Papal Insurance

Several thousand politicians, public safety officials and security personnel can breathe a sigh of relief now that the Pope is back on his home soil. While his visit to the U. S. was a resounding success, a behind-the-scenes security effort was working overtime pulling out all stops. The enormity of the events and the risk they posed is boggling.  This visit required papal insurance.

Driving in a glass bubble through crowds of millions; visiting venues as diverse as the White House, Congress,
the U. N., a convent, an inner city school and a prison.   Large scale events in large public venues  were held in three of America’s largest cities. Add to that “a client” who likes to get close to and mingle with people. The Pope is famous for ditching his security staff and other security measures. In an interview last year, he said “It’s true that anything could happen, but let’s face it, at my age I don’t have much to lose.”

There were five insurance companies, including lead insurer W. R. Berkley Corp and OneBeacon Insurance that underwrote the Papal insurance for coverage for the Pope’s visit. The Papal insurance premium was in the range of a couple hundred thousand dollars.  The coverage limit was in tens of millions of dollars, according to executives with knowledge of the coverage.

In Philadelphia, the Pope attended the Roman Catholic World Meeting of Families 2015 Conference. The policy covered everything.  An example was an irreplaceable historical lectern once used by President Abraham Lincoln to deliver The Gettysburg Address in 1863.  Also Philadelphia’s Benjamin Franklin Parkway event Sunday, where the Pope said mass before 250, 000 people.

The Papal insurance policy covered “load-ins”. This included preparations for the events such as television cables being run and altars being built

During such a visit a claim could come from anybody that came to the event or anybody associated with the event. A person could have fallen over some wires or television cables that were around.  They could then claim that his or her injuries were caused by the negligence of the Roman Catholic World Meeting of Families.

Terrorism is always a concern and there was more security against the possibility of terrorism than anything anyone has ever seen.  LeConte Moore of DeWitt Stern Group’s Entertainment and Media division said that while most U. S. insurers shy away from underwriting special event coverages, it can be very profitable for those that have developed expertise in this area.

The reason the majority of insurers in the U. S. shy away from underwriting special event coverages is because it is a one-shot deal. They get one chance to make money and the risk is over.

Residential Property Evaluations

Accurate residential property valuations are critical to insurers as well as homeowners. In the event that a property is undervalued, insurers will lose out on premium revenue.   Furthermore the homeowner risks not having enough coverage in the event of a total loss.

On the other hand, if a property is over-valued, insurers risk losing worthy customers.  This happens when homeowners or an independent agent shops for lower premiums. This maybe from carriers who have access to more accurate and current residential property valuations.

Trends that affect residential property valuations include:

1. More homeowners are choosing to remodel instead of move: According to a 2015 survey that included 170, 00 U. S. respondents, more homeowners are choosing to upgrade and remodel.  They do this instead of purchasing another home. Of those surveyed, discretionary renovations exceed many necessary projects. For example, nearly two times the surveyed homeowners are more likely to remodel a kitchen.  They may upgrade home automation systems and smart home technology rather than replace ageing elements such as roofs.

The drivers for remodelling versus buying vary according to age group and income. More than half of the survey’s respondents age 60 or over say they plan to stay in place. Baby Boomers are investing heavily in their existing homes.

2. More customers are choosing to rent instead of buy: The most recent Harvard University housing report “The State of the Nation’s Housing 2015” states that Q1 2015 homeownership rates are at just 63.7 percent – a 20 year low. Meanwhile, the 2014 rental market, according to the same report, rose to a 20 year high of 3.5 percent. This marks the 10th consecutive year of robust rental growth.

The reason for this trend is as follows:

Many Millennials have become disillusioned with ownership.  Other factors such as student debt, flexibility, work/life balance and social causes like being eco-friendly have trumped the American, big-house dream and the suburban materialism of their parents’ generation.

Then there are families who lost their homes during the economic downturn. They are facing poor credit and diminished financial resources. these families prefer to rent single residential family homes or luxury apartments and condominiums.

Finally there are empty nesters who are tired of being tied to a house that is not too large for their needs and the basic maintenance and care that goes along with it. They are increasingly downsizing to achieve greater financial and personal freedom.

3. Reconstruction building and labour costs are on the rise: An improved economy, as well as the basic principles of “Supply and Demand” has resulted in reconstruction cost increases across the U. S.

According to a CoreLogic analysis of building cost data:

Across the U. S. labour rates are increasing anywhere from 1.5 to 2.0 percent. Top moving trades are carpenter, electrician, roofer and tile setter.

Largest labour increases are occurring in Wyoming, Virginia, Utah, Texas, South Carolina, New Jersey, North Dakota, Idaho, California and Arizona.

Material costs from last year increased 1.1 percent, although January saw a jump to 2.1 percent. The top material increases were drywall, lumber, paint and ready mix. Plywood showed a double digit increase for the year.

The national average for increased reconstruction costs is 1.3 percent. The there is 1.8 percent for total reconstruction costs.

Renter premiums are typically much lower than those of homeowners.   The trend of renting versus buying highlights the importance of anticipating the insurance needs of renters. An example of this is with the increased complexity, income and specialized needs of today’s renter comes the potential need for increased contents coverage. By understanding the trends, demographics and rental history of renters, insurers will be better prepared to underwrite renter’s policies.

Data driven insight gives underwriters the tools needed to keep homeowners and renters happy. Risk managers have access to analytics and professionals that can help them better understand agent behaviour.  Furthermore they can monitor property performance, as well as competitively compare key performance indicators.

Flood

The earliest recorded flood in Boulder, Colorado was the great flood of 1894 which came down Boulder Canyon. It wiped out Canyon Street, then known as Water Street.  It flooded most of the downtown area.

In 1965 another one hit Colorado which was similar to the 2013 flood. Colorado is a semi arid dry gulch state. It has a history of flash floods since the beginning of time.

The Big Thompson River begins around Estes Park in northern Colorado. The river flows east through the state into Big Thompson Canyon. On July 31, 1976, meteorological conditions similar to what happened in September 2013 caused what is now called the Big Thompson Flood of 1976.

In the first hour alone, 8 inches of rainfall was recorded for a total of 12 inches during the first three hours. The flash flooding killed 144 people.  This caused $35 million worth of damage in 1977 U. S. dollar values, or roughly $140 million in 2013. Comparatively, the 2013 flooding was caused by approximately 15 inches of rainfall over the span of a week which killed 10 people.   It caused $2 billion in damage to neighbourhoods, highways, farms and oilfields.

The rainfall in 2013 was clearly more than in 1976. However, the flooding was more intensive in 1976.  The rainfall that fell occurred in a much shorter time frame and caught many people off guard.

In 2013, The Big Thompson River experienced peak flow rates near Loveland, CO of 4,500 CFS (127,43 cubic meters per second). However the measuring gauge was destroyed by flood waters.

In 1976. the same area of the river saw peak flow rates of 31,200 cubic feet per second (883,49 cubic meters per second). As a result, this is not the worst flooding Colorado has seen, but it is the heaviest rainfall Colorado has seen.

New research shows floods like the 2013 flood might be more common than previously thought. It could require more homeowners to get insurance and trigger more stringent construction rules.

Rough estimates of the 2013 flood indicated it was a 1-in-500 event, meaning the chance of such a deluge in any one year are 1 in 500.

Recently completed studies of the Big Thompson River, St. Vrain Creek and other hard-hit waterways show it was mostly a 1-in-100 event. If a 1-in-100 flood can cause that much havoc, then homes, roads and other infrastructures are more vulnerable than previously believed. A 1-in-100 flood is sometimes called a 100 year flood. Experts say that is a misnomer. The ratio refers to the chances of this occurring in any single year.  This is based on historical data. A 1-in-100 flood could happen more than once a century.

The Federal Emergency Management Agency is reviewing the new Colorado data.  They will likely use it to revise its maps designating flood plains, namely areas that are most prone to flooding. The maps are important.  Anyone who has a federally insured mortgage and who lives in a FEMA-designated 1-in-100 flood plain must buy federal insurance. If the ew maps show a bigger flood plain, more people would have to buy coverage.  This averages about $1300 a year for homes in high-risk areas.

Flood plain maps have been redrawn across the country after other natural disasters.  This includes the Mississippi River after Hurricane Katrina in 2005.  Furthermore in some mid-Atlantic states after Hurricane Floyd in 1999.

Many local governments, also use FEMA’s maps to determine what building requirements must be met for new construction, such as how high the floor must be to avoid such a disaster.

The reason for the revised expectations is not climate change or weather patterns but improved data. The previous expectations were based on 30 – 40 year old studies that used methods now considered obsolete. They also had less history to draw from.

The number of flood insurance policies in Colorado has risen from 22,000 at the time of the 2013 flood to 24,000 today. Its too early to know how many more homeowners might have to buy the insurance if zones are redrawn. New FEMA maps could be three years away. This is because the agency must review the state data and then give residents and local officials a chance to comment and appeal.

Some communities are not waiting. The city of Longmont is drawing up plans to rebuild St. Vrain Creek through the city to handle the new increased estimate of how much water the creek would carry in a 1-in-100 flood.

The first phase of the $100 million project is expected to start next year.  This will preserve the creek’s natural look.

The Water Conservation Board released the first of its studies of the 2013 floods this summer.  It covered six rivers and creeks that flow into the South Platte River.  This included the Big Thompson and St. Vrain. A study of the South Platte as far as the Nebraska state line is expected in late 2015.

The research shows some small areas were in fact hit by a 1-in-500 flood notably Lyons in the Boulder County foothills and some portions of the South Platte. However, those were exceptions, according to Kevin Houck.  He is chief of watershed protection for the Colorado Water Conservation Board.