Insurance Industry Responds to House Approval of NFIP Renewal

Insurance industry trade groups lauded the U.S. House of Representatives’ vote on Nov. 14, reauthorizing the National Flood Insurance Program (NFIP). The 21st Century Flood Reform Act (H.R. 2874) would reauthorize the program for five years and enact operational changes. Advocates from RIMS, the risk management society, the Property Casualty Insurers Association of America, and SmarterSafer.org also asked that the Senate waste no time in passing its version of the measure before its expiration on Dec. 8.

On Sept. 8, President Trump signed legislation passed by both houses to extend NFIP authorization until Dec. 8, which previously had been set to expire Sept. 30.

Dow Jones reports that the act’s reforms include:

  • Authorizing $1 billion to elevate, buy out or mitigate high-risk properties
  • Capping flood insurance premiums at $10,000 per year for homeowners
  • Removing hurdles to the private flood insurance market, which often offers better coverage at lower cost than the NFIP
  • Providing for community flood maps and a homeowner’s ability to appeal their flood designation
  • Better aligning NFIP rates to match a property’s true risk, particularly for in-land and lower-value properties
  • Improving the claims process for flood victims
  • Addressing repeatedly flooded properties, which account for 2% of NFIP policies but 25% of claim payments

While it applauded the U.S. House of Representatives for deciding to reauthorize the NFIP, RIMS, the risk management society, also urged the Senate to quickly follow-up before the program’s Dec. 8 expiration. Allowing the NFIP to expire would have “significant repercussions, impacting both corporate and residential property owners,” said RIMS Vice President Robert Cartwright Jr.

“Nearly five million American consumers rely on the NFIP to protect their homes, properties, and businesses,” said Nat Wienecke, senior vice president of federal government relations at the Property Casualty Insurers Association of America (PCI). “A long-term reauthorization is needed to provide consumers and markets with reliability and stability when it comes to flood insurance coverage.”

SmarterSafer.org, a coalition of taxpayer advocates, environmental groups, insurance interests, housing organizations and mitigation advocates, said in a statement that this year’s “historic hurricane season has pushed the nation’s debt-ridden flood insurance program past the point of bankruptcy once again, so we applaud the House for passing a legislative package that reforms the NFIP to ensure the program is financially sustainable for the future.” The organization also lauded the House for investing in recommended measures including “mapping and mitigation, addressing affordability and providing consumer choice in the flood insurance marketplace.”

The NFIP was created more than 50 years ago to provide affordable flood insurance as private insurers pulled out of the market. The program’s large debt led Congress to cancel $16 billion of its debt last month. NFIP now has about $6 billion to pay claims and $10 billion left that it can borrow from the Treasury Department, according to the Federal Emergency Management Agency, which manages the program.

Deer Collision Costs on the Rise

Drivers beware: Whether operating a company or personal vehicle, it’s that time of the year again—mating season for deer, causing them to be more active and more than doubling the likelihood of a collision through December. What’s more, State Farm reports that the national per claim average—from July 1, 2016 through June 30, 2017—rose to $4,179 from $3,995 during 2015-16.

State Farm warns that, “Whether you hit a large animal, or it jumps into the side of your vehicle, such collisions can cause significant injuries and property damage.” Although more prevalent in some states than others, drivers everywhere need to be alert and focused on the road.

In its 15th annual deer claim study, State Farm ranks states by a driver’s likelihood to hit a large animal such as deer, elk, moose or caribou. According to the study, while West Virginia continues to lead the nation, the state saw a 4.7% decrease from 2016, with one out of every 43 drivers likely to hit a deer or other large animal.

There were also some increases among the top 10 states over last year’s study. Montana drivers have a one in 57 chance of a collision—a 1.8% increase; and Pennsylvania drivers have a one in 63 chance of a crash, a 6.3% increase.

The top 10 states where a driver was most likely to have a large animal insurance claim remain fairly consistent, State Farm said. Wisconsin moved into the top five, swapping positions with South Dakota. Wyoming moved into the top 10 at number eight. North Dakota moved up to number 10 and South Carolina is no longer in the top 10. Thirteen states had no change in ranking.

The Property Casualty Insurers Association of America (PCI) offers these tips for drivers:

• Buckle up. Seat belts save lives and help prevent injuries.

• Time of day is critical. Deer are generally more active during dawn and dusk hours, so pay attention to your surroundings and stay alert.

• Avoid distracted driving. Put the phone down, and never text while driving.

• Have a plan for roadside assistance. If an accident occurs, have the phone number for your insurer or roadside assistance ready. Some towing companies take advantage of drivers after an accident and you could find yourself facing excessive fees or complications recovering your car from the tow yard.

• Update your proof of insurance. Replace any expired insurance identification cards in the event you need to prove you have insurance after an accident. Although having a hard copy is best, don’t panic if you have misplaced yours—37 states have enacted laws that allow you to show proof of coverage on your smartphone. Find out if your insurer offers this feature.

• Watch for road signs that alert you to areas that are populated with more deer.

• Stay in your lane. If you see a deer, brake firmly but do not cross the center lane into potentially on-coming traffic.

If you do have a collision, State Farm recommends that you:

• Move your vehicle to the side of the road, if possible, and turn on your hazard lights. If you must leave your vehicle, stay off the road and out of the way of oncoming traffic. Deer are most active at dusk and dawn—times when you or your vehicle may be less visible to other motorists.

• Call the police. Alert authorities if the deer is blocking traffic and creating a threat for other drivers. If the collision results in injury or property damage, you may need to fill out an official report—this report also can prove useful when filing your insurance claim.

• Document the incident. If it’s safe to do so, photograph the roadway, your surroundings, damage to your vehicle, and any injuries you or your passengers sustained. If witnesses stop, take down their account of what occurred, and ask for their contact information.

• Stay away from the animal. A frightened, wounded deer could cause harm with its powerful legs and sharp hooves.

High Performance Risk Management

LOS ANGELES—Risk managers, whose job once focused on a basic “bucket of risks,” and making decisions about which risks are transferable and which ones the company should retain, have been “migrating along an evolutionary path which is allowing us to be more strategic,” said Chris Mandel, senior vice president of strategic solutions at Sedgwick, at the RIMS ERM Conference 2017.

During the session “The Trouble with ERM,” he noted that risk managers now need to alter their focus. “The question for risk managers now is, how do we get our organizations to focus on long-term success and recognize the link between strategy and risk?” he said.

Erin Sedor, president at Black Fox Strategy, said that personal experience taught her the importance of connecting with the CEO and aligning with the company’s strategy when setting up a program. “You need to know what they are talking about and understand strategy,” she said.

Unable to find a satisfactory definition of strategy for ERM, Sedor came up with her own: A set of decisions made at a given point in time, based on business intelligence, that when successfully executed, support the purpose, growth & survival of the organization.

She added that, unfortunately, enterprise risk is not a term that resonates with the C-suite, but strategy is.

She identified three major problems with ERM that can dampen its prospects:

  1. A limited view of the organization’s mission, growth and survival.
  2. Silos. Breaking through them is a nonstop process, no matter how a company tries to improve the situation—especially in the areas of risk management, continuity planning and strategy, which typically happen in very different parts of the company. “It is important to link risk management and continuity planning in the strategic planning process, because that will get some attention and get the program where it needs to be,” she said.
  3. Size. Because ERM programs are notoriously huge, she said, “the thought is that ERM will cost too much money, take too many resources and take too long to implement. And that by the time it’s finished, everything will have changed anyway.”

Starting the process by “saying you’re going to focus on mission-critical,” however, can help get the conversation moving. “Because as you focus on that, the lines between risk management, continuity planning and strategic planning begin to blur,” she said.

Sedor described mission-critical as any activity, asset, resource, service or system that materially impacts (positively or negatively) the organization’s ability to successfully achieve its strategic goals and objectives.

She said to find out what mission-critical means to the organization, what is the company’s appetite and tolerance for mission-critical, and the impacts of mission-critical exposures on the organization. “Risk managers will often ask this question first, but you have to come to grips with the fact that not every risk is a mission-critical risk,” she said. “And not everything in a risk management program is mission-critical.” Using that context helps in gaining perspective, she added.

When viewing risk management, continuity planning and strategic planning from a traditional perspective, strategic planning is about capturing opportunity and mitigating threats; risk management is the identification, assessment and mitigation of risk; and business continuity planning is about planning for and mitigating catastrophic threats.

Looking at them from a different vantage, however, strategic planning is planning for growth; risk management allows you to eliminate weaknesses that will impede growth, which is why it’s important; and continuity planning will identify and mitigate the threats that impact sustainability. “That is how they work together,” she said, adding, “you are also looking at weaknesses that, when coupled with a threat, will take you out. Those are your high-priority weaknesses. Using a mission-critical context makes it all manageable.”

At this point, if a risk manager can gain enough leverage to talk to executives throughout the organization about what mission-critical means to the company, its impact, and then about tolerances and creating a more integrated program, “all of a sudden, you’ve talked about ERM and they didn’t even know it,” she said. “They thought you were talking about strategy.”

Critical Infrastructure, Security and Resilience Highlighted in November

National Critical Infrastructure Security and Resilience Month (CISRM) kicked off on Nov. 1. The month’s initiatives address risks such as extreme weather, aging infrastructure, cyber threats and acts of terrorism. Its timing is certainly appropriate, as the effects of recent hurricanes on infrastructures in southern states and Puerto Rico continue to be assessed, as well as Northern California’s devastating wildfires and the deadliest shooting massacre in modern U.S. history.

The month was created by the Obama administration and the Department of Homeland Security (DHS) hosts CISRM in an effort to promote education and awareness of the 16 critical infrastructure sectors that are vital to public safety and national security. Its page reads:

The evolving nature of the threat to critical infrastructure—as well as the maturation of our work and partnership with the private sector—has necessitated a shift from a focus on asset protection to an overarching system that builds resilience from all threats and hazards.

A CISRM toolkit provides companies with templates and drafts of newsletter articles, blogs, and other collateral material for use in outreach efforts. Activities geared toward business owners, public entities and private citizens focus on several key themes to enhance security and resilience, including:

  • Highlighting interdependencies between cyber and physical infrastructure
  • Pointing small and medium-sized businesses to the free tools and resources available to them to increase their security and resilience through Hometown Security and the four steps of “Connect, Plan, Train, and Report”
  • Promoting public-private partnerships
  • Fostering innovation and investments in infrastructure resilience

In his proclamation of CISRM earlier this week, President Trump further committed to helping businesses invest in “needed capital and research and development by reducing burdensome regulations and enacting comprehensive tax reform.” The proclamation states:

We will also renew our Nation’s focus on ensuring that the next generation has the education and training, particularly in science, technology, engineering, and math, required to meet the known and unknown threats of the future.

Overall the United States’ infrastructure is among the top 18 in the world, according to the 2017 FM Global Resilience Index, which aggregates data to help companies identify their key supply chain risks. The U.S. continued to hold high rankings among 130 countries based on drivers in three categories: economic, risk quality and supply chain factors. The U.S. is segmented into three regions to reflect disparate natural hazards exposure:

  • Region 1, encompasses much of the East Coast, is ranked #10 in the index (a one-spot upgrade from last year)
  • Region 2, primarily the Western U.S., is ranked #18 (a three-spot upgrade)
  • Region 3, which includes most of the central portion of the country, is ranked #9 (down three places)

Although the federal government is less focused on asset protection, business owners can still get involved by safeguarding workplaces. In its October 2017 edition, CLM magazine noted that another path toward resilience involves reducing property damage caused by extreme weather and natural disasters. Literally looking to the sky is one suggestion; business and property owners should pay particular attention to their roofs in order to prevent degradation and enable them to withstand high winds.

“Property owners need to have maintenance personnel adopt and implement preventative maintenance and roof inspection programs that alert them to potential and active degradation,” wrote the authors of the article, “Time For Resilience.” “Weak links such as roof detachment, corrosion, or other damage could tear off roofing during an enhanced wind event. Such risks need to be mitigated before an event occurs.”

Ready.gov provides resources on disaster planning and management, and also has this section on Business Continuity.