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Market Trends: Underwriting With Natural Disasters in Mind

How are underwriters’ appetites changing as their companies become involved in the aftermath of these events?

The natural disasters of 2017 are unforgettable―hurricanes and resulting floods, wild fires leading to compromised air quality, earthquakes and the cleanup that followed, and numerous other threatening incidents. Not only have these events changed the way we think about the liability surrounding the jobs tasked with cleanup and remediation at these sites, it has also impacted the way we think about hefty claims occurring from acts of nature. How do insurance companies manage these large claims and their settlements? How are underwriters’ appetites changing as their companies become involved in the aftermath of these events? We asked a few of our partners for their take on these matters:

“The frequency and severity of natural disasters in 2017 was unprecedented when compared to those of any recent decade. Every sector of the property-casualty insurance industry, including environmental liability insurance, will likely experience loss activity that is attributable to one of the numerous natural disasters that have occurred in the last 12 months. While one can consider 2017 as an anomaly with respect to the frequency of natural disasters, it would be imprudent not to consider the potential impacts of any number of natural disasters including hurricanes, floods, landslides, wildfires and earthquakes in the evaluation of an environmental risk. When considering risks in areas with increased probability of experiencing a natural disaster, one must not only consider the potential exposure at the applicant’s property, but the potential to experience environmental damage as a result of a loss at neighboring property or those occurring in a general region. In some cases, those exposures presented by a third party may be of greater risk than those exposures at the applicant’s own property. One cannot assume that those responsible for the pollution incident would have the proper coverage or the financial resources to mitigate a spill that has impacted multiple third parties.”   

Michael C. Padula
Head of Environmental Hazard, Aspen Insurance

 

“There was no way to underwrite for the unprecedented weather events that occurred in 2017; however, our market segment is dealing with the aftermath. Natural disasters can create or exacerbate environmental exposures that many businesses didn’t know they had until after the wind stops blowing and water recedes. I think the events of the last several months have been eye opening for insureds and insurance carriers alike.”

Amanda Duncan
President, PartnerOne Environmental

 

“Floods and other natural disasters can be extremely impactful for all clients, especially heavy industrial/petrochemical facilities. As we saw from Hurricane Harvey, large portions of the Texas coast were inundated with historic floods, causing widespread and prolonged power outages. These power outages resulted in longer shutdown periods than normal, which puts a strain on backup systems and can be problematic for plants that need to maintain power for cooling, containment, etc. Of course, these outages heighten pollution potential.”

Cody Barden CPCU, MBA
Associate Underwriting Manager- Environmental & Energy, Markel Assurance

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Thanks to our partners for their input on this challenge many underwriters are now having to consider when underwriting accounts. Here’s hoping 2018 will be a calmer, less eventful year for claims relating to natural disasters.