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Trip Coverage: It’s Not Just About Cancellations

As I’ve written previously, many who travel for pleasure think little, if at all, about the risks associated with their destinations and plans. Travel insurance, such folks believe, is to cover the cost and inconvenience of trip cancellations and lost luggage.

Who wants to think about illness, accidents, and – you know, the other thing – when going on holiday?

You don’t buy travel insurance for the best-case scenario. It’s when the worst happens you will likely regret not having it.

Industry numbers seem to bear this out. A recent report by the U.S. Travel Insurance Association (USTIA) found Americans spent nearly $3.8 billion on travel insurance in 2018, up nearly 41 percent from 2016.  However, trip cancellation/interruption coverage accounted for nearly 90 percent of the benefits purchased. Medical and medical evacuation benefits accounted for just over 6 percent.

Most common claim, but…

Indeed, trip cancellation is the most common claim paid on travel policies (or so I’m told – insurers hold their claims data close to the vest). Assuming this is the case, one might be tempted to roll the dice when it comes to occurrences that seem less likely – say, an automobile accident, a bad fall, or a heart attack or stroke.

Last week’s story about a 22-year-old Briton fighting for his life after falling from a hotel balcony in Ibiza got me thinking about value of the “post-departure benefits” of travel insurance. According to the article, the young man had insurance, though it wasn’t clear what kind of coverage he’d bought. The article did say his parents are soliciting funds on line to help with expenses.

“Globally, an estimated 37 million unintentional falls requiring medical treatment occur each year” write researchers in the journal Injury Epidemiology, citing 2018 World Health Organization (WHO) data. Unsurprisingly, alcohol consumption was found to be a major risk factor in these falls.

During one three-month period in 2018, the BBC reported, citing the Association of British Travel Agents, “11 British holidaymakers have been reported as falling from a balcony – with eight of them in their teens or 20s.” In March 2019, a Missouri man fell from the balcony of a Florida hotel where he was vacationing. In the same month, a Michigan teen on vacation in Cancun fell to his death.

Think you’re too smart, careful, or sober to fall from a balcony? Well, the most common cause of injury and death on vacation isn’t falls. It is – you guessed it – automobile accidents. According to a WHO and World Bank report, “deaths from road traffic injuries account for around 25% of all deaths from injury”.

According to the Centers for Disease Control and Prevention (CDC) 1.3 million people are killed and 20-50 million injured in crashes worldwide annually. The CDC says 25,000 of those deaths involve tourists.

There are things you can’t predict

Or maybe you avoid a fall or a crash and wind up in a situation like New Yorker Steve Lapidus, who credits his $79 Allianz travel insurance policy with saving his life when he became seriously ill while on vacation in Italy. Steve was in a coma for several days with sepsis and pneumonia and given 50/50 odds of surviving. But, after six-and-a-half weeks of medical care, doctors cleared him to fly home.

Man who fell ill during overseas trip says Richmond travel insurance company saved his life

The problem was, he couldn’t walk and needed special care and a specially modified plane. Lufthansa built a special pod within one of its commercial flights.

That $79 policy covered the entire $70,000 bill.

Plan for the best – insure for the worst

No one wants to buy insurance. Who on Earth would choose to buy a product that, under the best possible circumstances, they never use?

But you don’t buy insurance for the best-case scenario. It’s when the worst happens that you will likely regret not having it.

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5 easy ways to prepare for 2020 Open Enrollment

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A world without TRIA: premiums skyrocket following 9/11

Below is an abstract from the I.I.I. database citing a Wall Street Journal article from October 8, 2001. It describes the sharp increase in insurance rates immediately following the terrorist attacks of 9/11 2001.

The abstract is part of our series covering the Terrorism Risk Insurance Act of 2002 (TRIA). The act made public and private sharing of insured losses from acts of terrorism in the United States possible.

I.I.I.’s report, A World Without TRIA: Incalculable Risk, describes the function of the federal  terrorism backstop.

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Wedding Tractor Trailers to the Internet of Things: What Could Possibly Go Wrong?

“We went out again. We got maybe six steps before lights blared in our faces. It had crept up, big wheels barely turning on the gravel. It had been lying in wait and now it leaped at us, electric headlamps glowing in savage circles, the huge chrome grill seeming to snarl.”

Transportation and logistics companies are now among the top-targeted industries by computer hackers

When Stephen King wrote Trucks – a tale of big rigs, pickups, and earth movers coming suddenly to life and terrorizing people they had trapped in a diner – he didn’t speculate about how or why they’d been incited to malevolence. Aliens? The Soviets? Who cared? It was the 1970s, and all he needed to do was deliver a solid horror yarn.

I loved that story when I read it in high school – mainly because it scared the daylights out of me and yet I knew for sure it couldn’t happen. Could it? Nah!

Today I read an article about “platooning”, in which “a lead vehicle wirelessly assumes control over the throttle and braking of one, two, or more vehicles following along behind it. In many scenarios, the drivers in a platoon continue to steer their vehicles and can disengage from the convoy at any time, but the first vehicle determines the speed and braking maneuvers of the entire platoon. Because the follower trucks maintain constant communication with the lead vehicle and have synchronized acceleration and braking, platooning trucks can maintain much shorter distances between themselves as they travel.”

Bam! I was right back in that 1970s diner inside Stephen King’s warped, brilliant, and quite possibly prophetic brain.

From there I time traveled forward to Bastille Day 2017 in Nice, France, where 84 people were killed when a radicalized individual plowed a 20-ton truck into a crowd waiting to watch a fireworks display. The previous December, CNN reminded me, 12 people were left dead and 48 injured when a tractor trailer was driven into a Berlin Christmas market.

“Platooning, which is based on vehicle-to-vehicle (V2V) communications, has been shown to increase the fuel efficiency of both the lead and following vehicles, saving fleet operators money and reducing carbon dioxide emissions,” the article in Verisk’s Visualize insurance news and thought leadership site tells me comfortingly. It cites a German pilot program in which truck platooning generated fuel savings of 3 to 4 percent. Platooning could lead to huge cost savings for businesses and consumers.

Who doesn’t love fuel efficiency?

And then I read an article in Today’s Trucking that began:

“When Harold Sumerford’s phone rang at 2:30 a.m. on April 2, he knew the news couldn’t be good. But he figured it was probably the safety department – not the CFO telling him the company’s entire computer system was down from a ransomware attack.”

Sumerford is CEO of J&M Tank Lines. According to the article, it took four days for his company to begin functioning after the attack, “and during those four days, they weren’t able to bill any customers or enter anything into the system.”

Granted, this is a far cry from having the entire fleet go on a murderous rampage, but the Internet of Things is still young.

J&M’s experience, according to Today’s Trucking, was “just one example of a rapidly growing problem with cybersecurity in the trucking industry. Transportation and logistics companies are now among the top-targeted industries by computer hackers.”

According to an article in ZDNet published just a few weeks ago, “Hackers are deploying previously unknown tools in a cyberattack campaign targeting shipping and transport organisations with custom trojan malware. Identified and detailed by researchers at Palo Alto Networks’ Unit 42 threat intelligence division, the campaign has been active since at least May 2019 and focuses on transportation and shipping firms operating out of Kuwait in the Persian Gulf.”

This as everyone I know seems to be panting with enthusiastic anticipation for vehicles that drive themselves!

Look, I’m no Luddite. I appreciate the benefits offered by and realized through interconnectivity.

But I also have a front row seat observing the difficulties people who assess and quantify risk for a living experience in getting and keeping their heads around the ever-changing world of cyberrisk.  As data and “stuff” become increasingly intertwined and the risks surrounding them are less clearly defined, is it so unreasonable to suggest that pushing humans out of the driver’s seat at this moment isn’t the the only or best path to traffic safety, low prices, and reducing our collective carbon footprint?

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Older Generations More Cyber Savvy Than Their Younger Counterparts

By Loretta Worters, Vice President, Media Relations, Insurance Information Institute

Getty images

Despite a never-ending cycle of cyber breach headlines, individuals continue to be underprepared for even the most common cyber exposures.  According to Chubb’s third annual Cyber Risk Survey, which examined individuals’ comprehension of cyberrisk and the steps they are taking to protect themselves, complacency seems to have taken hold: eight-in-10 Americans continue to be concerned about a cyber breach, yet only 41 percent use cybersecurity software and only 31 percent regularly change their passwords. These numbers are virtually unchanged from 2018.

According to Chubb’s survey, individuals don’t recognize the value of individual pieces of personal data. For example, just 18 percent of respondents are concerned about their email addresses being compromised. Similarly, only 27 percent of respondents cite concern about their medical records being breached.

The UK’s National Cyber Security Centre (NCSC), which analyzed passwords belonging to accounts worldwide that had been breached bares the Chubb survey out.  The NCSC notes that several combinations of numbers made up the top 10, while “blink182” was the most popular musical artist and “superman” the most common fictional character. But “123456” was the most common password, with 23.2 million accounts using the easy-to-decipher code. “123456789” was used by 7.7 million, while “qwerty” and “password” were each used by more than 3 million accounts.

Chubb survey results indicate that a consistently large portion of older respondents employ better cyber practices than younger generations. Per the survey, 77 percent of those 55 years and older delete suspicious emails, compared to half (55 percent) of respondents between 35 to 54 and just a third (36 percent) of respondents from 18 to 34. Similar patterns arise when looking at those enrolled in cybersecurity monitoring services, where 53 percent of respondents over 55 are enrolled in a cybersecurity monitoring service.  But this same service is used by only 1 percent of respondents between 35 to 54 and just 29 percent between 18 and 34.

More concerning is that the behavior of younger generations appears to be getting worse, the Chubb report noted. For example, 76 percent and 74 percent of adults over 55 regularly deleted suspicious emails in 2017 and 2018, respectively, as compared to just 47 percent and 40 percent of adults between 18 and 34 during the same time period.

In most narratives, it’s the younger generation teaching older generations about the latest internet trends. When it comes to cyber safety, however, it’s clear that the tables have turned. The first lesson older generations should impart? The importance of talking with an independent agent and broker about coverage for a cyber-related incident.

Without it, and in the event of a hack or breach which leads to a financial loss, individuals could be left without a safety net in place. In some cases, policies will also cover incident response expenses, including legal services, reputation management, and mental and emotional pain diagnosed by a physician.

October is National Cybersecurity Awareness Month, (NCSAM), a collaborative effort between government and industry to raise awareness about the importance of cybersecurity and to ensure that all Americans have the resources they need to be safer and more secure online. This year’s NCSAM will emphasize personal accountability and stress the importance of taking proactive steps to enhance cybersecurity at home and in the workplace. This year’s overarching message – Own IT. Secure IT. Protect IT. – will focus on key areas including citizen privacy, consumer devices, and ecommerce security.

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Less than one month ’til 2020 Marketplace Open Enrollment!

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Intent and ability distinguish cyberrisk from natural perils

Cyberrisk is often compared with natural catastrophe-related threats, but a recent study by global reinsurer Guy Carpenter and analytics firm CyberCube suggests a better analogy is with terrorism.

“Probability is assessed in terms of intent and capability.”

The report – Looking Beyond the Clouds: A U.S. Cyber Insurance Industry Catastrophe Loss Study – quotes Andrew Kwon, lead cyber actuary for Zurich: “Extending the lessons learned from property cats to the cyber space is intuitive and logical, but cyber continues to be a unique force unto itself. A hurricane does not evolve to bypass defenses; an earthquake does not optimize itself for maximum damage.”

This passage resonated as I read it because a few hours earlier I’d been reading a FreightWaves article about risks posed to international shipping by digitalization and pondering the fact that the same technology that helps vessels anticipate and avoid adverse weather also subjects them – and the goods they transport – to a panoply of new risks.

The FreightWaves article quotes U.S. Navy Captain John M. Sanford – who now leads the U.S. Maritime Security Department within the National Maritime Intelligence Integration Office – describing how the NotPetya virus inflicted $10 billion of economic damage across the U.S. and Europe and hobbled company after company, including shipping giant Maersk, in 2017.

Sanford said Russian military intelligence was behind the hacker group that spread NotPetya to damage Ukraine’s economy. The virus raced beyond Ukraine to machines around the world, crippling companies and, according to an article in Wired, inflicting nine-figure costs where it struck.

“Maersk wasn’t a target,” Sanford said. “Just a bystander in a conflict between Ukraine and Russia.”

Collateral damage.

The FreightWaves article describes how supply chains, ports, and ships could be disrupted more intentionally through GPS and Electronic Chart Display and Information System (ECDIS) systems onboard ships, or even via a WiFi-connected printer: “Pirates working with hackers could potentially access a ship’s bridge controls remotely, take control of the rudder, and steer it toward a chosen location, avoiding the expense and danger of attacking a vessel on the high seas.”

The Carpenter/CyberCube report identifies parallels in the deployment of “kill chain” methodologies in both conventional and cyber terrorism: “Considering terrorism risk in terms of probability and consequence, probability is assessed in terms of intent and capability.”

As our work and personal lives become increasingly interconnected through e-commerce and smart thermostats and we look forward to self-driving cars and refrigerators that tell us when the milk is turning sour, these considerations might well give us pause.

Hurricanes, earthquakes, fires, and floods might be scary, but at least we never had to worry that they were out to get us.

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How TRIA Would Handle Another 9/11

The Insurance Information Institute’s new white paper, “A World Without TRIA: Incalculable Risk,” shows how the market for terrorism insurance has evolved since the 2001 terrorist attacks – from the early days in which there was effectively no market (insurers avoided covering terrorism wherever they could) to today, where the market is stronger but by all accounts unable to shoulder the entire burden without government backstop.

The 9/11 attacks generated by far the most insured losses of any terrorism event. We wanted to see how the government program the Terrorism Risk Insurance Act (TRIA) created in its wake would handle financially a repeat of that awful day.

If that happened, the government’s net payout would be less than zero, as it would recover more from mandatory surcharges to insurance policies than it would reimburse insurers for a portion of their losses.

Meanwhile, the net payout by insurance companies would be nearly $20 billion. Repeating the exercise in the future, the insurer contribution would steadily grow, assuming the law was renewed with the same terms under which it is set to expire at the end of next year. The share borne by policyholders through the surcharge increases more dramatically.

These estimates come from a mathematical model created by the Reinsurance Association of America to increase understanding of how the law operates.

The RAA created the model around the time of the first reauthorization of TRIA in 2005. It is widely regarded as a credible look at how the federal program would react to various scenarios. It has been shown to organizations as diverse as the Federal Insurance Office, the National Association of Insurance Commissioners, the Government Accountability Office, ratings agencies and business groups with a stake in the program, like the U.S. Chamber of Commerce.

“Our intention is to be inclusive so that all of the interested groups vested in the program understand the statute,” said RAA President Frank Nutter.

At the request of the Triple-I, the RAA created four scenarios, each replicating the insurance losses stemming from 9/11. The years modeled were 2019, 2020, 2029 and 2030. Losses were adjusted using the Consumer Price Index. Insurer premium – an important input – was adjusted by a 4 percent compound rate of growth, which is close to what the Congressional Budget Office projects as the growth in nominal Gross Domestic Product over the next decade.

The original program has been modified each time Congress has reauthorized it: 2005, 2007 and 2015. The program has a number of parts, and the RAA model shows that each reauthorization has increased the burden on insurance companies and decreased the burden on the government.

The Triple-I estimates that adjusted for inflation, 9/11 this year would generate insurance losses of $45.7 billion. According to the RAA model, the government would contribute $6.6 billion. It would front another $19.3 billion but recover $27.0 billion from a mandatory surcharge that would be placed on the insurance purchased in all lines of business that the program covers. Netting all that out means the government would pay less than zero. Insurers would be responsible for $19.7 billion, or 43 percent of the total insured loss.

By 2030 9/11 would be a $58 billion event. The government would contribute nothing. It would front $29.6 billion but recover $41.5 billion from policyholders due to the recoupment and surcharge. Insurers would be responsible for $28.4 billion, or 49 percent of the total insured loss.

The main drivers of the changes:

  • Beginning in 2020, the law makes the size of the industry marketplace retention a function of insurers’ aggregate premiums, so the marketplace retention grows as the industry’s premium does.
  • Also in 2020 the government’s co-payment shrinks to 80 cents per dollar insurers pay above their deductible, down from 81 cents in 2019.
  • The amount of losses subject to policyholder surcharges grows to $29.6 billion from $19.3 billion, shrinking the federal support.

The work “is a reminder under the current statute, policyholder and company retentions go up over time,” said RAA President Nutter. “In 2020 this becomes effective in a way that changes retentions of the private sector. It also shows a vanishing federal share.”

The RAA model can show the impact of any proposed changes to the program. It also has the ability to show how the federal program would handle specific major events, including 25-ton truck bombs, chemical or biological events, industrial sabotage and port bombs, using information from two major catastrophe modeling firms, RMS and AIR. It also can tailor results to individual cities; car bombs in New York and Baltimore, for example, will generate different levels of loss.

The modeling firms’ data show “just how big some of the [nuclear, biological, chemical and radiological] events are,” said Scott Williamson, the RAA vice president who developed the model. “The workers compensation exposure is really very large.”

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