But whenever losses of such magnitude present themselves, be they from hurricane, tornado, flood or hail, at least those of us in the risk management world should be asking, “What about insurance?”

The basic answer is that the direct damage due to volcanic eruption, including damage caused by the lava or ash, is covered by the standard forms, both personal and commercial. There typically are specialized deductibles applied. In severely risky areas for volcanic action, unless restricted by government rules or regulations, it's possible underwriters would simply try to avoid the risks like they do windstorm in hurricane-prone areas. Then specialized forms with specific conditions and deductibles applicable would be used.

Read Chris Amrhein's May column, “Homeowner query gets squirrely.”

To give you an idea of the standard forms approach, here is the wording from the ISO Basic Causes of Loss form (CP 10 10 06 07):

11. Volcanic action, meaning direct loss or damage resulting from the eruption of a volcano when the loss or damage is caused by:

a. Airborne volcanic blast or airborne shock waves;

b. Ash, dust or particulate matter; or

c. Lava flow.

All volcanic eruptions that occur within any 168-hour period will constitute a single occurrence. This cause of loss does not include the cost to remove ash, dust or particulate matter that does not cause direct physical loss or damage to the described property.

In the ISO HO forms, the named peril is short and sweet:

o. Volcanic eruption

This peril does not include loss caused by earthquake, land shock waves or tremors.

Business income forms basically follow the other commercial property forms.

So if you are focusing on the direct damage from volcanic eruption, such as the lava flows, the standard forms coverage provisions seem adequate. The real issues are going to arise from the determination of just what losses will be considered “direct damage.” For example, if all an insured loses is cleanup costs for the ash, and the underlying property has no other damage, there will be no coverage.

In our Iceland scenario, for example, the airlines must consider that, except for any direct damage to the planes from flying through the ash, nearly 100 percent of their losses are going to be the result of governmental suspension of flights due to the ash–effectively, loss of income due to actions of a civil authority. Under those policy provisions, though, they may have trouble with the required direct damage prohibiting access to a describe premises located, keeping in mind this key provision under the ISO Business Income (and Extra Expense) form language CP 00 30 06 07:

When a Covered Cause of Loss causes damage to property other than property at the described premises, we will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises, provided that both of the following apply:

(1) Access to the area immediately surrounding the damaged property is prohibited by civil authority as a result of the damage, and the described premises are within that area but are not more than 1 mile from the damaged property; and

(2) The action of civil authority is taken in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause of Loss that caused the damage, or the action is taken to enable a civil authority to have unimpeded access to the damaged property.

While provision (2) seems to be met, that 1-mile limitation in provision (1) is clearly going to be a major impediment. And note the language says the civil authority coverage only operates if both (1) and (2) apply.

Airlines typically are written on specialized forms, so how those forms address the governmental shutdowns will be the key to actual insurer response. We may have gotten some inkling of that with the multitude of stories about the airlines demanding the European Union regulators reimburse them for their losses.

“Okay,” you may be thinking. “This may all be interesting from a coverage analysis standpoint, but what has an Icelandic volcano disrupting European air travel have to do with the vast majority of agents in America? Last time I looked, there weren't a whole lot of volcanoes in these parts outside the West Coast!”

Ah, grasshopper, you have missed the mountain for the lava. Our volcano not only belched forth gas and ash, but also a tremendous risk management opportunity! For example, how can we claim to be adequately providing valuable advice and counsel to clients if our discussions center only upon the more obvious and “normal” causes of loss, such as fire or auto accidents? Yet due to the numbing repetition of such messages, literally millions of consumers continue the seeming inexorable drift toward considering our products and services as commodities. And sadly, the vast majority of agent proposals and carrier promotions are so basic and similar in coverages discussed and potential losses mentioned that price really is the key differentiator.

“But,” I hear far too many agents asking, “when it comes right down to it, isn't the vast majority of insurance coverage these days fairly standardized? Other than my winning personality, just how can anyone really differentiate themselves in today's marketplace, especially at the small business/personal lines level?”

Given the subject of this article, ask yourself this: when was the last time you saw that lizard or duck discussing volcano coverage? Evidently not often, because even the measure of all things popular, a Google search, when queried on “volcano insurance,” leads off with numerous links to a particular “Family Guy” episode.

Ironically, the joke centers on the exact risk management opportunity I suggest. No, not volcanoes in Rhode Island, although I'm certain my friend Mark Male is even now considering the possibilities. With apologies to JFK, ask not what Iceland has to do with you, ask rather what you can do with Iceland!

Some starting suggestions
Those of you in the western states already know scientists are not saying “if” Mount Rainier and others will erupt, but when. Yet the Weather Channel and Discovery focus on the lava flow. Iceland reminded us to ask perhaps the larger and more important question: “Whither the ash and smoke?” Perhaps folks as far away as Idaho and Edmonton, Canada would care to share their experiences from Mount St. Helens? How many agents that may find themselves downwind from a major ash cloud have discussed the consequences with their insureds, or researched possible coverages or risk management alternatives?

Volcanoes are but one possible catastrophic scenario facing us today. Substitute floods, hurricanes, tornadoes, forest fires, mudslides, earthquakes or, heck, Chinese drywall in the above suggestion. What, if anything, can you recommend? Have you had the discussion?

The largest and most painful losses your clients face may not be direct damages to covered property, but loss of income and extra expense arising from those losses.

Don't limit yourself to the obvious victims. While nearly all of the press accounts and discussions have focused on the airlines, little has been said of the other players in the travel game. What of the airports' loss of landing fees, tourist spots that lost visitors, parking concessions giving up fees otherwise due from stranded travelers, lost productivity from businesses whose otherwise traveling/meeting/greeting employees were stranded abroad or grounded at home?

I highly doubt your clients and prospects are hearing about any of this from the lizard, duck or typical agent. Stand out from the crowd. Have the discussion. Even those who refuse your offers and stick to standard coverages will perceive your difference.

In other words, do it right. To return to our musical insurance muse Mr. Buffett, none of your clients should have to be singing “I don't know where my business gonna go when the volcano blow!”

Carpe volcanum!