Tag Archives: hurricane irma

An Insurtech Reality Check

If you’ve got your eyes set on technology that won’t move the needle this year, it’s time to reevaluate what can provide bottom-line results in the short term. AI and machine learning will have their day in commercial insurance. But what are you doing today to drive tangible business results? Insurtech does not have to be a “pie in the sky” endeavor. It can be deployed right now.

Just a year ago, the insurtech conversation was all about innovation labs, blockchain, IOT, wearables and, of course, AI. Now, the dust has settled a bit, and the realization has set in that those bright, shiny objects may take years to make a real impact on re/insurers’ bottom lines. While they are still undoubtedly vital to innovation, long-term success and survival, it’s important to strike a balance between “pie in the sky” and practical. Last year’s devastating catastrophes served as a catalyst for more focus on short-term solutions that can improve bottom lines—now. Not years from now. This swing to here-and-now solutions was recently articulated in an article by Ilya Bodner, founder of insurtech startup Bold Penguin, where he notes:

“Insurtech is moving rapidly now into commercial lines where the attention and intent is focused on solutions that will deliver a strategic and immediate return on investment (ROI)….Insurers are moving away from bright, shiny, insurtech objects and toward service partners, emerging technologies and solution providers with a return on investment more immediate than promised for five years down the road.”

I second this sentiment. P&C risks are changing, as evidenced by 2017’s $144 billion in global insured losses and a commercial lines combined ratio of 104%. And, while a strong market made many insurers whole last year, that is not a guarantee going forward. The next hurricane, flood or wildfire won’t wait for you to innovate. Insurers must find ways to bring innovation to their bottom lines now. Don’t get me wrong, pie in the sky is good—and it is necessary. But insurers must strike a balance between their long games and short gains. You need both.

Caution: The hard truth

I don’t have to tell you that following last year’s back-to-back hurricanes there was an outcry about how the models got it wrong (of course, it didn’t help that some modelers put out early and grossly inaccurate estimates that incited market confusion and concern). Here’s the hard truth: Insurers also got it wrong. Got it wrong by using a single view of risk; by not taking advantage of innovations in data; by taking too long to operationalize data; by waiting for the perfect, utopian platform (in-house or commercial) to be built or delivered; by expecting legacy analytics software to deliver the scalability, reliability and insight required to act efficiently and effectively. No longer can insurers approach risk The. Same. Old. Way. Risk is changing. You must change with it. And the good news is, integrating insurtech in a way that helps you better assess and manage the evolving landscape of catastrophe risk doesn’t have to be time-consuming or costly, and it can produce immediate results.

Here are a few of the challenges that insurers face that insurtech can help them address, in the here and now:

  • Reality: Models provide a “framework for thinking; they don’t represent truth.” Evan Greenberg, chairman and CEO of Chubb, recently stated, “Given there have been three one-in-100-year floods in 18 months, how can Harvey represent a 1% chance of occurring, as the models suggested? Models provide an organized framework for thinking; they don’t represent truth.” Now, we all know models serve an important purpose, and our clients can derive insights from modeled data within our platform. But models must be taken with a dose of good old-fashioned human judgment. Models and the outputs are nuanced. It’s all about identifying the right models and model components that best represent your lines of business, geography and business practices. But it’s also about balancing resources and business value with this expensive exercise. You need to have an intelligent conversation about model nuances—and figure out the “so what” questions that models provoke but don’t answer.

See also: Can Insurtech Rescue Insurance?  

  • Reality: You can’t handle all the data. There’s a gap between the wealth of data now available and an insurer’s ability to quickly process, contextualize and derive insight from that data. Insurers are generally frustrated by a lack of process and an easy way to consume the frequent and sophisticated data that expert providers put out during events like Harvey, Irma, Maria, the Mexico City earthquake and the California wildfires. Beyond the sheer volume of data, insurance professionals are expected to make sense of it by using complex GIS tools. In reality, you have all this data but no actionable information because you can’t effectively make sense of it. Even insurers with dedicated data teams and in-house GIS specialists struggle to keep up. (SpatialKey tackles this problem by enabling expert data from disparate sources (e.g. NOAA, Impact Forecasting, JBA, KatRisk) and putting it into usable formats that insurers can instantly derive insight from and deploy throughout their organizations. We do the processing work, so our clients can focus on the analysis work.)
  • Reality: Your best data is your own, but you’re not benefiting from it. It’s one thing to be in possession of data, and quite another to be able to realize its full value. Data alone has little value. One of our clients, for example, needed a way to re-deploy its own data to its underwriters, so we helped the company integrate an underwriting solution that would put its data, along with expert third-party data, in the hands of its underwriters—all from a single access point that would consolidate disparate sources and drive enterprise consistency.
  • Reality: Your customers expect on-demand; you should, too. Your customers don’t want to wait for a quote or go through a lengthy process to submit a claim. Our society is instant everything, and while commercial insurance may not be held to the same real-time pressure as personal lines, it is moving in that direction. When you need the latest hurricane footprint, you need it now, not four hours from now. When an earthquake strikes Mexico City, you need to understand your potential business interruption costs today. When a volcano is erupting and no drones are allowed in the surrounding airspace, you need a geospatial analytics solution that can help you provide advanced outreach to insureds and do the financial calculations to understand actual exposure. Likewise, when your underwriters are trying to win business, you’d rather they spent their time evaluating the risk than searching for information.

Who knows what this hurricane or wildfire season will hold. The question is, are you prepared to handle it better than last year? What changes have you made to strengthen your resilience and that of your insureds? What has been learned and applied for meaningful results? It’s a misnomer that insurtech and disruption go hand in hand. Some insurtech solutions are built to complement—to drive efficiencies, cost savings and underwriting profitability—not necessarily replace existing processes or legacy systems. Data and analytics is an area where insurers, brokers and MGAs can still improve their bottom lines yet in 2018.

See also: To Be or Not to Be Insurtech  

Take down the pie and dig in

My intention is not to dilute the importance of up-and-coming insurtech technologies, like AI and machine learning. They will undoubtedly help insurers compete as risks become more complex. My point is that those longer-term technological investments must be tempered with an understanding of what technologies will help move the needle in the present. You can strike a balance between pie-in-the-sky insurtech and insurtech that works for you now.

4 Lessons From Harvey and Irma

As we prepare for what could be a very active hurricane season, we pause to reflect on what we learned from last year’s historic storms.

Even from the sky, it was heartbreaking to see the devastation from flooded neighborhoods, destroyed homes, submerged cars and people left homeless in Texas, Florida and beyond.
Together, Hurricane Harvey and Hurricane Irma cost billions and served as a stress test for the insurance industry.

Munich RE named the 2017 hurricane season as the costliest on record, resulting in $215 billion in losses. According to the reinsurance company, last year’s disasters totaled $330 billion in losses—just $135 billion of which was insured.

Hurricanes Harvey, Irma and Maria, as well as the California wildfires at the end of 2017, represented the bulk of last year’s storm damage. The National Oceanic and Atmospheric Administration (NOAA) lists 16 weather events that resulted in $1 billion or more each in losses. These catastrophes totaled $306.2 billion in damage, the NOAA reports, and eclipsed the prior cost record of $214.8 billion in 2005.

EagleView had a unique view into what the industry was facing. We mobilized a fleet of 120 fixed-wing aircraft to capture millions of high-resolution images of the affected areas as well as referencing satellite and drone imagery. From there, we applied machine learning to quickly analyze property data to help carriers begin triaging and processing claims.

See also: Hurricane Harvey’s Lesson for Insurtechs  

While no one welcomes disasters, the storms, fires and mudslides may have accelerated the insurance industry’s response to catastrophic events. An army of adjusters with clipboards and flashlights will no longer cut it. The industry must evolve.

Here are four lessons we learned firsthand during the 2017 hurricane season.

1. Take advantage of the calm before the storm.

As we saw in 2017, catastrophes can wreak financial havoc on an insurer’s books. Naturally, carriers want to mitigate those costly exposures to risk before they might occur.

At the time of quoting, machine learning can help assess risk. With comprehensive property data analytics, a carrier can eliminate “buying a claim” when binding the policy, thus ensuring the right rate for the right risk. During the renewal process, understanding any change to that risk can help a carrier try to minimize claim frequency and severity.

2. Make boots on the ground smarter with eyes in the sky.

Experienced, licensed adjusters bring a level of expertise that can be hard to replicate, especially following a natural disaster. But they can only cover so much territory, especially if they are hard to find.

That’s what happened in Florida when Irma hit. Insurers had to scramble to find adjusters. Yet many were, as the Wall Street Journal pointed out at the time, “1,000 miles away, working on claims made after Hurricane Harvey hit Texas.”

To ensure proper coverage, insurers can work with partners in advance to put the right tools in place before a storm. For EagleView, that sometimes meant staging our aircraft hundreds of miles away from the hurricane so that we could get in the air as soon as the FAA gave us the go-ahead.

Complementing the adjuster force with the right aerial imagery program will give insurers greater confidence that they’ll be able to answer their customers’ needs quickly and accurately. Some carriers saw as much as a 60% improvement in adjuster production when they applied aerial imagery and data analysis solutions.

3. Don’t fly blind.

Drones are important assets in property inspection, but they’re an imperfect solution by themselves. While the FAA’s Part 107 rule guiding small unmanned aircraft offers greater flexibility to fly in national airspace, certain restrictions can still prove cumbersome.

Namely, the drone must remain in the line of sight. During an inspection of a large property with multiple outbuildings, for instance, the pilot must move around the property to keep the drone in sight.

Time is another constraint when it comes to operating a drone. Without the appropriate waiver from the FAA, a pilot can only fly in daylight or twilight, which makes conducting thermal imaging to detect roof leaks challenging.

Because some small drone operators were unable to meet the demands of large carriers, some insurers abandoned their drone programs altogether. Others have minimized the number of drone assignments, hired and coordinated a collection of disparate drone pilots or simply conducted re-inspections themselves.

Not only is that inefficient, but it sets the carrier up for a bad customer experience. A better approach? Carriers should use a mix of satellites, fixed-wing planes, drones and field inspectors to run an effective inspection program. A variety of information sources—rather than a single inspection method—will deliver the most comprehensive claims data.

4. Maintain customer satisfaction with speed.

The good news, according to a JD Power report, is that “overall customer satisfaction among homeowners filing property insurance claims has reached a new all-time high, despite record-high property losses following a spate of hurricanes, earthquakes and fires in North America” in 2017. However, the report goes on to tell us that there’s wide variability in performance by region, noting that customer satisfaction in Texas and Florida—two of the areas hardest hit by hurricanes—show below-average results.

Speed in resolving issues is a critical factor in retaining high satisfaction levels. That means carriers need to ensure a partner has a large breadth of capture and processing resources.

See also: Getting to ‘Resilient’ After Harvey and Irma  

Carriers need to feel confident that their vendors can scale. In a catastrophic situation, technology partners must be able to meet the demands of their clients with drones, satellites, fixed-wing aircraft and field inspectors, and deploy those solutions immediately.

Applying these lessons to 2018

With the record-breaking disasters of 2017, could 2018 be similar? We haven’t yet figured out how to predict or prevent natural disasters like the ones we faced last year.

What we have learned from these experiences, however, will surely help the industry better deal with this year’s crop of storms. That should be good news for insurers and the people they serve.

A Scalable Workforce for Natural Disasters

According to a recently published white paper, insurance carriers can best deal with natural disasters by leveraging an on-demand model that gives them immediate access to an affordable and scalable workforce. By using workers in the field only when they need them, carriers can control costs while quickly and effectively meeting the needs of policyholders.

Natural Disasters Are Getting Stronger and More Frequent

ClimateWise, a coalition of the world’s largest insurance carriers, has reported that since the 1950s the frequency of weather-related catastrophes has increased six-fold. Not only have more than 20 storms causing a billion dollars or more in damage taken place since 2010, seven have hit since 2016. All of these storms have kept carriers busy assessing damage and processing claims.

Days after Hurricane Irma made landfall in 2017, more than 335,000 claims had been submitted in Florida totaling $1.9 million. That’s according to Florida’s Office of Insurance Regulation. However, the storm is predicted to eventually cost close to $100 billion.

See also: Do Natural Disasters Matter To Me As An Insurance Buyer?  

Nearly 88% of these initial claims were made by residential property owners. And, more than 10,000 business owners have reported damages from the storm. If the predictions are accurate, the damage from the 2017 hurricane season would more than double the costliest season on record in 2005. That was when Katrina and three other storms caused more than $143 billion in damage.

And it’s not just hurricanes that are keeping carriers busy.

During the first half of 2017, 49 weather-related disasters hit a wide range of locations across the U.S., including ferocious tornadoes and damaging hailstorms. And, most recently, devastating wildfire outbreaks in Northern California destroyed thousands of structures and caused more than a billion dollars in damage to the world-famous wine region.

Carriers Face Workforce Challenges

One of the major challenges that carriers face during times of catastrophe is how to deploy enough workers to the field to assess damage associated with claims that arise. Traditionally, carriers have understood the value of inspecting assets in-person in the field. However, maintaining an infrastructure capable of quickly completing these inspections in any location across the country has become cost prohibitive for most carriers.

It’s not that carriers are understaffed. It’s just that carriers’ workforces are spread too thin in times of crisis. As we saw in Florida during and after Hurricane Irma, many of the state’s adjusters were on the front line still working on claims made after Hurricane Harvey hit Texas.

A Scalable Workforce is Accessible

Carriers are operating in a cost-sensitive and hyper-responsive market. Even the most sophisticated and progressive carriers often find themselves struggling to effectively deal with scalability issues relating to managing a local, regional, or national adjuster workforce.

Thankfully, natural disasters don’t occur every day.

So, how do carriers manage their workforce to handle the surging need for workers after a disaster strikes as well as the lulls that follow? If they hire more full-time or part-time workers, carriers are in the position of laying them off when the disaster is over. This hiring and layoff cycle represents a huge challenge to HR departments. That’s because there is a significant administrative cost associated with recruiting, hiring, and onboarding new employees.

See also: Harvey: First Big Test for Insurtech  

What carriers need is a geographically-scalable workforce that is adaptable to regional nuances. This scalable workforce is made up of gig workers, also called on-demand workers.

Final Thoughts

A variety of breakthrough technologies and workforce alternatives are inspiring a fundamental transformation of the insurance industry. How well carriers interact with policyholders and gather information in the field will depend on how effectively the industry begins to take full advantage of the on-demand workforce to increase efficiency while lowering costs.

The key to responding to natural disasters – and keeping policyholders happy – is to rely upon an on-demand model. This model is capable of supplying an affordable workforce that can be scaled up or scaled down at a moment’s notice.

IRS Guidance on Hurricane Recovery

Hurricanes Harvey and Irma have wreaked havoc on the lives of thousands of Americans, leaving many looking for ways to assist those in need and achieve favorable tax treatment. The IRS has maintained historical guidance, and it made recent announcements that provide guidance for those individuals and employers looking to assist victims.

Employers Can Offer Tax-Free Assistance to Staff 

An employer may provide assistance to employees affected by a presidentially declared disaster in a manner that is exempt from federal income and employment taxes. Providing assistance in cash or services is relatively straightforward and requires no substantiation from the employees, while still allowing the employer to deduct the payments. Because there are virtually no administration requirements, an employer can react very quickly to help alleviate its employees’ immediate needs.

The exclusion is provided by Internal Revenue Code (IRC) Section 139(a) and specifically exempts from gross income “Qualified Disaster Relief Payments” that are not compensated by insurance or otherwise. “Qualified Disaster Relief Payments” can be paid to, or for the benefit of, an individual to reimburse or pay reasonable and necessary expenses incurred:

  • As a result of a qualified disaster for family, living or funeral expenses;
  • For the repair or rehabilitation of a personal residence; or
  • For repair or replacement of the contents of a personal residence — to the extent that the need for such repair, rehabilitation or replacement is attributable to a qualified disaster.

Revenue Ruling 2003-12 shows how this provision is particularly helpful after a hurricane, stating, “Payments that employees receive under an employer’s program to pay or reimburse unreimbursed reasonable and necessary medical, temporary housing or transportation expenses they incur as a result of a flood are excluded from gross income.” In addition, the rule explains that the amounts excluded from gross income under Section 139 are not subject to typical reporting requirements.

See also: Harvey: First Big Test for Insurtech  

Increased Access to Retirement Plan Funds 

The IRS recently announced relaxed procedural and administrative rules that normally apply to retirement plan loans and hardship distributions, specifically for victims of Hurricane Harvey. Participants in 401(k) plans, 403(b) tax-sheltered annuities and 457(b) deferred-compensation plans sponsored by state and local governments may be eligible to take advantage of streamlined loan procedures and loosened hardship distribution rules designed to provide quicker access to their money. In addition, the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply. While IRA participants are not allowed to borrow from the IRA, they may be eligible to make IRA withdrawals under liberalized procedures.

Not only does this broad-based relief apply to victims of hurricanes, it also applies to a person who lives outside the disaster area, takes out a retirement plan loan or hardship distribution and uses it to assist an immediate family member or other dependent who lived or worked in the disaster area.

Plans will be allowed to make loans or hardship distributions before the plan is formally amended to provide for such features. In addition, the plan can ignore the reasons that normally apply to hardship distributions, thus allowing them, for example, to be used for food and shelter. If a plan requires certain documentation before a distribution is made, the plan can relax this requirement. To qualify for this relief, hardship withdrawals must be made by January 31, 2018.

Before accessing retirement funds, it is important to remember that the relaxed procedures have not changed the tax treatment of loans and distributions. Retirement plan loan proceeds are tax-free if they are repaid over a period of five years or less and hardship distributions are generally taxable and subject to a 10-percent early-withdrawal tax unless one of several exceptions is satisfied.

Employee Donations of Leave

The IRS also recently issued Notice 2017-48, which indicates they will not assert that cash payments an employer makes to a charitable organization in exchange for vacation, sick or personal leave that its employees elect to forgo constitute gross income or wages of the employees if the payments are: (1) made to the charity for the relief of victims of Hurricane Harvey and Tropical Storm Harvey; and (2) paid to the charity before January 1, 2019. The employee does not take the money into income and therefore does not get a charitable deduction.

IRC 501(c)(3) status for disaster relief organizations

When considering natural disasters like Harvey or Irma, a company may want to donate to an existing charity, or they may want to form a new charity. If an employer forms a new charity, it should be sure the assistance is geared towards a class of persons broad enough to constitute a “charitable class.” In other words, assistance cannot simply be for a single family or an individual. Even if the group is smaller and limited to a particular group of employees or franchisees, the group could still qualify as a charitable class if the group is indefinite and open ended, such as one that includes victims of a current or future disaster. If a new organization applies to the IRS for 501(c)(3) status, it could be eligible for an expedited review of the application.

Existing organizations qualified under section 501(c)(3) could get involved in disaster relief activities that accomplish charitable purposes — even though those activities were not described in its exemption application, without first obtaining permission from the IRS. However, it should report new activities on its annual return.

Public charity or private foundation?

If the organization qualifies as a 501(c)(3) organization, a determination must be made as to whether the organization is a public charity or a private foundation. Employer-sponsored private foundations can make payments to employees for certain “qualified disasters” that the Secretary of the Treasury has specified. On the other hand, public charities can make payments under broader circumstances, like other disasters or employee emergency hardships. Classification as a public charity will depend on whether there is broad-based public support for the organization, as opposed to a few individuals or a company making the major contributions. In some cases, an organization can be classified as a public charity if it supports another public charity, such as a community foundation.

When companies form new organizations to help employees who encounter disasters, it may be possible to show broad public support if other employees make donations. Even though these employees are associated with the company, they still may be considered the general public when it comes to their individual donations, allowing the organization to qualify as a public charity.

See also: Hurricane Harvey: A Moment of Truth  

Employers cannot excessively control a public charity

In addition to the charitable class requirement, an employer cannot excessively control a public charity, nor can the organization impermissibly serve the related employer’s private interests. Recipients should be chosen based on an objective determination of need or distress and should be selected by a group independent of the employer so that any benefit to the employer is merely incidental.

If these requirements are met, the public charity’s payments — even if those payments are to employees and their family members — are considered payments for charitable purposes and, thus, are not considered taxable income.

For more information

This is just a short summary of what companies and organizations need to keep in mind the next time disaster strikes and they wish to extend a helping hand. Companies should review IRS Publication 3833 for more information.

Additional resources concerning other tax relief, specifically related to Hurricane Harvey and Hurricane Irma, can be found on the IRS disaster relief page. For information on government-wide relief efforts, visit www.USA.gov/hurricaneharvey or www.USA.gov/hurricane-irma.

The New Face of Preparedness

The devastation of Hurricanes Harvey, Irma and Maria is a stark reminder for individuals and organizations about the importance of emergency preparedness. But while most of us think of emergency preparedness in terms of natural disasters, the fact is that organizations today face a multitude of man-made threats, including mass casualty and active shooter/active killer scenarios. While it is important to be ready to face these new threats, the preparation is very different.

An Emergency Operations Plan (EOP) is the foundation upon which all incident and emergency management components are built. It is the foremost part of the preparedness phase of the emergency management cycle. Whether hazard assessment, specialized training, exercises or other incident-specific elements, all are based upon a realistic and practical EOP, which is as much about the process as it is about the EOP itself.

See also: Hurricane Harvey: A Moment of Truth  

The new face of emergency preparedness for many organizations today includes worldwide threats related to terrorism and other acts of violence. Training as a critical aspect of emergency response, continuity of operations and recovery capabilities following a disaster/mass-casualty event are imperative for both public entities and private companies alike.

At a minimum, this training should include:

  • Active Shooter/Active Killer — preparedness/response including facility design/layout considerations and post-event management/reunification/recovery
  • Threat Awareness — situational/operational security training
  • De-escalation Training — non-violent verbal intervention
  • TaPS Assessment (threat and physical security)
  • Theft/Vandalism Assessment

The key to making this training effective is to personalize it to meet the needs of the individual organization. The unique aspects of various entities and organizations must be considered in terms of content and adapted to the entity’s geographic and demographic makeup.

To accomplish this, active shooter/active killer training should take place in the actual work environment, allowing site-specific questions and issues to be addressed. Training small groups in their work environment also provides greater participant confidence and organizational readiness. Whether they work for a public entity or a private company, people want to feel confident they will be prepared to address any emergency or threat. They are not interested in high-level, generic information. They want detailed, tangible information and hands-on training for their own workplace.

A personalized and comprehensive emergency preparedness program is a vital component of any organization’s overall risk management solution. In response to this demand, Keenan recently launched IMReady (Incident Management Ready), a new suite of security and emergency preparedness resources designed to prepare any entity or organization for a disaster or mass casualty event occurring at its facility, including active shooter/active killer scenarios.

See also: Test Your Emergency, Continuity, and Disaster Recovery Plans Regularly, Part 2  

What would you do if an unthinkable event began to unfold around you? The more people who are prepared with a clear answer to this question, the more they are able to provide a greater level of security for both themselves and the public they serve.