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Getting Smart About Insurance: For Your Business

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Review policy limits and value of possessions annually. ... Disaster Preparedness 1Asked of those who have homeowners insurance and who responded yes . – PowerPoint PPT presentation

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Title: Getting Smart About Insurance: For Your Business


1
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

2
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
  • QA

3
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
Irene became the 12th most expensive hurricane in
US history
10 of the 12 costliest hurricanes in private
insurance history occurred in the past 9 years
(20042012)
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.
4
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 doesnt capture their
destructive power. Karen Clarks analysis aims to
overcome that.
Denotes those impacting Florida
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.
5
US Insured Catastrophe Losses
( Billions, 2012 Dollars)
2012 was likely the third most expensive year
ever for insured CAT losses
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
12/01/09 - 9pm
eSlide P6466 The Financial Crisis and the
Future of the P/C
6
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
There have been over 150 natural disaster events
every year since 2006. That has not happened in
any year before.
Number
41
19
121
3
Climatological (temperature extremes, drought,
wildfire)
Meteorological (storm)
Geophysical (earthquake, tsunami, volcanic
activity)
Hydrological (flood, mass movement)
Source MR NatCatSERVICE
6
7
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
Through Apr. 10, 2012. Source FEMA
http//www.fema.gov/news/disaster_totals_annual.fe
ma Insurance Information Institute.
8
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
Through Apr. 10, 2012. Includes Puerto Rico and
the District of Columbia. Source FEMA
http//www.fema.gov/news/disaster_totals_annual.fe
ma Insurance Information Institute.
9
Inflation Adjusted U.S. Catastrophe Losses by
Cause of Loss, 199220111
Wind/Hail/Flood (3), 14.8
Fires (4), 6.0
Insured cat losses from 1992-2011 totaled
384.3B, an average of 19.2B per year or 1.6B
per month
Other (5), 1.4
Geological Events, 18.2
Terrorism, 24.4
Winter Storms, 28.2
Hurricanes Tropical Storms, 161.3
Tornado share of CAT losses is rising
Wind losses are by far cause the most catastrophe
losses, even if hurricanes/TS are excluded.
Tornadoes (2), 130.2
  • Catastrophes are defined as events causing direct
    insured losses to property of 25 million or more
    in 2009 dollars.
  • Excludes snow.
  • Does not include NFIP flood losses
  • Includes wildland fires
  • Includes civil disorders, water damage, utility
    disruptions and non-property losses such as those
    covered by workers compensation.
  • Source ISOs Property Claim Services Unit.

10
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.
11
State Population Growth Rate Projections,
2010-2020
Projected Population Growth
Lowest Growth Rate States
Highest Growth Rate States
U.S. overall 8.7
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.g
ov/population/www/projections/projectionsagesex.ht
ml Table 7
11
12
Homeowners Average Premium 2011 Highest 25
States
Sources NAIC 2012 Profitability Report
Insurance Information Institute.
13
Homeowners Average Premium 2011 Lowest 25 States
Sources NAIC 2012 Profitability Report
Insurance Information Institute.
14
Outlook for 2013 Hurricane Season 75 Worse
Than Average
Forecast Parameter Median (1981-2010) 2013F
Named Storms 12.0 18
Named Storm Days 60.1 95
Hurricanes 6.5 9
Hurricane Days 21.3 40
Major Hurricanes 2.0 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/fo
recasts/2013/apr2013/apr2013.pdf Insurance
Information Institute..
15
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
16
Getting the Right Business Insurance
16
17
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.
  • .

18
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.

19
I.I.I. Poll Disaster Preparedness
Q. Does your homeowners policy cover damage from
flooding during a hurricane?1
About 20 percent of the public still believes
flooding from a hurricane is covered
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.

20
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
Despite recent major flood events, few people see
the need to buy coverage
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.

21
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 suppliers property
    is damaged.

22
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.

23
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?
24
  • Key points
  • View insurance as a critical tool for business
    survival.
  • Know your coverage and be confident of its
    protection.
  • Dont 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
25
Open for Business
26
Taking Care of Home Sweet Home
26
27
Average Square Footage of Completed New Homes in
U.S., 1973-2011
Square Ft
The average size of completed new homes often
falls in recessions (yellow bars), but
historically bounces back in expansions
The trend toward building larger homes resumed in
the second half of 2010.
The number of householders living alone rose by
nearly 4 million from 2000 to 2010 (14.6).
Average household size and average family size
didnt change over that decade. Will we see a
shift to smaller houses?
Sources U.S. Census Bureau at http//www.census.g
ov/construction/chars/pdf/medavgsqft.pdf and
Households and Families 2010, Census Brief
issued April 2012 Insurance Information Institute
27
28
Average Premium for Home Insurance Policies
Home insurance premiums are rising in response to
higher catastrophe losses
Insurance Information Institute
Estimates/Forecasts Excludes state-run
insurers. Source NAIC, Insurance Information
Institute estimates 2010-2012 based on CPI and
other data.
29
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.

30
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.

31
Reconstruction costs vs. real estate value
  • Real estate value has nothing to do with
    reconstruction costs.
  • Before the economic downturn, a homes 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.

32
Reconstruction costs
Source Xactware researched cost information,
averaged for Florida.
33
Top Myths About Insurance
  • I am not in a flood zone, so I dont 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 homeowners insurance policy covers all my
    personal assets, including jewelry and art
    collections.
  • My homeowners insurance policy covers all
    structures on my property.
  • My homeowners insurance policy covers my home
    business.
  • It is not important if I have a dog, pool or
    trampoline.

34
About Hurricane Deductibles
TIP Only take the highest deductible you can
afford.
Deductible Options Combinations Deductible Options Combinations Deductible Options Combinations Deductible Options Combinations
Under 100,000 Under 100,000 100,000 Over 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
35
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.

36
Rebuilding better
  • Know your homes 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 dont know CAN hurt you.

37
I.I.I. Mobile Apps
Know Your Stuff Know Your Plan Know Your Coverage
38
IBHS Hurricane Resources
  • Online Guidance
  • DIY Projects
  • Help for Working with Contractors

39
Hurricane Brochure
40
Social Media I.I.I. on Facebook and Twitter
Reach individuals, trade press, consumers and
general media
40
12/01/09 - 9pm
eSlide P6466 The Financial Crisis and the
Future of the P/C
41
Insurance Information Institute Online
www.iii.org www.InsuringFlorida.org
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