Risk Mitigation Expense or Investment?

Transcription

1 Risk Mitigation Expense or Investment? Jon W. Raleigh, ARM Director of Insurance/Risk Management Irene, Heather Roiter New York City Office of Emergency Management Savita Goel, P.E., LEED AP Whitlock Dalrymple Poston & Associates, P.C. Haiti EQ, 2010 Haiti EQ, 2010 Japan EQ, Aerial View Japan EQ, 1

2 Significant Natural Disasters of 2010 Significant Natural Disasters of Haiti Chile Windstorm Xynthia, Europe China New Zealand Australia Floods New Zealand Japan USA USA Severe Severe Storm/ Storm/ Tornadoes Tornadoes New Zealand Thailand Floods Hurricane Irene Date of Event Jan 12, 2010 Feb 27, 2010 Feb 26 28, 2010 April 14, 2010 Sept 4, 2010, Date of Event Dec Jan Feb 22, March 12, April 22 28, May 20 25, June 14, July 27, Aug , Magnitude Windstorm 6.9 Fatalities 220, , Windstorm Windstorm Magnitude , 5.2 Flood Category 3 /Tornado / Tornado Fatalities , Insured Losses (Billion US 4 6 Dollars) Not Available Total Economic Losses (Billion US Dollars) Not Available Not Available Insured Losses (Billion US Dollars) Total Economic Losses (Billion US Dollars) Chart Significant Natural Disasters Recently Reported in the News Hailstone declared largest on record to hit Hawaii Reported March 25, 2012 by msnbc.com staff: At 4.25 inches long, 2.25 inches tall and 2 inches wide, a hailstone that fell on the windward side of Oahu this month has been declared the largest on record to hit Hawaii, the National Weather Service announced. Records for Hawaii go back to 1950 and the previous record was a relatively puny 1 inch in diameter. "The record setting hailstone was dropped by a supercell thunderstorm on the windward side of Oahu and produced large hail in Kaneohe and Kailua," the service said in a statement. "Numerous reports of hail with diameters of 2 to 3 inches and greater were reported." "Hail to the size of golf balls and baseballs can only form within intense, thunderstorms called 'supercells'," the service added. "These supercells need warm, moist air to rise into progressively colder, drier air; as well as winds changing direction and increasing speed with increasing height off the ground. For both sets of conditions to exist at the same time in Hawaii is extremely rare, but did occur on March 9. Conditions were ideal for a supercell to form, which on National Weather Service radar imagery looked exactly like such storms in the central portions of the contiguous United States where severe hail larger than an inch in diameter is most common." The March 9 supercell also spawned a tornado with winds of mph in Lanikai and Enchanted Lakes on Oahu. A hailstone that hit Vivian, S.D., on July 23, 2010, holds the U.S record for largest diameter (8 inches) and for weight (1.938 pounds). A hailstone in Aurora, Neb., on June 22, 2003, has the largest circumference (18.75 inches). RMS 11 and Cat Loss Impact on Property Insurance Market A Timeline RMS 11 Released February Increased PML s for Wind, particularly inland locations Cat storms hit Feb., March, April, May and June Increased pressure by ratings agencies to adopt RMS 11 or face downgrade RMS 11 and Cat Loss Impact on Property Insurance Market By the end of 3Q: Reserves for large Cat losses started to impact carrier earnings Non Cat losses much worse than expected Combined ratios deteriorated Investment returns squeezed by low interest rates Stage was set for a difficult Property market 2

3 Our Experience with 2012 Property Insurance Renewal Due to Cat exposure and RMS 11 changes, primary carrier sought significant increase on 1/1 renewal: Loss ratios had impact if > 60% Wind and flood exposures had greatest impact Risk mitigation had little to no direct impact Secondary characteristics in Cat modeling had little to no impact Our Experience with 2012 Property Insurance Renewal Due to timing of market shift and 1/1 renewal date, we had to scramble to revise program structure Primary policy met lender/management needs Limited flexibility in deductibles/no credit given for increasing them Looked at placing Cat risk in standalone market Looked at reducing primary limits but excess capacity diminished due to new Cat models Using Risk Mitigation as a Strategy to Deal with the new Property Market According to Marsh, investing in risk mitigation can now have up to 500% return Cat modeling data can be used to pinpoint locations with highest PML factors Targeted capital spending can reduce PML s and have a direct impact on minimizing premium increases Using Risk Mitigation as a Strategy to Deal with the new Property Market Examples of risk mitigation techniques Earthquake retrofits Roof flashing securement Pre loss disaster planning Copper theft deterrent systems Using Risk Modeling to Target Risk Mitigation Investments Example: 209,500 square foot building in Tampa, FL, Insured Building Value = $10,234,000 Building has Masonry Joist Construction, with the roof covering attached with adhesives only Existing Wind PML (500 year) per CatStation TM = $1,929,888 Risk Mitigation Technique: Secure roof covering with nails reduces Wind PML to $1,871,050 ($58,838 reduction) Risk Mitigation Technique: Secure roof covering with screws reduces Wind PML to $1,796,555 ($133,333 reduction) Multiplication effect for large property portfolios Enabling risk mitigation investments at your organization Get involved in the budgeting process for capital expenditures Use Cat modeling software to demonstrate value Prioritize disaster planning and risk mitigation in the Cat prone regions Allocate higher premiums to Cat prone areas & provide discounts for successful risk mitigation projects 3

4 Who is NYC OEM? Five part mission: Plan and prepare for emergencies Educate the public about preparedness Coordinate emergency response and recovery Collect and disseminate critical information Seek funding to support preparedness Federal Influence for Local Emergency Management Models Storm surge model: SLOSH Flood model: dfirms Loss Estimates: HAZUS Guidance/Compliance ICS and NIMS Hazard Mitigation Plan Emergency Operations Plan Continuity of Operations Plan Hurricane Risk: Storm Surge SLOSH model Sea, Lake and Overland Surge from Hurricanes Determines evacuation zones and assess vulnerability of certain key assets (by storm strength) Hurricane Risk: Critical Assets Located Within SLOSH Zones Subway Stations 119 Bridges and Tunnels 31 Roadways (miles) 461 Police Stations 22 Fire Stations 56 Public Schools 343 Hospitals 23 Nursing Homes 57 Power Plants 17 Wastewater Treatment Plants 13 Hurricane Irene Cat 1 at Landfall in N. Carolina Tropical Storm at landfall in Coney Island First Major NYC Storm Threat Since Gloria, 1985 Hurricane Irene >350,000 People Ordered to Evacuate 7,100 People Evacuated from 43 Healthcare Facilities Complete MTA Shut Down 10,000 People Sheltered 5,000 Shelter Staff 1,000 Special Medical Needs Shelter Residents 65 Evacuation Centers 82 Emergency Shelters 8 Special Medical Needs Shelters 4

5 Hazard Mitigation Overview New York City Natural Hazard Mitigation Plan DMA 2000 (FEMA requires all locals to have a plan and make it public) Completed March 2009, Update in 2014 Hazard Mitigation Benefits Leads to judicious selection of risk reduction actions Builds partnerships Creates a more sustainable and disasterresistant city Establishes funding priorities Increases public awareness of natural hazards Hazard Mitigation: Planning Process Mitigation Planning Council (MPC) More than 30 participating agencies One year planning effort Risk Assessment Profiled eight natural hazards (including coastal storms) Estimated potential losses using HAZUS, SLOSH Mitigation Strategy 306 mitigation actions submitted by City agencies Community Involvement Engaged private sector and community based stakeholders Number of Buildings Damaged from a Hurricane Return Period (Years) Minor Moderate Severe Destruction Total , , ,473 1, , ,111 11, , ,043 34, ,233 Hazard Mitigation: HAZUS Building Summary 802,000 Buildings Total building value: $825 Billion Total contents value: $560 Billion , ,079 4,966 1, ,623 1, , ,640 12,067 5, ,480 Public/Private Partnerships How does OEM leverage our risk analysis, Hurricane Irene, and mitigation planning to forge private sector partnerships? Public outreach/education Data sharing CorpNet (business messaging) Continuity Planning Guidance Asset and resource sharing Credentialing Disaster recovery assistance Public/Private Partnerships How can the private sector forge partnerships with the public sector? Understand how your state government manages insurance and emergency management (e.g. NYS Dept. of Financial Services has a seat in the NYC EOC) Get involved in different government planning processes (hazard mitigation, FEMA FIRM flood maps, etc.) Push for the intangible mitigation efforts to become tangible rewards 5

6 Disasters vs Building Codes Hurricane Andrew, 1993 Building Code Revised Northridge Earthquake, 1994 Building Code Revised Lessons Learned about Structural Systems Performance Existing Tools CAT Models (RMS, AIR, EQECAT) Site Specific Assessment Storm Surge Inundation Zones Maps* FEMA Flood Maps* ICC 500 (Wind) (HAZUS Storm Surge Currently Not Available) * Available in public domain Existing Tools Limitations Hurricane Storm Surge: most tools don t include Earthquake Tsunami Liquefaction On going Efforts Impact of Tsunami on Structure Lehigh University Wind PML ASTM Mitigation Challenges Mitigation Benefits Understanding Risk Budget Understanding Returns Maintain Critical Operations Minimize Business Interruption Improve Community Resilience Reduce Property Damage Improve Insurability 6

7 Set Overall Goals Identify Specific Objectives Maintain Critical Operations Provide Shelter for Staff Facilitate Post Disaster Recovery Protect High Value Assets Identify Hazards Identify Key Vulnerabilities Building Envelope Structural System Flood Develop Appropriate Performance Criteria Develop Mitigation Options Hurricane Roofing Window Systems Exterior Walls Equipment Implementation Mitigation Study With Maintenance Cycle Develop Mitigation Options EQ Non structural elements Wall to floor connections Lateral Load Resisting System 7