Can Insurance Tame the Wild West?

Original Content: AXA XL

Drought, wildfires, even flooding are just some of the exposures that much of the western US is currently dealing with. In the first week of May 2022, over 98% the American Southwest was in the grips of a drought. Water levels in several states from California to Washington were experiencing low water levels in reservoirs and lakes. In Nevada, a law passed that made it illegal to maintain grass lawns as authorities grapple with how to conserve water as a years-long drought continues.

Yet natural disasters are just a few of the challenges that the western US must address regularly. Auto exposures, business interruption, workers compensation, even cyber losses add to the growing list of potential losses that businesses face in the western region.

Those challenges are being felt throughout the US, but particularly in the west, where the risks are as diverse as the regions themselves. With the market showing little signs of softening, volatility continues in both the auto and general liability space. Rates are increasing, and insureds are expected to retain more of their risks.

Quantifying the Risks

From Alaska to Arizona, the western part of the US has a diverse topography. Each area is facing different weather patterns, different natural loss risks, and a varied population of business and industry. Fisheries, large retail and technology operations in the Pacific Northwest, Silicon Valley technology firms, entertainment in LA and agriculture throughout the region are mixed in with transportation including Autonomous Vehicles congesting the streets of San Francisco, warehousing, distribution and even cannabis. The diversity of business and industry runs the gamut.

The landscape changes for those organizations that have migrated to a new location amid COVID. As the pandemic wore on, many large cities saw an exodus of industry from their regions. More remote locales, such as Utah and Idaho, saw organizations moving in.

With the new location comes new exposures. What was an earthquake risk in San Bernadino may be replaced by sandstorm, wildfire and flooding risks in Arizona. Yet for businesses not aware of the shifting risk picture, there could be critical coverage gaps.

However, the more frequent, costlier risks that organizations face are not necessarily weather-related or location-related. Depending on the industry, a company’s worst losses could be coming from inside the company. Within the auto liability, workers compensation, and general liability realm, the challenges revolve around job injuries, auto accidents, and nuclear verdicts that are pushing claim totals in the multimillion dollar range. Underwriters are challenged also to quantify what is a fast-growing trend – the catastrophic workers compensation claim. A single catastrophic injury can cost employers millions in lost wages, ongoing care and assistance, and medications.

Currently, both the auto and general liability markets are experiencing volatility. With more claims and higher settlements, underwriters are pulling back on limits and on offerings. That kind of pressure is spilling over into the excess markets, which are requiring higher attachments points, putting pressure on clients to take on larger retentions.

The Push for Alternatives

As organizations are being required to take on more risk and are seeing coverage language tighten and restrict, they are seeking alternative markets through which they can get the coverage they need. One area that has seen significant growth is in the new captive formation.

It is a move that makes sense, especially for organizations looking to set funds aside for future losses. In fact, more captives are being formed to cover property, workers compensation, auto and general liability exposures. While there is talk about using a captive for cyber liability, the risks are such that it may not be feasible due to the potential severity of a loss that could be detrimental to the captive results.

For middle market organizations, a group captive could be a good alternative to increased retention requirements to offset premium increases. Group Captives attract better than average risks that know their premium is subsidizing lower performing risks when they purchase workers compensation (and possibly automobile and general liability) insurance independently. Also, because group captive members share the risks equally, it offers an affordable way for mid-sized businesses to get coverage without large, often unattainable retentions.

Reducing the Risks

With clients holding on to more risk exposure, the goal then is to put protections in place that can decrease the likelihood and severity of loss. With potentially millions at stake from one employee injury, companies are looking for ways to help their employees stay safe on the job.

One tool being used with an increasing frequency is wearable technology. Wearable devices can monitor safety conditions, toxin levels, heart rate and air quality. They can also monitor worker motion conditions and let workers know when they are performing their work in a way that can lead to injury (posture, lifting incorrectly, bending, twisting, etc). That data can be used to understand the lifecycle of an injury and the stresses on the body from the tasks being performed. This can help diagnose and develop more tailored treatment plans to improve recovery time and ultimate outcomes.

Telematics can monitor driving habits, driver time on the road, and can help companies adjust schedules and implement remedial action, including additional driver training. Plus, all the telematics and related technology can deliver key data to not only improve driver performance, but also fleet management and fuel usage optimization.

That helps organizations put mitigation strategies in place. Data can help organizations vastly improve risk management. By seeing into the job duties and employee movements, organizations can redirect routes, improve conditions in work areas, shorten repetitive task schedules, and educate employees more regularly on how to perform the tasks safely.

Another way to improve risk exposures is to partner with an insurance carrier that understands the market conditions and how it impacts your business. AXA XL uses data and analytics to understand the industry you’re in, and your specific risk portfolio. Through creative thinking and a close client relationship, we get to know your risks, identify actionable insights, prioritize areas of improvement, and help you solve problems from initial application through claims. Our partnership with your organization gives you access to a team of experts who listen and respond with tools, resources and products that give you more clarity into your operations.

Natural disasters and other geographic challenges will continue to be part of doing business in the west. So will the internal risks that come from getting your product or service to your customers.

As today’s hard market continues to put pressure on western businesses, the emphasis should be on reducing loss and improving claim results. Employing technology and engaging experts in helping you decrease your exposures can better your loss mitigation strategy.

About the Author
Theresa Schlageter is AXA XL's Head of US Risk Management, Primary Casualty, Americas and Charles Lee is Head of West Zone, US Risk Management and Multinational Casualty.

Global Asset Protection Services, LLC, and its affiliates (“AXA XL Risk Consulting”) provides risk assessment reports and other loss prevention services, as requested. This document shall not be construed as indicating the existence or availability under any policy of coverage for any particular type of loss or damage. AXA XL Risk. We specifically disclaim any warranty or representation that compliance with any advice or recommendation in any publication will make a facility or operation safe or healthful, or put it in compliance with any standard, code, law, rule or regulation. Save where expressly agreed in writing, AXA XL Risk Consulting and its related and affiliated companies disclaim all liability for loss or damage suffered by any party arising out of or in connection with this publication, including indirect or consequential loss or damage, howsoever arising. Any party who chooses to rely in any way on the contents of this document does so at their own risk.

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