Nope.  Even a $10,000 hurricane deductible is a fair price to pay for living in a beautiful coastal home in paradise.  Or at least it should be.  The hurricane deductibles were a necessary component to keep the private hurricane insurance market from evaporating after Katrina thus giving us yet another incarnation of the notoriously underwater (pun intended) National Flood Insurance Program.  NHIP anyone?

Speaking of flood insurance.  There are also hundreds of articles and reports on the uninsured and underinsured flood losses from Harvey, and more will follow from Irma.  Yes, the NFIP is woefully outdated and in debt.  Even for the minority of homeowners and businesses who purchase flood insurance, the program limits (e.g., $250,000 on a home’s structure, no business interruption coverage at all for businesses) leave many underinsured.

Although a certain amount of media attention is helpful in calling attention to problems that need solving, I fear that what we have in most of today’s media hype is politically motivated hyperbole that exploits the actual victims of these natural disasters in order to advance an agenda (e.g., climate change, anti-capitalist, etc.) It would be nice if we could just tone it down a bit and focus on genuine problem-solving instead of slanted accusation.

In the spirit of genuine problem-solving, insurance guru Bill Wilson recently blogged about the concept of mandatory flood insurance coupled with strict loss control.  Is that an idea whose time has finally come (or perhaps is long overdue)?  The logic is compelling, but then we’d better be prepared for another batch of media reports on how outrageously expensive mandatory flood insurance has become, how unfair the tax penalties are for those who can’t/won’t buy mandatory flood insurance, how onerous are the loss control requirements, and how the flood insurance exchanges are suffering from unexpected losses and need to be taxpayer-subsidized, and the whole flood insurance system is in a death spiral.  Sound familiar?

My sincere thoughts and prayers are with you Florida, and Texas.

 

Back to School

We’re back.  Summer was great, but the academic year is officially underway and there is no shortage of events and topics to consider.  Of course, the devastation and tragedy brought about by Hurricane Harvey is heart-wrenching.  Coincidentally, it was almost exactly one year ago that I blogged about flood insurance and the Louisiana floods.  Harvey leads us back to many of the same issues that I wrote about last year.

Risk and insurance headlines continue to debate the future of auto insurance as the reality of driverless automobiles draws closer.  Cyber-security, ransomware, and data breaches still demand considerable risk management attention.  AIG has a new CEO with considerable industry chops and he’s already making big moves.  Drones are playing a large part in the claims process following Harvey.

Contrary to popular belief, risk and insurance is anything but boring.  These are just some of the weighty issues that Ferris State University RMI students will be exploring in the months ahead.  This is going to be fun.

Katrina

hurricane_katrina

Ten years ago, on August 29, 2005 Hurricane Katrina made landfall on the U.S. Gulf Coast and changed everything.  The aftermath of the storm was shocking.  I remember attending a RIMS conference in New Orleans many, many years before Katrina when I was still a risk management “newbie” and hearing seasoned risk professionals talk about the city’s vulnerability.  Local residents described, with what seemed at the time to be a form of daring pride, how the city is actually built within a “bowl” that is below sea level and surrounded by bodies of water.  I marveled at the levees and the cemeteries’ elevated tombs around the city.  Risk managers spoke in hushed tones of the inevitability of a major hurricane scoring a direct hit on the vulnerable city.  It’s not a matter of if, but when, they said.

The “when” turned out to be August 29, 2005.

There are many articles and videos available to describe both the horror of the storm and the power of the human spirit to overcome.  History.com provides one such overview here.  From a risk and insurance standpoint, Katrina brought several hard lessons.  Presumably, many large businesses with full-time risk managers and dedicated insurance brokers had a decent handle on their disaster preparedness and risk financing programs.  After all, they’ve been talking about the inevitability of a “Katrina” for decades.  Although I’m sure that even the larger firms had a few unexpected developments, nothing compared to the chaos and turmoil that the storm left for small businesses and individuals.

Despite admonitions to “read your insurance policy” and “plan for disaster” many people caught up in the struggles of daily life and keeping a small business running simply did not do either.  Frankly, the insurance industry itself must accept some of the blame as well.  Insurance agents and brokers catering to small business and individuals in a market such as New Orleans had a professional duty to anticipate the aftermath of a “Katrina” and advise their clients accordingly on their coverages.  Many Gulf Coast policyholders were shocked to discover that storm surge was not covered by their insurance policies, or that their business interruption coverage included fiscally untenable waiting periods or didn’t extend on a contingency basis to key suppliers.  Yes, the policyholders should have read their policies and asked questions.  Yes, the policyholders should have thought through the scenarios more proactively and discussed their greatest fears with their insurance professionals before the storm.  That’s the hard lesson taught by Katrina.

Another hard lesson from Katrina – we need to be better as an industry before the next Katrina strikes.  As risk professionals, we know what can happen.  Katrina has shown us many of the worst possible outcomes and the insurance coverage gaps left in the aftermath.  Let’s make sure that we share this professional knowledge with our policyholders, large and small, and take the time to counsel and teach them.  Risk professionals live and breathe insurance policy language – our policyholders do not.  This is the professional expertise we are paid to deliver.  Let’s make sure we do it – before the next Katrina.