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

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

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

I do believe in global warming and the change in our weather patterns. In 1950 the world's population was approximately 2.5 billion, and it is now approximately 7 billion. Along with greater industrialization among former agrarian societies, we have more carbon dioxide entering the atmosphere due to more human activity. China, India, and other countries have more people entering the middle class and purchasing cars, homes, appliances, etc.—demanding more energy. In addition natural phenomena such as the polar ice melting is causing higher water levels and also exposing permafrost which is now releasing long-contained methane gases. We are seeing more violent storms due to these warming tendencies and the frequency is increasing as well. So in short, it is my belief we are seeing weather patterns that have tendencies to be more extreme and with greater frequency. Additionally, our coastal populations have increased dramatically since 1950. Now these densely populated areas have increased the concentration of high-valued properties to an all-time high. We need to change our zoning and our building codes to minimize this increase in hazard.

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

The insurance industry has reacted to these changing weather patterns by reducing their exposures in coastal areas. They have withdrawn from problem areas, raised premiums, reinsured their catastrophic exposure, instituted hurricane deductibles and have tried to manage their overall loss exposure by limiting their probable maximum loss in any given area.

Are you proactively reaching out to discuss the possible ramifications of climate change with insureds and any additional coverages 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 risk and what they should do in the event of a hurricane. We ask them to check their coverage with us and consider buying flood insurance. We also give them tips on how to fortify and protect their home against losses from hurricane. And finally we provide information on how they can contact us or their insurance companies to report a loss after the storm passes.

Are clients beginning to initiate these discussions with you? If so, what types of insurance/mitigation/adaption solutions are 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 into the future. We have been discussing coverage with our clients for years asking them to make certain they have the appropriate levels of coverage. Expensive mitigation techniques are often out of reach for many middle class clients. Raising the foundations of existing homes to allow water to flow underneath just is not practical for most. However, installing roof straps, window shutters, trimming trees and being proactive when a storm comes to move contents on the first floor to the second would be a good start for many.

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

I have served on a number of insurance-agent advisory panels and been involved with legislative meetings asking for better solutions to catastrophic loss problems. My New York State association, IIABNY, and my involved fellow agents have worked for years on trying to get this issue the attention it deserves and not just after these events happen. We need to develop a public/private partnership to work out good solutions to these enormous economic problems these storms always bring. We do need better education efforts from our carriers, and I would also include state and local governments in this as well. Solutions to these problems can be found. The insurance industry and government need to work together for the benefit of all Americans.

Todd Henricks, President, Chapman-Henricks Insurance Agency, Inc., Cerro Gordo, Ill.

Personal thoughts on climate change?

Do I actually believe that we have global warming as it's talked about? Personally I think it's just weather patterns in the earth that have occurred over the millenniums. I don't think it's anything 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 clean food and I'm an avid recycler, but do I believe in Al Gore-global warming? No, I don't.

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

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

This will be my second season supplementing the Federal Crop Insurance Program.

TWI is a relatively new product that has been around the last five years or so and it is a totally private product; it has no government affiliation or subsidy.

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

Are clients initiating these discussions with you?

I really was surprised—I have had a lot of interest. And with last year's drought they were happily surprised with how it paid off. It paid off on the nighttime heat stress, drought—those are all different phases that have different amounts. Climate Corp. was developed by a bunch of techno geeks in Silicon Valley. They aren't farmers. They realized that there is this niche that was not being covered by Federal Crop Insurance and they got together with weather people and looked at weather patterns and it has been close to 10 years ago when they started developing it, and it's been released on the market for about five years. There are some situations that can't be covered with the standard federal policies. But the TWI, they have picked up on almost every event that could occur. They look at growth state trackers, moisture trackers. Climate Corp. has reinsurance through Swiss Re.

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Vic Tushner, Senior Vice President and Partner, Property Specialist; and Jack Cooperman, Vice President, Business Continuity & Loss Control, Woodruff Sawyer & Co., San Francisco

Are you proactively reaching out to discuss the possible ramifications of climate change with insureds and any additional coverages they might need as a result?

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

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

In the insurance industry, the effects of climate change continue to be a hot topic of discussion. Depending on who you speak to, there still remains great debate as to how this will change the property-casualty insurance market in particular. At Woodruff-Sawyer, we are working with both existing and new clients to make sure they have the appropriate levels of coverage in place to protect their businesses and employees.

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

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

We have seen an increase in clients broaching the topic of climate change and its potential ramifications on their business—particularly industries significantly affected by weather patterns such as agriculture. If we agree that storms will be more frequent and more severe, disaster planning is essential to help mitigate this exposure. Companies should be conducting thorough risk assessments of their facilities to better understand the likelihood and impact of such events. Then once the threats, vulnerabilities and impacts are well understood, start working on risk mitigation, i.e. methods designed to limit the potential impact if such an event does occur. Maybe even looking at methods designed to eliminate the exposure completely, for example, moving critical operations away from low-lying, flood-prone areas.

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

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

Interest in mitigation and/or adaptation of existing policies tends to vary between carriers. Certain proactive carriers have research facilities where scientists are looking into the ramifications of climate change and that data is being used to look at possible solutions. Other carriers less so. Either way across the board the topic has become far more prevalent than it was even five years ago. The European market in particular tends to be more proactive about these conversations, but the U.S. market is increasingly taking climate change as a serious risk for businesses.

We have more commonly seen carriers adding in higher deductibles for areas that previously did not require special deductibles. As an example, with tornadoes becoming far more prevalent due to climate change, businesses located in certain areas of Kansas are now being required to have a much higher deductible for wind coverage. This was not the case several years ago. Ideally the focus will be on more proactive measures of mitigating the exposure instead of just increasing deductibles, but that is a pattern we have seen with certain carriers in specific regions.

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

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

Has climate change been an issue for you or your clients?

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

Has the drought changed your operations regarding crop coverage?

It's an unusual year because December, January and February is the time we go through the policies with clients. We aren't doing that 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 I started 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 was coming for a couple of months. We knew we would have a lot of claims. We try to be as proactive as you can, gear up, get some work done. So we are little bit behind discussing 2013 in how we are going to tweak policies and look at coverage. But it is a decision that we have to have done by March 15.

What policy changes do you expect to see by the March renewal?

Without getting way into the policy forms, some clients elected to not include the harvest price in their coverage options. And that is on a revenue-based policy. And it didn't work out that well this 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 is at $5.60—where can it possibly go from there?” and then the market took off.

The Crop Insurance Program is subsidized through the federal government. Is there a lot of wiggle room for farmers to create a customized program to mitigate against climate change?

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

Have any of your crop-insurance carriers offered additional policies to supplement the federal crop insurance program, in regards to potential damage from climate change?

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

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

Are you proactively reaching out to discuss the possible ramifications of climate change with insureds and any additional coverages they might need as a result?

Yes. My first thought is: Buy all of the catastrophe covers that are available, particularly if you live on the coast or in areas exposed to earthquakes, hurricanes or flood. If the building codes have changed significantly (as they have in California), make sure your agent/broker knows about these changes and offers/provides the broadest coverage available, not the cheapest.

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

In addition to nat-cat protection, what are some other coverages clients should consider as a result of climate change?

Boiler and machinery; food spoilage; building ordinance that includes the so called green-insurance endorsements such as upgrade coverage with higher extra-expense and debris-removal limits to match ordinances that require recycling of undamaged building or residential components.

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

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

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

Carriers are much more informed about the effects of climate change because they have the most to lose of any industry. In the aftermath of Super Storm Sandy, they are re-evaluating the risks they are willing to underwrite and at what price. I'm doubtful 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 “super storms” in the definitions of wind and hurricane perils. Or they might pull out of certain states entirely.

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

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