This article was produced in partnership with REInsurePro.
From the devastating wildfires sweeping through California to hurricanes intensifying in the Atlantic, extreme weather events are becoming more frequent, unpredictable, and severe. These primary events are often followed by secondary perils such as flooding, tornadoes, mudslides or landslides, as well as convective storms that can give rise to thunder, lightning, heavy rain, and hailstorms. These secondary perils are increasingly a primary consideration for the insurance industry, driving up costs, reshaping risk models, and straining capacity in ways not seen before.
“In general, carriers are paying more attention because, in the simplest terms, it’s starting to cost them a lot more,” says Jason Jones, SVP Risk Management at REInsurePro. “It’s important for all involved to understand the nature of secondary perils becoming more prevalent, and to know how to protect themselves.”
With the increasing number of secondary perils in places historically unfamiliar with them, initial structures may not be equipped to withstand them. Not only do these events impact at the time, but they have significant aftershocks as well, beyond the clean up. For example, California now has a burn scar from the fires that won’t allow as much water from the next flood, mudslide, or landslide to absorb into the ground as it usually would, and there aren’t as many natural barriers to protect structures either.
In response, insurers are doing more research into what types of damage secondary perils are causing and using those metrics to establish rates. Technology is increasingly playing a role, with mapping software, for example, examining the actual topography of a location. Is a city higher or lower than sea level? Is it in the mountains, or close to a forest? Has there been a concentration of historical storms or weather events in a certain place? There are also websites that provide scoring modules associated with wildfire, hail, convection, or even lava.
Overall, they're taking a much closer look at data like topography, weather patterns, and wildfire scores to determine pricing so that they maintain the financial ability to pay out claims now and in the future. If an insurer assumes to much risk present-day and pays out a large number of expensive claims, there could come a time when that insurer becomes insolvent — and therefore unable to help their insureds.
“This research also determines if it’s a viable area to remain in,” Jones adds. “You’re seeing some carriers becoming more reluctant to stay because they’ve been affected largely by events and don’t want to write additional business.”
So, what can be done to mitigate some of the risk arising from secondary perils? Carriers, brokers, and property owners need to be aware of their roles, Jones notes.
“Everyone should account for what's going to continue to happen — which is increases in particular storms and increases in costs — whether it’s the insurer using technology to better understand what’s happening in a certain area, the insured managing it through maintenance on your property or adding on a different insurance coverage, or the broker presenting a product in a way that helps clients understand what’s appropriate.”
Some carriers and brokers are also engaging in programs to build awareness and hopefully counteract some of the damages that may occur. Maintenance is a big part of this push. An older roof or aging siding is naturally more susceptible to damage, so it pays to keep the property in the best condition possible.
Another proactive step is to be aware of the resources available. If the area is prone to flooding, where can sandbags be obtained? What local authorities can help in these events and what advice are they giving? Preparation is key.
“Realistically, property owners are relying on the property managers and tenants to give feedback,” Jones adds. “If things are out of whack on the property, they’ll see it before anyone else. Keeping up on maintenance is important in mitigating some of the damage you might see.”
Specifically for brokers managing the increasing impact of secondary perils on their portfolios, it’s critical to engage with clients and thoroughly understand what the risks are for a particular property. Extra protection above and beyond standard coverages, deductibles for hail loss versus fire loss, coverage amounts, and actual cash value versus replacement cost are key considerations.
There are also proactive measures to discuss that don’t directly have to do with coverage. For example, you know what you’re dealing with when a flood occurs: water in the house, cutting drywall out, replacing floors, etc. Would it be more cost effective in the long run to build a drainage system outside the home? Is it possible to add some natural barriers that might provide some extra protection?
Carriers are becoming more creative in how they’re managing these risks, including increased deductibles for clients willing to take on more risk or offering coverage on an actual cash value basis. This provides some flexibility for brokers when speaking to clients about insurance needs, and that adaptability is an approach REInsurePro wholeheartedly believes in.
Recognizing a gap in the market for adequate coverage options for residential real estate investment properties, REInsurePro launched its program in 2008. Since then, it has evolved alongside the industry. This includes expanding its network of top-rated carriers to underwrite its offerings, developing technology to provide an unparalleled experience for both agents and clients, and supporting agents in the growth of their business in the real estate market.
While they offer all the standard coverages as well as ancillary products, REInsurePro stands apart because of its bespoke approach. The team strives to bundle it in a tailored way that’s practical, identifying what solutions are needed up to the level of protection that the broker and client feel is appropriate and in line with whatever cost cap they may have.
Far from cookie-cutter solutions, “we are extremely flexible in the coverage we offer,” Jones says, urging brokers to get in touch to experience the depth of knowledge and commitment to service that sets REInsurePro apart.
“What we’re able to do is cater to a specific property, which is what you need in an environment where secondary perils and their impact are under the microscope,” Jones sums up. “If your client is in a position where they need to be protected, we have options — and we’d love to speak to you about them.”
