June 1, 2016 by Angela Stelmakowich, Editor
It may seem odd to talk technology in the context of an event as devastating as the Alberta wildfires that have since spread into Saskatchewan – projected to become the largest insured loss from a natural catastrophe event in the history of the country. Odd, that is, until one considers how technology has likely helped advance assessment, the claims process and preparing worried customers facing what ranges from damage to ruin.
The wildfire in and around Fort McMurray, receded enough from the city for voluntary re-entry of citizens beginning June 1 and scheduled to end June 21, nonetheless, continues to burn. As of early June, the Alberta government reported that wildfires, including those extending into Saskatchewan, covered in excess of 580,000 hectares.
The month-old wildfire laid to waste, damaged or spared individual properties and businesses within Fort McMurray – a city nestled amidst boreal forest and at the centre of Canada’s oilsands sector. It has been estimated that roughly 10% of built structures have been destroyed, although only a thorough first-hand look will tell the true tale.
Now comes the tremendous work not only to clean up, organize and process, but also to help flesh out skeletal loss assessments that technology helped develop and will likely help advance as the claims process unfolds.
Technology solutions ranging from satellite imagery to map applications, geo-coding, smartphones and online tools may be just a start. Others, such as drones, could follow to offer enhanced detail, context and understanding for policyholders and the property and casualty insurance industry as a whole.
Trying to get a fix on what has already proved a heavy emotional toll – and, no doubt, will be a massive insured loss, with early estimates ranging from $2 billion to $9 billion and recent ones around the $4 billion mark – could inject technology and how it can help more squarely into response discussions by all stakeholders.
Discussions of the technology options now available – inevitably, to be joined by others in future – has found a launching pad with the tragic events of May, and then June, and could become “the way of doing things.” That may be one positive from a monstrous event that, so far, has offered little more than disbelief, damage and loss.
The Fort McMurray wildfire raged, growing greedily, until apparently jumping a river and taking the city. People were evacuated, the peril clear, and for a time, access slammed shut to all but military, emergency and government officials.
Amid all this, the technology that most immediately had an impact from an insurance standpoint – one quickly and astutely provided by the Alberta government for the use of all – was satellite imagery. Maps offered via an application were meant to provide a high-level satellite overview of the city’s status, initially indicating only the most severely damaged areas.
From the initial and subsequent images came a first look for insurers, claims adjusters, restoration professionals and, most important, policyholders, at what was not accessible first-hand. With those images, the provincial government could make decisions about allocating resources, homeowners could see if their properties were affected and by how much, and insurers could begin thinking about deploying claims teams, disaster restoration company resources and their needs vis-a-vis reserving for the loss, says Glenn McGillivray, managing director of the Institute for Catastrophic Loss Reduction (ICLR).
There was not much insurers were able to do “until the app came out and [evacuees] were able to see images of their neighbourhoods,” says Leonard Sharman, a spokesperson for The Co-operators.
“The municipality also completed a damage assessment of every structure in Fort McMurray and made the results available online,” Sharman reports.
Jim Eso, senior vice president of property and casualty for Crawford & Company (Canada) Inc., says the Regional Municipality of Wood Buffalo’s “very, very good” interactive aerial photography map showed before and after photographs of addresses in the city. These helped both residents and insurers in identifying risks more clearly, Eso says.
Jim Mandeville, FirstOnSite Restoration’s senior project manager of large loss, North America, says satellite imagery has been a huge asset for customers affected by the Fort McMurray fires. Billy Short II, vice president of large loss operations for FirstOnSite, calls the use of satellite imagery unprecedented. “Even during our restoration efforts after Hurricane Sandy, we didn’t see this level of satellite imagery in use,” Short says.
Having access to data from satellite imagery and geo-mapping “ahead of time means we can start helping customers as soon as possible,” says Stephanie Sorensen, director of external communications for Intact Financial Corporation.
“Our customer management system is such that we can group homes according to postal codes and/or physical locations to understand where customers are located,” Sorensen says. “Not only does all this help us assess damages, it also helps place claims representatives in the field.”
Other technology can also help advance the claims process. Ingrid Himmelman, FirstOnSite’s national business process manager, says”digital security cameras in residences allow people to reach out to insurers and start the claims process a lot more quickly. This is a big step up from what was available during Slave Lake.”
Technology that can conduct a full 3D scan of damaged buildings “is becoming very commonplace in the accident reconstruction industry,” Mandeville says.
Remote access has been especially important to commercial clients and property owners, he suggests. “Cloud-based building management systems have allowed clients to turn on and off their HVACs (heating, ventilation and air conditioning) and monitor temperature and humidity conditions. This allows victims of the fire some control in what happens in and around their property.”
However, the technology that “did not play the role that we might have hoped it could have is drone technology,” suggests Eso, explaining that flight permits for drones could not be issued because the area was an active forest fire zone (drones could pose a danger to firefighting equipment in the air) and the airspace was also closed to all but military use. This was “sort of a double hit around the difficulties and challenges of getting drones up,” Eso says.
Crawford Canada, in fact, had requests within a few days of the fire to see if it could obtain flight certificates for any of its drones, but as noted, it was not possible, says Eso. “I think what it did do, though, was it reinforced the need for us, and the opportunity for us, to continue to expand in the drone space because if it wasn’t a forest fire, we would very likely have been able to get drones up to get immediate access visually to all of the loss site,” he says. Had it been, say, a flood, “we would have been able to get a lot more early information from other means than having to wait to go in.”
Joe Colby, head of claims for Swiss Re Canada, says that “drone technology is probably the most effective and efficient technology available to complete an early and quick assessment of the scale of damages sustained from the wildfire.”
For example, they can be used to help with “mapping high-resolution images of damaged property against an insurer’s database of geo-coded risks to get a preliminary view of both the scale and severity of loss or damage,” Colby says.
Eso would likely agree. What drones offer is “finer detail about what kind of damage might be involved,” he says.
For example, Eso notes, the expectation is there will be plenty of warped siding or things like seals damaged on window systems because of heat. “Fort McMurray is going to be significant in that regard because a lot of these homes were exposed to a fairly significant amount of heat and they may appear on the surface not to have been damaged,” Eso says.
“A drone is very good at getting in at a low altitude and getting a very high-resolution photograph. It might be that it’s on an individual basis or on a blanket basis to allow insurers to try to get a better handle on reserving as early as they possibly can,” he says.
“A drone with a simple camera can assess things like roof damage and help determine if it is safe to enter fire-damaged structures without endangering any personnel,” says Patrick Lundy, president and chief executive officer of Zurich Canada
Once no-fly zone restrictions are lifted, Colby says, a practical question for the insurance industry with respect to the deployment of drone technology is can this be co-ordinated through one firm and data shared with the industry at large? “Attempting to have multiple insurers and loss adjusters launch multiple drones in a relatively small geographic radius in a short amount of time may introduce logistical complexities that perhaps can be avoided,” he notes.
Lundy agrees the Fort McMurray airspace presents some special challenges. “The airport is right in the town. That means the nine-kilometre, no-fly buffer around airports that Transport Canada says drone pilots must normally observe covers most of the town,” he explains.
Adds Himmelman, “We’ve found that, in Canada, there are a number of challenges with licensing drones, airspace restrictions, and possible interference by drones with first-responders in the air.”
ON THE RISE
“This is probably the first catastrophic event we’ve had where, I think, technology has played a role greater than perhaps in previous events,” suggests Rocco Neglia, Economical Insurance’s vice president of claims.
Technology is so much more present than even during the massive flooding in southern Alberta three years ago, Neglia notes. “I would say technology had no particular impact other than being able to plot certain areas and what kind of business one writes in those areas.”
Economical Insurance used satellite imagery and geo-coding technology, both that supplied by the Alberta government and a third-party vendor, to come up with an idea of total losses compared to not total losses, Neglia reports.
“It was invaluable using the technology this time around. Otherwise, we would have been as in the dark today as we would have been back” when the fire originally broke out, he suggests.
Given that insurers initially had no access, “technology is proving to be particularly useful in this event,” notes Nora Hohman, vice president of claims for Travelers Canada. Her company was able to use the government-supplied satellite imagery in conjunction with imaging pictometry technology from a vendor to “give us a really accurate aerial sketch of our customers’ properties.”
The information from those two technologies “feeds right into our building-estimating tool,” Hohman points out. With the latter being the same system used by most contractors, this “will also make it easier through the reconstruction phase,” she suggests.
“We’ve been able to build estimates with a high degree of confidence we’re pretty confident in from the aerial view. What that means is we’re able to start the claims process a lot more quickly, in fact, before we’re ever on site,” she says.
Satellite imagery and Google map images “only show macro exterior damage. There may also be damage as a result of other factors that is not visible in the images, such as water damage from firefighting efforts,” says Philipp Wassenberg, president and chief executive officer of Munich Reinsurance Company of Canada and Temple Insurance.
A full picture will only develop with in-person inspections. “The full extent of the damage won’t be understood until homeowners return to their homes and survey their own damage. There will be some structures that sustain damage that will not be apparent from satellite imagery,” says AIR Worldwide scientist Tammy Viggato.
“The reality is that a lot of this will come down to traditional adjusting,” says Eso, working face-to-face with policyholders and physically being on site.
Technology has also promoted greater engagement with policyholders, perhaps providing some time for them to come to grips with what they may face upon their returns, Eso suggests.
“You don’t have to go back more than a few years before a similar event like this, people would still be wondering. ‘Is my home still standing?'” he notes. “Those sorts of things, at least partly because of the new technology available, there’s been a lot of progress well ahead of time before you go back in,” he adds.
Going forward, Neglia suggests that carriers are going to need to make decisions about what technology they will need when responding to Cats. “Do we need a tool that will provide us with better and quicker information up front?”
Despite the use of technology in Fort McMurray, McGillivray says “we do not appear to have really good tools to rate the risk of wildfires striking communities or individual properties in Canada.”
Bill Adams, vice president of Western and Pacific for Insurance Bureau of Canada, said during a recent press briefing that it is not yet possible to assess what measures – if any – could have helped mitigate damage. “Clearly, when you have a community of the size of Fort McMurray in the centre of a boreal forest, that’s inviting problems. The reality is we have a lot of Fort McMurrays in Canada and so we need to learn from this event, as we have from past, that there are things that we should be doing, that we should be investing in advance to prevent these type of tragedies,” Adams noted.
“I think as Canadians, governments have to, perhaps, start thinking about ways to mitigate these type of events,” comments Neglia, pointing out the costly wildfires in Slave Lake, Alberta and Kelowna, British Columbia were not that long ago. “With forests being drier and drier, the risk is that much greater.”
But some fires may defy rating. “This fire was exceptional for its size and ferocity. Once this fire got going, little could have been done to stop it,” McGillivray says. “Even the largest water bombers would not have beat back this fire.”
Ross Betteridge, president at ClaimsPro Inc., might agree. “This was a natural Cat. Wildfires spread fast and furious and this one could not have been mitigated due to its unpredictable nature.”
Reports indicate the fire hopped the Athabasca River at a point where it was a kilometre wide. “Fire breaks work for fire that spreads on the ground, but aren’t very effective for crown fire,” McGillivray suggests.
Emphasizing that AIR Worldwide has no first-hand knowledge of mitigation efforts taken in the Fort McMurray area, Viggato says “although mitigation techniques can never guarantee a home or community is safe, they can assist firefighters and give them more time to implement suppression measures.”
Lundy, whose company insures just commercial operations in Fort McMurray, reports “the larger energy producers took extensive mitigation efforts well before the fire even occurred. These include ensuring large areas surrounding assets are clear of trees and brush, installing dedicated fire suppression systems, and employing private firefighting forces that are on location.”
But wildfires, by their nature, are unpredictable. “There are often structures that are a complete loss and others that sustain only minimal damage, even within the same neighbourhood,” Viggato says, explaining that many structures lost to wildfire are lit from embers that land in a nearby fuel source.
“The best defence homeowners can take is to keep debris off roofs and gutters, remove flammable materials (firewood, propane tanks) within 30 feet of the house, and maintain a defensible space around their homes,” she advises.
“We have seen certain areas with entire cul-de-sacs gone, yet one house remains standing. Is this phenomenon circumstantial, or is it construction feature-based?” Betteridge asks. “We are doing further analysis of this, and will leverage what we have learned from this Cat in the future.”
While identification of any patterns that could prove useful in future efforts is not yet known, McGillivray says “one thing is a certainty: once a few structures in town catch fire, the issue then becomes building-to-building spread. We need to address this issue to prevent large, urban, wildfire-triggered conflagrations in the future. This can be done through building materials, spacing buildings out, and FireSmarting communities and properties,” he argues.
“In times of crisis like this, there is a lot of emotion and a lot of confusion. Being there to answer questions and provide information and resources helps put their minds at ease,” says The Co-operators’ Leonard Sharman, adding a top priority is maintaining contact with clients.
“It has been striking how active things have been on social media compared to major events of just a few years ago, such as the Alberta floods or the fire in Slave Lake,” he says.”The number of inquiries on our social media channels is something we’ve never seen before,” he adds.
With no access to the city, “what we’ve been able to do is really use that gap in time between when the claim is reported and when we get to see it to develop more information than we otherwise would have been able to develop, so to accelerate that claims process and issue payments sooner,” says Hohman.
Knowing whether or not something is, or is likely to be, a total loss is of benefit to both insurers and insureds since that information can help advance the process. Neglia says his company’s plan was to go ahead independently to look at a home’s characteristics and square footage so work could begin on estimating replacement and rebuilding costs.
Aside from the whole preparatory work and aside from the technical adjustment component being expedited, says Neglia, “it also helps us to better appreciate and relate to the policyholder, to the insured, actually, to our customer, in a way that is more humanistic.”
Betteridge says ClaimsPro is “handling thousands of claims at this time and have a great deal of capacity to help our clients.”
Intact subsidiaries, for their part, insure approximately 1,500 homeowners, 1,400 condos/tenants and 350 commercial buildings in Fort McMurray.
“Since the municipality was fully evacuated, most clients have some form of claims. Some will have significant property damage, while for many others, the claim will be limited to ALE (additional living expenses) or replacement car while evacuated,” Sorensen says.
“Beside property damage to houses, contents and cars, we expect some smoke damage and refrigerator/freezer content lost due to power outage. In commercial lines, some policies cover business interruption (BI) as well,” she adds.
For The Co-operators, as of May 20, Sharman notes about three-quarters of claims have been home claims. At that point, the insurer had more than 4,300 claims reported, with roughly 3,000 home claims, 1,100 auto claims and 300 commercial and farm claims.
For RSA Canada, “we have been able to estimate those properties that are a total loss and are preparing to talk to our customers for those circumstances,” says Paul MacDonald, senior vice president of claims. “Partial losses require access and inspection to determine type and extent,” MacDonald explains. “As re-entry occurs, we expect a spike in property and auto claims, as residents return home to see the full extent of the damage.”
Heather Sanderson of Sanderson Law says her expectation is that “business interruption losses will form the largest component of the insured losses flowing from the Fort Mac wildfire, with losses from civil authority coverage coming in at a distant third after the homeowners’ claims.” Businesses closed by the evacuation orders can claim lost business income under civil authority coverage, Sanderson points out, adding that most policies have a waiting period of about 72 hours after an emergency evacuation order is issued, but only provide two to four weeks of coverage.
After that point, she says any business income losses, less expenses, will be covered, if at all, by the BI coverage, triggered by covered physical damage that has caused a loss of business income.
Sanderson expects that “almost every structure in Fort McMurray has sustained covered smoke and, in some cases, heat damage. In addition to those causes of loss, insurers will be facing novel challenges as to the meaning of ‘physical loss or damage’ and insureds may be challenged to prove that the alleged physical loss has caused business losses.”
Munich Re Canada’s Philipp Wassenberg suggests a concern that may cause additional insurance exposure is soil or rainwater run-off contamination.
“Ash, soot, tars, chemicals and heavy metals are now present,” he says. “When it does finally rain in the area, much of these contaminants may seep into the ground or into local sewers. In turn, this water may make it to the Athabasca or Clearwater rivers.”
Flooding, too, is a potential issue, he points out. “After a wildfire, the ground becomes hard and crusty. Any rain quickly runs off, leading to possible localized flooding.”
COST OF DEVASTATION
Assessing damage for the industry as a whole will, clearly, take time. That said, technology has provided related efforts a running start.
In May, AIR Worldwide released an estimate that industry insured losses could range from $4.4 billion to $9.0 billion. The estimate assumes “nearly 100%” insurance take-up in Alberta.
The estimate “explicitly captures residential, commercial and automobile losses, as well as BI losses, except those related to the oil industry,” reiterates the company’s Tammy Viggato. “Our analysis shows that losses will be dominated by residential losses, with several neighbourhoods experiencing catastrophic loss.”
Costs not taken into account include land, energy and timber industries, infrastructure, indirect BI losses, loss adjustment expenses and demand surge.
In early June, Property Claim Services (PCS), a Verisk Analytics business, issued an estimate of $4.6 billion in insured losses. The estimate includes property damage losses under residential, commercial and auto lines, as well as ALE and BI losses among the categories of data that carriers submit to PCS. Liability and loss adjustment expenses are not included in the estimate figure.
In mid-May, the Conference Board of Canada reported the wildfires’ impact on oil production in Alberta could translate into a $985 million loss in gross domestic product, although rebuilding effort will result in elevated construction activity in the area through 2018.
“The severity of the wildfire damage in Fort McMurray is an unfortunate reminder of how significant insurable losses can be from the peril,” says Adam Podlaha, global head of Impact Forecasting, which issued an insured loss estimate of in excess of $4 billion.
Some insurers have developed early estimates. Intact Financial Corporation’s assessment of its insured damages using satellite imagery and its exposure geo-coding technology ranges from $1.00 to $1.20 per share after taking into account the effect of its reinsurance program and net of tax effects, Sorensen reports. “This analysis assumes wildfires will not return to Fort McMurray.”
The Co-operators, for its part, issued a preliminary estimate that its after-tax cost “consolidated, net of reinsurance and inclusive of reinstatement premiums, will be in the $70 million to $90 million range,” Sharman reports.
And on May 11, Economical Insurance estimated that its pre-tax losses related to the Fort McMurray wildfire will be $35 million to $45 million, net of reinsurance recoveries and reinstatement premiums. The initial loss estimate, which also assumes the wildfire does not return, is based primarily on claims reported to date, known exposures in the area, and reported percentage losses in various parts of the community.
“We have been able to estimate those properties that are a total loss and are preparing to talk to our customers for those circumstances,” MacDonald says of RSA Canada’s customers.
Whatever the number, McGillivray, says, “ICLR is on the record as calling this the largest wildfire loss in world insurance history, overtaking the 1991 Oakland Hills event (US$2.96 billion, 2014 dollars).”
Although “fire is the most straight-forward of coverages,” McGillivray says, “difficult areas could include quantifying business interruption. It will also be interesting to see how accurate the industry’s full replacement value calculations are.” Another wildcard will be ALE. “How long will people be out of their homes and are there limits on their coverage? Also, how many people will chose not to rebuild?” he asks.
“Companies will, no doubt, blow through their Cat covers and will require reinstatements. Reinsurers will pick up about two-thirds of the loss, but will gain some back in reinstatement premiums,” he adds.
Betteridge notes “there are geographical players, those who only write in specific provinces, who may find themselves falling short on reinsurance treaties.” It may be there are “some Alberta providers who may not have purchased enough coverage,” he suggests.
The thing that cannot be forgotten is the thousands of traumatized residents of Fort McMurray who need help, says Eso. “To them, the discussion about reserving and reinsurance is irrelevant.”
With the combination of the downturn in the oil patch, the potential losses due to the anticipated failure of the population to return to pre-fire levels and the anticipated failure of some landlords to rebuild, forcing relocation of a business, “the Fort Mac wildfire will likely produce new law as to the meaning of ‘the period of restoration’ or, as it is sometimes referred to, the ‘period of indemnity,'” Sanderson expects.
“Unfortunately, severe weather events are happening with increasing frequency and severity in our country. We can’t just continue to respond to these. We need a more strategic and disciplined approach,” said IBC’s Bill Adams.
“Typically,” McGillivray says, “insurers never appeared to care much about wildfire. That may change, at least for a while.”