Climate-driven events lead to changes in forms for commercial property insurance and stricter conditions when insurance companies try to deal with an increase in the frequency and severity of natural disaster losses, brokers say.
How insurance policies define temperature changes and how deductibles and limits are applied are some of the areas where policyholders for commercial properties see changes, they say.
Global insured natural disaster losses amounted to $ 40 billion in the first half of 2021, according to a report published last week by the Swiss Re Institute, part of Swiss Re Ltd.
The hurricane Uri, which hit beaches in the United States in February, caused estimated insured losses of $ 1
Weather-related events — not just one-off events — are becoming more common and difficult, and there is pressure from insurance companies to continue to clarify and apply the language, says Martha Bane, Glendale, California-based CEO of Nordic America Real Estate in Arthur J. Gallagher & Co.
For hail / convective storm losses, insurance companies have been pushing the actual cash value of building roofs for the past two to three years, Bane said. "It means a much lower compensation for the insured," she said. Insurance companies have also introduced "very scientific ways" to detect existing claims, she said.
The deductible in the commercial real estate policy has changed significantly. It is almost standard in hail-prone areas that policies now have a percentage deductible for exposure "while previously all other deductible risks applied," she said.
In the wake of the winter storm Uri, which knocked out power for many people and businesses in Texas, changes in temperature language have also been added to the policy to clarify which coverage insurance companies intend to provide, Bane said.
Insurance companies are moving to refine and limit coverage after the February freeze, says Brian Dove, USI Insurance Services LLC's national real estate manager based in Dallas.
"There will be some changes in the policy language regarding this type of incident, as the application of some of the carrier forms is not what customers expected, so there were some shortcomings there," said Dove.
One of the questions is about the term "temperature change", he said. "We have not seen the final version of where we will land, but there will be changes in the policy language regarding that type of incident," he said.
The deductible for earthquakes, floods, named storms and wind / hail has also changed increasing detentions for policyholders, Dove said. And insurers have reduced the risk of fire hazards, he said.
Joseph Jonas, Product Manager, Commercial Lines, at the American Association of Insurance Services, an insurance statistics and consulting organization in Lisle, Illinois, said that there is not necessarily an insurance shift to standardize the language in extreme weather events and climate change.
But recent events have led to a change in how the industry approaches extreme weather events, whether it is insurance companies developing new insurance, how insurance departments view new reports, disaster modeling or damage assessment, he said.
Superstorm Sandy in 2012 showed shortcomings in, for example, policy language and / or offers, Jonas said.
Insurance companies are requesting much more information from disaster modelers regarding climate change, including for external stakeholders, such as regulators and credit rating agencies, to seek more information from insurers, says Karen Clark, President and CEO of Karen Clark & Co
"Insurance wants to make sure that the cat models report climate change as far as possible ", she said.
In California, regulators are paying more attention to climate change with regard to, for example, fires. They want to "understand the models better and how they capture this information," says Clark. Regulators want to make sure that mitigation measures taken by property owners and communities, such as pruning and clearing brushes, are included in the models and are reflected in the fees charged, she said.
Wildfire is the modeled hazard that has the highest percentage impact on climate change, followed by floods and hurricanes and then severe convective storms, Clark said.
The Intergovernmental Panel on Climate Change said in its latest report, published on 9 August, that "It is clear that human influence has warmed the atmosphere, the sea and land." The report warned that temperatures are likely to rise by more than 1.5 degrees Celsius over the next 20 years, giving widespread extreme weather.