The AAIS Pulse newsmagazine recently featured a discussion with experts from Munich Re, Berkley Re Solutions, and AAIS hosted by AAIS Vice President of Products John Kadous on the emerging risks affecting policyholders in the homeowners market. The focus was on the evolving threats around cyber, fire and flood and how they’re being impacted by climate change, technology and more.
Making headlines recently in the cyber security space has been the Pandora Papers, a security breach that exposed a trove of information on the financials of the rich and famous. While most don’t need to worry about this type of exposure, Jeffrey Cron, Senior Vice President of Cyber & Product Development at Berkley Re Solutions, says the underlying risk should get people’s attention because information is easily accessible to bad actors (i.e. hackers), and everyone is vulnerable. The risk to homeowners affects entire families and goes beyond identity theft or malware, to extortion, social engineering (i.e. scammers) and cyber bullying. Insurers must account for this to provide appropriate coverages.
The flood protection gap continues to be an issue in the homeowners insurance market. Only 5% of households purchase flood insurance, says Serena Garrahan, Flood Product Manager at Munich Re. She explains that it’s a binary thought process – people that don’t live in an area deemed a ‘flood hazard’ don’t think they need flood insurance. Even still, with more private insurers getting into the flood market, there is greater awareness and an uptick in interest. Contributing to private market growth are better flood models to assess loss and apply appropriate premiums. Some states have made it easier for private insurers to offer flood coverage, which is still dominated by the federal National Flood Insurance Program (NFIP).
In the case of fire, Matt Hinds-Aldrich, Fire Peril – Risk Strategy Lead at AAIS, says a common misconception is that wildfires and the surrounding areas present the greatest fire risk. He says while wildfires get most of the attention, non-catastrophe fires (i.e. home fires) are as big an issue as ever, but hardly a new one to the property and casualty industry. The ‘kitchen fire’ remains a persistent driver of loss and there needs to be renewed focus on home fires as a significant peril.
Contributing to wildfires and floods is climate change. Ongoing droughts, higher high temperatures (leading to drier, ‘fire-friendly’ conditions) and lower low temperatures (creating more snowpack and ground foliage) lead to an increase in wildfires. Similarly, warmer atmospheres hold water better and lead to heavier rainfall during storms (i.e. hurricanes), causing worse flooding. Still, Ms. Garrahan and Mr. Hinds-Aldrich say climate change is only one of several contributing factors.
As for solutions to these three major threats, it starts with education. The push toward better education will create awareness and hopefully prompt action from homeowners – whether that’s around mitigation or adding to their current policy coverages. There are also more tangible mitigation efforts like ID protection and anti-malware software in the cyber space, infrastructure improvements such as dam repairs to avoid flooding, and engineering improvements on items like electric stoves to prevent house fires. Critical to insurers in their mitigation efforts and proposed solutions is data, which they must cull through, interpret properly, and then utilize to better educate and write risk.