Justin O’Keefe ’97, Senior Vice President & Chief Underwriting Officer at Renaissance Reinsurance Group
Justin O’Keefe ’97, Senior Vice President & Chief Underwriting Officer at Renaissance Reinsurance Group
Q: What are the challenges facing the insurance industry in light of extreme weather events happening across the United States and around the world?
A: At Renaissance Reinsurance, we’ve focused since the beginning of our company on providing protection to insurance companies for extreme weather events. We’ve gone through a lot of different challenges over the last 25 years, but currently the largest challenge we face is not dissimilar to the whole world, and that’s the challenge of climate change. Our job is to mathematically
try to predict probabilities of certain events happening and the resulting damage that has on communities and structures, such as homes on the coast of Florida. With climate change and some of the uncertainty around climate change, that requires a lot more time, energy and effort to think about the risks that we are taking as a firm.
Q: What are insurers, and more specifically Renaissance Reinsurance LLC., doing to better understand extreme weather and to model its effects on its ability to serve its customers?
A: The foundation of our company was providing coverage for extreme weather and when the company was founded, there were not a lot of external resources we felt would help us with our understanding of weather events. We formed a group that we own called Weather Predict Consulting, which contains over 20 employees consisting of anything from wind engineers, earthquake
seismologists, to flood and riverine experts. With their backgrounds, we come up with our view of risk from a climate perspective globally.
Q: While the insurance industry cannot control the weather, what is the industry and more specifically Renaissance Reinsurance doing to assist communities to more effectively plan and manage for extreme weather events?
A: It may sound counterintuitive for an insurance or a reinsurance company to fight against things like building homes, hotels or condominiums in areas that hold high risk of extreme weather. In our view, that’s not sustainable for the insurance or reinsurance industry because we don’t believe we’ll be able to charge enough premiums for the risks we’re taking. It’s not sustainable
for communities, as communities get very disrupted after catastrophe events.
We’ve seen that, whether that’s California wildfires or New Orleans after Hurricane Katrina back in 2005, it has a devastating impact on families. We spend a lot of time on the sustainability of communities. We’ve been a lead in a bipartisan organization called Smarter Safer, which brings parties together to fight for the same cause. An example would be building on Barrier Islands off of the coast of South Carolina. We get the National Wildlife Federation interested in that because building on the Barrier Islands is detrimental to the wetlands and the wildlife that lives on those wetlands. Insurance companies don’t want structures built on Barrier Islands because those companies may be required to find ways to insure those risks when they are really not insurable.
Q: What is the extent of the insurance industry’s influence in helping formulate government policies with respect to managing extreme weather events?
A: The influence is actually quite substantial. The amount of public and private partnership that goes on is extraordinary. There’s a lot of intelligence that sits within privately held companies that cities, states and even the federal government don’t have access to. The federal government is actually the number one risk-baring entity in the country. With all impacts of weather and uncertainties around climate change, the federal government and specific agencies such as FEMA (Federal Emergency Management Agency) are very concerned about the risk that the government has, because the government has a limited amount of revenue and if they don’t get it right, they are going to be forced to increase taxes and find revenue sources which are not popular.
Q: What is the insurance industry’s role in changing building codes and material specifications to more effectively stand up to extreme weather?
A: The insurance industry is very involved in things such as ways to build a house to prevent embers from wildfires entering areas of the house to start fires, for example. Ways to make shingles and siding that don’t get damaged by a hailstorm and ways to make roofs stronger with high winds such as hurricanes. That not only saves insurance companies money from claims over time, but it gets people back in their houses and makes sure their families are intact, which is very important.
Q: Over time and in your career, have you seen those codes and material specifications change due to increased technology and with various experimenting when it pertains to how to stand up to extreme weather events?
A: Absolutely. Whether it’s pure technology or just the ability to bring multiple parties together to build systems in a collaborative way. One such system, the Insurance Business Institute of Home Safety, has the ability to simulate hurricane-force winds across property structures. So yes, technology nowadays has allowed that to happen. Thirty years ago, the amount of funding or the ability to do that just wouldn’t have made sense. Today, we can do that.
Q: What changes can consumers expect from their insurance providers as extreme weather becomes more prevalent?
A: One thing specifically I’d expect consumers to see is insurance companies having a larger set of criteria in how they underwrite certain risks. So specifically, is the building up to certain codes? Rather than asking one question about the house, they may want 10 pieces of information that allows them to give credit for better built structures that can perform better over time. I think that’s on its way. With technology now, the ability to get consumer information is there. What insurance companies are then able to do is fill out that 10 question survey with information that is readily available on the internet. The downsides to that are regulation around privacy laws, etc., so that is something the insurance industry is working with the government on as we speak.
