Though insurers have pulled back in some catastrophe-prone regions, some say the pain could be temporary.

Business insurance has been roiled by severe weather and inflation, the same forces disrupting home insurance markets in catastrophe-prone areas of the U.S., with companies facing tougher conditions as they try to insure their properties against disaster.

The problem of how—or even if—properties can be insured in areas at risk of wildfires, hurricanes and other damaging weather has come to the fore as several insurance companies have in recent weeks stopped writing new home insurance policies in California and elsewhere. The U.S. Treasury Department last month warned that climate risk poses a major challenge to the insurance industry.

Insurers face similar headwinds in trying to cover businesses in those areas, and companies are facing mounting costs and more onerous questions at policy renewal time. Kilroy Realty, a developer, has had to turn to about 40 separate insurers to try to cobble together sufficient coverage for its portfolio of office buildings, said Scott Ritto, a vice president at the company.

“The insurance increase is something that is incredible,” said Ritto, who also serves as president of the Los Angeles chapter of the risk professional society RIMS. “It’s definitely a very volatile situation.”

The size of policies that insurers are willing to write for businesses is lower than it has been for decades, and companies are having to take extra steps to try to win over insurers by touting their efforts to mitigate against loss, said James “Chip” Stuart, leader of the real-estate specialty practice at broker HUB International.

Educational institutions with their often sprawling campuses are also major insurance buyers. Colleges in southeast Louisiana are facing “severe pressure” with costs related to flood insurance, said Peter Waggonner, the public policy director for economic development agency Greater New Orleans Inc.

The cause of the trouble facing Kilroy, the colleges and other organizations is relatively straightforward. “Losses are going up,” said Steve Bowen, a meteorologist who serves as chief science officer at reinsurance broker Gallagher Re. “Events are becoming more intense, and it’s combining with more and more people moving into higher-risk areas.”

Losses from natural disasters in the U.S. totaled about $165 billion in 2022, according to professional-services firm Aon, more than 140% higher than the median annual loss since 2000. Private and public insurers covered about $99 billion of that amount, Aon said.

Continued inflation, which makes it more costly to rebuild after a loss, is another factor. Reinsurers, which write insurance policies for insurance carriers to backstop them, also have raised their rates in the face of losses, said Liz Henderson, the head of the climate risk advisory team at Aon.

The problem is most visible in states such as California, Florida and Louisiana, where severe weather is relatively common. But weather such as thunderstorms and tornadoes, though often less damaging than hurricanes, for example, can still cause large losses and occur in a swath of the country.

Climate scientists tend to be reluctant to pin any given weather event on climate change, but some have linked a general warming trend to a pattern of more intense natural disasters. Henderson said areas that are prone to certain kinds of severe weather are changing. Tornadoes, for example, seem to be shifting to the southeast of their traditional zone, she said.

Many observers have expressed hope that the tough market may yet turn a corner. In the U.S., June 1 and July 1 are major dates for insurance companies to renew their policies with reinsurers. Observers say that the market for reinsurance looks to have, if not cooled down, at least heated up less quickly.

Though rates for property catastrophe reinsurance jumped between 25% and 35% in the most recent round of renewals, the level of increase is slowing, according to Aon. “Renewals at the midyear were orderly,” the firm said.

The role of the reinsurance market can be complicated. Reinsurers want to return money to their own investors, and their pricing can be driven by macroeconomic forces in addition to losses, Aon’s Henderson said.

Gallagher in a report this month said the market has stabilized, with more reinsurers willing to insure against some natural events.

Some businesses also have begun to turn to a product called parametric insurance to fill some of the coverage gaps. These novel policies pay out in response to specific weather events. If, for example, wind speed or rainfall exceeds an agreed level, the policy pays out a set amount—essentially no questions asked. Unlike a traditional policy, which is tied to losses, these operate almost like a wager on the weather, which makes them more straightforward.

Businesses can turn to parametrics to get speedier payouts, and to cover losses that they wouldn’t be able to insure under traditional policies, such as in disasters that don’t directly have an impact on their facilities. A business might, for example, purchase a policy to cover flooding that disrupts its workers’ commutes, even if its own facilities are spared.

California, the most visible target of insurance carrier pauses, is looking at allowing insurers to use catastrophe modeling in setting their premiums, which would bring it in line with every other state. The state is an outlier because its regulators don’t allow insurers to look forward when setting price, a regime that doesn’t let insurers adapt to changing weather, industry groups say. A change to that unusual rule could induce insurers back into the state.

Prominent pauses in certain markets, however, are likely to be temporary as companies adapt, instead of permanent exits, said Dale Porfilio, chief insurance officer at the Insurance Information Institute, a trade group. Insurers, after all, want to grow, which they can’t do by leaving states forever, he said.

“You may take your foot off the gas,” he said. “It doesn’t mean I’m parking my car.”

   

A startup wants to help the insurance industry be more responsive to volatile weather and the widespread damage it can cause. Carlos José Báez experienced the full brunt of Hurricane Maria when it made landfall in Puerto Rico as a catastrophic storm in 2017. The auto paint shop owner, who lives in Aguas Buenas, Puerto Rico, saw his home badly damaged by Maria’s ferocious winds and rain. Despite submitting claims to his homeowner’s insurance policy for over $25,000, Báez ultimately received a payout of $11,000. “We had a lot of property damage and insurance, but they didn’t want to pay,” Báez said in an interview in Spanish. More than $1.6 billion in insurance claims remained unresolved more than two years after Maria while others were denied completely. The latter happened to Jonathan González’s mother, who waited nearly a year for an adjuster to come take photos of water damage and a broken wheelchair ramp only for the claim to be denied six months later. That experience led him and three partners to co-found Raincoat in 2019, a climate technology startup that creates insurance that pays instantly. As climate change continues to worsen extreme weather, damaging homes and wreaking havoc on crops, the need for more responsive insurance policies is growing. “We’re still talking about federal aid related to reconstruction,” González said, calling the timeline for payouts from the public and private sectors “absolutely insane.” Most types of insurance policies, like auto and homeowner insurance, kick into action when a customer calls to submit a claim. Parametric insurance, a category of insurance which includes life insurance, for example, flips that model. Claims are automatically paid out when certain parameters are met, whether that’s the policyholder dying or, in the case of climate insurance, when an extreme weather disaster meets certain conditions. Quantifying loss is “a fuzzy experience,” González said, involving minute debate and human judgment about things like where water damage came from, sometimes a long time after the event occurred. With parametric insurance, that fuzziness disappears, he said. Traditional insurance companies are already feeling the pressure of climate change. Allstate and State Farm fled California due to wildfire risk to homes as did American International Group Inc., which also pulled back on home insurance sales in other markets deemed risky. It’s clear that the industry needs a jolt of innovation to adequately meet the needs of customers, particularly in the regions most affected by climate change. Parametric insurance can fill some of the gap left behind by traditional insurers, which are finding it increasingly more difficult to quantify climate risk and limit exposure, González said, because it hinges on metrics that are measurable and modelable, such as wind speed and seismic activity. The value proposition of parametric insurance in the context of natural disasters is not necessarily scale, but speed. When his mother’s ramp was broken, González waited months without repairing it so the insurance adjuster could visit and assess the damage. If the claim had been processed sooner, he could have fixed it sooner. “The longer it takes you to financially recover from these types of events, the less likely you are to recover and the more likely you are for these things to balloon out of control,” he said. González and his co-founders were all software engineers prior to founding Raincoat. None of them had a background in insurance, but they realized the industry had a technological problem. Insurance companies and reinsurers they met with would tell them that a mass consumer parametric product for disasters was difficult to deploy. How do you detect an event accurately enough to be able to activate an individual policy? How do you build a risk model around pricing for that type of event? How do you download the data that’s required? How do you segment it? If Raincoat could answer these questions and more, insurance companies would agree to sign on, they told González. So he and the team developed their models and showed insurers that they worked, creating simulations of historical events as well as theoretical future ones to illustrate what a potential weather disaster event’s impact might look like for the insurance product prospective clients could sell. Traditional home insurers can go years with no activity and then experience a sudden surge in claims activity after an extreme weather event. That spikiness can make it difficult for insurers to handle incoming volume, straining the system. “One of the beauties of software is we can run simulations,” González said, making it much easier for Raincoat to anticipate and respond to future demand. Today, the Puerto Rico-based Raincoat has customers in four locations — Puerto Rico, Mexico, Jamaica and Colombia — and works with distribution channels like governments and banking institutions, as well as insurance partners, to provide climate insurance for individuals. The startup’s products help create insurance policies for, among others, families, small-scale farmers and small businesses, and its products help insure against catastrophic events, including hurricanes, wildfires, floods and earthquakes and agricultural risks, such as drought, excess rain and flooding. This sort of climate-related financial engineering isn’t new, according to Daniel Osgood, lead scientist for the Financial Instruments Sector Team at the International Research Institute for Climate and Society. In the early 2000s, power companies started to buy and sell weather derivatives based on heat. Shortly thereafter, the agricultural insurance industry started offering what’s known as index insurance, which pays farmers out based on an index, like rainfall measured via a satellite, rather than field-level crop losses. What’s new, Osgood said, is applying this model and technology for all types of individuals. “It’s very exciting to see them putting together this kind of thing focused on people,” he said. Of course, insurance products like this aren’t a be-all, end-all for consumers. For most individuals, they are more of a stopgap measure than something that can be solely relied upon in the wake of a natural disaster. Raincoat’s policies, for example, are typically cheap and the payouts are usually small, maxing out at a few thousand dollars. Those smaller but quick sums can help those affected buy provisions, check into a hotel or do a quick repair on their home. “You have a screwdriver and a hammer and pliers and all different tools intended for different things to cover gaps,” González said. Báez, the auto paint shop owner, decided to pick up one of those tools after Maria. When installing solar panels on his house, his contractor offered him the Raincoat-powered climate insurance policy. Remembering the devastation of Maria, Báez purchased the plan. When Hurricane Fiona hit the island last year, Báez received an automatic payout of $75 two days later. (Fiona was a much weaker storm than Maria when it reached Puerto Rico and only clipped the island, resulting in less damage.) He and his wife used that money to buy groceries, since their fridge stopped working. “I didn’t have to fill out any documents, and they didn’t have to come see anything. The process was very quick,” Báez said.

The nation’s leading specialty insurance provider NSM Insurance Group said Monday it completed its acquisition of Shield Commercial Insurance Services. Based in Palm Desert, CA, Shield specializes in insurance solutions for the general contractor and construction liability space. "We are energized to continue our series of strategic acquisitions in the U.S. and U.K. with Shield," said Bill McKernan, President of NSM Insurance Group. "Shield is a fast-growing and best-in-class business with exceptional underwriting and a profitable track record. They are a perfect fit for our B2B portfolio of dynamic, specialized businesses. We will accelerate their growth by expanding their geographic footprint and national distribution with our robust network of 15,000+ agent partners across the country." Shield exclusively focuses on underwriting business for small and mid-sized contractors, offering coverages for General Liability, Excess Liability, Workers' Compensation, Inland Marine and Contractors Professional & Pollution Liability. "We're thrilled to join the NSM family of specialty insurance brands and further enhance and bolster our offerings to meet the unique needs of contractors," said Robert Anderson, President and Co-Founder of Shield Commercial Insurance Services. "Over the last two decades, we have delivered innovative products for this niche segment and have built a tremendous reputation with agents and carriers alike — which has fueled our explosive organic growth over the last five years." NSM over the last 33years has developed a winning formula for building the industry's most successful and sustainable programs, consistently outperforming competitors and driving industry-leading growth and profitability over the last four years. This latest acquisition complements  NSM's robust portfolio of specialty insurance programs and brands for the commercial P&C industry and consumer insurance — backed by the company's state-of-the-art resources, including IT, operations, marketing, HR and finance. For more information about NSM or for investment opportunities, please visit nsminc.com. About NSM Insurance Group NSM Insurance Group is the nation's leading specialty insurance provider, exclusively focused on building successful insurance programs. For more than 30 years, NSM has been committed to delivering industry-specific insurance programs that help agents meet the unique needs of their customers and fuel market growth through innovative development, underwriting, distribution and claims expertise. The company has built more than $1.5 billion in premium across 25+ specialty insurance programs and brands in the U.S. and U.K. focused on collector cars; pets; social services and behavioral health; addiction treatment; coastal condominiums; towing and garage; trucking; sports and fitness; professional liability for contractors, architects and engineers; habitational; medical stop loss and managed care; staffing; and workers' compensation. For more information on NSM, visit nsminc.com.

Zurich North America, a provider of cyber risk solutions for over a decade, has introduced a cyber insurance offering designed specifically for middle market businesses. The Zurich Cyber Insurance Policy Concierge Suite includes not only Cyber Insurance coverage but also loss-prevention and resilience services such as a breach coach and a cybersecurity hotline available 24/7. Cyber Concierge, which can help businesses resolve both first-party cyber events and third-party claims, is available as a complement to other property or casualty coverages that a company has with Zurich. "The goal is to help simplify and enhance cyber resilience for the middle market segment." "Many middle market companies have been caught in a cyber resource gap," said Michelle Chia, Head of Professional Liability and Cyber at Zurich North America. "They do not have the extensive cybersecurity teams and tools that larger corporations do, and yet face equally serious cyber risks. We designed Zurich Cyber Concierge to be a turnkey solution that provides cost-effective protection and high-quality services. The goal is to help simplify and enhance cyber resilience for the middle market segment, which is a growing and vital driver of the economy." Studies find middle market businesses are particularly vulnerable to cyber threats. In the first quarter of 2023, a survey of midsize businesses with less than 2,000 employees found that 27% of respondents had no cyber insurance coverage and 24% suffered a cyberattack or were unsure if they suffered a cyberattack in the previous 12 months. It also found 61% do not have dedicated cybersecurity experts in their organization and 47% do not have an incident response plan. "Many middle market companies tell us they want to improve their cyber posture but lack the staff, skill sets or access to cost-effective tools," said Alex Wells, Head of Middle Market at Zurich North America. "Cyber Concierge is here to help. In the unfortunate event of an attack, customers with the Cyber Concierge Suite don't have to scramble to find reliable incident response services or worry about being gouged on price. Incident response and recovery and other essential services are built into this holistic solution." Cyber Concierge has met insurance regulations for "admitted" status in 46 states. One benefit of admitted status is that regional brokers do not need a special license to offer the solution to their clients, removing one barrier to accessing cyber coverage in the middle market space. Those who purchase the policy are entitled to a complimentary onboarding session with Zurich Resilience Solutions' Cyber Risk Engineers, who can recommend appropriate steps to help prevent and recover from losses. Cyber resilience is critically important. One study found that 60% of small companies are out of business within one year of being a victim of a cyberattack. Cyber Concierge includes pre- and post-event cyber services from leading vendors with whom Zurich has longstanding relationships. Among the resources included in Cyber Concierge Suite:

• Triage when network security is threatened or under attack
• Incident-response teams to identify attackers and contain the impact
• Support in restoring and recovering critical operations
• Assistance with data breach notification obligations and crafting an appropriate response

Zurich's dedicated Cyber Claims team includes experienced attorneys with deep cyber knowledge and years of experience handling claims and helping in recovery. Zurich continues to offer cyber insurance products and services for qualified larger companies as well. Middle market companies interested in Cyber Concierge should contact their broker or visit the Zurich Cyber webpage for more information.  

Continuing with its global brand roll out, several Acrisure Partners in California, Nevada and Hawaii will rebrand. These businesses will operate as the Company's West Region led by long-time and respected Partners Jennifer Anderson and Dan Michelini. Over the last decade, Acrisure has grown from $38 million to over $4 billion in revenue and acquired more than 700 businesses around the world. Acrisure provides a wide array of client-focused solutions including insurance, cyber services, mortgage origination and many others. In 2023, the Company kicked off efforts to align under the Acrisure brand in a process that will occur over the next few quarters. "California, Nevada and Hawaii are home to many bold, entrepreneurial and innovative Partners that serve hundreds of thousands of clients across the region," said Greg Williams, Co-Founder, Chairman and CEO, Acrisure. "We are thrilled to bring our West Region Partners together under the Acrisure name and continue to deliver a consistent experience to each of our clients that reflects our high standards of service and best in class technology solutions." Jennifer Anderson and Dan Michelini have years of experience within Acrisure. Their respective businesses as well as a dozen others are part of this rebranding; you can see the list of those Partners as well as access other information about the West Region on Acrisure's website: www.Acrisure.com/West. "The West Region Partners have decades of experience supporting businesses, families, and clients of all sizes. With the rebranding to Acrisure, we take another step forward. It is an honor to lead this effort," said Anderson. "Our sales professionals and colleagues are eager to start using the Acrisure name more formally as a show of what we can do for our clients," added Michelini. "This is the start of a new exciting chapter for all of our clients and stakeholders." About Acrisure Acrisure is An Extraordinary Advantage℠ for millions of clients worldwide. The Company combines humans and high tech to deliver a broad array of products including Insurance, Reinsurance, Cyber Services, Mortgage Origination and more. In the last nine years, Acrisure has grown in revenue from $38 million to more than $4 billion and today employs over 15,000 colleagues in 21 countries. Acrisure expects to announce new developments in the near term. To follow news and updates in real time, visit Acrisure.com or follow the Company on LinkedIn.    

Californians now have even fewer insurance carriers to choose from, following a recent announcement from Farmers Insurance. The company stated it saw a spike in applications for homeowners insurance and as a result will be limiting the number of new homeowners policies in the state, effective July 3. State Farm and Allstate had already announced that they would stop writing new policies. While there are more than 100 insurers still operating in California, concern is mounting that future withdrawals could lead to a broader insurance crisis. State Farm and Allstate said existing policyholders are not affected. Allstate stopped writing new homeowner, condominium and commercial insurance policies in California as of last month, after quietly “pausing” new policies in 2021. State Farm, the largest homeowner insurer in California, announced a similar cutback for new property and casualty insurance May 27. The company reported a net loss of $6.7 billion in 2022 compared to $1.3 billion of net income in 2021. Farmers said starting this week, it'll cap the number of new homeowners policies each month. California is the largest insurance market in the nation, and fourth largest in the world. A growing industry concern is whether wildfire claims will cut too deep into required capital reserve limits, and also whether insurers have expanded coverage in the state beyond their ability to serve such a large market. These pullbacks and concerns come on the heels of similar actions in 2022 when home insurer American International Group Inc.’s Private Client Group and Chubb Ltd. announced they would no longer write new policies for multimillion-dollar homes in rural, unprotected California areas due to catastrophic events. In October 2017 alone, more than 5,300 Sonoma County families and homeowners lost houses and nearly everything they owned in the deadly Tubbs Fire, just one of several North Bay firestorms that month that included the Kincade, Nuns and Glass fires. More than 4 million acres burned in California in 2020, Cal Fire reported. GEICO shuttered its 38 statewide sales offices during the summer of 2022, while continuing to offer policies online or by using the firm’s mobile app. Angst over insurer rate hikes A key reason for these cutbacks is due to the alleged inability of insurers to raise or adjust insurance prices quickly. That’s because of state regulations and other market forces, such as the cost of construction and rebuilding due to wildfires and inflationary pressures along with drought and other climate threats. “We are in a challenging period. Anxieties associated with wildfires and political issues are keeping insurance rates low, along with the lack of the state’s ability to use forward-looking models that insurers believe should be utilized to help determine a proposed new rate structure,” according to Amy Bach, executive director of United Policyholders in San Francisco. She said carriers rely on historical weather data to propose rate hikes beginning at the 6.9% level automatically allowed without stringent regulatory review and hearings. Janet Ruiz with the Insurance Information Institute said the California Senate Insurance Committee is considering several potential rule-making changes. She said this committee knows the industry wants to shorten intervention and approval processes and sees the need for new technology to look ahead to potential risks from climate change. Ruiz observed that there are many scientific ways to look at potential risks. Among them: using wind tunnel analyses to see how fire and embers travel, slope and hill contour assessment, Doppler radar comparisons and long-range forecasts focusing on the likelihood of extreme weather — such as summer droughts, high heat and cold, and wet winters — to factor into the rate-making process. “Now the whole insurance market is having problems covering higher claim levels in excess of allowed premiums that go back five years or more,” Bach said. The insurance industry has three chief concerns, according to Bach. Under Proposition 103 they can’t use future-looking tools (such as Artificial Intelligence property analysis techniques, etc.) to anticipate the need for higher rates down the road. “In addition, insurers also are not permitted to pass along rising reinsurance costs and are not happy with California’s rate regulation policies. Insurers say the state has not been giving them rate increases they want and need to make a profit,” Bach said. Proposition 103, passed by California voters in November 1988, requires "prior approval" before insurance companies can implement property and casualty insurance rates above 6.9% without the possibility of intervention. This ballot measure also required each insurer to "roll back" its rates 20% to what they were on Nov. 8, 1987. “We can’t undo Prop. 103, which was an approved ballot measure, but the surge in devastating wildfires, inflation, skyrocketing construction budgets and rising reinsurance costs are at an all-time high, and carriers cannot use reinsurance costs for catastrophic events as a reason when applying for rate increases,” Bach said. “Reinsurance” is when insurance companies share risk by buying insurance policies from other insurers as a way to limit their own losses during a major catastrophe. Reinsurance shields any one insurance company from too much exposure as a result of a large disaster. Fire-resilient mitigation Bach said as of April 12, California’s Department of Insurance asked all carriers to file a discounted rate structure for mitigation efforts made at the personal property and community levels. As part of its Safer From Wildfires regulation, 12 property and structural mitigation fire-safe factors must be folded into insurance rate planning, rewarding certain policyholders who prepare their property for wildfires, known as “fire hardening.” Commissioner Lara said in Orinda, for example, 30% of the homeowners formed a Firewise USA Community leading to lower insurance costs and expanded coverage options. California Reps. Mike Thompson, D-St. Helena, and Doug LaMalfa, R-Richvale, introduced the Disaster Mitigation and Tax Parity Act, where rebates that homeowners receive for hardening their homes against natural disasters will be exempt from federal taxes. A companion bill was introduced in the Senate. “Businesses located in wildfire areas have seen their rates go up. Inflation and the explosion in tech tools, along with shrunken competition in California, for years have led to where we are today,” Bach said. “I call it a ‘ZIP Code Crisis’ since insurers often apply restrictive policies to all customers within ZIP codes where major fires have occurred.” “The 2023 U.S. Wildfire Forecast from AccuWeather meteorologists, estimates that 400,000 to 1 million acres could burn in California this year. That puts the state at average or slightly above average for fire danger later in the summer, given heavy winter rains resulting in more light fuels, such as high grass and brush,” said Cal Fire Unit Chief Mike Marcucci. Shopping for coverage Tom Hubert, senior vice president at Redwood Credit Union who oversees the Auto, Insurance and Wealth Services division, said: “Our role is to advise consumers and businesses on their options and provide guidance on what they can do. The nonrenewal of policies in such areas is due to the high cost of claims in high fire-risk areas, making several carriers unwilling to write new lines.” Hubert said Redwood Credit Union shops around across as many carriers as possible to find who has the best overall coverage for customers and at what prices. Carrier cutbacks are also affecting more than just those in fire zones; they also involve changes in coverage with most carriers wanting to bundle both auto and home coverage. “Frankly, its gotten harder to gain placements, forcing people to go to the California FAIR Plan, the state’s safety net insurance plan of last resort, which is more expensive. While this program can be good for structural protection but calls for add-on premiums for personal property and other coverages,” Hubert said.

FAIR Plan boosts coverage

The association for California Fair Access to Insurance Requirements Plan (FAIR) decided March 29 to raise the limits for commercial property and other business owners from $7.2 million and $8.4 million, respectively, to $20 million per location. The limit for personal dwelling claims is $3 million, which is double the original level. The FAIR Plan also is seeking a 48.8% increase in its dwelling fire rate, according to Victoria Roach, president of the association. Debra Costa, vice president and vintner practice leader with Heffernan Insurance Brokers, says insurance has become an extremely difficult marketplace. “We are seeing demand for 10 to 12 carriers or more to come together to insure winery and vineyard owners these days. Groups of insurers each cover a quota percentage of an umbrella policy with no carrier covering more than $5 million. Given the need for coverage of high-value properties, Lloyds of London is back issuing policies,” Costa said. “The availability of insurance is one of the highest priorities for farmers. The State Farm and Allstate pullouts have further exacerbated insurer availability,” according to Napa County Farm Bureau CEO Ryan Klobas. “The Farm Bureau has been instrumental in supporting SB 11 and SB 505 as well as ways for our members to obtain the insurance they need as well as obtain financing for agriculture operations, he said. SB 11, passed in July 2021, narrows the exclusion of farm risk to commercial commodities or livestock, allowing farmers, ranchers and vintners to purchase necessary basic property insurance from the State’s FAIR Plan, covering home, animal and feed barns, crop storage units and buildings holding equipment. Those in the agricultural community say having this insurance coverage also can help them acquire loans. SB 505, as of May 18, expands the FAIR Plan’s clearinghouse program to allow commercial insurance policies under the FAIR Plan to move back to the admitted commercial market.

Global M&A suffered a record decline in the first half of 2023 as interest rate rises and economic uncertainty hit financing, according to research on completed deals from WTW’s Quarterly Deal Performance Monitor (QDPM). Run in partnership with the M&A Research Centre at The Bayes Business School, the WTW data reveals activity for deals valued over $100 million slowed significantly around the world during the first half of 2023, with a total of 280 deals completed compared to 441 during the same period in 2022. This represents a 37% drop in volume and the lowest figure for the first half of a year since 2009. The challenging macroeconomic conditions are acutely evident in the North American market, where volumes fell for an unprecedented sixth consecutive quarter from a near all-time high of 173 deals in the third quarter of 2021 to just 61 deals between April and June 2023. In addition to the low number of M&A deals, acquirers that completed transactions in 2023 also underperformed the market by -2.1pp (percentage points). This represents a marked decline following the positive performance of +4.4pp in the second half of 2022. However, despite the continued volatility, global M&A still achieved an overall positive performance of +1.4pp for the last 12 months. David Dean, Managing Director, Southeast Region, North America at WTW, said: “A perfect storm of higher inflation, interest rates, capital costs and greater regulatory scrutiny, combined with major geopolitical headwinds and a banking crisis, have triggered a steeper drop-off in M&A activity than anticipated by the market. “Buyers have had to shift gears to adapt to a more cautious M&A environment, although deal conversations have continued throughout this period of uncertainty. With these disruptive trends expected to continue into the second half of 2023, potential buyers will be kicking the tires a bit harder as they seek deals to address strategic priorities, expand into new markets and fill capability gaps.” The deal performance during the first six months of 2023 would have been substantially worse if not for the Asia-Pacific region, where buyers continue to outperform the rest of the world. APAC acquirers outperformed their regional index by +10.9pp. With 72 deals closed in H1 2023, the region still saw a 25% drop in volume compared to H1 2022 (96 deals). In contrast to the APAC region, North American acquirers underperformed their index between January and June by -5.9pp, while dealmakers from Europe underperformed their regional index by -8.3pp. The WTW data also shows:

• Only three mega deals closed in the first half of 2023 compared to 12 deals in H1 2022.
• Performance of acquirers in North America for the second quarter of 2023 at -10.3pp is the second worst on record, exceeded only by the same quarter in 2020, at the height of the Covid-19 pandemic. Acquirer performance in Europe during the last three months is the worst on record at -10.8pp.
• Asia Pacific buyers have now achieved a positive performance for eight consecutive quarters. To put this in context, buyers in North America and Europe have only recorded two and one positive quarters respectively during the same period.
• Intra-regional deals have increased for three successive quarters (compared to cross regional deals) and intra-sector deals also experienced a big jump from 57% in the first quarter of 2023 to 67% in the latest quarter (compared to cross sector deals), indicating a clear trend of buyers seeking deals closer to home.

Dean said: “When inflation stabilizes and credit markets re-open, we expect deal appetite to increase considerably fueled by pent-up demand with digital transformation, portfolio rebalancing and ESG issues continuing to be key drivers. “Larger deals will remain tough to pull off due to increasing anti-trust and regulatory pushback. Instead, companies are more likely to pursue small to midsize deals, which are easier to complete than megadeals and lower risk in today’s difficult financing environment. To achieve performance objectives underwriting deal financials, organizations will need to execute integration plans more effectively and address known obstacles like culture differences with more intentionality. Nonetheless in the race to acquire - whatever the size of deal - due diligence that is faster, deeper and better focused, will prove even more critical in a volatile market.” WTW QDPM Methodology

• All analysis is conducted from the perspective of the acquirer.
• Share-price performance within the quarterly study is measured as a percentage change in share price from six months prior to the announcement date to the end of the quarter.
• All deals where the acquirer owned less than 50% of the shares of the target after the acquisition were removed, hence no minority purchases have been considered. All deals where the acquirer held more than 50% of target shares prior to the acquisition have been removed, hence no remaining purchases have been considered.
• Only completed M&A deals with a value of at least $100 million which meet the study criteria are included in this research.
• Deal data sourced from Refinitiv.

About WTW M&A WTW’s M&A practice combines our expertise in risk and human capital to offer a full range of M&A services and solutions covering all stages of the M&A process. We have particular expertise in the areas of planning, due diligence, risk transfer and post transaction integration, areas that define the success of any transaction.    

In May, Zachary Erbe received some alarming news: Farmers Insurance would not renew his building’s insurance policy, which expired in August. The reason? The three-unit residential building located near Alamo Square was constructed before 1925. As chairman of the homeowner’s association, Erbe jumped into action and sought new coverage. He thought he had another policy lined up with State Farm. Then, he got some more bad news: State Farm announced on May 26 that it would not be taking on new business in California. Shortly thereafter, the San Francisco Chronicle reported that another major player, Allstate, had done the same. Erbe’s plight is increasingly the norm for Californians—and the situation is getting worse. Earlier this year, Farmers Insurance, the second largest provider, limited new business on its main residential policies, according to a rate filing with the state regulator. Moreover, multiple former customers like Erbe—usually owners of condos or multiunit buildings—told The Standard the company declined to renew their policies because of the age of their properties. The changes by Farmers, which have not been previously reported, pour cold water on hopes that other major insurers will easily pick up the slack left by State Farm's and Allstate’s decisions to forego new business in California. In an email to The Standard, a Farmers spokesperson confirmed that the company had “paused” several insurance programs and was limiting the amount of new business it takes on. “With record-breaking inflation, severe weather events, and reconstruction costs continuing to climb, we are focused on serving our customers while effectively managing our business,” Farmers said. “Effective July 3, Farmers will limit new homeowners insurance policies in California to a level consistent with the volume we projected to write each month before recent market changes.” For Erbe, the situation is stressful. He has yet to find new insurance for his building. “This underwriting model doesn’t work,” he said. And the insurance companies “are not being particularly transparent with why it’s not being covered.” Burying the Lead Farmers outlined its decision to limit new business in California in two underwriting updates in a March filing with the Department of Insurance, which oversees the industry in California. Those updates likely did not receive significant public attention because they were buried near the end of over 3,800 pages included in the filing. In the first update, the company said that applications submitted for its Next Generation Homeowners, Smart Plan Renters and Smart Plan Condominium programs would be “ineligible for new business” starting April 15. In the second, Farmers said it would limit applications to its Smart Plan Home program to 7,000 a month starting on July 3. Janet Ruiz, communications director of the Insurance Information Institute industry group, told The Standard she was aware of Farmers limiting the number of policies it can write per month due to market conditions. “The way the industry works is spreading risk,” she said. “No insurance company wants to write all the policies in a specific area. They have to manage the amount of risk they have in any given area.” When fewer companies are writing policies, that puts a strain on the California homeowners insurance market, she added. In an email to The Standard, Michael Soller, a deputy commissioner at the Department of Insurance, stressed that Farmers is continuing to sell home insurance to Californians. “We do not expect their footprint in the state to change significantly one way or another,” he said. Too Old But something does appear to be changing. In the months following the March filing, numerous Farmers policyholders received notices of non-renewal. Mohammed Masood received an April letter informing him Farmers would not renew a 1920 residence he owns in Stockton. The news caught the retired X-ray technician, who has owned the building since 1989, off guard. In five years with Farmers, he had only made one small claim for $2,000 of damage caused by a windstorm. His insurance agent told him that Farmers had a new blanket policy: After July, the company would not be insuring older buildings. “What about San Francisco?” Masood said he asked the agent. “They have so many over-100-year-old buildings! Who’s going to insure them?” Since then, Masood has been unable to find new insurance. He ultimately applied to the California FAIR Plan, an insurance industry-funded insurer of last resort for people who cannot find a policy on the market. Asked whether it had stopped insuring old buildings, Farmers did not answer directly, only saying that it considers a dwelling’s age when deciding whether to insure it. Lynne Painter, who leads the homeowners association for a six-unit building in San Francisco’s Marina District, received a similar “non-renewal” from Farmers. Her building was built in 1906. She ultimately found new insurance—but the annual premium jumped by nearly $8,000. “I almost had a heart attack on the spot,” she said. But not everyone has been so lucky. As he struggles to find insurance for his Alamo Square building, Erbe wonders how many other people will be hit by Farmers backing off of older homes. “A lot of people that are in a similar situation haven’t gone through the non-renewal yet,” he said. “It’s just coming down the pike for a lot of these other folks."

Heavy rains and thunderstorms caused devastating flash floods on the East Coast, overwhelming communities and roads in New York state and leaving at least one person dead.

Flood watches covering more than 50 million people would be in place until at least Tuesday morning, the National Weather Service said early Monday.

New York Gov. Kathy Hochul declared states of emergency across several counties in the Hudson Valley region.

“We have one confirmed fatality at this time, but there are some missing individuals,” Hochul said late Sunday. “In one situation a house was swept away because of the intense rain.” She advised residents to stay off the roads and to monitor local forecasts.

Up to 8 inches of rain were recorded in parts of Orange County on Sunday, according to the NWS. Footage showed highways there overwhelmed by water and vehicles being washed away.

“The amount of water is extraordinary, and it’s a very dangerous situation,” Hochul said. “If you live on the eastern side of the state, from New York City up to Albany and further north, this is something we are asking people to be very, very aware of.”

Airports in New York, New Jersey, Philadelphia and Washington, D.C., warned of disruption to departing flights. More than 50% of flights scheduled to depart from New York’s LaGuardia Airport were canceled Sunday, according to data tracker FlightAware.

Several commuter trains from the Hudson Valley were canceled or delayed as of early Monday, rail operator Amtrak said.

The storms were expected to move east throughout the day, David Roth, a meteorologist at the NWS, said Monday.

“There’s a high risk of rain and further flash flooding across a bit of New York today, but it’s pretty much centered over Vermont now,” Roth said.

The Northeast is particularly susceptible to flash flooding because of a wet start to the summer, said Adrianna Kremer, a meteorologist at the NWS’s office in Burlington, Vt. When the ground is already saturated, it is less capable of absorbing more water. That makes runoff and flooding more possible.

“We’ve just been having such wet ground conditions and elevated rivers due to all the rainfall,” Kremer said, adding that these conditions haven’t been seen in a while.

Southern California Edison and two other companies have paid $22 million to settle U.S. government claims that they caused a 2016 wildfire that burned thousands of acres of national forest, it was announced Friday. The money covers damage from the Rey Fire as well as the costs of fighting the blaze, which was sparked by a fallen Edison power line, the U.S. Department of Justice announced. “This settlement will compensate the public for the expense of fighting the Rey Fire and restoring these federal lands that are enjoyed by all Americans,” First Assistant U.S. Attorney Joseph T. McNally said in a statement. The companies agreed to pay without admitting wrongdoing or fault, according to the DOJ. The government said the fire began when a tree fell onto Edison power lines and communications lines owned by Frontier Communications. The government sued the two companies along with Utility Tree Service, a tree-trimming company that contracted with Edison, alleging that they knew of the danger and failed to maintain equipment or to take action to prevent it. The parties later agreed to dismiss the suit and entered into a settlement, which was approved by the DOJ in May, with all of the money being received by this week, according to the department. California utilities have been blamed for starting some of the state’s largest and deadliest wildfires in recent years through neglect of power lines and other equipment. That has prompted huge fines and settlement payments and even criminal charges. In May, a judge dismissed all charges against Pacific Gas & Electric in connection to a 2020 fatal wildfire sparked by its equipment that destroyed hundreds of homes and killed four people, including an 8-year-old. The utility also reached a $50 million settlement agreement with the Shasta County District Attorney’s Office. Last year, former PG&E executives and directors agreed to pay $117 million to settle a lawsuit over devastating 2017 and 2018 wildfires sparked by the utility’s equipment.    

Comedian Sarah Silverman and two authors have filed copyright infringement lawsuits against Meta Platforms and OpenAI for allegedly using their content without permission to train artificial intelligence language models.

The proposed class action lawsuits filed by Silverman, Richard Kadrey and Christopher Golden in San Francisco federal court Friday allege Facebook parent company Meta and ChatGPT maker OpenAI used copyrighted material to train chat bots.

Meta and OpenAI, a private company backed by Microsoft Corp, did not immediately respond to requests for comment on Sunday.

The lawsuits underscore the legal risks developers of chat bots face when using troves of copyrighted material to create apps that deliver realistic responses to user prompts.

Silverman, Kadrey and Golden allege Meta and OpenAI used their books without authorization to develop their so-called large language models, which their makers pitch as powerful tools for automating tasks by replicating human conversation. In their lawsuit against Meta, the plaintiffs allege that leaked information about the company’s artificial intelligence business shows their work was used without permission.

The lawsuit against OpenAI alleges that summaries of the plaintiffs’ work generated by ChatGPT indicate the bot was trained on their copyrighted content.

“The summaries get some details wrong” but still show that ChatGPT “retains knowledge of particular works in the training dataset," the lawsuit says.

The lawsuits seek unspecified money damages on behalf of a nationwide class of copyright owners whose works were allegedly infringed.

Insured losses from major natural catastrophes in the second quarter of 2023 are estimated to reach ~$17 billion, Goldman Sachs has revealed. This includes ~$13 billion from the US, driven by hail and severe convective storms over southern states and Texas. The ~$17 billion loss is modestly above the 10-year Q2 average, analysts noted. Goldman Sachs’ estimate is considerably higher than JP Morgan’s, who previously estimated that insured cat losses in Q223 will be less than $10 billion. According to analysts, losses from hail storms impact personal lines carriers to a more “significant degree” as the impacts are generally to cars and the roofs of homes. This has already been demonstrated by the monthly catastrophe releases from both ALL and PGR, which pointed to CAT losses above average through April and May 2023. Of the data used to aggregate catastrophe loss estimates, analysts stated that they have noticed the overall dollar value borne by insurers has increased majorly despite the count of weather events (accumulated by NOAA data) which implies a lower than average year. Goldman Sachs attributed this towards two main factors: increased severity and rising loss costs contributing to larger payouts on claims from these storms, as well as changes in retention of secondary perils where reinsurers have borne the bulk of the losses over the past few years. In addition, NOAA data indicates below quarter impacts for severe weather frequency for Q223, while April and June 2023 flag as higher than the five-year historical average impacts due to elevated hail, and both tornado and wind. May was below the historical average across all three perils (hail, tornado, wind) contributing to total Q223 weather event frequency ~8% below the five-year historical average, driven by lower tornado and wind, offset by higher hail. Analysts said: “These findings, however, were not consistent with the actual losses incurred we saw within the ALL and PGR monthly catastrophe releases, though the dollar value of the losses vs. the quantity of weather events can be reconciled when considering personal auto insurers are more susceptible to losses from hail, and increases in both severity and loss costs as well as changes in the retention levels borne by primary underwriters, which contributed to greater $ loss levels despite the lower count of weather related storms.”