Transcript Stress Testing your Property Program

Megatrends Part 3: Natural
Catastrophes and Climate Change Stress Testing your Property Program
RIMS 2014
April 29, 2014
Recording of this session via any media type is strictly prohibited.
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About Your Presenters
Joe Guistino is a Partner and leader of Global Insurance Claims practice
New York, NY
• The practice assists clients on large business interruption, extra expense, and
property damage claims resulting from major insurance losses.
• Joe has over 25 years of experience in the field of forensic accounting, all of which
has been dedicated to commercial insurance, the measurement and analysis of
claims and review of insurance policies.
Alice Edwards is a Managing Director in PwC Insurance Claim Services
Atlanta, GA
• Alice specializes in managing large insurance claim projects.
• Over 30 years experience in claims project management for manufacturing,
automotive, chemical, food and beverage, real estate, hospitality, healthcare,
construction, and retail clients.
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Intergovernmental Panel on Climate Change 2014 update:
Assessment Box SPM.1 Figure 1.
Source: IPCC WGII AR5 Summary for Policymakers - Climate Change 2014: Impacts, Adaptation, and Vulnerability p39 31 March 2014
http://ipccwg2.gov/AR5/images/uploads/IPCC_WG2AR5_SPM_Approved.pdf
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“ Assessment of the widest possible range of
potential impacts, including low-probability
outcomes with large consequences, is central to
understanding the benefits and tradeoffs of
alternative risk management actions. “
Source: IPCC WGII AR5 Summary for Policymakers - Climate Change 2014: Impacts, Adaptation,
and Vulnerability p10 31 March 2014
http://ipccwg2.gov/AR5/images/uploads/IPCC_WG2AR5_SPM_Approved.pdf
Recording of this session via any media type is strictly prohibited.
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Recent mega-disasters have given rise to
highly complex losses:
• Katrina – hurricane, flood, storm surge, fire, civil
disturbance
• Fukushima - earthquake, tsunami, radiation
• Sandy – wind, flood, storm surge, explosion
• Significant loss of life and/or trauma to society
• All involve loss of infrastructure and displacement of
populations
• All involve the operation of multiple perils
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Mega-disaster claims - measurement is
complicated by:
• Chains of causation - excluded or sub limited perils
• Policies generally cover the “direct result of physical
damage”
• Period of restoration – what is “due diligence &
dispatch”?
• Coverage extensions are narrowly written
• Deductibles – application of percentage and time
deductibles
• Claim industry capacity constraints
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Stress test your property program –
create loss scenarios
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Pick 2 or 3 low probability, high impact scenarios
Assume a maximum foreseeable loss
Assume the operation of multiple perils (consider EQ,
tsunami, flood, landslide, storm surge, windstorm, fire,
collapse, civil unrest, contaminants/pollution, mold)
Assume widespread infrastructure disruption (loss of
utilities, bridges, roads, waterways, communications,
internet)
Assume displacement of your suppliers, customers and
employees
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Stress test your property program –
“adjust” the loss scenarios
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What sublimit, or deductible is each peril subject to?
What exclusions might operate?
Which coverage extensions might be available?
If you have DIC EQ, how would you measure the loss to
submit under the EQ DIC vs. the all risks program?
Consider bottom line exposure from the following:
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Damage caused by perils that are potentially excluded
Amounts in excess of sublimits
Losses that may continue beyond the end of the period of indemnity
The applicable deductible/s
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Share issues identified:
• Sharing the process/results of the exercise
with your broker and insurers will improve
contract certainty around:
• Operation of % deductibles
• Operation of coverage extensions
• Definitions of catastrophic perils
• What is covered by DIC EQ
• Educate the C Suite about the limitations of
property insurance
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Questions, Final Comments and
Contact Information
Joe Guistino – PwC
646-471-8523
[email protected]
Alice Edwards – PwC
678-419-1660
[email protected]
© 2014 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm
is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with
professional advisors.
Recording of this session via any media type is strictly prohibited.
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