P&C insurance industry lessons learned in 2018

This year has been yet another interesting and educational year in the property & casualty insurance industry. Record breaking wildfires in California, hurricane activity in both the Pacific and Atlantic oceans, and a powerful earthquake in Anchorage, Alaska, each brought valuable lessons along with devastation.

Here are five key P&C insurance industry lessons learned in 2018:

Lesson 1: Just because the wildfire is out doesn’t mean that the risk of catastrophic loss is over.

On the heels of the wildfires of late 2017, the absence of robust vegetation coupled with torrential downpours from a winter storm system triggered massive mudslides in Los Angeles and Santa Barbara counties — some of the worst in Montecito, California.

Lesson 2: The insurance commissioner can change the rules of the game without warning.

In the case of the January mudslides, the California insurance commissioner declared that the mudflow was the result of the wildfires, and therefore, the damage would be covered by the property section of the homeowner’s policy. This decision was not a complete surprise, as there is some logic to it.

Although one might argue that four inches of rain over two days might qualify as an efficient intervening cause, it’s at least possible that the mudflow would have occurred even with the vegetation intact on the hillsides — we will never know.

Lesson 3: Hurricane Lane reminded the industry that Atlantic hurricanes aren’t the only ones we need to worry about.

The 2018 Atlantic hurricane season was the third straight above-average activity season. Of 15 named storms, eight became hurricanes, and two of those became major hurricanes (Florence and Michael). In the Pacific, the season was busy as well, including three Category 5 hurricanes (Lane, Walaka, and Willa).

Lane was the wettest tropical cyclone in Hawaii’s history, dropping more than 52 inches of rain on the islands. It’s second only to Harvey (Texas, 2017) among U.S. rainfall events from a tropical cyclone.

Without ever making landfall in the Hawaiian Islands, Lane managed to impact all of the islands and cause major damage. Repairs are still ongoing, and the total cost of the storm damage and flooding is not yet known.

Meteorologists have been warning for several years that we are in a phase of increasing storm activity — and while much of the U.S. insurance industry attention centers on Atlantic hurricanes, 2018 was a great reminder that Pacific storms can impact the U.S., as well. An increase in storm frequency and severity in the Pacific Ocean will likely mean an increase in storm damage in the islands in the coming years.

Lesson 4: We can learn to avoid complacency.

The arrival of autumn brought the seemingly inevitable wildfires to California once again. The Camp Fire in Northern California destroyed the town of Paradise and burned roughly the acreage of the city of Chicago. The death toll is nearly 100, with more than 100 people still unaccounted for as of this writing.

The bar was raised once again as California has a new most devastating wildfire in history. In Southern California, the Woolsey fire burned from Malibu to Thousand Oaks and Woodland Hills — the worst wildfire in Los Angeles County’s modern history.

No matter how many hundreds of thousands of acres burned last year, California is a big enough state that there will be plenty of fuel to feed this year’s wildfires. As development continues in the urban-wildland interface, it’s crucial that building code standards be improved to require that new construction be as fire resistant as possible.

What I propose is a paradigm shift in the new construction (and remodeling/renovation of existing structures) in the areas most vulnerable to wildfire to try to make homes and businesses a bit less vulnerable to these catastrophic events.

California has always had wildfires, and always will. CalFire data suggests that the number of annual wildfire ignitions is actually trending slightly downward over the last 30 years — but the average size of the wildfires is trending upward over that same period. Fires are burning longer and are destroying more acreage and structures than ever before. We know that there are millions of dead trees in California’s forests, that are not being harvested contributing to this.

Lesson 5: Complex problems rarely have simple, quick fix solutions.

There are no silver bullets that will magically fix all of our problems and address the vulnerability of our population to these events. California needs common-sense revision to logging restrictions to encourage the harvesting of deadfall and dead-standing trees from our forests.

We need further improvements to the building codes for new structures in vulnerable regions, as well as incentives to encourage the owners of existing structures to make their homes as fire-resistant as is practical, not to mention keeping plenty of defensible space cleared around the buildings.

Whether it is flood, earthquake, hurricane or wildfire, incremental improvements based on our learnings is the best approach to better preparing for future occurrences. If we do a little bit better today than we did yesterday, and better still tomorrow than today, over time we will see meaningful improvements to our resilience when these catastrophes occur.

Nothing will stop the next disaster from happening, but good decisions now and in the future will help to make families, communities, states and our nation more able to weather the disaster and emerge the stronger out the other side.

Related: Hurricane-proof homes are real. Why isn’t anyone buying them?

Michael D. Brown is vice president and property department manager at Golden Bear Insurance Company. He can be reached at michaelbrown93442@gmail.com. Opinions expressed are the author’s own.