As part of our special report on Climate Change and theInsurance Industry, PC360 asked five agents to discuss how, if atall, their business is responding to the issue. The producersrepresent a broad cross-section in terms of geography (N.Y., theMidwest and California), size and specialties.

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James D. Sutton, President and Owner, James F. SuttonAgency Ltd., East Islip, N.Y.

Do you think there has been a change in weatherpatterns—toward the more extreme—these past few years?

I do believe in global warming and the change in our weatherpatterns. In 1950 the world's population was approximately 2.5billion, and it is now approximately 7 billion. Along with greaterindustrialization among former agrarian societies, we have morecarbon dioxide entering the atmosphere due to more human activity.China, India, and other countries have more people entering themiddle class and purchasing cars, homes, appliances, etc.—demandingmore energy. In addition natural phenomena such as the polar icemelting is causing higher water levels and also exposing permafrostwhich is now releasing long-contained methane gases. We are seeingmore violent storms due to these warming tendencies and thefrequency is increasing as well. So in short, it is my belief weare seeing weather patterns that have tendencies to be more extremeand with greater frequency. Additionally, our coastal populationshave increased dramatically since 1950. Now these densely populatedareas have increased the concentration of high-valued properties toan all-time high. We need to change our zoning and our buildingcodes to minimize this increase in hazard.

What role, if any, has climate change played in yourinsurance business?

The insurance industry has reacted to these changing weatherpatterns by reducing their exposures in coastal areas. They havewithdrawn from problem areas, raised premiums, reinsured theircatastrophic exposure, instituted hurricane deductibles and havetried to manage their overall loss exposure by limiting theirprobable maximum loss in any given area.

Are you proactively reaching out to discuss the possibleramifications of climate change with insureds and any additionalcoverages they might need as a result?

Each year my office will send out a “Hurricane Information”letter informing all our homeowner clients about the potential riskand what they should do in the event of a hurricane. We ask them tocheck their coverage with us and consider buying flood insurance.We also give them tips on how to fortify and protect their homeagainst losses from hurricane. And finally we provide informationon how they can contact us or their insurance companies to report aloss after the storm passes.

Are clients beginning to initiate these discussions withyou? If so, what types of insurance/mitigation/adaption solutionsare you beginning to explore?

As a result of recent storms that have come to Long Island,Tropical Storm Irene in 2011 and now Superstorm Sandy in 2012,clients are now very much concerned about insurance coverage,mitigation and long-term solutions on protecting themselves intothe future. We have been discussing coverage with our clients foryears asking them to make certain they have the appropriate levelsof coverage. Expensive mitigation techniques are often out of reachfor many middle class clients. Raising the foundations of existinghomes to allow water to flow underneath just is not practical formost. However, installing roof straps, window shutters, trimmingtrees and being proactive when a storm comes to move contents onthe first floor to the second would be a good start for many.

Are you reaching out to carriers or are they reaching out toyou with information about climate change that you can pass on toinsureds re: mitigation, adaptation or coverageenhancements?

I have served on a number of insurance-agent advisory panels andbeen involved with legislative meetings asking for better solutionsto catastrophic loss problems. My New York State association,IIABNY, and my involved fellow agents have worked for years ontrying to get this issue the attention it deserves and not justafter these events happen. We need to develop a public/privatepartnership to work out good solutions to these enormous economicproblems these storms always bring. We do need better educationefforts from our carriers, and I would also include state and localgovernments in this as well. Solutions to these problems can befound. The insurance industry and government need to work togetherfor the benefit of all Americans.

Todd Henricks, President, Chapman-Henricks InsuranceAgency, Inc., Cerro Gordo, Ill.

Personal thoughts on climate change?

Do I actually believe that we have global warming as it's talkedabout? Personally I think it's just weather patterns in the earththat have occurred over the millenniums. I don't think it'sanything specific that we have been doing in the last couple years.I don't like to pollute more than anyone else, I like to eat cleanfood and I'm an avid recycler, but do I believe in Al Gore-globalwarming? No, I don't.

Although you don't believe in climate change, are youreaching out to your clients to offer additional coverages toprotect against atypical heat, drought, etc.?

I have become an agent for Climate Corp. and have been marketingand selling its Total Weather Insurance (TWI) becausemy farmers have become more concerned about the weather patterns inthe last few years. Because of the weather patterns we have hadwith the heat, drought and excess rain in some parts, that's why Ihave supplemented Federal Crop Insurance with Total WeatherInsurance.

This will be my second season supplementing the Federal CropInsurance Program.

TWI is a relatively new product that has been around the lastfive years or so and it is a totally private product; it has nogovernment affiliation or subsidy.

Total Weather Insurance offers early drought (planting season),regular drought, daytime heat stress, nighttime heat stress, excessmoisture, low heat units for frost and freeze. It marries very wellwith the Federal Crop Insurance.

Are clients initiating these discussions with you?

I really was surprised—I have had a lot of interest. And withlast year's drought they were happily surprised with how it paidoff. It paid off on the nighttime heat stress, drought—those areall different phases that have different amounts. Climate Corp. wasdeveloped by a bunch of techno geeks in Silicon Valley. They aren'tfarmers. They realized that there is this niche that was not beingcovered by Federal Crop Insurance and they got together withweather people and looked at weather patterns and it has been closeto 10 years ago when they started developing it, and it's beenreleased on the market for about five years. There are somesituations that can't be covered with the standard federalpolicies. But the TWI, they have picked up on almost every eventthat could occur. They look at growth state trackers, moisturetrackers. Climate Corp. has reinsurance through Swiss Re.

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Vic Tushner, Senior Vice President and Partner, PropertySpecialist; and Jack Cooperman, Vice President, Business Continuity& Loss Control, Woodruff Sawyer & Co., SanFrancisco

Are you proactively reaching out to discuss the possibleramifications of climate change with insureds and any additionalcoverages they might need as a result?

Climate change is likely to continue to bring more frequent andmore severe adverse weather events. Surface temperatures on Earthare warming at a pace signaling a decisive shift in the globalclimate. Sea levels will continue to rise for decades. Years ago,scientists predicted the coastal-type flooding similar to what wasexperienced in New York/New Jersey. Melting polar ice capsresulting in rising ocean levels and rising ocean temperatures arebelieved to be a significant contributor to the severity ofHurricane Sandy and the resulting impact (storm surge as high as 14feet in some areas). The warmer the sea surface temperature, themore intense the hurricanes.

In one big cycle, as the Arctic ice decreases, the volumeof open water—and therefore the absorption of solar energy by thatwater—increases. Ocean temperatures rise as a result, causing afurther decrease in ice. Lessening snow and ice in the Arctic leadsto higher global temperatures, which leads to faster ice loss.

In the insurance industry, the effects of climate changecontinue to be a hot topic of discussion. Depending on who youspeak to, there still remains great debate as to how this willchange the property-casualty insurance market in particular. AtWoodruff-Sawyer, we are working with both existing and new clientsto make sure they have the appropriate levels of coverage in placeto protect their businesses and employees.

In general, many of the coverages themselves are similar to whatthey have historically been: nat-cat coverage which includes flood,wind, tornadoes, earthquake, hurricanes, etc. However, where thelandscape is changing is that areas that had previously not beenconsidered critical to insure are now being reexamined. Forexample, generally if a business had operations in an area that wasnot considered an official flood zone, flood coverage may not havebeen automatically provided or recommended. With climate changeaffecting weather patterns, regions that were not previouslyconsidered at risk should now be considered candidates for flood orwind coverage.

Are clients beginning to initiate these discussions withyou? If so, what types of insurance/mitigation/adaptation solutionsare you beginning to explore?

We have seen an increase in clients broaching the topic ofclimate change and its potential ramifications on theirbusiness—particularly industries significantly affected by weatherpatterns such as agriculture. If we agree that storms will be morefrequent and more severe, disaster planning is essential to helpmitigate this exposure. Companies should be conducting thoroughrisk assessments of their facilities to better understand thelikelihood and impact of such events. Then once the threats,vulnerabilities and impacts are well understood, start working onrisk mitigation, i.e. methods designed to limit the potentialimpact if such an event does occur. Maybe even looking at methodsdesigned to eliminate the exposure completely, for example, movingcritical operations away from low-lying, flood-prone areas.

In addition, crisis management and business continuity plans areessential—creating documented and tested plans designed to respondto and recover from adverse events. As mentioned previously,though, it is always critical first and foremost to make sure theappropriate coverages are in place as a starting point.

Are you reaching out to carriers or are they reaching out toyou with information about climate change that you can pass on toinsureds re: mitigation, adaptation or coverageenhancements?

Interest in mitigation and/or adaptation of existing policiestends to vary between carriers. Certain proactive carriers haveresearch facilities where scientists are looking into theramifications of climate change and that data is being used to lookat possible solutions. Other carriers less so. Either way acrossthe board the topic has become far more prevalent than it was evenfive years ago. The European market in particular tends to be moreproactive about these conversations, but the U.S. market isincreasingly taking climate change as a serious risk forbusinesses.

We have more commonly seen carriers adding in higher deductiblesfor areas that previously did not require special deductibles. Asan example, with tornadoes becoming far more prevalent due toclimate change, businesses located in certain areas of Kansas arenow being required to have a much higher deductible for windcoverage. This was not the case several years ago. Ideally thefocus will be on more proactive measures of mitigating the exposureinstead of just increasing deductibles, but that is a pattern wehave seen with certain carriers in specific regions.

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Brian McSherry, President, McSherry Agency, Pontiac,Ill.

Has climate change been an issue for you or yourclients?

For me, since I'm in rural America, we just went through the bigdrought. We're actually having some discussions with farmers ontheir crop insurance. It's severely impacted them, and they'rerelooking at what they are going to be doing next year. Consideringclimate change in total, we just went through a big summer of90-plus temperatures and no rain, and I have corn that shouldaverage 190 bushel an acre and it's 90 bushel an acre.

Has the drought changed your operations regarding cropcoverage?

It's an unusual year because December, January and February isthe time we go through the policies with clients. We aren't doingthat yet because we are handling all the drought claims right now.I had an open claim on every policy that I wrote. For me, when Istarted in September, I had a little over 265 claims open.

What's been the impact of the drought?

These events don't happen every year. We knew it was coming.What with Sandy you only had a week to prepare. We knew this wascoming for a couple of months. We knew we would have a lot ofclaims. We try to be as proactive as you can, gear up, get somework done. So we are little bit behind discussing 2013 in how weare going to tweak policies and look at coverage. But it is adecision that we have to have done by March 15.

What policy changes do you expect to see by the Marchrenewal?

Without getting way into the policy forms, some clients electedto not include the harvest price in their coverage options. Andthat is on a revenue-based policy. And it didn't work out that wellthis year. Corn started at $5.60 and ended somewhere close to$7.50. They weren't able to take advantage of that upward movement.Wasn't a bad decision in spring of this year—people said, “Corn isat $5.60—where can it possibly go from there?” and then the markettook off.

The Crop Insurance Program is subsidized through the federalgovernment. Is there a lot of wiggle room for farmers to create acustomized program to mitigate against climatechange?

There's enough flexibility in the programs to allow customers tocustomize, even though it is a federally subsidized program. Thefarmer can have quite a bit of say in what they end up with. It'sinflexible when it comes down to rates or premiums.

Have any of your crop-insurance carriers offered additionalpolicies to supplement the federal crop insurance program, inregards to potential damage from climate change?

It's a little early to talk about the carriers—the claims wehave now seem to be going fairly well. The companies have geared upand are adjusting staff throughout the country. And there are someof the smaller claims that those adjusters can handle fairlyeasily. Things seem to be moving along fairly well. As far as theindustry goes, that's a good thing. From Congressional oversight,the last thing we need is horror stories of claims not gettingpaid.

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Skip Rawstron, Rawstron Insurance Sales & Consulting,Roseville, Calif.

Are you proactively reaching out to discuss the possibleramifications of climate change with insureds and any additionalcoverages they might need as a result?

Yes. My first thought is: Buy all of the catastrophe covers thatare available, particularly if you live on the coast or in areasexposed to earthquakes, hurricanes or flood. If the buildingcodes have changed significantly (as they have in California), makesure your agent/broker knows about these changes andoffers/provides the broadest coverage available, not thecheapest.

I'm still finding that the public, at large, have opinions aboutclimate change and sustainability that mirror the opinions sharedeverywhere from Al Gore to Rush Limbaugh.

In addition to nat-cat protection, what are some othercoverages clients should consider as a result of climatechange?

Boiler and machinery; food spoilage; building ordinance thatincludes the so called green-insurance endorsements such as upgradecoverage with higher extra-expense and debris-removal limits tomatch ordinances that require recycling of undamaged building orresidential components.

Are clients beginning to initiate these discussions withyou? If so, what types of insurance/mitigation/adaptation solutionsare you beginning to explore?

Unfortunately, there are very few client inquiries. Myfriends and colleagues in the industry tell me that's true withthem. For mitigation, video inventories, having a disaster plan,and generators that are fully fueled now seem obvious, but theyhave always been good, solid ideas. It may seem extreme butin the adaptation arena, don't live in harm's way. Thefederal government has subsidized the peril of flood and my guessis that historically the loss ratio is at least 150 percent.

Are you reaching out to carriers or are they reaching out toyou with information about climate change that you can pass on toinsureds re: mitigation, adaptation or coverageenhancements?

Carriers are much more informed about the effects of climatechange because they have the most to lose of any industry. In theaftermath of Super Storm Sandy, they are re-evaluating the risksthey are willing to underwrite and at what price. I'mdoubtful that there will be any coverage enhancements. Contrarily,there will be higher deductibles, restrictive or limited language,which might include changing policy language to include “superstorms” in the definitions of wind and hurricane perils. Or theymight pull out of certain statesentirely.

PC360's Special Report: Climate Change & Insurance: ExistentialThreat or Extraordinary Opportunity?