Highlights and Lessons Learned from a National Symposium Series on Coastal Insurance Issues THE TRAVELERS INSTITUTE. travelersinstitute.

Highlights and Lessons Learned from a National Symposium Series on Coastal Insurance Issues THE TRAVELERS INSTITUTE travelersinstitute.com

Table of Contents Introduction...3 South Carolina Coastal Risk Symposium...4 Partnership on Mitigation...8 Improving Availability and Affordability of Coastal Windstorm Insurance...12 Opportunities for Integrating Disaster Mitigation and Energy Retrofit Programs...16 Mitigation Strategies for the Alabama Coastal Region...20 Travelers Coastal Wind Zone Plan...23 Travelers Coastal Wind Zone Plan Press Coverage...28 About the Travelers Institute...33 travelersinstitute.com 1

Travelers Institute Mission Statement The Travelers Companies, Inc. established the Travelers Institute SM in June 2009, as a means of participating in public policy dialogue on matters of interest to the property casualty insurance sector, as well as the financial services industry more broadly. 2 travelersinstitute.com

Highlights and Lessons Learned from a National Symposium Series on Coastal Insurance Issues. In 2009, the Travelers Institute launched a series of national symposia to bring together business, government, and community leaders to identify strategies to address the availability and affordability of coastal windstorm insurance for homeowners along the Atlantic and Gulf coasts. The symposia were held in five cities Charleston, South Carolina; Hartford, Connecticut; Austin, Texas; Washington, DC; and Mobile, Alabama and provided an opportunity for participants to raise awareness of the importance of building more resilient communities. The Travelers Institute also participated in Senator Roger Wicker s insurance roundtable, held in Gulfport, Mississippi, to explore solutions to rising insurance costs and barriers to certain kinds of insurance coverage on the Gulf Coast. This report summarizes our coastal symposia series. Each discussion began with an acknowledgment that more Americans are living along coasts every year, while at the same time, the nation is facing the possibility of increased frequency and severity of extreme weather events. To address the crisis of availability and affordability of coastal homeowners insurance, the Travelers Institute developed The Travelers Coastal Wind Zone Plan, which was presented at each event to stimulate the conversation around proposed solutions. The plan is a comprehensive, private market approach based on four key principles: a stable and consistent regulatory environment; transparency in calculating insurance premiums; a federal reinsurance mechanism for extreme weather events; and building stronger homes and risk-based, land-use planning (see page 23 for a complete description of the Travelers Coastal Wind Zone Plan). Symposia panelists also identified action steps for individuals, businesses, governments, and communities to increase coastal resilience and reduce the economic toll extreme weather events wreak on communities. Recommendations include strengthening ecosystems, developing flexible adaptation plans, and requiring infrastructure and building code standards that meet future risk. Many panelists presented research on the undeniable benefits of these and other mitigation strategies, such as retrofitting older homes and building to fortified construction standards. While each city and state with coastal exposures faces its own unique challenges, attendees and panelists from each symposium agreed that in order for communities to become more resilient, mitigation techniques must be broadly adopted. In order to do this, residential incentives need to be developed to encourage fortified construction standards and retrofits to create stronger homes. Additionally, communities should implement improved land use planning and tougher, enforced building codes designed to reduce catastrophe losses. This greater focus on preparedness through loss mitigation and risk management should also help improve the availability and affordability of coastal wind insurance. Each symposium demonstrated that long-term solutions will come from a collective and comprehensive effort, engaging all stakeholders to urge federal, state, and local policymakers into action. The Travelers Institute remains committed to continuing the symposia series in order to highlight coastal communities at risk and to facilitate partnerships with local leaders and government entities that will lead to more solutions for coastal residents. travelersinstitute.com 3

South Carolina Coastal Risk Symposium Purpose To convene business, government and community leaders to identify strategies and solutions for protecting South Carolina s coasts from existing threats and potential effects of a changing climate. The recently completed Resilient Coasts Blueprint a consensus among leaders in insurance, government, NGOs and academia points to risk-based land use planning and adaptable building codes, as well as the maintenance of a strong private insurance marketplace to improve the availability and affordability of homeowners insurance, as important elements of a successful coastal strategy. The session was open to the press. Panelists Moderator Joan Woodward, The Travelers Institute Joseph P. Riley Jr., Mayor, City of Charleston, South Carolina Leslie Jones, Deputy Director for Actuarial, Market and Alternative Risk Transfer Services, South Carolina Department of Insurance Deb Callahan President, The H. John Heinz III Center For Science, Economics and the Environment Sharlene Leurig Manager of Insurance Program, Ceres Eric Nelson, Vice President Enterprise Catastrophe Strategy and Analysis, Travelers Partners The Travelers Institute, the City of Charleston, the South Carolina Department of Insurance, The Heinz Center, Ceres and the Independent Insurance Agents & Brokers of South Carolina Friday, October 30, 2009 Charleston Maritime Center Charleston, South Carolina The Travelers Institute launched its first in a series of regional symposia on October 30, 2009, in Charleston, S.C., focused on addressing the financial threats posed to coastal areas, such as the availability and affordability of catastrophic wind coverage, intensified by potential changing climate trends. The South Carolina Coastal Risk Symposium brought together local business and government and community leaders to identify strategies and solutions to protect and insure the coastal region. The panel discussion was hosted in partnership with the City of Charleston; the South Carolina Department of Insurance; The H. John Heinz III Center for Science, Economics and the Environment; Ceres; and the Independent Insurance Agents & Brokers of South Carolina. The Heinz Center The Heinz Center is a nonprofit, nonpartisan think tank dedicated to improving the scientific and economic foundation for environmental policy. The Center tackles some of the most important environmental issues of our time by convening business, environmental groups, academia and government. The Center s guiding philosophy is that we must all work together to find lasting solutions to environmental challenges and leave the earth a better place for future generations. Ceres Ceres is a national network of investors, environmental organizations and other public interest groups working with companies and investors to address sustainability challenges such as global climate change. Ceres directs the Investor Network on Climate Risk, a $7 trillion network of investors and asset managers that promotes better understanding of the financial risks and opportunities posed by climate change. Joan Woodward, The Travelers Institute; Deb Callahan, The Heinz Center; and Charleston Mayor Joseph P. Riley 4 travelersinstitute.com

Tommy Cook, John T. Cook & Associates; Jules Anderson, Anderson Insurance Associates; and Frank Sheppard, Independent Insurance Agents & Brokers of South Carolina The Travelers Institute chose South Carolina for its first symposium because of the state s strong commitment to public-private partnerships to protect its coast as well as its dedication to coastal mitigation and a stable insurance regulatory environment. Moderated by Joan Woodward, Travelers Executive Vice President, Public Policy, and President of the Travelers Institute, the panel included: The Honorable Mayor Joseph P. Riley Mayor, City of Charleston, South Carolina; Leslie Jones Deputy Director for Actuarial Market and Alternative Risk Transfer Services, South Carolina Department of Insurance; Deb Callahan President, The Heinz Center; Sharlene Leurig Senior Manager of Insurance Program, Ceres; Eric Nelson Vice President, Enterprise Catastrophe Strategy and Analysis, Travelers Mayor Riley, serving in his ninth term as mayor of Charleston, spoke of the initiatives the city has implemented to foster coastal resiliency, which include enforcing stringent building codes and prudently analyzing the impact of development. He emphasized the need for a stable insurance market so that the average person can be adequately insured at an affordable price. Representing the South Carolina Department of Insurance, Leslie Jones spoke about the importance of mitigation to help manage insurance costs. Established in 2007, the SC Safe Home Program offers grants for South Carolinians to make their property more resistant to hurricane wind damage. To date, 909 grants have been awarded totaling nearly $4.5 million. She also said that equally important is the need for market-based regulatory reforms to create a consistent insurance market for coastal properties. According to Ms. Jones, South Carolina has been laser focused on coastal insurance since 1989, when Hurricane Hugo ravaged much of its coastline, causing $4.2 billion in insured losses. She acknowledged the only way to truly solve the coastal property insurance crisis is through collaboration and dialogue among key stakeholders. Deb Callahan, President of The Heinz Center, a nonprofit, nonpartisan think tank dedicated to improving the scientific and economic foundation for environmental policy, highlighted recommendations from the recently completed Resilient Coasts Blueprint. Developed by The Heinz Center and Ceres, the Blueprint recommends action steps to adapt to changing climate trends to protect America s coastlines. According to Ms. Callahan, The Heinz Center believes that property losses can be cut more than 50 percent by implementing and enforcing strong building codes, steering development away from land considered hazardous, constructing coastal infrastructure with an eye to climate change resilience and protecting and restoring coastal wetlands. The Blueprint is endorsed by The Travelers Institute, Mayor Riley and other leaders in insurance, government, non-governmental organizations and academia. Representing Ceres, a coalition of institutional investors and environmental groups that runs the Investor Network on Climate Risk, Sharlene Leurig spoke about the increased risks that extreme weather events pose to insurability and the economic interests of the coalition s members. Ms. Leurig cited Hurricane Katrina as a stimulus for the insurance industry to work with others to address practices that make society vulnerable to extreme events. Insurers have joined the environmental community and taxpayer advocacy groups to travelersinstitute.com 5

lobby for insurance rates that adequately reflect real risk and federal programs to assist property owners in reducing their risk. For example, the National Flood Insurance Program must be reformed to achieve financial stability in order to pay claims. Further, Ms. Leurig believes innovative financial mechanisms should be explored in order to maintain a viable insurance market and create affordability for consumers while allowing insurers to remain solvent and serving customers, even after catastrophic storms. Citing the dramatic increase in coastal development, increased frequency and severity of weather events, along with underfunded government insurance programs, Eric Nelson of The Travelers Companies, Inc. called for prompt action to address the coastal insurance crisis. He presented the Travelers Coastal Wind Zone Plan as a comprehensive, private market approach to help improve the availability and affordability of coastal windstorm insurance for homeowners (see page 23 for a complete description of the Travelers Coastal Wind Zone Plan). The symposium s audience of community leaders, legislators and insurance agents was generally supportive of the panelists recommendations and discussed next steps and a desire for continued local forums. The policy discussion reinforced that long-term solutions for protecting the Gulf and Atlantic coasts will come from a broad base of leaders collaborating and urging federal and state legislators to action. The lessons learned at the South Carolina Coastal Risk Symposium will serve as the foundation for future symposia in other coastal states that will lead to action to improve the affordability and accessibility of catastrophic wind insurance for coastal homeowners. Sharlene Leurig, Ceres; Eric Nelson, Travelers; and Leslie Jones, South Carolina Department of Insurance 6 travelersinstitute.com

U.S. Residual Market Exposure to Loss (Billions of Dollars) $900 $800 $700 In the period between 1990 and 2010, total exposure to loss in the residual market (FAIR & Beach / Windstorm Plans) has surged from $55 billion in 1990 to $758 billion in 2010. $657 $772 Ike $696 $703 $758 $600 $500 4 Florida Hurricanes Katrina, Rita & Wilma $431 $420 $400 $372 $300 $200 Hurricane Andrew (1992) $150 $282 $221 $244 $292 $100 $55 0 1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Insurance Information Institute Residual Markets are insurance markets which provide coverage for risks for those unable to purchase insurance in the voluntary market. travelersinstitute.com 7

Partnership on Mitigation: Building and Insuring Safer Homes Purpose The goal of the summit was to build a collaboration framework for the identification, testing, and implementation of mitigation techniques that foster safer, more resilient communities. Potential changes in hurricane activity and high concentration of people have left U.S. coastlines vulnerable to catastrophic risks. As a result, consumers, builders, and regulators are asking how to mitigate risk. Loss experience data shows dramatic benefits of mitigation strategies that can effectively reduce potential future hurricane losses. Stronger roofs, improved building codes with stringent enforcement and enhanced land use planning are but a few of the strategies that can create significant value to society. The session was open to the press. Panelists Moderator Eric Nelson, Vice President, Enterprise Catastrophe Strategy and Analysis, Travelers Julie Rochman, President & CEO Insurance Institute for Business & Home Safety Dail Rowe, Ph.D., Senior Scientist, Regional Manager WeatherPredict Consulting, Inc. Manuel Lonfat, Ph.D., Managing Director Travelers Jay Guin, Ph.D., Senior Vice President of Modeling and Research AIR Worldwide Ann Roberson, Manager - South Carolina Safe Home Program, South Carolina Department of Insurance Monday, December 7, 2009 Travelers Claim U Windsor, Connecticut The Travelers Institute hosted a Partnership on Mitigation Symposium, Building and Insuring Safer Homes, as part of an ongoing initiative to promote and raise awareness of catastrophe readiness. The symposium, which was held on December 7, 2009, at Travelers Claim U in Windsor, Connecticut, was the second in a series of symposia focused on addressing life safety, community development and financial threats posed to coastal areas. The panel discussion consisted of experts who addressed mitigating risk through better prediction of storm trends and decreasing damages through smarter building practices. (L to R) Manuel Lonfat, Travelers; Julie Rochman, IBHS; Jay Guin, AIR Worldwide; Joan Woodward, The Travelers Institute; Dail Rowe, WeatherPredict Consulting; Ann Roberson, SC Department of Insurance; Eric Nelson, Travelers 8 travelersinstitute.com

(L to R) Ann Roberson; Jay Guin; Manuel Lonfat; Dail Rowe; Julie Rochman; Eric Nelson Connecticut policymakers, community leaders, insurance agents and media members were among the attendees at the panel discussion, which focused on how proactive measures to mitigate losses before a catastrophe can benefit consumers, government and the economy. Mr. Nelson highlighted the fact that Travelers would soon be introducing a pilot program to write discounted insurance policies in select coastal states for homes meeting established design standards to resist the impacts of tropical storm and hurricane winds. Qualifying homes will be eligible for up to a 35 percent hurricane premium credit. He explained that building stronger homes is a key principle of the Travelers Coastal Wind Zone Plan, the company s proposal to improve the availability and affordability of catastrophic wind coverage in communities along the Gulf and Atlantic coasts. Travelers wants to reward those who are mitigating the risk of extreme weather events by building to more stringent codes. Hosted by Joan Woodward, Travelers Executive Vice President, Public Policy, and President of the Travelers Institute, and moderated by Eric Nelson, Vice President, Travelers Enterprise Catastrophe Stategy and Analysis the panel included: Julie Rochman, President and CEO Insurance Institute for Business & Home Safety (IBHS) Dail Rowe, Ph.D., Senior Scientist, Regional Manager WeatherPredict Consulting, Inc. Manuel Lonfat, Ph.D., Managing Director Travelers Jay Guin, Ph.D., Senior Vice President of Modeling and Research AIR Worldwide Ann Roberson, Manager SC Safe Home Program, South Carolina Department of Insurance Mr. Nelson set the context for the discussion by noting that 50 percent of Americans live within 50 miles of a coastline with more people moving there every year. He also suggested that many experts now agree there is an increasing risk of extreme weather events for coastal regions. In addition, Nelson identified a trend of insurance risk shifting to states, regional wind pools, and the federal government. Dail Rowe, WeatherPredict Consulting and Julie Rochman, IBHS Julie Rochman outlined the efforts of the Institute for Building & Home Safety (IBHS) to enhance building codes and strengthen their enforcement across the country. She noted that while codes vary greatly by region, those areas with stricter codes and enforcement mechanisms face less impact when storms hit. Ms. Rochman also gave a progress report on the organization s multi-peril research center in Chester County, S.C., which is scheduled for completion in the summer of 2010. The facility will be able to simulate Category 3 hurricane winds to test the strength of residential structures. The research done in this test facility should help insurers, builders and building product manufacturers better understand the impact of hurricane force winds both on the coast and throughout the country where tornados are prevalent. travelersinstitute.com 9

Punta Gorda, Fla., following Hurricane Charley in 2004. One built in compliance with 2001 Florida building code standards did very well, with minimal damage. However, a similar home constructed in 1988, in the same neighborhood, suffered thousands of dollars in damage. Joan Woodward, The Travelers Institute Dr. Dail Rowe discussed smaller-scale catastrophe simulations that are currently performed by WeatherPredict. Demonstrating that mitigation does not have to be costly to be effective, Dr. Rowe showed a video of a roof exposed to hurricane winds before and after the application of AeroEdge, aerodynamic devices that enhance resistance to high winds. Inexpensive techniques developed through simulations can have a significant impact on securing a structure and reducing losses. Dr. Rowe pointed out that approximately 90 percent of homes damaged during hurricanes have roof damage. Although roofs may not be expensive to repair, roof damage often leads to other losses, including water intrusion and flooding. Dr. Manuel Lonfat presented key findings from the Travelers Personal Insurance catastrophe research team on the effectiveness of mitigation techniques. He reported that during Hurricane Ike in 2008, older construction (pre-1995) suffered more than 70 percent of the losses, although houses from this era represented only about half of the buildings. Dr. Lonfat said the research team drilled down deeper into the losses and found that 85 percent of the claims were linked to roof failures. He welcomed the research being done by WeatherPredict and IBHS and noted that it is very valuable for reducing risk. While much of the panel discussion focused on new construction, the final panelist, Ann Roberson, talked about the success of the SC Safe Home Program in encouraging mitigation methods for existing structures. Through incentive programs, consumer education and partnerships with other organizations, SC Safe Home has built a model program that addresses how public and private enterprises can help homeowners mitigate their risk. Travelers applauds the efforts of South Carolina and urges other states to adopt similar incentives for homeowners to mitigate their exposure. Ann Roberson, SC Department of Insurance Attendees at the summit were receptive to the panelists recommendations. They supported the need to communicate the importance of implementing and enforcing strong building codes in coastal areas as a way of improving safety and decreasing the economic consequences of storm damage. Dr. Jay Guin supported the findings from Travelers with broader industry analysis from AIR Worldwide, a catastrophe modeling company. Dr. Guin outlined important engineering techniques that can be implemented to enhance the resistance of roofs and structures overall. Dr. Guin showed photos of two homes in 10 travelersinstitute.com

Wind vs. water Hurricanes commonly cause significant flooding, often created by storm surge when high winds push the ocean s surface above its normal level. While most homeowners policies cover wind damage, they do not cover flood damage. This issue was discussed frequently following Hurricane Katrina, as thousands of homeowners without flood insurance faced the critical question of whether the damage to their homes was caused by Katrina s 145 mph winds or by the wall of water that surged to shore. To lessen damage and protect homes, Travelers advocates that homeowners should purchase flood insurance coverage through the National Flood Insurance Program. To learn more, visit www.fema.gov/business/nfip/. travelersinstitute.com 11

Improving Availability and Affordability of Coastal Windstorm Insurance Purpose As part of the annual Regulatory Roundup, a gathering of insurance industry leaders and regulators convened to discuss pressing issues facing the insurance industry, the Travelers Institute hosted a panel discussion Improving Availability and Affordability of Coastal Windstorm Insurance. Discussion topics included improved land use planning and building codes, as well as the maintenance of a strong private insurance marketplace to improve the availability and affordability of named storm wind insurance for coastal homeowners. Panelists Moderator Joan Woodward, the Travelers Institute Eric Nelson, Vice President, Enterprise Catastrophe Strategy and Analysis, Travelers; Eleanor Kitzman, Former Director of Insurance, South Carolina and current Texas State Commissioner of Insurance; Debra T. Ballen, General Counsel and Senior Vice President of Public Policy, Insurance Institute for Business and Home Safety (IBHS). Monday, May 10, 2010 Hyatt Regency Lost Pines Austin, Texas The Travelers Institute hosted a panel discussion entitled, Improving Availability and Affordability of Coastal Windstorm Insurance, at the May 10, 2010, Regulatory Roundup, an annual conference of insurance industry professionals and regulators from across the country in Austin, Texas. The Travelers Institute panel presented strategies and solutions to protect and insure residential properties on the Gulf and Atlantic coasts. The panel discussion was the fourth in a series of events addressing life safety, community development and financial threats posed to coastal areas. Eleanor Kitzman, Former South Carolina Director of Insurance and current Texas State Commissioner of Insurance 12 travelersinstitute.com

establishment of SC Safe Home, a grant program for South Carolina coastal homeowners to enhance their property s resistance to hurricane wind damage. Joan Woodward, Travelers Institute; Eleanor Kitzman, former South Carolina Director of Insurance; Debra Ballen, IBHS; Eric Nelson, Travelers Moderated by Joan Woodward, Travelers Executive Vice President of Public Policy and President of the Travelers Institute, the panel included: Eleanor Kitzman, former Director of Insurance, South Carolina and current Texas State Commissioner of Insurance; Debra Ballen, General Counsel and Senior Vice President of Public Policy, Institute for Business and Home Safety (IBHS); and Eric M. Nelson, Vice President, Enterprise Catastrophe Strategy and Analysis, Travelers. Setting the context for the panel, Ms. Woodward stated, The Travelers Institute is committed to participating in public dialogue with policymakers to contribute to solutions on matters of importance to our customers, our agents and brokers, and the communities we serve. She continued, The availability and affordability of named windstorm insurance is a challenge for many coastal residents, and we hope to encourage the public and private sectors to work together to create effective, sustainable solutions to this crisis. In outlining South Carolina s experiences in the residential coastal property insurance crisis, Eleanor Kitzman shared that while she was the Director of Insurance, the issue of coastal homeowners insurance consumed about 75 percent of her time. In 2007, the state adopted several positive reforms designed to create a consistent insurance market. Among the reforms were market-based regulatory approaches and There are few problems that can t be solved with more capital. The need several years ago and still today is to attract new insurance carriers to the coast despite the risk of losses and volatile weather, said Ms. Kitzman. She added, While there is no silver bullet, educating consumers and legislators on the importance of mitigation and building code enforcement will move us closer to stabilizing the market. Debra Ballen addressed the efforts by IBHS to encourage homeowners to adopt mitigation techniques and to enhance building codes and strengthen their enforcement. She reviewed the IBHS building performance chain, a comprehensive approach which includes appropriate land use planning, modern building codes, retrofitting of older homes, and continued maintenance of homes, such as periodic inspections of the roof and windows. She also offered a real-life example of the benefits of mitigation. In 2008, after Hurricane Ike hit the Bolivar Peninsula in Texas, the only buildings remaining were 10 homes built to the IBHS FORTIFIED for Safer Living standard. While we were thrilled to see the benefits of building more durable homes, the example of Bolivar Peninsula raises the larger issue while 10 homes survived, the community did not, said Ms. Ballen. In order for communities to remain Debra Ballen, Insurance Institute for Business and Home Safety travelersinstitute.com 13

Mr. Nelson placed particular emphasis on the need for stronger buildings to lower potential losses from hurricanes. He provided an example of the impact of mitigation techniques on reducing losses by reporting key findings from the Travelers Personal Insurance catastrophe research team. The research showed that during Hurricane Ike, older construction (pre-1995) suffered more than 70 percent of the losses; although houses from this era represented only about half of the buildings. Bolivar Peninsula after Hurricane Ike in 2008 intact as a result of devastating storms, we need broad adoption of mitigation techniques and building codes to minimize these catastrophic losses. Additionally, Ms. Ballen gave the audience a preview of the IBHS research center being built in Chester County, S.C. The center, slated to open in October 2010, will simulate Category 3 hurricanes, as well as wind-borne hail, rain, and wildfire, and will be used to identify and promote effective property loss reduction, and prevention approaches. This research should provide valuable, objective information for development of meaningful public policy to reduce property losses. The panel presentations and discussion reinforced that the solution for protecting the Gulf and Atlantic coasts is dependent upon the maintenance of a strong private insurance market, greater focus on loss mitigation and risk management, improved land use planning, and stronger and enforced building codes. Eric Nelson presented the Travelers Coastal Wind Zone Plan, the company s comprehensive proposal to improve availability and affordability of coastal homeowners insurance. (see page 23 for a complete description of the Travelers Coastal Wind Zone Plan) 14 travelersinstitute.com

Number of Named Storms per Year, 1990-2010 30 Today s active hurricane era began in 1995. Katrina, Rita & Wilma $64B total insured loss 20 Andrew $23B total insured loss Charley, Frances, Ivan & Jeanne $26B total insured loss Ike $13B total insured loss 10 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Insurance Information Institute Three of the four most expensive hurricane seasons have occurred in the past seven years, as indicated by the red bars. What is a named storm? A named storm is a storm system that has been declared and named by the National Weather Service. It is interesting to note that A.M. Best s 2010 market share report lists Florida s residual market, Citizens Property Insurance Corporation, as the tenth largest insurer among U.S. personal insurance providers right along with leading insurers such as State Farm, Allstate, Farmers, Nationwide and Travelers. travelersinstitute.com 15

Welcome Sharlene Leurig, Ceres Opportunities for Integrating Disaster Mitigation and Energy Retrofit Programs Keynote: Before and After Disaster Strikes: Can You Think Green? Dr. Sandra Knight, Deputy Federal Insurance and Mitigation Administrator, Mitigation, U.S. Department of Homeland Security, Federal Emergency Management Agency (FEMA) The Social and Economic Costs of Disasters and the Potential for Mitigation Warren Edwards, Community and Regional Resilience Institute (CARRI) Ed Laatsch, Federal Emergency Management Agency (FEMA) Eric Nelson, Enterprise Catastrophe Strategy and Analysis, Travelers Joan Woodward, The Travelers Institute (moderator) The Nexus of Disaster Mitigation and Energy Efficiency Wanda Edwards, Institute for Business and Home Safety (IBHS) Katie Rothenberg, U.S. Green Building Council Stephen S. Szoke, Portland Cement Association Debra Ballen, IBHS (moderator) Monday, June 14, 2010 U.S. Senate Environment and Public Works Committee Room Washington, D.C. On June 14, 2010, the Travelers Institute convened policymakers, insurance representatives and other stakeholders at a half-day symposium on Capitol Hill entitled Opportunities for Integrating Disaster Mitigation and Energy Retrofit Programs. Co-hosted with Ceres, the Institute for Business and Home Safety and RenaissanceRe, the event comprised a series of panel discussions to discuss strategies for more disaster-resistant and more energy efficient buildings. Dr. Sandra Knight, Deputy Federal Insurance and Mitigation Administrator at FEMA, was the keynote speaker. This event was part of an ongoing initiative to promote disaster preparedness by the Travelers Institute. Financing Retrofits Greg Hale, Natural Resources Defense Council Mike Italiano, Capital Markets Partnership Garrett Walton, Rebuild Northwest Florida Sharlene Leurig, Ceres (moderator) Lessons Learned and Ways Forward Moderated discussion led by Michael Cohen, RenaissanceRe Dr. Sandra Knight, Deputy Federal Insurance and Mitigation Administrator, FEMA 16 travelersinstitute.com

make educated decisions in terms of land use planning; and be prepared for needs that will arise after a disaster. Joan Woodward, Travelers Institute; Warren Edwards, CARRI; Ed Laatsch, FEMA; Eric Nelson, Travelers The focus after extreme weather events needs to be on learning what can be done to prevent damage the next time, he said. For example, the widespread damage to foundations along the Gulf Coast resulting from storm surge is something that needs to be addressed. We begin by issuing this guidance, which spreads into construction practices and then into building codes for strong foundation requirements. At the current rate of construction, after 25 years we could affect half the built environment. The Travelers Institute led the day s first panel discussion, The Impact of Disasters and the Potential for Mitigation. Moderated by Joan Woodward, Travelers Executive Vice President of Public Policy and President of the Travelers Institute, the panel included: Ed Laatsch, Chief, Building Science Section Risk Reduction Branch, Mitigation Division, FEMA; Warren Edwards, Director, Community and Regional Resilience Institute (CARRI); and Eric M. Nelson, Vice President, Enterprise Catastrophe Strategy and Analysis, Travelers. Setting the context for the panel, Ms. Woodward stated, Extreme weather events can cause massive damage, erase the investments of property owners and displace vulnerable populations into substandard housing. The Travelers Institute is committed to collaborating with all stakeholders to advance and raise awareness of mitigation strategies that create more resilient communities. Ed Laatsch of FEMA shared information on the many programs FEMA offers to encourage mitigation, which range from training to partnerships to awareness campaigns. He spoke in depth on the tools FEMA provides to the public to assess damage and vulnerability, including the Hazards U.S. Multi- Hazard (HAZUS-MH) tool. HAZUS-MH helps people understand what their exposures are to earthquakes, floods and wind; Debra Ballen, IBHS; Wanda Edwards, IBHS; Katie Rothenberg, U.S. Green Building Council; Stephen S. Szoke, Portland Cement Association Mr. Laatsch also addressed the environmental benefit that resilient communities bring. For example, if a home is strong enough to survive a storm, the contents also survive and aren t contributing to debris in landfills. More than 100 tons of debris filled landfills as a result of Hurricane Katrina. Warren Edwards discussed the efforts by CARRI to build a resilient America by focusing at the community level. CARRI grew out of a project at the Oak Ridge Laboratory in Tennessee to examine the issue of resiliency. The team spent time speaking with the private and public sectors and individuals in three Southeast communities Memphis, Tenn.; Gulfport, Miss.; and Charleston, S.C. -- around the concept of resiliency. travelersinstitute.com 17

Their research found that communities want four things: A better understanding of the concept of resilience; A measurement of community resilience; Processes and tools to improve community resilience; and Rewards to encourage efforts toward resiliency, including discounts from insurance providers, and grants from the federal government. He also shared a new initiative by Travelers to insure fortified homes along the coast. Homes in select states meeting established design standards to resist the impacts of tropical storm and hurricane winds are now eligible for up to a 35 percent hurricane premium credit. Travelers believes it is up to the public sector to enforce proper building codes and the private sector to provide rewards for creating stronger communities, he said. From the research gathered, CARRI is launching the Community Resilience Systems Initiative, a system of tools and processes designed to provide all communities with the action steps needed to become resilient, regardless of the disasters they face. The initiative will include best practices from other communities, measurement tools and suggested processes. To learn more, visit www.resilientus.org. Travelers Eric Nelson placed particular emphasis on the need for stronger buildings and consistent building codes to lower potential losses. He talked about the statewide changes Florida made to building code adoption and enforcement after Hurricane Andrew in August of 1992, citing a 50 percent difference in loss from homes built pre-hurricane Andrew and those built after the hurricane. He encouraged the audience to imagine the impact federally mandated, consistent building codes across the country could have on the coastal homeowners insurance crisis. Sharlene Leurig, Ceres; Michael Cohen, RenaissanceRe; Joan Woodward, Travelers Institute; Debra Ballen, IBHS Attendees supported the panelists recommendations for the broad adoption of mitigation techniques and the implementation of incentives for communities that become more resilient. There was also consensus that solutions will come from a collective effort, and some attendees plan to form a working group across sectors to continue conversation and advance progress. Sharlene Leurig, Ceres; Greg Hale, Natural Resources Defense Council; Mike Italiano, Capital Markets Partnership; Garrett Walton, Rebuild Northwest Florida 18 travelersinstitute.com

Coastal living and coastal properties on the increase More Americans are living along the coasts every year. According to the U.S. Department of Commerce and the National Oceanic & Atmospheric Administration (NOAA), 53 percent of the nation s population live in coastal counties in 2011, and their populations are expected to grow by more than 13.6 million by 2020. The trend is unmistakable. Additionally, the properties in which they live are escalating in exposure value as modest beach bungalows give way to sprawling homes and skyscraper condominiums. In 2011, the collective value of all coastal properties from Texas to Maine is estimated by the Insurance Information Institute (III) to be nearing $9 trillion, with $2 trillion of that coastal property concentrated in Florida. A significant portion of those estimates are residential properties. In addition, coastal property perhaps should no longer be defined as properties with ocean views, but rather viewed as properties that are vulnerable to hurricanes as far inland as 150 miles. travelersinstitute.com 19

Mitigation Strategies for the Alabama Coastal Region Purpose As part of a series of events addressing threats posed to coastal areas, the Travelers Institute convened business, government and community leaders for a luncheon and policy discussion on the importance of fortified construction standards. Travelers also announced the funding of the construction of a Habitat for Humanity fortified-home in coastal Baldwin County and the introduction of the Alabama mitigated home insurance premium credit. As the result of a public-private partnership to protect Alabama s coast, Travelers now offers a premium credit to homeowners that have strengthened their homes against losses in the event of a storm. Travelers support for Habitat for Humanity reinforces the importance of reducing a home s life cycle cost by facilitating access to homes with lower mortgage payments, energy costs, insurance premiums and stronger construction standards. The event was open to the press. Panelists Moderator Joan Woodward, The Travelers Institute Eric M. Nelson, Vice President Enterprise Catastrophe Strategy and Analysis, Travelers Charles M. Angell, Chief Actuary and Deputy Insurance Commissioner, Alabama Department of Insurance Cliff Barros, Executive Director, Habitat for Humanity of Baldwin County Chad Wilson, Second Vice President Personal Insurance, The Travelers Companies, Inc. Friday, October 8, 2010 GM Building Mobile, Alabama The Travelers Institute hosted the sixth in a series of panel discussions to address safety, community development and financial threats to coastal areas. Mitigation Strategies for the Alabama Coastal Region, conducted October 8, in Mobile, Alabama, explored the importance of fortified construction standards in protecting and insuring the Gulf coast. At the event, Travelers announced a pilot program to write insurance policies for fortified homes in Alabama that meet established standards designed to resist the impacts of tropical storms and hurricane winds. Qualifying homes will also be eligible for a credit on the homeowners insurance premium. Also during the session, Travelers presented a $15,000 grant to Habitat for Humanity of Baldwin County to help build a fortified home in the coastal city of Fairhope, Alabama. The home was built to the standards established by the Insurance Institute for Business and Home Safety. Charles Angell, Alabama Department of Insurance 20 travelersinstitute.com

and affordability of homeowners insurance has become a social problem in Alabama, a state with a working coast. In order to lower coastal homeowners insurance premiums, Alabama now requires insurers to offer discounts to homeowners who build and retrofit their homes to fortified standards. To encourage more residents to build fortified and retrofit their homes, Mr. Angell shared his hopes of eventually launching a state-run grant program to assist residents with the costs of fortifying their homes. Bob Schurke, Travelers; Cliff Barros, Habitat for Humanity of Baldwin County; Joan Woodward, Travelers Institute; and Arden Schell, Habitat for Humanity of Baldwin County Board of Directors Moderated by Joan Woodward, Travelers Executive Vice President of Public Policy and President of the Travelers Institute, the panel included: Charles M. Angell, Acting Deputy Commissioner & Casualty Actuary, Alabama Department of Insurance; Cliff Barros, Executive Director, Habitat for Humanity of Baldwin County; Eric M. Nelson, Vice President, Enterprise Catastrophe Strategy and Analysis, Travelers; and Cliff Barros discussed the tendency for low-income homeowners to become underinsured in order to save money. He explained that Habitat for Humanity has turned to mitigation techniques as one solution for their homeowners. The organization recently launched the Fortified Experiment, a project to build three different homes that will test the long-term cost/benefit of building to fortified construction standards. The first home built was a fortified concrete home with a concrete roof. The next home, to be built in 2011 with funding from Travelers, will be a fortified concrete home with a shingled roof. The final home in the experiment will be a typical wood construction with a fortified roof and windows. Mr. Barros told attendees that they will compare the insurance and energy costs of the three homes to determine the smartest way to build strong, affordable housing in the future. To learn more, visit www.baldwinhabitat.org Chad Wilson, Second Vice President, Personal Insurance, Travelers. Setting the context for the panel, Ms. Woodward noted that the Travelers Institute was formed to participate in public dialogue with policymakers and to contribute to solutions on matters of importance to the communities that Travelers serves. She told attendees that protecting and insuring the Gulf coast is an important issue for the Travelers Institute. She talked about the Travelers Institute s ongoing commitment to finding solutions that protect residents and their property before the storm hits in order to minimize damage to property and disruption to lives. Charles Angell outlined Alabama s experiences in the residential coastal property insurance crisis. He shared that the availability Cliff Barros, Habitat for Humanity of Baldwin County; Charles Angell, Alabama Department of Insurance; Joan Woodward, Travelers Institute; Eric M. Nelson, Travelers; Chad Wilson, Travelers travelersinstitute.com 21

Newer building codes and mitigation techniques are reducing losses, according to Nelson, who pointed to findings from the Travelers Personal Insurance catastrophe team. The research showed that during Hurricane Ike, older construction (pre-1995) suffered more than 70 percent of the losses, though houses from this era represented only about half of the buildings. Cliff Barros, Habitat for Humanity of Baldwin County, and Charles Angell, Alabama Department of Insurance Eric Nelson provided background on the insurance availability and affordability crisis coastal homeowners face. He shared the statistic that 50 percent of the U.S. population is living within 50 miles of the coast. At the same time, many experts now agree there is a greater likelihood of extreme weather events intensified by potential changing climate trends. Mr. Nelson also identified a trend of insurance risk being shifted to states, regional wind pools, and the federal government. Mr. Nelson presented the Travelers Coastal Wind Zone Plan, the company s comprehensive proposal to improve availability and affordability of coastal homeowners insurance (see page 23 for a complete description of the Travelers Coastal Wind Zone Plan). Chad Wilson detailed of the Travelers pilot program in Alabama to write insurance policies for fortified homes that meet established standards designed to resist the impacts of tropical storm and hurricane winds. The company is opening up areas of eligibility for these homes to a broader geographic area, and is now accepting applications for coverage up to $1 million in insurance limits. Mr. Wilson also announced that Travelers is marketing the Alabama insurance premium discount for fortified homes. The company is offering policyholders of qualifying homes a credit of up to 35 percent on their homeowners insurance premium. Mr. Wilson told attendees that Travelers recognizes that homeowners should be rewarded for taking steps to mitigate damage to the homes they insure. The audience of insurance agents, government officials, and builders supported the panelists recommendations for broad adoption of fortified construction standards as part of the long-term solution needed to protect Gulf coast residents and property. 22 travelersinstitute.com

Travelers Coastal Wind Zone Plan: A Comprehensive Plan to Improve Availability and Affordability of Named Storm Wind Insurance for Coastal Homeowners The United States faces a coastal insurance crisis Hurricanes, tropical storms, and coastal property insurance are subjects that unfortunately only generate public discussion and search for answers at times of crisis. In 2005, these topics were at the forefront, following a record $57 billion in insured losses and 3.3 million claims resulting from Hurricanes Katrina, Rita, Wilma and Dennis. 1 The 2006 and 2007 hurricane seasons produced no catastrophic landfalls in the United States, and the coastal homeowners market continued to erode. In 2008, when Hurricane Gustav slammed into Louisiana and Hurricane Ike into Texas, they brought renewed discussion but little improvement in the coastal insurance marketplace. In 2011, Hurricane Irene hit the United States, causing more than $7.3 billion in damages. 2 This crisis of availability and affordability of named storm coastal wind insurance warrants public attention now, particularly given that experts are warning that we have entered into a period of warming ocean temperatures, which may result in an increase in the frequency and severity of catastrophic storms for years to come. Trends in Atlantic hurricane seasons generally span multiple decades, and today s active hurricane era began in 1995, so we could face increased activity for some time. To the extent that named storm activity increases, finding insurance for wind coverage at affordable prices, if at all, from properly capitalized insurance carriers, will become increasingly difficult for coastal homeowners. As a result of availability and affordability issues, significantly more coastal homeowners now purchase insurance through state-created residual market pools, so-called insurers of last resort. (See chart on page 7.) Many of these pools are heavily subsidized by state governments which, in effect, result in subsidies for those living on the coast by those living inland. In addition, many state pools rely on post-event bonding to pay claims. Given today s historic financial turmoil, one might question the ability of even the most creditworthy state programs to secure adequate financing following a major catastrophic event. Clearly, many consumers, public officials and insurers face a major challenge in finding and funding coastal property windstorm insurance; and there is a need for a responsible, comprehensive solution to this insurance problem. Travelers Coastal Wind Zone Plan offers a solution Travelers recognizes that this crisis is not going to be solved singlehandedly by one company, one industry, or one state. Effective and sustainable solutions can only come from the coordinated efforts of all the stakeholders, and we believe that the insurance industry has a leadership role to play in the solution as individuals historically have looked to our industry to protect their greatest asset and largest economic obligation their home. At Travelers, we sought input from members of Congress; other federal, state, and local officials; consumer groups; insurance agents and brokers; and other insurance industry leaders as we developed the comprehensive set of principles that make up our Coastal Wind Zone Plan. This plan proposes a private, market-based system, without federal subsidies for insurers, to address the problems of homeowners insurance availability that coastal consumers face today. The comprehensive plan would provide the needed framework to assist America s coastal families in preparing to rebuild, repair and recover from the aftermath of named storm catastrophes. 1 Insurance Information Institute 2 National Oceanic and Atmospheric Administration travelersinstitute.com 23