FOCUS ON EMERGING P-C PRODUCTS

New products address a variety of emerging needs

By Lori Widmer

For the last decade, much attention in the property and casualty sector has been paid to risks associated with climate. As the U.S. struggles to address climate change, insurers have been laser-focused on how to handle the increasing exposures to a rapidly changing environment from an underwriting perspective.

This has led to products being developed or enhanced that directly address the effects of weather-related events on both commercial and residential accounts.

Yet all change within the P-C sector is not about weather. Other products are being developed to meet needs that in some cases have sprung directly from the headlines.

Such a disgrace

Such is the case with SpottedRisk’s disgrace insurance. Janet Comenos, CEO and co-founder of Spotted, Inc., had been in the analytics business for four years. Her focus shifted when headlines started to grab her attention. “We had been selling analytics primarily to brand advertisers,” she says. “We noticed that advertisers were becoming increasingly concerned about the possibility of having to pay tens of millions of dollars in the event that a celebrity spokesperson became involved in a scandal.”

As more advertisers began asking about the risks associated with celebrity talent, Comenos realized there was an opportunity in front of her. She searched for celebrity scandals and relevant coverages, researched a 30-year-old legacy Lloyd’s of London product, and reached out to under-writers who had written the business. “They were basically relying on Google, Wikipedia, and TMZ to try to assess the risk of the talent,” she explains. “Because they couldn’t assess the risks, they placed really low limits on these policies.”

Enter Comenos’s new business focus: disgrace insurance that uses in-depth analytics to underwrite the risk. SpottedRisk’s disgrace insurance is based on strong underwriting guidelines that were developed based on 100 different scores and metrics to assess 17 professional categories of talent. “We basically built the blueprint of their lives. We look at hundreds of biographical data points—political controversy and contributions, charitable contributions, family upbringing, educational background.”

From there, Comenos says, a behavioral science team analyzes all the different behaviors a professional displays. “It allows us to predict someone’s propensity to be involved in a disgrace or misconduct event.”

The coverage also protects stakeholders. “Consider a celebrity who could disgrace him- or herself.  As many as 20 different entities could have an insurable interest in that celebrity.”

SpottedRisk’s disgrace insurance offers limits starting at $1 million to upwards of $10 million and beyond, depending on the insurable risk. Comenos says other markets typically provide limits of just $250,000. “If you’re a film studio that’s putting out a $75 million film, a $250,000 limit is going to force you to self insure.”

Premiums average 1.5% for a TV or film production with multiple named talent. Pricing for celebrity endorsers or sports teams can be as low as 0.7% for one individual to 2.5%, depending on how many individuals are added to the policy. There are no behavioral exclusions, and coverage includes prior acts.

Comenos says offering the disgrace insurance could give brokers and agents a competitive edge. “It’s a great conversation starter,” she says. “Brokers who are selling it today see it as a compelling door opener, either to offer to an existing customer or use as an entrée to a new client.”

“Consider one celebrity who could disgrace him- or herself. As many as 20 different entities could have an insurable interest in that celebrity.”
-Janet Comenos
CEO and Co-founder
Spotted, Inc.

When rent is overdue

Another door opener is coverage that actually protects the owners of said doors. Rent default coverage is designed to help commercial investors recoup lost rental income. It’s a newer market in the U.S., having been a fairly common product abroad for decades.

It’s a market that Erez Golomb, CEO of E Golomb Insurance Services (EGIS), has built a business around. The EGIS product, Commercial Real Estate Default Rent Insurance (CRERDI®) protects commercial property owners against loss of rental income during tenant eviction events. It also provides reimbursement for the tenant’s leasehold improvements once the tenant is removed, and it covers legal expenses associated with the eviction. “We are excited to work with EGIS in the distribution of this unique product for property owners,” says Jason White, managing director of CRC Group.

“Every commercial property owner expects to experience some tenant nonpayment losses,” says Golomb. “Those expected losses are planned for and accounted for as a cost of doing business—bad debt. CRERDI is designed to indemnify commercial property owners for the losses they suffer when a tenant cannot or will not pay rent.”

The policy also can provide income while property owners look for new tenants. Tenants who default, says Golomb, leave property owners without that income, which could take months to replace, particularly if it’s difficult to secure another tenant. “Meanwhile, property owners are incurring legal expenses and loss of rental income—all while continuing to make their mortgage payments and covering additional expenses,” says Golomb.

He notes that the product helps property owners go beyond the typical methods of reducing tenant nonpayment loss, such as security deposits, personal guarantees, and traditional insurance. In fact, Golomb says traditional property owners coverage, while it provides business income loss remediation, does not include “the risk of tenant’s rental default where it becomes no longer financially viable for a commercial tenant to continue its operations. CRERDI is gap coverage for traditional policies.”

Premium is based on annual net rental income for each covered property/unit, and leasehold improvement is offered as an endorsement.

Golomb believes agents and brokers who offer the coverage could gain an advantage with their property owner customers. “Agents and brokers can account round their existing book of business as well as grow their book when introducing CRERDI to prospects,” he says.

To the rescue

That’s not the only rent default product emerging in the P-C realm. Rent Rescue, a product developed by Next Wave Insurance Services and Aaron DiCaprio, Rent Rescue’s co-founder and CEO, brings rent default relief to investors and property managers. “Rent Rescue is rent default insurance that reimburses investors for up to six months of lost rental income when a tenant defaults on the lease,” says DiCaprio. “It also provides $1,000 in legal expenses to help cover the cost of an eviction.”

The product covers nonpay situations such as skips and evictions. It also provides up to three months of reimbursement when a sole tenant dies, when a tenant member of the military is put on active status and deployed, or when a court orders the breaking of the lease, such as in a domestic violence situation.

For DiCaprio, rent default coverage is a growing need. “You’re talking about 20 million residential investors who control 43 million rental units in the U.S. market.”

Average annual premium for the Rent Rescue product is approximately $300 per unit, a price DiCaprio says can easily be passed on to the tenant in the form of slightly higher rent, or it can be taken as a tax deduction.

The policy does not cover short-term rentals or vacation rentals or situations when landlords run afoul of the lease agreement. “For example, let’s say they’re not maintaining the property and keeping it habitable for a tenant. The insurance wouldn’t reimburse for the loss of rent if the tenant is withholding it,” DiCaprio says. The application, payment, and claims processes all can be handled online. DiCaprio says the ease of doing business on the platform for the Rent Rescue product makes selling it almost a passive income stream—low-premium policies that don’t require much maintenance. He adds that the company provides marketing materials and custom URLs to help producers market the product.

“This kind of insurance solves a real pain point for a lot of investors,” DiCaprio says.  “For agents and brokers, the product can be used to build a new book of business or enhance an existing book.”

Triggered coverage

Another suite of products that is coming to market includes parametric or index-based policies. According to Swiss Re’s website, these products “are a type of insurance that covers the probability of a predefined event happening instead of indemnifying actual loss incurred.” Parametric insurance does not indemnify for the primary loss, such as flood or earthquake; instead it insures underlying losses, such as business interruption caused by a triggering event.

A parametric policy contains a specific predetermined trigger. For example, a policy could require a specified number of people to contract the same disease. The policy could cover assistance for medical services mobilization.

Although parametric coverage is not new—it has been widely used to insure weather-related losses—it is being used in a variety of new ways.

According to Matt Junge, head of property solutions, U.S. and Canada, for Swiss Re, parametric insurance is being used to mitigate losses associated with earthquake, windstorm, hurricane, drought, pandemic, and flood-related events. “It can take many different shapes,” says Junge. “It could be a flight delay where there’s a pretty transparent trigger.

Or in another case, it could be used for a small business for earthquake.” In the latter case, he says, the trigger could be the business interruption caused by the earthquake.

Municipalities are using parametric products, Junge notes, to mitigate the costs associated with preparing for storm events. “A hurricane is approaching, and the city decides to evacuate. They know it’s going to cost them money, whether it’s overtime or bringing in buses or whatever they need to evacuate.” The trigger, he says, is when the evacuation is ordered. The product will provide financial assistance for the evacuation.

With earthquake coverage, Junge says, most triggers specify that the quake must reach a certain magnitude.

Because parametric insurance can take many forms, Junge says, pricing and capacity vary based on need. “Our product can address gaps in coverage or exclusions.”

The products will continue to evolve as more agents and brokers are able to convey the benefits of parametric products to their customers. Junge says the products could sell easily once customers understand the basics. “Claims handling is easy because there’s a transparent third-party trigger. You know the limit of insurance, so you know you will get a payout. That’s the real value of the product.”

“[Parametric insurance] can take many different shapes. It could be a flight delay where there’s a pretty transparent trigger. In another case, it could be used for a small business for earthquake.”
-Matt Junge
Head of Property Solutions, U.S. and Canada, for Swiss Re

Easier is the theme when one talks with Larry Watson. Watson, co-founder of Adaptive Risk Management Services, Inc., says the idea for a simplified way to conduct loss control felt like a no-brainer. Deliver loss control capabilities at the outset of the application, and make the insureds the loss control reps.

This merging of experience and technology into loss control has resulted in ARMSVision, an intuitive, cost-effective platform that simplifies the way loss control services are handled and delivered. Loss control, Watson says, needed to come out of the dinosaur age. “It had been done with clipboards and cameras and there was no cohesive technology that would allow an inspector to go out and do something thoroughly and quickly.”

How it works: ARMSVision’s platform arms users (the insureds) with an intuitive questionnaire. “The questions change depending on how they answer the top-level questions,” Watson notes.

That’s a time savings for insureds and loss control departments alike. With general liability policies having upwards of 1,200 questions on a typical insured survey, the algorithm responds to insureds’ answers and feeds through those questions that pertain to their particular situation. “We realized we could restructure and rewrite some of the questions for an insured to be able to do these inspections themselves.”

Backed up by time-stamped photographs that accompanies each report, insurers are able to view an insured’s more complete risk portfolio. Likewise, ARMSVision serves as a teaching tool. With built-in tips and wikis, Watson says it “levels the playing field for experience. So when they open their smartphones or tablets to complete the survey they’re exposed to the same wikis and tool tips. But now we coach them in terms of why is this important to you? Not only are we directing them to uncover potential risks and educating them to what the purpose is, but also what the downside is.”

Watson says this kind of comprehensive approach to loss control makes more sense when insurers realize the cost savings. Typical inspections tend to run between $200 to $250 per inspection. With ARMSVision, the cost is well under $100 per inspection.

Plus, he says, insureds are being educated through the process on what they need to do to improve their loss control picture. “It’s a little hard to put a number on this, but there’s no doubt that the next morning, they’ll do their business a little bit differently. We’re leaving the risk taker with a photographic view of their business, and we’re leaving that business owner a little bit better educated on what could go wrong,” Watson concludes.

Whether losses are weather-related, behavioral, or triggered by a loss of income, insurers are finding innovative ways to address the gaps that exist in traditional products and help customers mitigate their losses. Luckily for agents and brokers, insurers are eager to offer support and information to make the sale that much easier.

For more information:

ARMSVision

www.armsvision.com

CRC Group

www.crcgroup.com

CRERDI

www.crerdi.com

E Golomb Insurance Services

www.egolombis.com

Next Wave Insurance Services

www.nextwaveins.com

Rent Rescue

www.rentrescue.com

SpottedRisk

www.spottedrisk.com

Swiss Re

www.swissre.com

The author

Lori Widmer is a Philadelphia-based writer and editor who specializes in insurance and risk management.