Insurance Jottings

Harvey Leaves Texans to Clean Up Amid Health and Environmental Dangers

Harvey has moved on from the US Gulf Coast, leaving behind a toxic stew of human sewage, dead cattle, leaking chemical plants, spilled gasoline storage tanks and abandoned pickup trucks.


The cleanup will take patience, billions of dollars and fleets of heavy gear to clear acres of muck and enough debris to fill hundreds of football stadiums in effort overseen by federal and state authorities.

“When the flood waters recede is when you really have to look at the damage,” Gina McCarthy, former administrator of the Environmental Protection Agency, said. “It’s going to take considerable time.”


Refineries are spewing pollutants as they restart. Homeowners risk dangerous mould and contamination from household chemicals. And there is a heightened threat from a dozen or more polluted Superfund locations around Houston which may have been under Harvey’s water.


Scores of people have been confirmed dead in one of the costliest natural disasters in the country’s history. On the 1st September, many areas in Texas and Louisiana remained inaccessible and rescues continued as more than 21,000 federal staff worked on relief efforts, according to the Federal Emergency Management Agency. The American Red Cross had more than 2,000 disaster workers on the ground, and more than 38,000 people sought refuge in shelters.


The parts of Texas slammed by Hurricane Harvey are host to more than 400 chemical and plastics plants and oil and gas refineries. In Crosby, a chemical plant owned by Arkema SA was hit by explosions after floods knocked out power supplies needed to refrigerate volatile chemicals. The EPA flew a chemical-sniffing plane in the area and said it did not find toxic concentrations away from the facility.


FEMA and Flood Insurance

“We will consider using any authority we have to further address the situation to protect human health and the environment,” EPA Administrator Scott Pruitt said in a statement.


The White House is considering an initial US$5.95 billion disaster aid funding request to Congress, with US$5.5 billion to the US emergency management agency and the remainder to the Small Business Administration, according to two administration officials.


Residential flood insurance losses from Hurricane Harvey are estimated to reach between US$6.5 billion and US$9.5 billion, with most of that drawn from the government-backed National Flood Insurance Program, according to the property data and analytics firm CoreLogic Inc.


More than 311,000 Texans had already applied for federal disaster relief funds as of the 31st August and more than US$530 million already had been granted, Vice President Mike Pence said. About 100,000 homes were damaged by the storm, White House Homeland Security Adviser Tom Bossert said in a briefing.


Environmental Hazards

Texas and US officials have warned residents to stay away from smoke plumes and flood water. Leslie Fields, director of environmental justice with the Sierra Club, ticked off a list of hazards, including dead animals in flood water, gasoline from sunken cars, and potentially leaks from a former paper plant which contains cancer-causing dioxin.


“It’s a bad situation,” Mr Fields said. “This water is some of the worst ever.”


Refineries generate extra pollution as they shut down and then turn back on, much as a cold automobile can spew clouds if it’s started after sitting idle for a time, according to Elena Craft, a senior health scientist with the Environmental Defense Fund. That has led to two million pounds of emissions in Texas since the 23rd August, the equivalent of 40 percent of last year’s total, according to state records, Ms Craft said.


“We don’t really know what communities might have been exposed to,” she said. “Their risk is, overall, increased.”


Pollution already lying in and under the ground in Superfund sites — heavily contaminated places tagged by the EPA for cleanup — can be spread by floodwaters, said Gina McCarthy, the agency’s former administrator.


Superfund Sites

“You can’t contain contaminants in a flooded area,” Ms McCarthy said. “EPA’s going to have to go back and look at those areas to see what’s happened with existing contamination, as well as look at whatever new Superfund sites are being created now.”


The EPA examined 41 of these sites and found flooding and possible storm damage at 13 of them, according to an agency statement. Floodwaters prevented response personnel from visiting all but two of those areas, and teams are in place to investigate the damage as soon as it is safe to do so, the statement said.


The top task is to restore water treatment facilities, said the Environmental Defense Fund’s Elena Craft.


Flooding swamped municipal water pumps in Beaumont, Texas, leaving the city of more than 100,000 people without access to drinking water. Across the stricken area, 22 wastewater treatment plants were inoperable due to flooding and power outages, according to a list maintained by the Texas Commission on Environmental Quality, a state regulator. It listed 53 inoperable public drinking water systems.


Crews will flock to the Gulf Coast to help with the clean-up, and companies will need to establish camps with trailers, generators and showers to accommodate them, said Jody Cordaro, chief executive officer of SCE Environmental Group Inc, a Lake Ariel, Pennsylvania-based contractor which cleans up after environmental disasters.


Equipment Rentals

Workers will use an armada of gear including small loaders to clean streets, trucks with grappling hooks to lift debris from curb-side, and giant grinders to chew through muck which can contain trees and housing remnants. “I would venture to say that every piece of heavy equipment in Texas is already accounted for and rented,” Mr Cordaro said.


Some of the waste will be riddled with fuel and other contaminants, and will need to be trucked to landfills that could be several states away, she said. His company sent 200 workers to help clean up after Hurricane Sandy struck New Jersey and New York in 2012.

They stayed on the job for more than seven months.


“I think this cleanup is going to be significantly longer,” he said.


Chemical spills and runoff unleashed by Harvey could disproportionately affect people of colour and the poor, including residents living in the shadow of south-east Texas refineries.


“Refineries and petrochemical operations in Houston, almost too numerous to count, have been venting a toxic mix of hazardous air pollutants which those trapped by rising floodwaters are forced to breath,” Michele Roberts, co-coordinator of the Environmental Justice Health Alliance, a policy group. “The long-term health consequences of this toxic air pollution are unknown.”


Hurricane Harvey Puts Pressure on Regional Insurers in Texas, Says A.M. Best

Losses anticipated from Hurricane Harvey are unlikely to exceed the top reinsurance limits of insurers writing business in Texas, according to new Best’s Special Report, titled, “Texas Insurers Expected to Withstand Losses from Hurricane Harvey.”


Over the past several years, the soft reinsurance market has allowed primary insurers to obtain favourable terms from reinsurers, including higher limits on catastrophe programs and extended hours clauses. Given the scope of the event, it will be difficult to determine final damage assessments as the top priority remains on rescue efforts throughout south-east Texas.

A.M. Best does not anticipate a significant number of rating actions related to Hurricane Harvey, but does expect to see pressure on performance for regional property and auto writers, particularly those focused on writing business in the impacted area.


Currently, A.M. Best rates 15 insurers with Texas premium revenue accounting for greater than 50 percent of their total book of business; four of those insurers currently have a negative outlook at their current rating levels.


Companies which A.M. Best identifies as having a negative ratings outlook are Texas Farm Bureau Casualty Group, Germania Mutual Group, CEM Insurance Company and American Millennium Insurance Company.


“Leading up to Hurricane Harvey, several Texas insurers experienced a challenging first half 2017 as a result of spring weather losses,” said Angelo Lozano, a financial analyst with A.M. Best. “Combining those first half of 2017 losses with those from Hurricane Harvey may have an impact on company earnings and capitalisation, which could add additional negative rating pressure.”


In what is an unprecedented flooding disaster in the fourth largest city of the US, Hurricane Harvey is proving to be a major event for the commercial insurance sector. As was the case following Superstorm Sandy in 2012, commercial insurance claims are expected to comprise an outsized portion of overall covered losses from the storm, as flood – rather than wind – has been a driver of damage.


Commercial insurance policies, particularly those covering large and complex properties, may provide some coverage for flood as a covered peril. Given the complex nature of commercial claims related to flood, companies are not yet in a position to provide loss estimates.


“While earnings for the third quarter 2017 will clearly be impacted, at this time, A.M. Best does not anticipate that Harvey will prove to be a capital event for the commercial segment overall,” said Jennifer Marshall, director, A.M. Best. “The impact on individual companies will continue to be assessed as the situation stabilises and loss estimates are made available.”


A.M. Best also notes in its report that while auto insurance losses due to flooding are expected to be much higher than normally expected in a hurricane event, because “larger, geographically diversified writers” dominate the auto insurance market in Texas auto losses “should be effectively absorbed by the overall size of carriers’ balance sheets.”


Canopius eyes further expansion as Sompo sells up to PE consortium

The senior executives of what will again be known as Canopius have said the business will seek growth through the recruitment of new teams and entry into new classes of business once its ownership passes from Sompo Japan Nipponkoa Insurance to a private equity consortium led by Centerbridge Partners.


It was revealed on the 1st September that a private equity consortium led by Centerbridge Partners, and including the private investment firm Gallatin Point Capital, will acquire Sompo Canopius for US$952 million.


On completion of the transaction, Canopius will become a standalone business led by incumbent executive chairman Michael Watson and chief underwriting officer Mike Duffy.


The transaction is expected to close in the first quarter of 2018.


Since it was founded in 2003, Canopius has grown to become one of the biggest insurers at Lloyd’s, writing in excess of US$1.6 billion in premiums across the group in 2016.


Executive chairman Watson anticipates opportunities for further growth under new ownership.


Drones face unprecedented test with Harvey insurance claims

Fleets of commercial drones are primed to hover over the destruction from Tropical Storm Harvey in an unprecedented test of unmanned aircraft’s ability to assess billions of dollars in damage for the insurance industry and accelerate payouts for harried policyholders.


“Harvey is an opportunity to see whose drones are capable and whose are merely toys,” said George Mathew, chairman and chief executive of Kespry, a drone company based in Menlo Park, California. “Harvey is a seminal moment for the industry.”


Harvey marks the second major hurricane since the Federal Aviation Administration loosened restrictions on drones last June, allowing greater use for filming, inspecting facilities and other commercial activities.


Thousands of people have since obtained FAA certificates allowing them to fly drones commercially, and more than 770,000 drones have been registered with the FAA to fly in US airspace.


Allstate Corporation, the second-largest property insurer in Texas behind State Farm, expects its drone fleet to make at least thousands of flights a week in the damaged areas once its claims processing becomes fully operational, company spokesman Justin Herndon said.


Commercial drone launches have been delayed, however, because the FAA has restricted the airspace in and around Houston for rescue aircraft. Harvey has triggered catastrophic flooding in the city.


Once the airspace is cleared, the sky is expected to buzz with activity and potential danger as commercial users and hobbyists converge.


“It is legal, so many more people are flying them commercially,” said Mark McKinnon, a partner at law firm Dentons US LLP.


Obstacle avoidance technology in the newest drones and the ability to set exact flight parameters with global positioning, known as GEO-fencing, should minimise crashes which may have been unavoidable a few years ago, said Ryan Baker, CEO of Houston-based drone company Arch Aerial LLC. Goldman Sachs has estimated that industries such as construction, agriculture and insurance will spend US$13 billion on commercial drones between 2016 and 2020.


Farmers Insurance, the third-largest property insurer in Texas and part of Zurich Insurance Group, plans to use Kespry drones to assess damage in a joint effort with on-the-ground claims adjusters. Kespry drones fit in a suitcase-size carrying case packed in the trunk of a claims adjuster’s car.


Once on site, claims adjusters unpack the fully assembled drones and launch them from their iPads. Each drone has to remain in the line of sight of a claims adjuster while flying below 400 feet, according to FAA rules.


About five minutes later, the data collected by the drone is scanned and ready to be processed by the insurance company, Kespry’s Mr Mathew said. Kespry is equipping nearly ten insurance companies with drones in the areas ravaged by Harvey to help gather information to process claims.


Farmers Insurance said a drone could help a claims adjuster process three houses in an hour. Without a drone, only about three houses could be processed in a day.


“Our fleet of drones and the claims professionals who will be operating them are currently on standby and ready to deploy when conditions make it safe to do so,” Tim Murray, a property claims executive at Farmers Insurance, said in a statement.


After being hunkered down in the immediate aftermath of the storm, business and property owners are eager to get a look at the damage.


“The phone has been ringing off the hook with people looking to get eyes on their property and their assets,” Arch Aerial’s Mr. Baker said. “I’ve got enough work to get all of our pilots out in the field for a long time. But right now, nobody can get anywhere, so we’re waiting for the water to go down. After that obstacle clears, we’ll probably be bringing in quite a few people.”


UK insurers need to decide on moving EU policies by November

Insurers in Britain face crunch-time within weeks if the government and the European Union do not allow millions of cross-border policies to continue to run undisturbed beyond Brexit.


While Britain is not due to leave the bloc until March 2019, insurers say they need to know by November whether they must move contracts with EU customers out of Britain, due to the lengthy legal process involved.


Britain and the EU are currently negotiating divorce terms.


“The preferred option would be something in the negotiations that gives the regulators the appropriate political approval to start working on a mechanism to allow these existing contracts to continue operating as they are,” Hugh Savill, director of regulation at the Association of British Insurers, said.


Leaving contracts to operate unchanged after Britain has left the EU is known as “grandfathering.”


Without this, an insurer would have to move contracts for EU customers to a new EU subsidiary after 2019 for them to remain in the same legal jurisdiction as the customer, or sell that portion of their business. Both options involve a court process, which takes time to implement with Brexit only 19 months away.


“You have to go to court to get approval for transfer, and you also need the approval of the regulator at both ends. That means the transfer has to start by November 2017, otherwise you run out of time,” Mr Savill said, adding that the process could affect millions of contracts.


“If the government has not negotiated something that looks reasonably trustworthy in the next couple of months, companies will have to start putting this alternative contingency planning into action.”


The issue is particularly acute for long-term insurance contracts such as pensions, or contracts where policyholders can make claims for years after the policy expires, such as professional indemnity cover.


The specialist Lloyd’s of London market has also called for grandfathering of contracts, saying it would be impossible to transfer all the contracts in time.


Insurers in Britain are regulated by the Bank of England’s Prudential Regulation Authority. A PRA spokesman referred to a letter from PRA Chief Executive Sam Woods to parliament this month in which he said there is a possibility of a significant increase in the volume of transfers.


“We are engaging further with firms and trade bodies to examine the possible mitigants to these risks and determine which are likely to be most effective,” Mr Woods told parliament.


But Paul Merrey, a partner at accounting firm KPMG LLP., said some insurers have already begun court transfers, with others expected to start later this year.


“It’s an issue both ways, for UK and EU insurers, but it’s fair to say that the process might be easier for EU insurers transferring portfolios to the UK than for UK insurers transferring to the EU,” Mr Merrey said, adding that the process can vary between countries.


The Bank of England has said that about 7% of general insurance contracts undertaken in Britain and 3% of life insurance contracts are written by insurers elsewhere in Europe.


Early movers want to avoid potential court bottlenecks.


“There is not enough court time, there are not enough independent experts — the scale of the challenge and demands on the regulators’ time are significant,” Mr Merrey said.


Lloyd’s syndicate Blenheim enters specialty reinsurance

Blenheim, managed by Asta, has appointed John Cutts to develop a specialty reinsurance division within its Syndicate 5886 at Lloyd’s.

Mr Cutts will take up his role in 2018 upon concluding his existing responsibilities at Talbot Underwriting, where he has worked for the past 17 years, serving as head of treaty underwriting for Syndicate 1183 for more than a decade.

John Lynch, managing director of Blenheim, said: “The launch of our specialty reinsurance division marks an important next step in Blenheim’s evolution, as we continue down the path to building the high quality independent business that we set out to our capital providers.

“With the addition of John we will expand our capabilities to be able to offer reliable and consistent lead expertise across the majority of short tail reinsurance business lines, throughout the trading cycle.”


Towergate launches London specialty business

Towergate Underwriting has launched a new London specialty MGA platform, Geo Specialty, with political violence the first market to go live backed by Lloyd’s capacity.


The underwriting arm of the UK broker Towergate said the new business was a fundamental part of its strategy to become a key player in the specialty market. “We have been talking to the market about our intentions for some time and I’m delighted that we’re now in a position to launch the first element of Geo Specialty,” remarked Towergate Underwriting CEO Paul Dilley. Political violence, the first market to go live, is led by senior underwriter Marcus Meredith, who joined Towergate from Hyperion-owned underwriting agency Dual International.


“With political violence, we have created a market-leading, bespoke terrorism product for both private and commercial clients, backed by Lloyd’s of London capacity,” said Mr Dilley, adding that it gives “far more comprehensive coverage than the Pool Re offering”. “This is our first step towards building a strong London underwriting business. We are identifying markets where we can really add value and make a difference through our underwriting expertise and products,” he continued. The firm said that more markets will follow throughout the year. Towergate is part of The Ardonagh Group, a holding group that also encompasses a handful of insurance brokers including Price Forbes.