Property insurers are sharpening their protection within the wake of local weather change – business insurance
Climate-induced events drive changes in the formulation of commercial property insurance policies and stricter conditions as insurers seek to deal with increasing frequency and severity of natural disaster claims, brokers say.
How policies define temperature changes and how deductibles and limits are applied are some of the areas commercial real estate policyholders see change, they say.
Global insured natural catastrophe losses totaled $ 40 billion in the first half of 2021, according to a report released last week by the Swiss Re Institute, part of Swiss Re Ltd.
Winter storm Uri, which struck much of the United States in February, caused estimated insured losses of $ 15 billion, the highest figure ever recorded in the US for that hazard, and accounted for approximately 38% of all estimated insured losses from natural disasters in the United States first year out half of the year, said Swiss Re.
Weather-related events – not just one-offs – are becoming more common and serious, and insurers are pushing for further clarification and enforcement, said Martha Bane, managing director of North America Property Practice in Glendale, California. at Arthur J. Gallagher & Co.
For hail / convection storm damage, insurers have increased the actual cash value on building roofs over the past two to three years, Ms. Bane said. "That means a much lower loss payment for the insured," she said. The insurers had also introduced "very scientific methods" to detect previous damage, she said.
The deductibles in commercial real estate policies have changed significantly. In hail-prone areas, it is now almost standard for policies to have a risk percentage deductible, "while in the past the standard was for all other deductibles," she said.
A change in temperature language was also included in the guidelines after the Uri winter storm, which supplied electricity to numerous people and businesses in Texas, to clarify what type of coverage insurers want to offer, Ms. Bane said.
Insurers are starting to refine and narrow down insurance coverage after the February freeze, said Brian Dove, the national practice leader for real estate at USI Insurance Services LLC, based in Dallas.
"There will be some changes in policy language related to this type of event as the use of some forms for the carriers is not what customers expect, so there were some shortcomings here," said Dove.
One of the questions revolves around the term "temperature change," he said. "We haven't seen the final version of our landing yet, but there will be changes in policy language related to this type of event," he said.
Earthquake, flood, named storm, and wind / hail deductibles have also changed policyholder deductibles, Dove said. And insurers have reduced the capacity for forest fire risks, he said.
Joseph Jonas, Product Manager, Commercial Lines, at the American Association of Insurance Services, an insurance statistics and advisory organization in Lisle, Illinois, said there isn't necessarily a shift in the language of extreme weather events among insurers Standardize climate change. .
However, recent events have changed the way the industry addresses extreme weather events, be it the development of new coverage by insurers, the way insurance departments look at new filings, disaster modeling or damage assessment, he said.
Superstorm Sandy in 2012, for example, brought to light inadequacies in the political language and / or the political offerings, said Jonas.
Insurers are soliciting much more information from disaster models related to climate change, in part because external stakeholders like regulators and rating agencies are soliciting more information from insurers, said Karen Clark, President and CEO of Karen Clark & Co.
"Insurers want to make sure the cat models take climate change into account as much as possible," she said.
In California, for example, regulators are paying more attention to climate change when it comes to forest fire hazards. They want to "better understand the models and how they capture that information," said Ms. Clark. Regulators want to make sure the mitigation measures taken by property owners and communities, like pruning and brushing, are incorporated into the models and reflected in the fees charged, she said.
Wildfire is the modeled hazard that has the percent impact of climate change, followed by floods and hurricanes, and then severe convection storms, Ms. Clark said.
The Intergovernmental Panel on Climate Change said in its latest report, released Aug. 9, "It is clear that human influence has warmed the atmosphere, ocean and land." The report warned that temperatures in the likely to rise by more than 1.5 degrees Celsius in the next 20 years, resulting in widespread extreme weather.