Property Insurers Fight Fire Risk at 2019 PIR National Conference

by on Nov 25, 2019

Property Insurance ReportOnce again, property insurance industry leaders and decision makers gathered at the picturesque Ritz-Carlton Laguna Niguel resort to discuss the latest home-related products and services. Host Brian Sullivan of Risk Information organized a compelling lineup of speakers boasting a lifetime of industry experience. Last year, the conference agenda focused on water shutoff devices, roof repairs and the claims process. This year, Mr. Sullivan took a deep dive into wildfire risk while also presenting speakers who expounded upon dog bite risk, state-backed insurance markets, catastrophe models and the latest connected home technology. The conference concluded with Mr. Sullivan’s traditional 20 Trends presentation, where he highlights key takeaways from the previous speakers and extrapolates where the industry is headed.

Insurers can lead the way in combatting wildfire risk

Yana Valachovic of the University of California Cooperative Extension opened the conference with a compact overview of the recent California wildfires. She noted that most homes burn from embers that ignite houses from numerous entry points including vents, fences, gutters and roof abutments. Encouragingly, a higher percentage of newly constructed homes emerged from the recent conflagrations unscathed, indicating that the new California building codes are working. Ms. Valachovic also detailed proposed improvements to the codes such as a “zone zero,” or a five-foot noncombustible zone around a structure.  Roy Wright from the Insurance Institute for Business and Home Safety recommended, given that 70-90% of total insured residential catastrophic losses are roof-related, beginning with the roof and working downwards when fortifying homes. Joel Laucher of The California Department of Insurance rounded out the wildfire discussion with an examination of the trend of rate increases implemented by insurers. All three speakers challenged insurers to adopt a leading role in continued risk-adaptation, urging them to incentivize customers to upgrade their homes and construct adequate defensible space zones to improve the availability and affordability of property insurance. In his keynote 20 Trends presentation, Mr. Sullivan echoed their call to action, telling insurers to “demand and encourage” the public to appeal for better building codes, to obtain more support for retrofitting homes and to advocate for increased use of sophisticated data analysis.

IBHS Wildfire Protection Recommendations

Private flood insurance market represents untapped opportunity

David Evans and Matt Chamberlain of Milliman offered an overview of the flood insurance market and a walkthrough of four different flood catastrophe models, illustrating how different models can have a dramatic impact on pricing plans. Mr. Evans grabbed the audience’s attention when he noted that flood insurance is the biggest remaining opportunity for the property insurance market: floods are expected to cost U.S. households $20 billion each year, with only 16% of those losses insured by the NFIP. Further, there are 91 million single-family homes in America, and only 15% of U.S. homeowners owned a flood insurance policy in 2018. Milliman estimates the potential private single-family flood market to represent $34-$48 billion in direct written premium.

 

Mr. Sullivan opined that the federal government lacks the political will necessary to enact significant flood change. He argued that this is good for insurers since a quick major shift would create problems. Instead, Mr. Sullivan believes that a slow-developing market is necessary to lay groundwork for the eventual “big bang” when it does occur.

Banning “risky” breeds is not the answer to reducing dog bite claims

The American Pet Products Association reports that 90 million dogs live in U.S. homes, most of whom are considered family members by their owners. Heather Paul of State Farm opened her presentation by spotlighting a disturbing upward trend in both the number (18% increase from 2006-2018) and the estimated average cost (77.5% increase from 2006-2018) of dog-related injury claims. Ms. Paul argued that breed-specific legislation (and underwriting) is ineffective.  She highlighted the test case of Sioux City, which in 2008 prohibited residents from owning dogs that were 51% or more pit bull. Unsurprisingly, the city saw reported bites by pit bulls dramatically decrease from 2007-2015, but over the same time period the number of total dog bite incidents still increased. She called for insurers to educate policyholders on responsible pet ownership instead of blanket bans on specific breeds. In his 20 Trends talk, Mr. Sullivan also advocated for “loss mitigation through education” and noted that this is the same concept as better roofs to reduce wind/hail/water losses or defensible space to reduce fire risk. Currently, few P&C Insurance Monitor firms offer responsible pet ownership literature on their policyholder sites and it will be interesting to see if they shift their messaging in 2020 and beyond.