J. David Ferris, Ph.D. 1

Climate Change, Extreme Weather Risks Insurance Issues for Business

&Other Organizations

Climate Change & Climate SmartConference April 20, 2013

Business Track SessionJ. David Ferris, Ph.D., CPCU, ARM

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Today’s program

• Part I: Overview of how climate change is impacting the insurance industry

• Part II: Some things to consider when looking into your property insurance coverage

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A Billion Here A Billion There

• In 2012 Eleven Extreme Weather Events occurred in the U. S. killing thousands of people and causing 100’s of billions of dollars in damage

• This was a follow up to 2011 when there were 14 Extreme Weather Events– Including Hurricane Irene in excess of $8 billion

• An Extreme Weather Event is on that causes at least a billion in damage

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Super Storm Sandy

• Super Storm Sandy alone damaged or destroyed 450,000 businesses in New York & New Jersey

• 8.5 million were left without power extending over several weeks

• More than 1200 claims are still unresolved• Some properties will never be rebuilt• $80 billion in damages $60 billion in insured

losses

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Other 2012 Events

• Heat & drought in 2012 caused over $35 Billion in crop damage

• 9.2 million acres burned in wild fires with the loss of or damage to thousands of properties

• 70 Tornadoes crisscrossed the country causing billions in damage & killing dozens of people

• 38 Severe thunderstorms caused billions in damage• Severe winter storms caused over $100 billion in damages

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2013 Extreme Events Projections

• 72% chance of hurricanes hitting entire east coast up from 52%

• Increase in Midwest droughts• Increase in wildfires• Increase in violent storms• Increase in flooding

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Insurance company finances

• Insurance companies only have 2 ways to make money– Premiums they charge for the insurance– Investment income on net reserves after paying

administrative costs and claims.• Insurance regulators are requiring very

stringent capital and solvency requirements• 2011 & 2012 put an enormous economic

strain on insurance companies

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Extreme weather eventsImpact on Insurance policies

• The majority of insurance contracts impacted by extreme weather events are contracts providing insurance coverage for damage to or loss of:– Personal property insurance contracts

• Homeowners, Tenants, condominiums, etc.

– Commercial/business property insurance contracts– Loss of income related to the direct damage to property: part of

property insurance– Loss of contingent income related to direct damage to property of

suppliers, vendors, key customers, etc.: part of property insurance– Flood Insurance

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Impact on Insurance

• Significant changes in underwriting philosophy and practice– Tougher guidelines for underwriters– Territorial restrictions

• Significant changes in insurance policy language and coverage

• Significant changes in claims handling

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What might this mean to you?

• You may find that the process of renewing your property insurance could involve:– Coverage restrictions– Higher deductibles– Higher premiums

• If you have a claim it could result in:– Disputes over the coverage terms & conditions in the

insurance contract language after a loss– Disputes with respect to claims handling

• Disputes with claims adjusters• Adjusters working for or hired by the insurance company• Disputes with public adjusters: Adjusters you may hire to represent

you in the claims process

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Red Flag Issues

• Insurance companies trying to shift certain types of wind and water damage claims to the flood insurance

• Business owner disputes with claims adjusters in establishing the value of a business interruption loss of income or contingent loss of income claim.

• Disputes between insurance company claims adjusters and the contractor(s) hired to repair or rebuild damaged property

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Things to consider

• Should you purchase flood insurance?– Just because you are not in a federal flood zone

doesn’t mean you are not exposed to flooding• If you are a business have you accurately

calculated your loss of income limit?– Do you really know how the Business Income &

Extra Expense coverage works

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If you have a claim

• Have clear understanding of what your responsibilities are in reporting the claim to your agent and insurance company.– Know your responsibilities in settling the claim

• Do not automatically jump at hiring a public adjuster– Do you really need one?– Check out references, like all professions there are

the good, the bad and the ugly– Have attorney review contract

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Questions & Wrap up

Thankyou!