Transcript P6466 - iii Template

Getting Smart About Insurance:
For Your Business &
On the Home Front
June 2013
Lynne McChristian, Florida Representative
Insurance Information Institute  4775 E. Fowler Ave. Tampa, FL 33617
Presentation Outline
 Snapshot of this “Decade of Disaster”
 Historical and recent perspectives
 Business Insurance
 Business interruption coverage
 Supply-chain coverage
 Home Insurance
 Reconstruction costs vs. real estate value
 Rebuilding better
 Q&A
2
The Dozen Most Costly Hurricanes
in U.S. History
Insured Losses,
2012 Dollars,
$ Billions
Denotes those
impacting Florida
Sandy could become the
2nd costliest hurricane in
US insurance history
$60
$50
$40
$30
Irene became the
12th most expensive
hurricane in US
history
$25.6
$18.8
$20
$10
$48.7
$5.6
$6.7
$7.8
$8.7
$9.2
$4.4
$5.6
Irene
(2011)
Jeanne
(2004)
Frances
(2004)
Rita
(2005)
Hugo
(1989)
Ivan
(2004)
Charley
(2004)
$11.1
$13.4
$0
Wilma
(2005)
Ike
(2008)
Sandy*
(2012)
Andrew
(1992)
Katrina
(2005)
10 of the 12 costliest hurricanes in private insurance
history occurred in the past 9 years (2004—2012)
*Estimate as of 12/09/12 based on estimates of catastrophe modeling firms and reported losses as of 1/12/13. Estimates range up to $25B.
Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
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If They Hit Today, the Dozen Costliest
(to Insurers) Hurricanes in U.S. History
Insured Losses,
2012 Dollars, $ Billions
Storms that hit long ago had less property and
businesses to damage, so simply adjusting their
actual claims for inflation doesn’t capture their
destructive power.
Karen Clark’s analysis aims to overcome that.
$140
$120
$100
Denotes those
impacting Florida
$80
$65
$60
$35
$40
$20
$20
$20
Sandy*
(2012)
Betsy
(1965)
Hazel
(1954)
$125
$40
$40
Katrina
(2005)
Galveston
(1915)
$50
$50
$50
Andrew
(1992)
southFlorida
(1947)
Galveston
(1900)
$25
$20
$0
Donna
(1960)
New
England
(1938)
midFlorida
(1928)
Miami
(1926)
When you adjust for the damage prior storms could have done if they
occurred today, Hurricane Katrina slips to a tie for 6th among the most
devastating storms.
*Estimate as of 12/09/12 based on estimates of catastrophe modeling firms and reported losses as of 1/12/13. Estimates range up to $25B.
Sources: Karen Clark & Company, Historical Hurricanes that Would Cause $10 Billion or More of Insured LossesToday, August 2012; I.I.I.
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US Insured Catastrophe Losses
$73.4
($ Billions, 2012 Dollars)
$7.5
$10.5
$35.0
$33.6
$29.2
$33.7
$16.3
$7.6
$6.1
$11.6
$14.3
$3.8
$11.0
$12.6
$8.8
$10
$8.0
$20
$4.8
$30
$14.0
$40
$26.4
$37.8
$50
$34.7
$60
$14.4
$70
2012 was likely the
third most expensive
year ever for insured
CAT losses
$11.5
$80
$0
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
2012 Was the 3rd Highest Year on Record for Insured
Losses in US History on An Inflation-Adjusted Basis.
2011 Losses Were the 6th Highest.
Record Tornado
Losses Caused
2011 CAT Losses
to Surge
Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01 ($25.9B 2011 dollars). Includes only business and
personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B ($15.6B in 2011 dollars.)
Sources: Property Claims Service/ISO; Insurance Information Institute.
5
Natural Disasters in the United States,
1980 – 2012
Number of Events (Annual Totals 1980 – 2012)
There were 184 natural
disaster events in the
US in 2012
300
There have been over 150
natural disaster events every
year since 2006. That has not
happened in any year before.
Number
250
200
150
100
41
19
50
121
3
1980
1982
1984
1986
1988
Geophysical
(earthquake, tsunami,
volcanic activity)
Source: MR NatCatSERVICE
1990
1992
1994
1996
1998
2000
Meteorological (storm)
Hydrological
(flood, mass movement)
2002
2004
2006
2008
2010
2012
Climatological
(temperature extremes,
drought, wildfire)
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Federal Disasters Declarations by State,
1953 – 2012: Highest 25 States*
Over the past
nearly 60 years,
Texas has had the
highest number of
Federal Disaster
Declarations
39
45
45
45
42
40
40
47
47
47
48
48
48
51
51
53
53
56
56
63
50
50
58
60
65
70
70
Disaster Declarations
80
78
90
86
100
30
20
10
0
TX CA OK NY FL LA AL KY AR MO IL TN MS IA MN WV KS NE PA OH VA WA ND NC IN
*Through Apr. 10, 2012.
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
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Federal Disasters Declarations by State,
1953 – 2012: Lowest 25 States*
Over the past nearly 60
years, Utah and Rhode
Island had the fewest
number of Federal
Disaster Declarations
9
9
10
10
11
14
15
16
17
39
17
22
23
24
24
25
25
26
27
28
33
36
35
33
20
20
28
30
37
Disaster Declarations
40
39
50
0
ME SD AK GA WI VT NJ NH OR MA PR HI MI AZ NM ID MD MT NV CT CO SC DE DC UT RI WY
*Through Apr. 10, 2012. Includes Puerto Rico and the District of Columbia.
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
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Inflation Adjusted U.S. Catastrophe
Losses by Cause of Loss, 1992–20111
Wind/Hail/Flood (3), $14.8
Fires (4), $6.0
Other (5), $1.4
Geological Events, $18.2
1.6%
4.7% 3.8%0.4%
Terrorism, $24.4
6.3%
Winter Storms, $28.2
42.0%
7.3%
Hurricanes & Tropical Storms,
$161.3
Tornado share of
CAT losses is
rising
33.9%
Tornadoes (2), $130.2
Insured cat losses
from 1992-2011
totaled $384.3B, an
average of $19.2B
per year or $1.6B
per month
Wind losses are by
far cause the most
catastrophe losses,
even if hurricanes/TS
are excluded.
1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2009 dollars.
2. Excludes snow.
3. Does not include NFIP flood losses
4. Includes wildland fires
5. Includes civil disorders, water damage, utility disruptions and non-property losses such as those covered by workers compensation.
Source: ISO’s Property Claim Services Unit.
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Top 3 States by Catastrophe Losses:
1982-2011* ($ Billions, Inflation Adjusted)
Florida
$65.5
15.3%
Texas
$46.0
10.8%
Rest of the U.S.
$276.6
64.7%
Louisiana
$39.7
9.3%
*Estimated property losses adjusted for inflation by ISO using GDP implicit price deflator, Excludes catastrophes causing direct losses
less than $25 million in 1997 dollars. Does not include flood damage covered by federally administered National Flood Insurance
Program. Percentages do not sum to 100 due to rounding.
Includes the other 47 states plus Washington, D..C., Puerto Rico and the U.S. Virgin Islands.
State Population Growth Rate
Projections, 2010-2020*
2.3%
2.1%
2.0%
1.9%
1.6%
0.7%
0.6%
0.4%
LA
WY
SD
NE
PA
NY
OH
IA
12.4%
OR
2.5%
13.1%
GA
MS
13.6%
WA
2.5%
14.5%
DE
5%
IL
14.6%
NC
10%
8.7%
14.8%
ID
15%
11.3%
15.2%
UT
U.S. overall:
+8.7%
16.2%
20%
Lowest Growth
Rate States
Highest Growth
Rate States
TX
25%
21.6%
30%
27.4%
35%
28.3%
Projected Population
Growth
-1.0%
-1.5%
WV
US
VA
FL
AZ
-10%
NV
-5%
ND
0%
The Mountain West region is projected to grow the most from now to 2020 (up
17.6%), followed by the South Atlantic (up 14.5%) and Pacific (up 11.2%).
The Mid-Atlantic is projected to be the slowest-growing region (up 1.9%).
*based on 2000 census. Source: http://www.census.gov/population/www/projections/projectionsagesex.html Table 7
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Outlook for 2013 Hurricane Season:
75% Worse Than Average
Forecast Parameter
Median
2013F
(1981-2010)
Named Storms
12.0
18
Named Storm Days
60.1
95
Hurricanes
Hurricane Days
Major Hurricanes
6.5
21.3
2.0
9
40
4
Major Hurricane Days
3.9
9
Accumulated Cyclone Energy
92.0
165
Net Tropical Cyclone Activity
103%
175%
Source: Philip Klotzbach and Dr. William Gray, Colorado State University, April 10, 2013, accessed at
http://tropical.atmos.colostate.edu/forecasts/2013/apr2013/apr2013.pdf ; Insurance Information Institute..
Taking Risks, Ignoring Risk
 More development, more people in coastal areas.
 Florida has nearly $3 trillion in coastal exposure, the highest of
all states.
 Less than 20% of U.S. land is considered coastal, and
50% of the population lives there.
 Increase in coastal watershed population from 1970-2010:
50.9 million – a 45% increase.
 Will rise 9% more by 2020.
 Per square mile, average population density of coastal
watershed counties: 319 people
 Inland: 61
Source: NOAA State of the Coast Report
Getting the Right
Business Insurance
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Property Insurance for Your Business
 Review your coverage limits annually – and begin with
this question:
“Can I put the business back where it was before this disaster?”
 You need sufficient coverage to:
 Rebuild the structure.
 Replace contents.
 Retain all upgrades and improvements that effect the
property valuation.
.
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Property Insurance for Your Business
 Biggest mistakes made:
 Filing a policy away and failing to update.
 Insuring for a percentage of replacement cost.
 Overlooking Building Ordinance or Law coverage.
 Failing to get flood insurance.
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I.I.I. Poll: Disaster Preparedness
Q. Does your homeowners policy cover damage from flooding during a hurricane?1
40%
May-11
35%
May-12
May-13
32% 32%
29%
30%
23%
25%
About 20 percent
of the public still
believes flooding
from a hurricane
is covered
24%
20%
20%
16%
15%
12%
14%
22% 21%
16%
12%
9%
10%
10%
5%
0%
Northeast
Midwest
South
West
Total U.S.
The proportion of homeowners who believe their homeowners policy covers
damage from flooding during a hurricane stands at 21 percent. This
proportion rises eight percentage points in the South, to 29 percent.
1Asked
of those who have homeowners insurance and who responded “yes”.
Source: Insurance Information Institute Annual Pulse Survey.
19
I.I.I. Poll: Disaster Preparedness
Q. Have recent flooding events such as Hurricane Sandy or Hurricane Irene
motivated you to buy flood coverage?1
Yes
100%
100%
99%
96%
No
96%
93%
80%
60%
Despite recent major flood events, few
people see the need to buy coverage
40%
20%
4%
1%
5%
0%
3%
0%
Northeast
Midwest
South
West
Total U.S.
Recent storms have not motivated people to buy flood insurance coverage.
1Asked
of those who have homeowners insurance but not flood insurance.
Source: Insurance Information Institute Annual Pulse Survey.
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Types of Coverage
 Property insurance covers the building and contents.
 Business interruption insurance minimizes risk after a loss.
Types of coverage include:
 Business Interruption – compensates for income lost during
restoration/repair.
 Extended Business Interruption – covers for income lost after
repair but before pre-loss level of income is reached.
 Extra Expense Insurance – reimburses for money spent over
and above normal operating costs.
 Contingent Business Interruption – covers your loss of income
if a primary supplier’s property is damaged.
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Business Interruption Coverage
 How it works
 Triggered by physical damage to your property.
 If no physical damage, policy may not provide coverage.
 Damage must be caused by an incident covered by the
policy.
 Damage must directly result in an interruption of
operations.
Consider: Most risk managers recommend 12 months of business interruption
insurance be secured.
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Contingent Business Interruption,
“Supply Chain”
 How it works
• Triggered by physical damage to customers’ or suppliers’
property – or to property on which the insured company
relies on to attract customers.
 Who needs it
• Those who depend on a single or only a few suppliers.
• If you have one or a few manufacturers.
• If you depend on one or a few businesses to buy your
product.
• If a “leader property” brings business to your door.
Consider: How much do you rely on another entity?
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Key points:
 View insurance as a critical tool for business
survival.
 Know your coverage and be confident of its
protection.
 Don’t risk a lot of money to save a little on
premiums.
Buy based on post-loss needs, not pre-loss
price.
 Learn the limitations of your coverage and plug
gaps, if needed.
24
Open for Business®
Taking Care of
Home Sweet Home
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Average Premium for
Home Insurance Policies**
Home insurance premiums are
rising in response to higher
catastrophe losses
$1,004
$1,000
$956
$914
$880
$900
$804
$800
$822
$830
07
08
$764
$729
$700
$668
$593
$600
$536
$508
$500
00
01
02
03
04
05
06
* Insurance Information Institute Estimates/Forecasts **Excludes state-run insurers.
Source: NAIC, Insurance Information Institute estimates 2010-2012 based on CPI and other data.
09
10*
11*
12*
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What a homeowners policy covers
 Coverage A – damage to residence.
 Coverage B – detached structures.
 Coverage C – personal belongings.
 Coverage D – additional living expenses.
 Coverage E – personal liability.
 Coverage F – guest medical expenses.
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If you insure for less than rebuilding
costs…….
You could have high out-of-pocket costs.
 In a total loss, you would not have enough to rebuild.
 In a partial loss, your claim settlement will be apportioned
to the percentage of coverage purchased.
 WHY? Because there is a “co-insurance provision” that
makes a policyholder pay a percentage of the loss if they
are less than fully insured.
30
Reconstruction costs vs. real estate
value
 Real estate value has nothing to do with
reconstruction costs.
 Before the economic downturn, a home’s market value
exceeded reconstruction costs.
 The focus is on materials and labor, which are often higher
after a major disaster due to supply/demand.
 Costs of demolition and debris removal are considered.
 New construction and reconstruction are dissimilar.
 Reconstruction costs are based on actual repair costs and
losses.
 Your input can make the estimates more accurate.
31
Reconstruction costs
Source: Xactware researched cost information, averaged for Florida.
32
Top Myths About Insurance
• I am not in a flood zone, so I don’t need flood protection.
• I should insure my home for the amount of my mortgage.
• The replacement cost of my home is the same as my purchase price.
• I need to insure my land.
• A percentage deductible is better than a straight deductible.
• A low deductible is better than a high deductible.
• My homeowner’s insurance policy covers all my personal assets,
including jewelry and art collections.
• My homeowner’s insurance policy covers all structures on my property.
• My homeowner’s insurance policy covers my home business.
• It is not important if I have a dog, pool or trampoline.
33
About Hurricane Deductibles
TIP: Only take the highest deductible you can afford.
Deductible Options & Combinations
Under $100,000
$100,000 & Over
Hurricane
Other Perils
Hurricane
Other Perils
$500
$1000
$2000
2%
$100
$250
2%
5%
10%
$100
$250
$500
$1000
$2000
2%
5%
10%
$500
2%
3%
4%
5%
10%
$500
$1000
$2000
$1000
$2000
$1000
$1000/$2000
34
Tips for Saving Money
 Shop around.
 Raise your deductible.
 Bundle policies with the same insurer.
 Make your home & business disaster resistant.
 Improve security.
 Actively seek discounts.
 Review policy limits and value of possessions annually.
35
Rebuilding better
 Know your home’s vulnerability so you know where to
improve if you have to rebuild.
 Building codes set the minimum standard. Strong homes
are built to code PLUS.
 Ask your insurer about a home mitigation inspection.
 What you don’t know CAN hurt you.
36
I.I.I. Mobile Apps
Know Your Stuff
Know Your Plan
Know Your Coverage
37
IBHS Hurricane Resources
Online Guidance:
 DIY Projects
 Help for Working
with Contractors
Hurricane Brochure
Social Media: I.I.I. on Facebook and
Twitter
Reach individuals, trade press, consumers and general media
40
Insurance Information Institute Online:
www.iii.org
www.InsuringFlorida.org