Category: Property Insurance

All posts related to Homeowner Insurance (HO-1 to HO8), rental insurance, flood insurance, earthquake insurance, personal property insurance, mobile home insurance, condo insurance and liability insurance

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Property Insurance

How to Fight and Win Wildfire Crisis

The Takeaways

  1. Wildfire risk costs many condos and townhouses under homeowner association or HOA the accessibility to property insurance, or they must pay a significantly higher price to be covered.
  2. Pushing insurance to state sponsored insurers like Fair Plan is not a sustainable solution.
  3. Wildfire mitigation (clearing vegetations near house) is one way to increase insurability but we need high tech solutions as well.
  4. It’s good that California Department of Insurance asks insurers to give discounts to home hardening and wildfire resilient communities.
  5. New solar cells printed on fabrics offer light weight, flexibility and high efficiency on generating solar energy.
  6. We can hit three birds with one stone by coating solar fabrics with fire retardant so they can generate solar energy, protect roofs, houses, porches, yards and detached buildings and significantly reduce insurance cost. The point is to make fire safety to pay for itself by generating and selling solar power to the grid.

Shocking News in California on the Insurance Side

I’ve just written a post on fighting flood a few days ago and now the news from the Triple-I newsletter shocked me from somewhere closer to home, with a title that seems harmless: “California senate pushes to stabilize the homeowners insurance market.”

When you click it and read it, however, the contents are really nothing less than being shocking. The report started with the sentence that “Homeowners insurance prices in California are skyrocketing with the increased threat of wildfires.”

But to hear the word “skyrocketing” is not enough, you need to see the prices to fully appreciate the change and impact.

This report in early 2022 tells us that “there were an average of 62,805 wildfires and an average of 7.5 million acres impacted annually,” in the years from 2011 to 2020.

There is someone living in a condo in San Diego County, who owns a townhome in an HOA (Home-Owner Association) with 186 others. “During our HOAs last insurance renewal we were notified that we would not be renewed due to proximity to high fire risk areas.”

The policy they started with was $54,000 a year (apparently this is for the so called “master” insurance policy for the entire complex, which HOAs often buy for the common areas like swimming pool, gym, parking lots, gates, landscape, parks and playground, clubhouse, trails, common building and lighting), but now the annual premium for this year is $293,000, a more than five time increase, which led to an emergency assessment to each unit owner to cover the cost of that new premium amount.

From another planned community in Anaheim Hills: 

“In 2020, Horizons paid $39,000 for property and fire insurance,” Hayes said. “This year, we are going to pay out $417,000 plus interest,” which is more than 10 times higher. 

In another report published on February 16, 2023, Farmers Insurance dropped coverage on more than 1,000 condo owners in San Diego due to wildfire risk.

Limited Fire Insurance Options

When someone lost private fire insurance, they can temporarily use the state’s Fair Plan, a non-profit insurance plan, which is meant to be the insurance of last resort. Fair Plan offers plans that are however not large enough to cover HOAs.

The insurance industry is not too keen on solutions that include state-run insurance programs, like Florida’s Citizens Property Insurance, or California’s Fair Plan that provides fire insurance as a policy of last resort.

One correspondent named Ruiz from Insurance Information Institute (or Triple-I) is quick to point out why insurance companies are not renewing policies on large condo complexes.

“Inflation has really driven up the cost of building,” she said. “Since 2017, we’ve seen a huge increase in the numbers of wildfires and the losses from wildfires.”

When it comes to solving the condo insurance crisis in California, Ruiz mainly talks about wildfire mitigation, like clearing brush and hardening homes.

Policy Incentive for Fire Safety

But future solutions are coming, Ruiz said. Beginning in April, the state will start looking at lower insurance rates as a reward for fire mitigation.

“So the California Department of Insurance has asked all the admitted insurance companies to file new rating structures that would include discounts for home hardening, and community wildfire resilience,” said Ruiz.

“After the changes go through with the Department of Insurance, there will be more insurance available to condo associations, condo owners, and the insurance market will be in a much better place,” Ruiz predicted.

Help at the Federal Level

Within the past year, the Biden Administration has increased efforts to make the job of firefighters safer and better. They’ve done this by signing reform laws into place that drastically increase the compensation for firefighters, change their status to full time employees in many circumstances, and make it easier for them to access mental health services.

In the Biden Administration’s proposed FY2022 budget, there was a significant amount of discretionary dollars earmarked to make new technologies available to firefighters. These technologies could go a long way to making every firefighter more connected, more informed, and better prepared for when disaster strikes, and they’re called into action. Some of these technologies could also make it easier for firefighters that are isolated or injured to be found and rescued.

New Tech Fire Solutions

Here are some of the technologies that the Biden Administration could make available to firefighters, and how they could make a difference in wildfire situations:

Internet of Things (IoT) technologies and sensors

Testing of wildfire detection sensors is currently being spearheaded by the Department of Homeland Security (DHS) Science and Technology Directorate (S&T). According to Jeff Booth, Director of S&T’s Sensors and Platforms Technology Center, “These sensors will provide early alerting capabilities in high-risk areas where detection and alerting aren’t currently available.”

By identifying wildfires in geographically remote, high-risk areas more rapidly, firefighters can begin fighting and managing fires before they grow incredibly large and increasingly dangerous. They can also engage fires before they spread to areas where personal property and lives could be put in danger.

Mobile Mesh Networking

Mobile mesh networking can enable the use of communications and situational awareness tools off the grid in places where other terrestrial networks don’t exist.

This means that firefighters will be able to share information and see each other’s locations even in isolated, remote locations. They can also be used to spread connectivity over a wide geographic area and to each individual without a single, centralized piece of equipment that can be compromised and fail. This means they can deliver resilient and redundant communications that is always available to the firefighter.

Finally, mobile mesh networking can be a low-cost alternative to connecting IoT (Internet of Things) devices. Instead of each individual sensor requiring its own expensive cellular connection – or incredibly pricey satellite connection – mobile mesh can be used to connect IoT devices over a wide geographic area with no recurring cost. This can help accelerate fire focused IoT programs, and enable the government to extend them to more areas at a lower cost to the taxpayer.

Household Self Protection

We have all seen big airplanes dropping red fire retardant powder off the sky over the fired areas. This video shows a preventive alternative before fire starts — without using an airplane. It allows households to spray fire retardant through home or garden hoses on vegetation and yard before fire season.

You do need to spray it every year and it costs $20,000+ a mile for a 20 ft wide zone along power lines or roads. The other potential side effects is environmental or human risk, as fire retardant may have health hazards over human bodies as this video shows.

An Innovation in Solar Panel

Speaking of the home based solutions, one seemingly unrelated development from the MIT One Lab is the creation of solar films that is very thin, flexible, light and yet 18 times more powerful per kilogram than the rigid solar panel that is supposedly capable of turning any surface into a power source. The solar cells are entirely printable, using ink-based materials and scalable fabrication techniques.

While the solar cells are thin and printable, they do have problems. Standing by themselves the solar modules are not easy to handle and can easily tear. The MIT team needs to find a lightweight, flexible, and high-strength substrate to attach their solar cells to.

An ideal material—a composite fabric that weighs only 13 grams per square meter, commercially known as Dyneema, fits the purpose perfectly. By adding a layer of UV-curable glue, they adhere the solar modules to sheets of this fabric. This forms an ultra-light and mechanically robust solar structure.

Hitting Three Birds with One Stone

At this point the idea hits me: If we coat Dyneema with fire retardant chemicals before the MIT solar cells are attached to it, we will produce flame safe and solar capable structure and then install it on rooftops, we will hit three birds with one stone: Home based energy generation, home fire safety and homeowner policies at lowering cost.  

ChatGPT, when asked, gives the following answer on the feasibility of fire retardant coating:

“Yes, Dyneema can be coated with a fire retardant coating. Dyneema is a high-strength synthetic fiber that is often used in applications where flame resistance is important, such as protective clothing and equipment for firefighters, military personnel, and industrial workers.

“There are various types of fire retardant coatings available in the market, including intumescent coatings and ablative coatings, which can be applied to Dyneema fibers to enhance their fire resistance properties. These coatings work by either expanding and forming a protective barrier when exposed to heat or charring to insulate the fibers from further heat exposure.”

In terms of the cost, ChatGPT has the following to say:

“Dyneema is a high-performance fiber that is known for its exceptional strength, light weight, and resistance to abrasion and tearing. The cost of Dyneema can vary depending on the specific application, the manufacturer, and the quantity purchased.

“As a general guide, Dyneema is typically more expensive than traditional materials like nylon and polyester. The price of Dyneema can range from several dollars per yard for small quantities to several hundred dollars per yard for industrial-grade products.

“However, it is important to note that the high cost of Dyneema is often offset by its superior performance, durability, and lifespan. Dyneema is often used in applications where strength and reliability are critical, such as high-performance sails, body armor, and climbing equipment, where the high cost is justified by its benefits.”

I would say for high cost neighborhoods and upper scale houses, Dyneema will have a market demand there. For affordable housing and student housing on campus, on the other hand, other fabrics would work better as long as it is transparent (to allow sunlight to penetrate to the solar cells) and flexible (for easy deployments on rooftops, corners, porches, front yard, detached buildings and backyard. Bear in mind that in the long run the cost for Dyneema will be paid off by the energy it generated, so even affordable housing projects can sometimes choose the longer lasting fabrics.

Again, the beauty of this solution is to potentially make fire safety to pay itself, through generating and selling home generated solar energy, and significantly reduces insurance cost.

The good thing is that many roofs in California already have solar panels installed. All we need to do now is to add another very strong home safety reason to install more. Doing so will make an immediate difference in home finance, because insurance companies will be much more willing to cover your house with fire retardant roofs and front yard and backyard. This would apply especially well to all condos and townhouses or anywhere with an HOA, who will no longer be rejected for master insurance policy by a private insurer.

Maybe in the future all solar panels will be fire retardant by default!

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Property Insurance

Flood Insurance, What Do You Need to Know?

The Takeaways:

  1. Water causes far more human injuries and property damage than file.
  2. Only 1 in 6 homes in the United States is insured against flood. Yet 90 percent of natural catastrophes in the country involve flooding.
  3. The private flood insurance market is slowly but surely growing.
  4. More people and families moved to hurricane- and flood-prone areas in Florida and Texas, as well as parts of California, Nevada, and Washington.
  5. Many people incorrectly assume homeowners insurance covers flood damage or believe they only need flood insurance if their mortgage lender requires it.
  6. The biggest advantage of private flood insurance is extended coverage for flexible policies,

Bad News Related to Water Damages

We humans have more troubles with water than with fire in the past, and will be more so in the future.

Don’t take my words for it. According to this article, “Floods caused an estimated $76 billion in global damages in 2020 and constitute nearly two-thirds of all presidential declared disasters in the United States. It is anticipated that by 2050, national scale high tide flooding will occur an average of 45-70 days per year. These long-term forecasts are expected due to an average sea level rise of around a foot in the U.S, according to the  National Oceanic and Atmospheric Administration (NOAA).”

“While it may be unclear if the physics of flooding is changing from climate change,” the paper says, “there is a clear case that the economic costs of flooding are trending up.”

This article of Triple-I lists the major catastrophes in 2022 of the US, it clearly shows that catastrophes involving water outnumber fire related catastrophes. In other words, we have seen far more “wet” disasters than “dry” ones.

For example, we have 3 tropical cyclones, 62 severe convective storms, 13 winter storms, 15 floodings, adding to a total of 93. Meanwhile, there were 26 wildfires, drought & heatwaves, only about 25% of the water related incidences. In terms of fatalities, the total human toll of water related catastrophes (401) was more than 6 times than that caused by wildfires (65). In terms of economic losses, water related catastrophes ($146+ billion) are more than 8 times higher than wildfires ($18 billion). Finally, water related insured loss in 2022 was $89.9 billion), more than 10 times higher than wildfire related insured loss ($8.9 billion).

Natural Disasters & Social Changes

The first thing to be noticed is that until not long ago, governmental program is the only option for flood insurance, as few private flood insurance is available. Flood was long considered an untouchable risk for private insurers. For decades, FEMA’s (Federal Emergency Management Agency) National Flood Insurance Program (NFIP) was practically the only available option. Before NFIP, “mitigation” meant building more dams and providing post-event recovery assistance.

From this issue briefing by the Triple-I, “The human and economic tolls associated with flooding can be massive. It can take families, businesses, and communities years to recover from a single event. And – until recently – insuring these risks and the cost of helping communities recover fell almost entirely on government programs.”

The second social change is related to where people want to live.

“Losses are on the rise, due to weather and demographic trends: More people are moving into areas most vulnerable to weather and climate-related risks. Since 1940, the number of housing units in the United States has increased most dramatically in hurricane- and flood-prone areas in Florida and Texas, as well as parts of California, Nevada, and Washington that are at an elevated risk of wildfire or drought — and, consequently, mudslides and flash floods.”

The third fact is the low awareness about flood insurance. Many people incorrectly assume homeowners insurance covers flood damage or believe they only need flood insurance if their mortgage lender requires it.

Also low insurance coverage: Only 1 in 6 homes in the United States is insured against flood. Yet 90 percent of natural catastrophes in the country involve flooding.

Meanwhile, financial loss associated with flood is huge. One inch of flood water can cause as much as $25,000 in damage to a home. Between 2010 and 2 018 the annual cost of flood damage was about $17 billion in the United States. This is four times the approximately $4 billion per year recorded in the 1980s.

The financial consequences are real. According to this report on February 27, “Dozens of families displaced by Hurricane Ida now have until Tuesday to move out of a Lower Manhattan hotel.”

A FEMA program paid for the temporary housing until federal aid ended in December.

“I get up to get something to drink and stepped into water up to my knees,” Wilson said recalling the night of the storm.

Wilson isn’t alone, roughly 380 families needed emergency shelter after the storm.

FEMA and the city paid a $1.4 million contract that allowed displaced families to stay at the hotel, but that contract expired at the end of February.

Changes on the way

Improved data, analysis, and modeling have helped drive increased private-sector interest in flood-risk transfer and mitigation. Since 2016 NFIP has been using reinsurance protection. NFIP purchased $1.15 billion in coverage from 32 private reinsurers in 2021, up from 27 in 2020.

Having more reinsurers can provide greater capacity and diversification for the primary insurer, which can reduce their exposure to risk and potential losses. More reinsurers can also provide access to a wider range of products and services, and create more competition in the market, which can drive down prices and improve terms for the primary insurer.

Opening Up Private Flood Insurance Market

On the demand side, in 2019, federal regulators allowed mortgage lenders to accept private homeowners flood insurance if the policies abide by regulatory definitions. Even if private insurance policies do not meet regulations, if insurers provide adequate protection according to general safety and soundness requirements. This is likely to impact homeowners in states where most of the nation’s flood insurance policies are held.

The increase in private coverage helps spread the economic risk related to flooding. In terms of coverage: Private flood insurance policies may offer more extensive coverage options than the NFIP policies. Furthermore, private insurers also may offer coverage for basements, detached structures , and additional living expenses, which are not typically covered by the NFIP. Private insurers may also offer higher coverage limits than the NFIP.

In terms of cost: Private flood insurance may cost less or more than the NFIP, depending on various factors such as location, flood risk, and coverage options. Private insurers may offer discounts for mitigation measures like elevated home or installing flood-resistant materials. The NFIP premiums are set by the federal government and are based on the property’s flood risk zone, year of construction, and occupancy type.

In terms of availability: Private flood insurance policies may not be available in all areas, and some areas may have limited options. The NFIP is available in most communities that participate in the program, although some high-risk areas may have limited coverage options.

The NFIP may offer some advantages such as lower rates in certain areas and guaranteed coverage for eligible properties, while private insurers may offer more flexible coverage options and potentially better customer service.

Private flood includes both commercial and private residential coverage, primarily first-dollar standalone policies (i.e., providing coverage from the first dollar of loss, without requiring the policyholder to pay a deductible or self-insured retention before the insurance coverage begins) that cover the flood peril and excess flood. Excludes sewer/water backup and the crop flood peril. Does not include FM Global, which is a mutual insurance company that specializes in property insurance, loss prevention engineering, and risk management services. It was founded in 1835 as the “Factory Mutual Fire Insurance Company” and has since become one of the largest commercial and industrial property insurers in the world.

In 2021, FEMA unveiled details of Risk Rating 2.0 – its plan to modernize NFIP to make it fairer and more sustainable. The changes measure flood danger differently – gauging properties’ specific risks and replacement costs, rather than simply whether they sit in a FEMA-designated “flood zone.” FEMA officials said this would end a system in which low-value homes effectively subsidize insurance for high-value homes. FEMA also launched its National Risk Index for natural hazards. The online mapping application identifies communities most at risk for 18 types of events. It visualizes the risk metrics and includes data about expected annual losses, social vulnerabilities, and community resilience.

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Property Insurance

Do You Really Know the House You Live in?

The Takeaways:

  1. Thousands of buildings in California share a flaw with many buildings collapsed in Turkey and Syria with the non-ductile concrete that does not have much steel reinforcement and holds up poorly in earthquake conditions.
  2. While the number of non-ductile concrete buildings in California are alarming, they aren’t nearly as common as they are in Turkey, primarily because such buildings stopped being erected in the United States after a 1971 earthquake in San Fernando. 
  3. Estimates of California non-ductile buildings range between 7,000  to as many as 17,000 buildings in the highest-risk counties.
  4. Cities in California are actively working to retrofit non-ductile concrete buildings, although one major obstacle is the cost.
  5. We can learn 7 things from the recent Hurricane Ian in Florida: replacing aged roof covering, a fully sealed roof deck, roof to wall connections, windows rated for high wind pressure and debris, unbraced garage door, elevated structures or foundation and having flood vent.

Two Reports on Building Materials You Should Know

I’ve read two recent pieces that I’d like to share with you. The first is more newsworthy and relevant to California, with a title that says: “Some California buildings share a flaw with the ones that fell like ‘pancakes’ in Turkey quake, but similar devastation is unlikely.”

The second is indirectly relevant, as it talks about ways to protect your home in 2023. It is more directly relevant to Florida, as “experts reveal how hurricane mitigation efforts … have created more resilient homes – and how homeowners can further build upon this in 2023.” You must admit that the title is attractive: Who would not want to learn to make their home stronger?

A NASA article has the following words for California: “There’s an old adage (with several variations) that California has four seasons: earthquake, fire, flood and drought. While Californians happily cede the title of Hurricane Capital of America to U.S. East and Gulf coasters, every once in a while, Mother Nature sends a reminder to Southern Californians that they are not completely immune to the whims of tropical cyclones.”

The commonality behind them however is about how to make your home stronger to resist natural disasters like earthquake or hurricane. Although the latter does not happen frequently, all houses will benefit from the extra strength families can add to their beloved building.

Ways to Make Your House Strong

None of the seven ways of protecting a house is mysterious and perhaps all have been heard of before by most Californian homeowners.

The first way is roof covering or to replace aged roof coverings. It is highly expected that intact roof coverings minimize water intrusion, while aged shingles may become unsealed and more prone to damage by high wind. In Florida the term “aged roof” refers to 7-10 year old, although without hurricane the age of shingles can be longer in California.

The second is roof deck, which refers to the last line of defense for preventing water intrusion if the shingles or roof coverings are displaced in a hurricane of storm. Florida experience says a fully sealed roof deck will help minimize interior damage in future hurricane events.

The third is roof to wall connections, although this one is unlikely to be as important as in Florida, where it shows a roof that does not have a connection that fully wraps around the roof truss and connect to the walls is more likely to be lifted completely off the structure in high winds.

Window is the next item. From Hurricane Ian Floridian found that windows rated for high wind pressure and debris impacts are critical to structure survivability, which limit major interior damage and structural failures in Hurricane Ian.

The fifth is garage doors need to be braced, as unbraced garage door can buckle under high wind pressure allowing the interior of the structure to pressurize, putting the home at risk of a major structural failure.

The sixth is foundation. This time with Ian more than 10 feet of storm was recorded. Elevated structures built to current building codes suffered limited damage while structures built directly on the ground were severely damaged.

The last one is flood vent that can be found in many newer homes on the Southwest Florida coast, which helps mitigate foundation failures due to storm surge. The flood vents allow storm surge to move in and out of the structure without creating excessive pressure on the walls.

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Property Insurance

The Risks in Owning a Tesla You Should Know

The Takeaways:

  1. Tesla has recently recalled 362,758 vehicles for flaws with its “full self-driving” software.
  2. Risks of battery safety, cyber vulnerabilities, and high cost of entry, these are the three commonly listed barriers, to which I would add two more: software immaturity and high maintenance and insurance costs.
  3. This is not discouraging the purchase of EVs, as I have faith in the new technology, just a friendly reminder that EVs are not perfect but will get better and safer as we speak.  

The Good & Bad News for Tesla

All new vehicle sales in California last year dipped 10% (nationwide it dropped by 7.9%). Yet the hybrid market share continues to steadily grow, the report from the California New Car Dealers Association shows. The California hybrid/EV market share was 31.1 % last year, according to the association.

Yet on February 16, 2023, news had it that “Tesla is recalling 362,758 vehicles because a version of its “full self-driving” software may increase the risk of crashes, according to the National Highway Traffic Safety Administration in response to a notice Tesla sent the agency on Wednesday.”

More specifically, the full self-driving software may cause the vehicles to travel “straight through an intersection while in a turn-only lane, [enter] a stop sign-controlled intersection without coming to a complete stop, or [proceed] into an intersection during a steady yellow traffic signal without due caution.” In addition, “the system may not respond sufficiently to changes in posted speed limits, or not adequately account for the driver’s adjustment of the vehicle’s speed to exceed posted speed limits.”

The recall affects 2016-2023 Model S and Model X vehicles; 2017-2023 Model 3 vehicles; and 2020-2023 Model Y vehicles.

General Risks with EV

As with any mode of transportation, there are risks associated with owning an electric vehicle. One risk highlighted by an article in Forbes is battery safety. While electric vehicle batteries are generally safe, there are still potential risks that owners should be aware of, such as thermal runaway and fire hazards. It’s recommended that owners follow smart everyday battery safety practices to mitigate these risks.

As this article of Insurance Journal points out in November 2022, “A key concern with EVs is fire from lithium batteries.” Most of us have had the experience that when you get to the airports, one of the first things at the safety check-in spot was to take out your lithium batteries from your electronic devices. This is because the spontaneous fire exposure risks that first-generation lithium batteries presented.

But what you may not be aware of is risk associated with the growing number of E-bikes.

“The National Law Review recently published a warning of a ‘recent surge in electric bike fire in New York City,’ listing four causes of fires from the lithium batteries in E-bikes: design flaws; battery damage; exposure to heat; and use of the wrong charger. Storing and charging electric bikes and scooters in homes and apartments thus exposes occupants to a potential severe fire risk.”

“In the last 18 months, there were over two dozen lithium fires investigated in New York City public housing buildings. The increased frequency and severity of scooter and E-bike fires has led the New York City Housing Authority to consider a ban of these vehicles in public housing.”

But E-bike fire hazard is no comparison with that of EVs, because “(t)he size of the batteries in EVs, as well as the combustible materials that make up the automobile, provide both a fuel source and source of ignition.” It’s like putting matches next to a heap of explosions — although I’m sure precautious steps and designs have taken that into account by now.

Furthermore, the Insurance Journal article tells us that EV fires “can be very difficult to extinguish, and water can have little firefighting impact. Vehicles have been observed in some cases to reignite after they have been towed away.”

Things that can be done by EV owners include parking EV away from combustible structures or other vehicles, especially when charging. If an EV is in an accident, an immediate inspection of its electrical system and batteries is necessary and highly recommended. Any impact could damage the battery and/or electrical system, leaving the EV more vulnerable to ignition.

A Surprising Risk with EV

Another risk associated with electric vehicles is cyber vulnerabilities. Many owners perhaps do not realize this, but it is true. As electric vehicles become increasingly connected, they become more susceptible to cyber-attacks, system outages, and other issues. There have already been product recalls in the automotive sector as a result of cyber security issues. This could also have implications for insurance claims, as the complexity of these issues could make it difficult to determine liability.

A Financial Risk

Finally, one of the present-day disadvantages of electric cars is their cost. Electric vehicles are generally more expensive than traditional gasoline vehicles, largely due to the cost of the battery. Modern batteries require lithium, which can only be mined in a handful of countries, leading to potential supply chain issues that could drive up the cost of electric vehicles. This high cost could be a risk for some potential owners who may not be able to afford the prohibitive entry price of electric cars.

An Insurance Headache?

This report by Insurance Journal brings another risk to our attention: the cost to repair. A new report “shows sales of electric vehicles in California rose by more than 50% last year from 2021 with an estimated increase in market share of 17.1%.”

Even in California, EVs are still relatively few, which means scarcity of replacement parts. Both push up repair costs.

The most recent data on EV claim frequency and severity from 2020 shows the frequency of crashes tend to be lower because of the advanced driver-assistance features included in most of these new vehicles. However, the figures show collision severity is higher.

A report from Verisk last year shows the cost of insuring electric vehicles tends to be higher than gas-powered vehicles. 

Mercury Insurance, a large California auto insurer, reports EV repair costs can be nearly 20% higher than the average vehicle repair cost on first-party coverages, such as collision.

“EVs are full of technologies that go beyond simple auto maintenance and repair,” said Justin Yoshizawa, Mercury’s director of product management. “So many of these features – like self-driving, safety, entertainment and comfort tech – are unfamiliar ground to many technicians and, even with familiarity, more time is required to evaluate and address potential issues with such features. It makes EVs costly to repair. And that’s not even taking into account the ongoing constraints of supply chain issues and labor.”

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Property Insurance

A 14-year-old Stole 26 Kia and Hyundai in Two Months, What You Need to Know About Comprehensive Auto Insurance Coverage

The Takeaways:

  1. Design flaws (e.g., lacking electronic engine immobilizers in certain models of Kia & Hyundai) open the product up for theft or other property damages.
  2. Social media could be a fast contagious source of risk exposures and financial losses if coupled with lax regulations and little screening of posts/clips.
  3. Insurers can choose not to cover those models in the future, but existing policyholders of comprehensive coverage will still be covered under the current policy.

Owners can shop around for insurance carriers who do write policy for those models, and you can also find government sponsored insurance.

A Case of Youth Offenders Armed by Bad social media.

According to a February 5 report by Cleveland.com, criminal charges were filed in the week before against two 14-year-old Cleveland boys, one of them stole more than two dozen Kia and Hyundai cars that social media essentially unlocked them last summer.

The age of the suspects is not the only thing shocking, as “the number of insured Kias and Hyundais stolen in Cuyahoga County jumped more than 233% from October to December, when 656 cars were stolen in the county. Cleveland alone saw 459 thefts of the two makes in the final month of 2022.”

“The surge is sparked by a viral TikTok video from the so-called Milwaukee Kia Boys that showed how to steal the cars using a USB cable.”

“The technique works because the manufacturers did not install electronic engine immobilizers in models that require a metal key instead of a push-button start, an anti-theft measure that was ‘standard equipment on nearly all vehicles of that vintage made by other manufacturers,’ according to a September 2022 report from the Highway Loss Data Institute.”

The same HLDI report says stealing these vehicles became a social media trend in 2021 as car thieves began posting videos of their thefts and joyrides and even videos explaining how to steal the cars.

More specifically, HLDI released insurance claims data last September that confirmed that some 2015 through 2019 Hyundai and Kia models are roughly twice as likely to be stolen as other vehicles of similar age. Furthermore, these cars don’t have electronic immobilizers that were standard equipment on 96% of vehicles sold for the 2015-2019 model years.

In Chicago, where only 328 Kias were stolen in 2021, more than 3,500 were stolen last year, CBS Chicago reported.

According to Insurance Information Institute or Triple-I, three anti-crime organizations have asked YouTube to take down all videos that teach people how to steal Kia and Hyundai automobiles. The organizations – the National Insurance Crime Bureau (NICB), the Coalition Against Insurance Fraud, and the International Association of Special Investigation Units (IASIU) – made their request in response to a spike in thefts of these vehicles.

Celeste Dodson, president of IASIU, added, “When a vehicle is stolen, it is often not the end of the crime but the beginning. Vehicle thefts are associated with a multitude of criminal activity, including insurance fraud. The cost of these crimes is then passed on to consumers through higher premiums.”

Legal Ramifications

The story does not stop with those cars already stolen, owners of those makes and models are all affected. The aforementioned report by Cleveland.com says that “Progressive and State Farm, two of the country’s largest auto insurers, said in the last week that they have stopped writing new policies for certain makes and models of Kias and Hyundais. And some existing customers in places like Denver and St. Louis have seen their insurance premiums hiked in recent months, news outlets have reported.”

“A Missouri-based attorney filed a lawsuit in federal court in October that seeks class-action status on behalf of owners of the affected Kia and Hyundai models.

“Seattle on Friday sued the manufacturers after that city saw a jump from 48 of those makes stolen in August to 197 in December.

“Asked whether Cleveland would consider such an action, city spokeswoman Marie Zickefoose said, ‘the law department is evaluating options at this time.’”

How Bad social media can impact insurance.

  1. Spread of misinformation: Social media platforms can spread misinformation about insurance products and services, leading to confusion and mistrust among customers.
  2. Reputation damage: Negative comments and reviews about insurance companies can quickly spread on social media and harm their reputation. This can lead to a loss of trust and business.
  3. Cybersecurity risks: Insurance companies that use social media to collect sensitive information from customers may face cybersecurity risks, such as data breaches and hacking. The cases we are talking about here are of this category.
  4. Regulatory compliance: Insurance companies must comply with strict regulations regarding the use of social media. Misuse of social media, such as making false or misleading statements, can result in legal and financial consequences.
  5. Negative customer experiences: Insurance companies that use social media to process claims or respond to customer complaints may not always provide the level of customer service that customers expect. Negative customer experiences can be amplified on social media and harm the reputation of the insurance company.

Are Kia and Hyundai Owners Out of Luck?

If you’re a current owner of a Kia or Hyundai from those vulnerable model years, don’t worry if you bought a comprehensive coverage for your auto, which typically cover theft of a vehicle, including a Kia or Hyundai model without an electronic engine immobilizer.

Comprehensive insurance is a type of auto insurance coverage that protects against damage to your vehicle that is not caused by a collision. This includes theft, vandalism, fire, and natural disasters.

However, the exact coverage and details of a comprehensive insurance policy can vary depending on the insurance company and policy terms, so it’s important to review your policy documents or speak with your insurance provider to understand what is covered and what is not.

If you recently bought a secondhand Kia or Hyundai of those model years, even though some insurance companies won’t issue policy for your auto, you can still do your research and shop around to find insurance carriers that do provide coverage for your model.

You can also check with your local Kia or Hyundai dealership to see if they have any recommendations for insurance providers that offer coverage for their cars.

Additionally, you may be able to find coverage through a government-sponsored insurance program or a specialty insurance provider.

Categories
Property Insurance

Earthquakes Killed 17,500+ in Turkiye & Syria, What Lessons Can We Learn?

The Takeaways:

  1. Insurance matters all the time — oftentimes we don’t see until hit by a catastrophe. In the end, buying insurance could be the best investment you ever make in your life.
  2. Earthquake insurance coverage is not a decoration number to make the insurance book pretty, it can be the difference between life and death.
  3. Coverage must be enforced to save lives and get the places quickly up from disasters.
  4. Reinsurance matters especially for catastrophic events to keep insurance carriers on their feet rather than bankrupted or out of business.
  5. Some governments like China emphasized political mobilization of citizens to stay safe in pandemic, which has its own liability and risk. It is better to have risk management (e.g., massive social lockdown) and risk transfer (i.e., insurance coverage) at the same time.

Earthquake News in the Words of a Financial Rating Agency

According to financial ratings agency Fitch on Thursday February 9, the initial earthquake and numerous aftershocks struck southern and central Turkiye and western Syria on 6 February had claimed more than 17,500 lives so far from a maximum magnitude of at least 7.8, the most severe earthquake in the region since 1999. 

The toll is expected to rise as rescuers comb the rubble for survivors. On top of that, insurable losses are hard to estimate as conditions change all the time. At this time “they appear likely to exceed USD2 billion and could reach USD4 billion or more. However, insured losses could be much lower, perhaps around USD1 billion, due to low insurance coverage in the affected regions.”

“The Turkish Catastrophe Insurance Pool (TCIP) was created after the Izmit earthquake of 1999 to cover earthquake damage to residential buildings in urban areas. However, it does not cover human losses, liability claims or indirect losses, such as business interruption. Moreover, earthquake insurance cover is technically mandatory in Turkiye, but is very often not enforced in practice. As a result, many residential properties are not insured, particularly in many of the affected areas, where low household incomes constrain affordability.”

Six Lessons Learned

  1. Importance of insurance coverage: The low insurance coverage in the affected regions highlights the importance of having adequate insurance coverage. It’s crucial to understand the risks that you face and to make sure you have the right coverage in place to protect yourself, your family and your assets.
  2. Risks in underinsured regions: Natural disasters can strike anywhere and perhaps in least expected times. They can result in significant losses for sure. In regions where insurance coverage is low, the economic impact of a disaster can be even more devastating. This highlights the need for governments and insurance companies to work together to increase insurance penetration in these areas.
  3. Preparedness is key: While insurance can help mitigate the financial impact of a disaster, being prepared in advance is crucial. This includes having an emergency plan in place, taking steps to secure your home and property, and staying informed about potential threats. We don’t have detailed information on how well the Turkish people were prepared but judging from the low coverage rate we have reason to suspect a low preparedness this time.
  4. Reinsurance matters by sharing and spreading risk among insurance companies. Major catastrophes almost always rely on reinsurance to save insurers.
  5. The importance of accurate loss estimates: Accurate loss estimates are critical for the insurance industry to respond appropriately to a disaster. Insured losses from a disaster can have a significant impact on the financial stability of insurance companies and the broader economy. It is reasonable to think that preparedness and accurate loss estimates are linked such that when one is low, the other is low as well.
  6. Some places (e.g., China) have emphasized risk management (e.g., massive social lockdown and tests) during pandemic, but doing that without developing a good system of risk transfer (i.e., insurance) has its own risks. What we need is both risk transfer and risk management.

One Knowledge Point: Insurable vs. insured losses

In the above news by Fitch, there is a big gap between insurable loss and insured loss. Below is the highlighted difference between the two.

Insurable losses refer to the potential losses or damages that an individual or business can be covered from an insurance policy. This could include losses due to property damage, liability, theft, natural disasters, and other covered events as outlined in the insurance contract. Insurable losses are the losses that the insurance companies are willing to provide coverage for.

Clearly not all losses are insurable. Uninsurable losses are risks or events that cannot be covered by insurance due to various reasons, such as reputational risk, regulatory risk, trade secret risk, political risk, and pandemic risk. In addition, some risks may also be considered uninsurable due to the absence of adequate data or the difficulty in predicting the likelihood and severity of the losses.

Insured losses, on the other hand, refer to the actual losses that occur and are covered by an insurance policy. When an insurable loss occurs, and if the individual or business has insurance coverage, they can file a claim to receive compensation for the covered losses. The compensation provided is limited to the terms of the insurance policy, including the maximum coverage amount, deductibles, and exclusions.

From the Turkish earthquake we can see sometimes there can be a huge gap ($3 billion) between insurable ($4 billion) and insured losses ($1 billion), due to a low coverage rate and unenforced mandatory insurance in certain jurisdictions.

But Turkiye is not alone. According to this report, the cost of storm damage in an average year results in USD 19 billion in uninsured losses from flooding in the US, compared to USD 5 billion in insured losses. This is due to the fact that only one in six homes in the US has flood insurance, and many risks related to flooding are considered uninsurable.  

Reinsurance Matters

From the Fitch news we also learned that the bulk of the insurance cost will be covered by reinsurance and there is no major impact on the rating of the insurance companies.

So what is reinsurance? This article provides a highly readers friendly answer:

“At its most basic level, reinsurance is insurance for insurance companies. If there is a catastrophic event that affects many homeowners, like a hurricane or strong earthquake, those losses can be so staggering that paying claims could cause an insurance company to become insolvent.”

Reinsurance works by allowing insurance companies to purchase insurance policies from other insurers, thus spreading the risk across multiple companies. This helps to reduce the likelihood of large payouts for a claim and allows insurance companies to remain solvent by recovering all or a portion of their losses through the reinsurance process. For example, in a hurricane or strong earthquake that affects many homeowners, the losses can be too high for a single insurer to pay all the claims, causing the insurance company to become insolvent. In such a case, reinsurance allows the insurance company to transfer some of the risk to another insurance company, reducing the potential for insolvency.

Categories
Property Insurance

Oh No, a 50-Car Train Derailment in Ohio! What Insurance Covers That?

The Takeaways:

  • For train derailments the first thing coming to many minds is “inland marine” insurance, which however may not be true.
  • Commercial general liability insurance usually covers the most ground.
  • The cause of the derailment, the ownership of the train and cargo, and the location of the incident, these may all enter the equation.
  • If the train was carrying hazardous materials, there may also be environmental liability insurance in place to cover any cleanup and remediation costs, although this may not be relevant for trains carrying cars.

The Bad News

According to the AP news on February 4, 2023, “A freight train derailment in Ohio near the Pennsylvania state line left a mangled and charred mass of boxcars and flames Saturday as authorities launched a federal investigation and monitored air quality from the various hazardous chemicals in the train.”

“About 50 cars derailed in East Palestine at about 9 p.m. EST Friday as a train was carrying a variety of products from Madison, Illinois, to Conway, Pennsylvania, rail operator Norfolk Southern said Saturday. There was no immediate information about what caused the derailment. No injuries or damage to structures were reported.”

“20 of the more than 100 cars were classified as carrying hazardous materials — defined as cargo that could pose any kind of danger ‘including flammables, combustibles, or environmental risks.’”

50 Car Train Derailment in Ohio. Source: AP News Drone Image

Now, who is covering the big mess?

A 50-car train derailment can result in significant property damage, environmental harm, and liability for personal injury. The type of insurance that would cover this loss would depend on several factors, including the cause of the derailment, the ownership of the train and cargo, and the location of the incident.

Generally, liability coverage is provided by commercial general liability insurance and railway protective liability insurance. The railway company may also have a self-insured retention or deductible to cover smaller losses. If the train was carrying hazardous materials, there may also be environmental liability insurance in place to cover any cleanup and remediation costs.

In the event of damage to the train and cargo, the railway company and/or the owners of the cargo may have marine cargo insurance or inland marine insurance. If the train was being operated under a lease agreement, the lessee may have rolling stock insurance to cover the dam age to the train.

It’s important to note that insurance coverage for a train derailment can be complex and the actual coverage will depend on the specific policy language and any exclusions that may apply.

As a final note, the news did not tell us details about what caused the accident, who own the train and cargo. Knowing those will allow us to say more about the insurance.

Would inland marine insurance policy cover train derailment?

If you know even a bit of insurance, enough to get you pass the license exam, then you most likely will remember a type of insurance called “inland marine” insurance.

Inland Marine Insurance Covers Stuff in Move

This is a funny name because the term “marine” historically referred to transportation of goods by water or even ocean, but now it also covers transportation of goods by land. The term “inland” distinguishes this type of insurance from “ocean marine” insurance which specifically covers transportation of goods by sea.

Inland marine insurance generally covers goods in transit and other movable property, such as bridges and tunnels, and provides protection against loss or damage from various causes such as theft, fire, and weather events being moved within a country.

In the case of a train derailment, an inland marine insurance policy may provide coverage for the damage to the goods or property being transported by the train. This would depend on the specific policy language, the cause of the derailment, and any exclusions or conditions that may apply.

It’s important to note that while inland marine insurance may provide coverage for goods and property being transported by train, it is not specifically designed to cover train derailments. For that, the railway company and/or the owners of the cargo may have railway protective liability insurance or commercial general liability insurance.

Additionally, if the train was carrying hazardous materials, there may also be environmental liability insurance in place to cover any cleanup and remediation costs.

What is environmental liability insurance?

Environmental liability insurance is a type of insurance coverage that protects individuals and businesses against financial loss and legal liability for damages or injury to the environment, including natural resources and wildlife, as a result of their operations or products. It covers costs associated with cleaning up contaminated sites, compensating affected parties, and defending against legal action related to environmental issues. Environmental liability insurance is often required by law for certain industries and businesses, and is also available to protect against the risks associated with environmental incidents caused by a third party.

Environmental Liability Insurance Covers Hazardous Materials