Property Construction and Growth
Before the pandemic hit, the world was in an extended period of construction and growth. With more commercial real estate, it puts business owners at an increased risk of property damage due to catastrophic events or natural disasters.
Natural Disasters Continuing to Pose a Threat to Large Property
In recent years, catastrophic events like severe weather and natural disasters have had a greater impact on business property – and they’re occurring more frequently.
Natural catastrophic insured property losses in the US totaled $74.4 billion in 2020 – up 88% from $39.6 billion in 2019.1 There were also a record-breaking 22 separate weather events that caused over $1 billion in damages in 2020, including:2
- Hurricane Laura in August 2020, which resulted in $19 billion in damages and 42 deaths in Louisiana.
- A powerful derecho that traveled 770 miles from southeast South Dakota to Ohio in August 2020, causing $11 billion in damages and four deaths.
- Wildfires that raged through the west from August to December 2020, causing $16.5 billion in damage and 46 deaths.
- Hurricane Sally in September 2020, resulting in $7.3 billion in damages and five deaths.
This year is shaping up to be just as destructive. In February 2021, a winter storm left dozens of Texans dead, millions without power and nearly 15 million with water issues. Analysts haven’t yet totaled up the damages, but many believe it could exceed the $125 billion in damages caused by Hurricane Harvey in 2017.
In March 2021, a multi-day tornado event swept across parts of the mid-South and Southeast. It touched down mainly in Mississippi and Alabama and caused significant damage.
"We're seeing increases in loss frequency from both catastrophes and non-catastrophic events across the globe," said Scott McDonough, Division Executive, Large Property business leader at The Hartford. "This increase is causing insurance carriers to adjust the terms of their programs to share risk volatility with insureds."
Sharing Risk With Customers
Carriers have to balance premium and terms to create a sustainable insurance program. Insurance companies have been looking to improve underwriting results in a market that has become increasingly difficult to generate needed earnings, according to Caleb Woodby, underwriting officer for Large Property at The Hartford.
The Hartford understands the need to make changes to pricing, structure and deductibles. So, we’re well positioned to deliver on being a carrier that can provide stable and consistent property coverage for agents and customers.
As insurance companies share risk with clients, it can result in:
- Higher renewal prices for customers
- Changes in program structure
- Increased deductibles
There are steps that policyholders can take to try to offset rate increases, like choosing a higher all other perils (AOP) deductible. This shares the risk between the insurance carrier and client.
"Sharing risk back to the insured through an increased AOP deductible, business insurance deductible or higher CAT deductibles can provide for a long-term sustainable program," Woodby explained.
Insurance companies are also paying attention to loss trends during the underwriting phase, Woodby added. For example, more construction is pushing insureds to fringe areas in some states that can put them at higher risk of wildfire damage. And losses due to tornado and hail have also increased in the last five years. Insurance companies take these trends into account when writing new policies or during renewal.
"Underwriting guidance is changing to account for this dynamic," Woodby explained. "More attention is being given to higher deductibles but also risk mitigation efforts for CAT perils, specifically percentage deductibles."
Price increases on insurance policies may slow down as time goes on, McDonough said, but carriers will continue to look at their programs to make sure risk profiles are appropriate and sustainable.
"There will continue to be a re-evaluation of terms and conditions in order for insurance carriers to manage loss ratio at a more predictable level across their portfolio for both CAT and non-CAT losses," McDonough said.
Three Ways to Help Minimize Your Risk and Reduce Losses
Insurance carriers can no longer postpone addressing the impact of climate change. Many insurers have begun providing incentives to encourage policyholders to invest in reducing climate-related risks.
Here are three steps business owners can take to minimize their risks and prepare for natural disasters.
1. Protect Against Water Damage
Losses due to water damage have increased significantly, particularly in the real estate, hospitality and healthcare industries. High-rise facilities, in particular, have increased risk of water damage. Prolonged periods of rain can result in water leakage that can damage multiple floors and elevator shafts.
About 75% of all real estate losses due to water damage come from accidental discharge related to plumbing, HVAC systems and appliances.
Property losses aren’t limited to claims for structural damage, such as water damage inside a building. Losses can include the:
- Loss of income
- Expenses to rebuild
- Cost of relocating residents during the repairs
Risks of prolonged water damage are prompting insurance carriers to increase the water damage deductible from $100,000 to $250,000. Insurers are also asking clients to create a water damage prevention plan to minimize risks.
When creating a water damage prevention plan, keep these things in mind:
- Establish your team and provide training
- Outline pre- and post-event job responsibilities
- Identify and label shut-off valves
- Create post-event restoration and recovery strategies
There are things business owners can do to reduce their water damage risk and manage costs, such as:
- Inspecting high-risk areas for water damage, like interior systems and the roof, walls and floors.
- Checking the outside of the building for any damage or deterioration that can lead to water entering.
- Using technology to help monitor for any leaks.
2. Protect Against Wildfires
The number of wildfires each year has steadily increased, damaging more acreage each year. In fact, by December 2020, there were about 6,500 more wildfires compared to the previous year.3 These wildfires burned more than 10.3 million acres of land – nearly 6 million more acres than 2019.4
New construction and development is more likely to be near the fringes of wildfire areas in California, Texas and Colorado. Although lightning is the most common cause of wildfires, more humans are causing these natural disasters. Whether it’s by dropping a cigarette or improperly extinguishing a campfire, these actions can result in devastating damage.
Construction sites and business property can often have sources of ignition as well, like:
- Combustible materials
- Flammable liquids
To help protect your business property from fires, you can take these precautions:
- Secure an approved water supply for potential firefighting.
- Designate a smoking area or ban smoking from the site.
- Provide adequate portable fire extinguishers.
- Secure a permit for any work that requires a heat source such as welding, soldering or brazing.
- Establish process for using temporary heating equipment.
3. Protect Against Tornadoes and Hurricanes
In the past, damaging tornadoes were mostly confined to Tornado Alley, known in areas like:
- Northern Texas
- South Dakota
More recently though, tornadoes are touching down outside of these states. Recent tornadoes occurred in Mississippi, Alabama, Georgia and Missouri with greater intensity. In fact, the strongest tornado of 2020 touched down in southern Mississippi, producing estimated winds of 190 mph and reaching a width of 2.25 miles. This devastating tornado caused eight deaths and damages totaling over $3 billion.
Hurricanes have also increased in intensity over the last few years. They’re becoming more frequent and stronger as a direct result of climate change.
To help protect your business’ property and reduce your losses during a severe storm, you can:
- Use a battery-operated weather radio and keep extra batteries on hand, just in case.
- Establish a business continuity plan to identify essential employees that will respond in an emergency.
- Designate a safe shelter either on site or nearby.
- Tie down or securely store lumber and loose tools.
- Dismantle any scaffolding.
- Empty dumpsters or cover them with netting.
How The Hartford Can Help Business Owners
At The Hartford, we understand the unique risks and challenges business owners face. With the flexible solutions and innovative technology we offer, your agent or broker can help you get the coverage your business needs.
2 National Oceanic and Atmospheric Administration, “2020 US Billion-Dollar Weather and Climate Disasters in Historical Context”