Highlights and Lessons Learned from a National Symposium Series on Coastal Insurance Issues
THE TRAVELERS INSTITUTE
travelersinstitute.com
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Ta b l e o f C o n t e n t s
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
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The Travelers Companies, Inc. established the Travelers
InstituteSM 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.
T r a v e l e r s I n s t i t u t e M i s s i o n St a t e m e n t
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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.
Highlights and Lessons Learned from a National Symposium Series on Coastal Insurance Issues.
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.
T r a v e l e r s I n s t i t u t e M i s s i o n St a t e m e n t
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Friday, October 30, 2009 Charleston Maritime CenterCharleston, South Carolina
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• JosephP.RileyJr.,Mayor,CityofCharleston,SouthCarolina• LeslieJones,DeputyDirectorforActuarial,Market
and Alternative Risk Transfer Services, South Carolina Department of Insurance
• DebCallahan–President,TheH.JohnHeinzIIICenterForScience, Economics and the Environment
• SharleneLeurig–ManagerofInsuranceProgram,Ceres• EricNelson,VicePresident–EnterpriseCatastropheStrategy
and Analysis, Travelers
PARTneRS The Travelers Institute, the City of Charleston, the South CarolinaDepartmentofInsurance,TheHeinzCenter,Ceresand
the Independent Insurance Agents & Brokers of South Carolina
THe HeInz CenTeR TheHeinzCenterisanonprofit,nonpartisanthinktankdedicated 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.
CeReSCeres is a national network of investors, environmental organizationsandotherpublicinterestgroupsworkingwithcompanies 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.
South Carolina Coastal Risk Symposium
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.
JoanWoodward,TheTravelersInstitute;DebCallahan,TheHeinzCenter;andCharleston Mayor Joseph P. Riley
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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,
TravelersExecutiveVicePresident,PublicPolicy,andPresident
of the Travelers Institute, the panel included:
• TheHonorableMayorJosephP.Riley–
Mayor, City of Charleston, South Carolina;
• LeslieJones–
Deputy Director for Actuarial Market and Alternative Risk
Transfer Services, South Carolina Department of Insurance;
• DebCallahan–
President,TheHeinzCenter;
• SharleneLeurig–
Senior Manager of Insurance Program, Ceres;
• EricNelson–
VicePresident,EnterpriseCatastropheStrategyand
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
prudentlyanalyzingtheimpactofdevelopment.Heemphasized
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.
DebCallahan,PresidentofTheHeinzCenter,anonprofit,
nonpartisan think tank dedicated to improving the scientific
and economic foundation for environmental policy, highlighted
recommendations from the recently completed Resilient
CoastsBlueprint.DevelopedbyTheHeinzCenterandCeres,
the Blueprint recommends action steps to adapt to changing
climate trends to protect America’s coastlines. According to
Ms.Callahan,TheHeinzCenterbelievesthatproperty
losses can be cut more than 50 percent by implementing
and enforcing strong building codes, steering development
awayfromlandconsideredhazardous,constructingcoastal
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
organizationsandacademia.
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
Tommy Cook, John T. Cook & Associates; Jules Anderson, Anderson Insurance Associates;andFrankSheppard,IndependentInsuranceAgents&Brokersof South Carolina
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lobby for insurance rates that adequately reflect real risk and
federal programs to assist property owners in reducing their
risk.Forexample,theNationalFloodInsuranceProgrammust
be reformed to achieve financial stability in order to pay claims.
Further,Ms.Leurigbelievesinnovativefinancialmechanisms
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
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1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
$900
$800
$700
$600
$500
$400
$300
$200
$100
0
Hurricane Andrew(1992)
4FloridaHurricanes
Ike
Katrina, Rita
& Wilma
In the period between 1990 and 2010, total exposure to loss
intheresidualmarket(FAIR&Beach/WindstormPlans)has
surged from $55 billion in 1990 to $758 billion in 2010.
$55
$150
$282
$221$244
$292
$372
$431 $420
$657
$772
$696 $703$758
U . S . Re s i d u a l M a r ke t E x p o s u r e t o L o s s ( B i l l i o n s o f D o l l a r s )
Source: Insurance Information Institute
Residual Markets are insurance markets which provide coverage for risks for those unable to purchase insurance in the voluntary
market.
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Partnership on Mitigation: Building and Insuring Safer Homes
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
Monday, December 7, 2009 Travelers Claim uWindsor, Connecticut
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–EricNelson,VicePresident,EnterpriseCatastrophe Strategy and Analysis, Travelers
• JulieRochman,President&CEO–InsuranceInstitute for Business & Home Safety
• DailRowe,Ph.D.,SeniorScientist,RegionalManager–WeatherPredict Consulting, Inc.
• ManuelLonfat,Ph.D.,ManagingDirector–Travelers• JayGuin,Ph.D.,SeniorVicePresidentofModelingand
Research – AIR Worldwide• AnnRoberson,Manager-SouthCarolinaSafeHome
Program, South Carolina Department of Insurance
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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.
HostedbyJoanWoodward,TravelersExecutiveVicePresident,
Public Policy, and President of the Travelers Institute, and
moderatedbyEricNelson,VicePresident,TravelersEnterprise
Catastrophe Stategy and Analysis the panel included:
• JulieRochman,PresidentandCEO–InsuranceInstitutefor
Business & Home Safety (IBHS)
• DailRowe,Ph.D.,SeniorScientist,RegionalManager–
WeatherPredict Consulting, Inc.
• ManuelLonfat,Ph.D.,ManagingDirector–Travelers
• JayGuin,Ph.D.,SeniorVicePresidentofModelingand
Research – AIR Worldwide
• AnnRoberson,Manager–SCSafeHomeProgram,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.
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.
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.Rochmanalsogaveaprogressreportontheorganization’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.
(L to R) Ann Roberson; Jay Guin; Manuel Lonfat; Dail Rowe; Julie Rochman; Eric Nelson
Dail Rowe, WeatherPredict Consulting and Julie Rochman, IBHS
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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.
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
PuntaGorda,Fla.,followingHurricaneCharleyin2004.Onebuilt
incompliancewith2001Floridabuildingcodestandardsdidvery
well, with minimal damage. However, a similar home constructed
in 1988, in the same neighborhood, suffered thousands of
dollars in damage.
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
educationandpartnershipswithotherorganizations,SCSafe
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.
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.
Joan Woodward, The Travelers Institute
Ann Roberson, SC Department of Insurance
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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/.
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Improving Availability and Affordability of Coastal
Windstorm Insurance
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.
EleanorKitzman,FormerSouthCarolinaDirectorofInsuranceandcurrentTexas State Commissioner of Insurance
Monday, May 10, 2010 Hyatt Regency lost PinesAustin, Texas
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
• EricNelson,VicePresident,EnterpriseCatastrophe Strategy and Analysis, Travelers;
• EleanorKitzman,FormerDirectorofInsurance, South Carolina and current Texas State Commissioner of Insurance;
• DebraT.Ballen,GeneralCounselandSeniorVicePresident of Public Policy, Insurance Institute for Business and Home Safety (IBHS).
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ModeratedbyJoanWoodward,TravelersExecutiveVice
President of Public Policy and President of the Travelers
Institute, the panel included:
• EleanorKitzman,formerDirectorofInsurance,
South Carolina and current Texas State Commissioner
of Insurance;
• DebraBallen,GeneralCounselandSeniorVicePresidentof
Public Policy, Institute for Business and Home Safety (IBHS);
and
• EricM.Nelson,VicePresident,EnterpriseCatastrophe
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
coastalpropertyinsurancecrisis,EleanorKitzmansharedthat
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
establishment of SC Safe Home, a grant program for South
Carolina coastal homeowners to enhance their property’s
resistance to hurricane wind damage.
“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
andvolatileweather,”saidMs.Kitzman.Sheadded,“While
there is no silver bullet, educating consumers and legislators on
the importance of mitigation and building code enforcement
willmoveusclosertostabilizingthemarket.”
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
theIBHSFORTIFIEDforSaferLiving® 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
JoanWoodward,TravelersInstitute;EleanorKitzman,formerSouthCarolinaDirector of Insurance; Debra Ballen, IBHS; Eric Nelson, Travelers
Debra Ballen, Insurance Institute for Business and Home Safety
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intact as a result of devastating storms, we need broad
adoption of mitigation techniques and building codes to
minimizethesecatastrophiclosses.”
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.
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)
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.
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.
Bolivar Peninsula after Hurricane Ike in 2008
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1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
30
20
10
0
Andrew$23B totalinsured loss
Charley,Frances, Ivan & Jeanne
$26B totalinsured loss
Katrina, Rita & Wilma$64B total
insured loss
Ike$13B total
insured loss
N u m b e r o f N a m e d St o r m s p e r Ye a r, 1 9 9 0 - 2 0 1 0
Three of the four most expensive hurricane seasons have occurred in the past seven years, as indicated by the red bars.
Today’s active hurricane era began in 1995.
Source: Insurance Information Institute
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 notethatA.M.Best’s2010marketsharereportlistsFlorida’sresidualmarket,CitizensPropertyInsuranceCorporation,asthetenthlargestinsureramongU.S.personalinsuranceproviders–rightalongwithleadinginsurerssuchasStateFarm,Allstate,Farmers,NationwideandTravelers.
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Opportunities for Integrating Disaster Mitigation and
Energy Retrofit Programs
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.
Dr.SandraKnight,DeputyFederalInsuranceandMitigationAdministrator,FEMA
Monday, June 14, 2010u.S. Senate environment and Public Works Committee RoomWashington, D.C.
WelCOMe Sharlene Leurig, Ceres
KeynOTe: BeFORe AnD AFTeR DISASTeR STRIKeS: CAn yOu THInK GReen?Dr.SandraKnight,DeputyFederalInsuranceandMitigationAdministrator, Mitigation, U.S. Department of Homeland Security,FederalEmergencyManagementAgency(FEMA)
THe SOCIAl AnD eCOnOMIC COSTS OF DISASTeRS AnD THe POTenTIAl FOR MITIGATIOnWarren Edwards, Community and Regional Resilience Institute (CARRI)EdLaatsch,FederalEmergencyManagementAgency(FEMA)Eric Nelson, Enterprise Catastrophe Strategy and Analysis, TravelersJoan Woodward, The Travelers Institute (moderator)
THe nexuS OF DISASTeR MITIGATIOn AnD eneRGy eFFI-CIenCy Wanda Edwards, Institute for Business and Home Safety (IBHS)Katie Rothenberg, U.S. Green Building CouncilStephenS.Szoke,PortlandCementAssociationDebra Ballen, IBHS (moderator)
FInAnCInG ReTROFITS Greg Hale, Natural Resources Defense CouncilMike Italiano, Capital Markets PartnershipGarrettWalton,RebuildNorthwestFloridaSharlene Leurig, Ceres (moderator)
leSSOnS leARneD AnD WAyS FORWARD Moderated discussion led by Michael Cohen, RenaissanceRe
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The Travelers Institute led the day’s first panel discussion,
“The Impact of Disasters and the Potential for Mitigation.”
ModeratedbyJoanWoodward,TravelersExecutiveVice
President of Public Policy and President of the Travelers
Institute, the panel included:
• EdLaatsch,Chief,BuildingScienceSectionRiskReduction
Branch,MitigationDivision,FEMA;
• WarrenEdwards,Director,CommunityandRegional
Resilience Institute (CARRI); and
• EricM.Nelson,VicePresident,EnterpriseCatastrophe
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.”
EdLaatschofFEMAsharedinformationonthemanyprograms
FEMAofferstoencouragemitigation,whichrangefrom
training to partnerships to awareness campaigns. He spoke
indepthonthetoolsFEMAprovidestothepublictoassess
damageandvulnerability,includingtheHazardsU.S.Multi-
Hazard(HAZUS-MH)tool.HAZUS-MHhelpspeopleunderstand
what their exposures are to earthquakes, floods and wind;
make educated decisions in terms of land use planning; and be
prepared for needs that will arise after a disaster.
“The focus after extreme weather events needs to be on
learning what can be done to prevent damage the next time,”
hesaid.“Forexample,thewidespreaddamagetofoundations
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.”
Mr. Laatsch also addressed the environmental benefit that
resilientcommunitiesbring.Forexample,ifahomeisstrong
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.
JoanWoodward,TravelersInstitute;WarrenEdwards,CARRI;EdLaatsch,FEMA;Eric Nelson, Travelers
Debra Ballen, IBHS; Wanda Edwards, IBHS; Katie Rothenberg, U.S. Green Building Council;StephenS.Szoke,PortlandCementAssociation
18 travelersinstitute.com
Sharlene Leurig, Ceres; Michael Cohen, RenaissanceRe; Joan Woodward, Travelers Institute; Debra Ballen, IBHS
Sharlene Leurig, Ceres; Greg Hale, Natural Resources Defense Council; Mike Italiano,CapitalMarketsPartnership;GarrettWalton,RebuildNorthwestFlorida
Their research found that communities want four things:
• Abetterunderstandingoftheconceptofresilience;
• Ameasurementofcommunityresilience;
• Processesandtoolstoimprovecommunityresilience;and
• Rewardstoencourageeffortstowardresiliency,including
discounts from insurance providers, and grants from the
federal government.
Fromtheresearchgathered,CARRIislaunchingtheCommunity
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
Floridamadetobuildingcodeadoptionandenforcement
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.
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.
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.
travelersinstitute.com 19
Coastal l iv ing and coastal proper ties 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.
20 travelersinstitute.com
Mitigation Strategies for the Alabama Coastal Region
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
Friday, October 8, 2010GM BuildingMobile, Alabama
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• EricM.Nelson,VicePresident–EnterpriseCatastrophe
Strategy and Analysis, Travelers• CharlesM.Angell,ChiefActuaryandDeputyInsurance
Commissioner, Alabama Department of Insurance• CliffBarros,ExecutiveDirector,HabitatforHumanityof
Baldwin County• ChadWilson,SecondVicePresident–PersonalInsurance,
The Travelers Companies, Inc.
21travelersinstitute.com
ModeratedbyJoanWoodward,TravelersExecutiveVice
President of Public Policy and President of the Travelers Institute,
the panel included:
• CharlesM.Angell,ActingDeputyCommissioner&Casualty
Actuary, Alabama Department of Insurance;
• CliffBarros,ExecutiveDirector,HabitatforHumanityof
Baldwin County;
• EricM.Nelson,VicePresident,EnterpriseCatastrophe
Strategy and Analysis, Travelers; and
• ChadWilson,SecondVicePresident,
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
ordertominimizedamagetopropertyanddisruptiontolives.
Charles Angell outlined Alabama’s experiences in the residential
coastal property insurance crisis. He shared that the availability
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.
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
asonesolutionfortheirhomeowners.Theorganizationrecently
launchedtheFortifiedExperiment,aprojecttobuildthree
differenthomesthatwilltestthelong-termcost/benefitof
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
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
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
22 travelersinstitute.com
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).
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.
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
recognizesthathomeownersshouldberewardedfortaking
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.
Cliff Barros, Habitat for Humanity of Baldwin County, and Charles Angell, Alabama Department of Insurance
23travelersinstitute.com
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,
fromproperlycapitalizedinsurancecarriers,willbecome
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
subsidizedbystategovernments–which,ineffect,resultin
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
Travelersrecognizesthatthiscrisisisnotgoingtobesolved
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.
Travelers Coastal Wind Zone Plan: A Comprehensive Plan to Improve Availability and Affordability of Named Storm Wind Insurance for Coastal Homeowners
1 Insurance Information Institute2 National Oceanic and Atmospheric Administration
24 travelersinstitute.com
1. A stable and consistent regulatory environmentThe impact of constantly changing rules on the willingness
of insurers to commit capital in high-risk coastal markets is
underestimated and underappreciated. If an insurer does not
have confidence in the predictability and stability of the
regulatory environment, it cannot have confidence in the
underwriting decisions it is making; and under those
circumstances, it cannot be expected to make substantial
commitments of capital. In fact, the lack of predictability and
stability of the regulatory environment has been an issue in
states along the Gulf and Atlantic Coasts. A predictable and
stable set of rules is a necessary condition to insurers making
long-term commitments of capital. We propose that an
independent federal commission establish standards and rules
for coastal named windstorm rating and underwriting. This
commission would oversee this narrow portion of the
homeowners’ insurance market in the 18 coastal states.
The remainder of the homeowners’ insurance market would
remain subject to state regulation as it currently is today.
2. Transparency in calculation of premiumInthecoastalwindzonestates,underthisconcept,insurance
companies would individually and competitively set risk-based
and actuarially sound rates using approved standards and
certified windstorm risk models approved by the federal
commission. The proposed federal commission would certify
models after reviewing and validating underlying model
assumptions such as frequency, severity, vulnerability and
mitigation factors. This would ensure that rates are set in a
transparent manner. In addition, we endorse creating a rating
calculation mechanism to generate premium credits for
customers if models and actual experience become
misaligned over time such that actual losses are less than
predicted. This would eliminate the perception of insurers
“winning” and customers “losing.”
3. Cost-based federal reinsurance mechanism with savings passed on to consumers
To improve affordability and availability of insurance, we
envision the creation of a federal cost-based reinsurance
mechanism for extreme events, such as an event with losses
that are multiples of those arising out of Hurricane Katrina. In
order to provide financial protection for the unlikely, yet
possible, occurrence of multiple events within one year,
reinsurance coverage should be applied on a seasonal
aggregate basis. The reinsurance would be made available to
insurers at cost by the federal government so there would be
no subsidy, and insurers would be obligated to pass the
savings directly to their customers. This concept would
prevent any federal “bailout.”
4. Mitigation against losses Inthecoastalwindzonestates,mitigationmustbea
centerpiece of any effective catastrophe insurance proposal,
and there should be federal guidelines for strong building
codes, federal incentives for state and local adoption and
enforcement of those codes, enhanced construction
technology and land use planning requirements. In addition,
there should be meaningful premium credits for mitigation
and consideration of state and local property tax incentives
for retrofitting houses.
Travelers Coastal Wind Zone Plan - Four Principles
For the Travelers Coastal Wind Zone Plan to succeed, all four of its key elements have to be put into place, as opposed to selecting only those aspects that have the most popular appeal.
G U L F F L O R I D A
S O U T H E A S T
N O R T H E A S T
Four Coastal zones in Travelers Coastal Wind zone Plan
The plan envisions four coastal zonesfromTexastoMaine:Gulf,Florida,SoutheastandNortheast.
25travelersinstitute.com
•TheCoastalWindZonePlanisfairtoallhomeowners – across the united States.
This plan is based on the basic tenet of insurance, which is
to spread the risk among as many people as possible who are
subject to that same risk. Under the Travelers Coastal Wind
Zone Plan, only those with named windstorm exposure would
pay the premiums for the coverage, and there should be no
direct subsidy or other financial support from policyholders
with limited or no exposure to such storms.
Also,individualswithinthecoastalzoneswillbecharged
a premium commensurate with their risks, so people living
in higher risk areas would pay more than those living in
lower risk areas, and those living in lower risk areas would not
besubsidizingthoseinhigherriskareas.Asaresult,some
homeowners will be faced with increased premiums, and
significantly so. However, the impact of the proposed federal
reinsurance mechanism and non-insurance subsidies, such as
tax credits or direct government payments, means that
those who can least afford risk-based pricing should receive
some relief.
Several additional features of the Coastal Wind Zone Plan
make the coastal property insurance system fairer to
homeowners, including the transparency in ratemaking
(with the unique rating calculation mechanism to realign
premiums over time when the wind does not blow),
consumer protections, and assistance in protecting homes.
•TheCoastalWindZonePlanleavesthebusinessofinsurance to those who know it best – and that’s important when it comes to disaster recovery.
Unlike other plans that put federal and state governments
in the catastrophic insurance business, the Travelers Coastal
Wind Zone Plan leaves the business of providing insurance
coverage and responding to catastrophic losses to the private
market. At Travelers, for example, we have a national
Catastrophe Management Center that provides operational
and logistical support to our catastrophe response efforts.
Travelers’state-of-the-artClaimTrainingFacilitygives
Travelers claim professionals the in-depth training, Claim U,
and expertise needed to provide knowledgeable, accurate
and efficient claim service. A key component of our response
strategy is the deployment of highly trained claim
professionals drawn from our dedicated Catastrophe
Response Team and across our entire claim enterprise.
Our field catastrophe response efforts are supported by a
fleet of five Mobile Claim Headquarters vehicles and six claim
customer service centers staffed around the clock to ensure
customers can report claims 24 hours a day, 7 days a week.
The public market is not similarly equipped and cannot be
expected to provide the same level of speed, efficiency, and
customer service at a time when homeowners are at their
most vulnerable.
•TheCoastalWindZonePlancreatesastablemarket– for both insurers and customers.
Historically, at times, insurers have been faced with a situation
in which the rules put in place before a storm – in other words,
the rules under which those insurers based underwriting
decisions and committed capital to support the policies
written – were not the same as the rules adopted following a
storm. Constantly changing rules adversely impacted the
willingness of insurers to do business in high-risk coastal
markets. That has caused disruption for customers in the form
of non-renewals and fewer insurance availability options.
Moving responsibility for named storm wind coverage to an
independent federal commission would provide for a more
stable and consistent regulatory climate across the Gulf and
Atlantic Coasts. That would enable insurers to provide
catastrophic wind insurance, and consumers to obtain and
keep it, with greater certainty. A stable set of rules would
encourage insurers to make long-term business and capital
commitmentstothosezonesfornamedstormwindrisks,
increasing the availability of that insurance over time. Insurers
writingnamedstormwindcoverageinthezoneswouldbe
subject to federal oversight, and the remainder of the
homeowners’ coverage would continue to be regulated by
the states.
Features of Travelers Coastal Wind Zone Plan:
26 travelersinstitute.com
Byrecognizingthathurricanesdon’trecognizestateborders,
thezone-basedapproachprovidesamoreconsistentandfair
market throughout the Gulf and Atlantic coastal states. In
doing so, the plan responds to discrepancies that exist state to
state.Forconsumers,astheymovefromstatetostatewithin
azone,theirnamedstormwindinsurancewouldbesubjectto
the same set of rules, and they would have additional peace of
mind since insurers would be able to offer them coverage on a
more consistent basis.
•TheCoastalWindZonePlanprovidesfederalreinsurance to improve affordability in high-risk areas.
To improve affordability and availability of named storm wind
insurance, the plan calls for the creation of a federal reinsurance
mechanism for extreme events, such as an
event with losses that would be multiples of those arising out of
Hurricane Katrina. The federal reinsurance would
be made available to insurers at cost so there would be no
taxpayer subsidy, and insurers would be obligated to pass the
savings directly to their customers. The independent federal
commission would determine the premiums charged insurers,
oversee the operation of the reinsurance mechanism –including
payment of its claims – and ensure that savings are identified
and passed on to customers in the premiums they pay.
The intent is not to replace the private reinsurance market,
but rather to complement private reinsurance in the case
of “the biggest of the big” event. In order to provide financial
protection for the unlikely, yet possible, occurrence of multiple
events within one year, reinsurance coverage should be
applied on a seasonal aggregate basis. The federal commission
would be given the authority to adjust the loss level to which
themechanismrespondsifmarketstabilizationrequires
such action.
•TheCoastalWindZonePlanmakesinsuranceratemaking more transparent.
This plan, through its transparent process of setting rates, will
take much of the mystery out of named storm wind insurance
ratemaking for consumers and policymakers. As a result of this
plan, a new independent federal commission of five members
appointed by the President of the United States and confirmed
by the U.S. Senate, would be created to establish rating and
underwriting standards and oversee insurers writing this
coverage. Insurers would be required to file rates with the
federal board, which would be reviewed for compliance with
approved standards.
BeginningwithHurricaneAndrewin1992,insurersrealized
the need for better information to measure and understand
their coastal exposure, and they began to use catastrophe
models more extensively. The models factored in many
considerations,includingstormtrack,intensityandsizeof
past landfall events, as well as estimates of what their losses
would be today if those same events occurred. Because of
variable factors such as climate and demographics, the models
are not precise predictors, causing some to question heavy
reliance on them. Coastal states have differing views on the
acceptability and the use of models.
The plan does not envision the federal commission developing
its own model, but rather evaluating and certifying wind risk
catastrophe models developed by firms and insurers. This
improves past practices of leaving that task to various state
regulators and the insurance industry itself to evaluate, and
leaving consumers to wonder about the models’ reliability.
Everyone should have a better understanding of why rates are
what they are, the role of models in ratemaking and what
happens when the wind does and does not blow.
27travelersinstitute.com
•TheCoastalWindZonePlantakesintoaccounttheunpredictability of weather.
Weather losses are predictable only over the long term. While
everyone agrees that rates for property wind insurance should
be fair and equitable, often those rates can appear to be
misaligned with experience in any given year or even multiple
years. Also, significant losses one year can erase premiums and
profits from several years or more. Hurricane Andrew wiped
out all of the premiums collected by the insurance industry on
propertypoliciesinthestateofFloridaforalloftheyears
leading up to it.
To address the unpredictability of weather, the Coastal
Wind Zone Plan, through its unique Rating Calculation
Mechanism, assures that premium credits will be
generated if actual experience and wind risk models
become misaligned over time. Essentially, the process,
which would be transparent to regulators and consumers,
involves using certified exposure-based models to set
predetermined loss levels, then measuring experience against
those predetermined levels. Annual accounting reports would
be filed by each insurer with the independent federal
commission to ensure disclosure of losses paid against
predetermined loss levels. Over time, if actual experience is
less than the predetermined loss level, then a prospective
premium credit would be issued.
•TheCoastalWindZonePlanfocusesonpreventionand incentive measures for stronger homes.
One of the four principles of the Coastal Wind Zone Plan
advocates federal building code guidelines for wind-resistant
homes and incentives for state and local governments to
adopt and enforce those codes. Experience from recent
hurricanesinFloridashowstheimpactofwell-designedand
enforced building codes on reducing losses from windstorms.
The Institute for Business and Home Safety reported that if
allofsouthFlorida’shomesmetstrongbuildingcode
requirements, residential losses from a storm similar to
that of Hurricane Andrew would be cut in half – resulting
in lower insurance premiums. As we all know, premium
charges consider prior loss experience, so the smaller the
potential future losses, the lower the cost of insurance.
There should also be incentives to assist homeowners in
retrofitting their current homes so that their residences
are better able to withstand destructive catastrophic
windstorms. We advocate that federally funded incentive
programs should be adopted. State programs such as
MyFloridaSafeHomeandSouthCarolina’sSafeHome
Loss Mitigation Program, have been very effective but
need to be expanded with more grant funds being made
available. In addition, other coastal states should adopt similar
retrofitting assistance programs.
A key issue in the mitigation of damage to existing homes and
in new construction is the cost-effectiveness of suggested
improvements since homeowners are reluctant to enact
expensive measures. In response to those concerns, a team of
researchersatFloridaInternationalUniversitytested8-dring
shank nails for two years, finding that the rings along the nail’s
shaft double the resistance of a roof to high winds when the
nails were used to attach sheathing to roof rafters. The nails
have been required in Miami-Dade and Broward Counties since
2004 and only add about $10 to the cost of building a home.
Also, it’s important that homeowners heed warnings from
local authorities to prepare their homes appropriately when a
hurricane is approaching. Important just-in-time steps include
shuttering or boarding up windows, anchoring or securing all
outside equipment, and shutting off all power supplies.
To learn more about the Travelers Coastal Wind Zone Plan:If you are interested in the Travelers Coastal Wind Zone Plan, please visit travelersinstitute.com.
28 travelersinstitute.com
Travelers… believes that private insurers have a responsibility to put forth ideas to address the complex economic and social issues related to hurricane risk. Through the Travelers Institute, we combine insurance expertise with thought leadership — ideas gathered from federal, state and local officials, including members of Congress, insurance regulators, agents, brokers, consumer groups and other industry leaders — to develop solutions. In the case of hurricane preparedness, the Travelers Coastal Wind zone Plan, proposes a comprehensive set of principles to further address the availability and affordability of coastal windstorm insurance. – Joan Woodward Letter to the Editor, Miami Herald, January 20, 2012
WhileFlorida’ssituationmaybeunique,thecrisisofaffordability and availability of wind-storm insurance applies generally across all Gulf and Atlantic coastal states. Residents in these states deserve a concerted effort to develop a dependable, private-market solution that doesn’t rely on a financial bailout by taxpayers. – Jay Fishman Letter to the Editor, The Wall Street Journal, September 2, 2011
Our nation is not well prepared for the next catastrophic hurricane, but federal taxpayers shouldn’t have to bear the burden. And a long-term solution to the coastal insurance crisis is possible. At Travelers, we believe private insurers have a responsibility to put forth ideas to address the complex economic and social issues related to hurricane risk. Private market solutions are needed now to avoid a bailout later. – Joan Woodward Letter to the Editor, St. Petersburg Times, July 1, 2011
During this year’s legislative session, Gov. Robert Bentley repeated his campaign pledge to call a special session in his quest to solve coastal homeowners’ problem with affordable insurance… being looked at is the Travelers Coastal Wind zone Plan, a federally-guaranteed catastrophic wind-insurance plan put together by the Travelers Institute. What’s attractiveisthatitrecognizesthatcoastalinsuranceisnotsimply a state matter, but, rather, it has regional implications that require a federal response. – The Anniston Alabama Star, June 28, 2011
As the 2011 hurricane season progresses, it’s time for community leaders and their elected representatives to solve the growing crisis surrounding homeowners insurance on the Gulf Coast. One idea… that deserves consideration is the Travelers Coastal Wind zone Plan… The Travelers Plan offers promiseforseveralreasons:Itrecognizesthatstatesshouldn’thave to solve their own insurance problems alone. It also involves the insurance industry, as well as Congress and consumer groups. In short, it is a comprehensive, market-based plan that deserves a closer look by our representatives and senators in Washington as they cast about for answers at the federal level. – The Mississippi Press, June 19, 2011
Travelers Coastal Wind Zone Plan Press Coverage
Launched in August 2007 with an op-ed in The Wall Street Journal, by Jay S. Fishman, Travelers Chairman and CEO, the Travelers Coastal Wind Zone Plan has continued to receive positive press recognition in outlets around the country. The media coverage has contributed to the momentum the plan has built in the public policy arena.
Following are excerpts from some of the articles on the Travelers Coastal Wind zone Plan.
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The prospects for action in Congress to address the troubled coastal insurance market may have dimmed, after the 2010 elections swept out two leading advocates for the issue and ushered in lawmakers focused on shrinking government and lessening regulations. Joan Woodward, executive vice president of public policy for Travelers Insurance, said she thinks the new Congress would be more receptive to private-sector solutions than those that depend largely on the government. Travelers is working to build grass-roots support for its insurance reform ideas, she said. “We don’t want to be one of the bills that sit around for years and years,” Woodward said. “People react to a crisis.” – Mobile Press Register, January 24, 2011
Each time a storm is brewing, rather than hoping that the storm takes a different path, efforts should instead be focused on how to better protect ourselves and our coastal communities from the impacts of natural disasters… At the Travelers Institute, we feel it makes better sense to find solutions that protect people and their property before the stormhits,sowecanminimizedamagetoourpropertyanddisruption to our lives… Building stronger homes is a key principle of the Travelers Coastal Wind zone Plan, which is our proposal to improve the availability and affordability of windstorm insurance for homeowners in communities along the Gulf and Atlantic coasts. Travelers wants to do its part to keep people and their homes as safe as possible. – Joan Woodward Op-Ed, Mobile Press Register, October 10, 2010
Travelers proposes a system where either the federal government or groups of states will set rules that apply to long stretches of coast, instead of the current state-by-state regulation.Forexample,TravelersproposesthatAlabama,Mississippi, Louisiana and Texas should link up. Then, Travelers wants a commission that will examine wind models that are used in rate-setting, and federal reinsurance of “extreme” events — catastrophes several times more damaging than 2005’sHurricaneKatrina…Finally,Travelerswantsincreasedfocus on stronger construction, including possible federal involvement in developing building codes. That combination should lead to lower rates and more companies willing to write policies, Travelers officials believe. – Mobile Press Register, October 9, 2010
I would like to commend Sen. Roger Wicker for hosting last week’s candid and highly productive insurance roundtable to explore long-term solutions to the coastal insurance crisis… At Travelers,werecognizethataviablecoastalinsurancemarketis important for Mississippi’s economy, and we feel a responsibility to be engaged in finding a solution to this issue. – Greg Toczydlowski Letter to the Editor, The Mississippi Press, April 16, 2010
Sen. Roger Wicker’s forum on the insurance needs of South Mississippi was an encouraging step toward finding a solution to this debilitating consequence of Hurricane Katrina… One insurance company, Travelers, also offered a plan to spread risk from hurricane wind. The plan would put 18 coastal states infourinsurancezones,withafederalcommissionoverseeingrates and underwriting by private insurance companies. States would continue to regulate insurance companies in other areas. The plan offers specifics for transparency in determining premiums and policyholder rebates when models used to set premiums project losses higher than those experienced. Mitigation and mitigation credits are a major feature of the plan. Private companies would buy reinsurance at cost from the federal government to help cover extreme catastrophes. – Biloxi-Gulfport Sun Herald, April 11, 2010
The Travelers Institute recently convened a panel of experts to discuss mitigation strategies to protect property, keep residents safer and reduce costs for both consumers and insurers… Travelers announced a 35% hurricane premium credit in certain coastal states for homes built or retrofitted to resist tropical storm and hurricane winds. The credit is part of Travelers Coastal Wind zone Plan… When asked why Travelers chose to host this Mitigation Summit, Joan Woodward of the Travelers Institute replied, “We have a responsibility to lead the industry.” – Rough Notes Magazine, April 10, 2010
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Mississippi Insurance Commissioner Mike Chaney said he likes the idea of a federal reinsurance backstop for extreme events, a proposal that was presented during a wide-ranging discussion Thursday. “I’m glad they brought it out,” said Chaney. “It is not new to us. We’ve been exploring that for two years and actually have a meeting in Atlanta, Ga., with 16 other commissioners in a couple of weeks. I have Travelers coming to that.” – The Mississippi Press, April 9, 2010
GregToczydlowski,presidentofpersonalinsuranceforTheTravelers Companies Inc., participated April 8 on behalf of The Travelers Institute in a roundtable discussion in Gulfport hosted by Sen. Roger Wicker (R−Miss.). The session convened insurance industry experts, business scholars and elected officials at Mississippi Gulf Coast Community College to explore long−term solutions to rising insurance costs and barriers to certain kinds of coverage on the Gulf Coast. ToczydlowskipresentedtheTravelers Coastal Wind zone Plan, a comprehensive, private market approach to improve the affordability and availability of coastal windstorm insuranceforhomeowners.“AtTravelers,werecognizethataviable coastal insurance market is important to Mississippi’s economy, and as an industry leader, we feel a genuine responsibility to be engaged in finding a solution to this issue,” saidToczydlowski. – Mississippi Business Journal, April 9, 2010
FrustratedbySenateinaction,U.S.Sen.RogerWickersteppedup his role in the coastal insurance debate Thursday, hosting an insurance forum... Approaches to insure against catastrophic risk varied, but two thoughts appeared universal: The current insurance system does not work for low-frequency, high-severity events such as Hurricane Katrina, and property owners can expect a stable and affordable insurance market only if they fortify their homes against hurricane damage. One insurance company, Travelers, also offered a plan to spread risk from hurricane wind. The plan would put 18 coastalstatesinfourinsurancezones,withafederalcommission overseeing rates and underwriting by private insurance companies. States would continue to regulate insurance companies in other areas. – Biloxi-Gulfport Sun Herald, April 9, 2010
Hurricane season may have ended, but property insurers are still working on ways to upgrade coastal homes to make them insurable at a price homeowners can pay. Among the ideas being floated are a national building code, public grants to update older homes, and improved designs that can make homes more weather-resistant. Those were among the recommendations at a summit meeting held by Travelers last week at the company’s Windsor claims training facility. Eric Nelson, vice president of risk management for Travelers Personal Insurance, favors a national building code for coastal houses. The hodgepodge of state and local rules is too disjointed, he said. – Hartford Courant, December 15, 2009
Travelers Insurance this week sponsored a summit with the intent of building consensus on one aspect of coastal concerns that most parties agree upon: that loss mitigation measures reduce damage costs when storms strike… “Building stronger homes is a key principle of the Travelers Coastal Wind zone Plan, our proposal to improve the availability and affordability of catastrophic wind coverage in communities along the Gulf and Atlantic coasts,” said Eric Nelson, vice president of risk management for Travelers Personal Insurance. “We hope this initiative and meaningful premium credits will encourage homeowners, builders and building officials to adopt these disaster resistant standards.” – The Standard Magazine, December 11, 2009
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…the risk to homes from hurricane and tropical storm winds is substantial and is compounded by a lack of affordable wind insurance for homeowners. That could be about to change, however. Home insurance provider The Travelers Companies and its public policy arm, The Travelers Institute, recently launched a pilot program to underwrite insurance policies for “fortified” homes... Set for launch early in 2010, the pilot is part of a public policy initiative proposed by Travelers that seeks to generate a coordinated effort among all stakeholders to improve both the availability and the affordability of catastrophic wind coverage along the Atlantic and Gulf coasts. – Custom Home Magazine, December 10, 2009
Usually when we discuss news of homeowners’ insurance in Floridaandotherhurricane-proneareas,itistoreporthowyetanother insurer has pulled up stakes and decided to stop writing policies in the region. But yesterday’s announcement from Travelers that they will begin a pilot program to write policies in certain Atlantic and Gulf states bucks that trend. The news came as part of an initiative to raise awareness of catastrophe preparedness that was started by The Travelers Institute, a kind of think tank group created by Travelers to further the discussion of public policy topics of particular importance to the insurance community… – Risk Management Monitor Magazine, December 8, 2009
Formanyhomeownersincoastalregions,optionsforaffordable wind insurance are limited or even non-existent. Insurance provider Travelers Cos. and its Travelers Institute arm is looking to relieve that burden with a new program aimed at better-built coastal housing and providing coverage for it. “We heard from many local regulators and insurance agents that there is still an unavailability and affordability crisis in many of our coastal communities,” Eric Nelson, vice president of personal insurance for Travelers, tells EcoHome. “We’re trying to step up and provide leadership to fill an urgent void in the marketplace.” – EcoHome Magazine, December 8, 2009
Travelers Cos. in Hartford has launched a pilot program in which it is offering discounted insurance policies in certain Atlantic and Gulf coast states on houses that are fortified against hurricanes. Travelers announced the program during a summit Monday at its Windsor-based facility known as Claim University, in which experts discussed ways to make houses
more resilient to storms. “Homes built to meet these stringent standards are better able to withstand severe weather, reducing property losses and saving lives, and we want to promote and raise awareness of these smarter building practices,” said Eric Nelson, Travelers vice president for personal insurance. – Hartford Business Journal, December 8, 2009
Eric Nelson, Travelers vice president of personal insurance, said the insurer would like to “put its money where its mouth is” and offer insurance policies to homes in certain states along the Atlantic and Gulf coasts that meet standards to resist tropical storm and hurricane winds, and begin to offer up to a 35% premium credit... The construction of stronger homes “is a key principle” of the company’s Coastal Wind Zone Plan... The issue is a larger public policy one, said Joan Woodward, executive vice president of public policy for the Travelers Institute, which hosted a panel discussion Dec. 7 on mitigation… ”There is a broader goal here. Mitigation really can pay off, and we need to encourage homeowners,” Woodward said. – Best Wire, December 7, 2009
An insurance company is visiting storm-raked states to build support behind a major reshaping of the industry to avert escalating losses from the swift rise of natural disasters like hurricanes… The company, which has positioned itself as an industry leader on climate change, is also trying to build “momentum” behind another aspect of its “Coastal Wind Zone Plan,”… It would, Travelers believes, fix the lingering problem around insurance “affordability and availability” in hurricane stricken states. – Climate Wire, November 4, 2009
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State and local leaders are meeting to discuss the threat posed to the South Carolina coast by bigger and more severe hurricanes.TheCoastalRiskSymposiumonFridayinCharleston includes business, government and community leaders. Among the speakers are South Carolina Insurance Director Scott Richardson and Charleston Mayor Joe Riley… The symposium is sponsored by the Travelers Institute, created by The Travelers insurance and financial services company to discuss public policy issues of importance to insurance markets. – Associated Press, October 30, 2009
As peak hurricane season approaches, both insurers and government officials are outlining their strategies and plans to protect against what is expected to be an increasing number of catastrophic storms… With this in mind, the Travelers Institute, created by the St. Paul, Minn.-based The Travelers Companies Inc. to address public policy in relation to insurance, has released the “Travelers Coastal Wind zone Plan,” designed to tackle the problem of affordable and available hurricane insurance along the Atlantic and Gulf of Mexico coasts. The Travelers Institute said “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.” – National Underwriter Magazine, July 20, 2009
Brian MacLean, president and chief operating officer of the Travelers Cos., a major insurer especially of businesses, also offered a plan… The plan includes a uniform program to strengthen existing buildings and building codes. MacLean said under such a system, Travelers would write more policies in coastal areas. “We’re not looking to limit our marketplace,” MacLean said. “We’re looking to figure out how we can grow it.” – The Mississippi Press, July 18, 2009
Oneofthenation’slargestinsurersunveiledaplanFridaytoshift the authority for regulating rates for hurricane wind coverage from state regulators to an independent federal commission. Mississippi Gov. Haley Barbour and four state insurance commissioners heard Travelers Companies Inc. presidentBrianMacLeanpresentthecompany’splanFridayatan insurance forum in Biloxi. Barbour, who introduced MacLean to the audience…said he is “certainly interested in it” as a way to possibly boost the availability of affordable insurance in coastal areas. – Associated Press, July 17, 2009
Mississippi was the first stop for the Travelers Cos. Insurance executives on a tour to gather support for another run at federal legislation they believe would provide coastal residents with affordable wind insurance from Texas to Maine… “We have many senators and congressmen interested in our plan,” saidJoanWoodward,TravelersExecutiveVicePresidentforPublic Policy. “We actually want to solve a problem and we have the expertise to help figure this out.” – Biloxi-Gulfport Sun Herald, February 6, 2009
Three years after Katrina, Rita and Wilma caused insured losses of approximately $57 billion and devastated a number of coastal communities, we have failed to resolve the crisis of availability and affordability of coastal wind insurance along the Gulf and Atlantic Coasts. At Travelers, we commend the effortbymany,includinganumberofFloridapolicymakers,toaddress this difficult issue. Unfortunately, however, most of the solutions that have been proposed over the past three years would simply have the government, and ultimately taxpayers, foot the bill for catastrophic coastal windstorm damage. But there is a private, market-based solution: the FourPillarsCoastalPlan…Webelievethesecomprehensiveprinciples, which have the support of Travelers, The Council of Insurance Agents and Brokers and a number of other industry participants, provide the needed framework to assist America’s coastal families in preparing to repair, rebuild and recover from the aftermath of named storm catastrophes. – Jay Fishman Op-Ed, Miami Herald, September 26, 2008
It’s time for all of us to face up to the economic reality of hurricane risks. With more than half of all Americans living within 50 miles of the coast, and the value of coastal properties from Texas to Maine nearing $7 trillion, financial vulnerability to violent storms has increased dramatically…Unfortunately, most legislative efforts and proposals to address these problems are based on shifting risk away from coastal property owners and on to the government – they’re nothing more than broad-based transfers of risk to taxpayers. A private, market-based insurance industry solution is far preferable - ideally before the next “big one” hits U.S. shores. – Jay Fishman Op-Ed, The Wall Street Journal, August 27, 2007
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