A major natural catastrophe quickly turns into losses well beyond the property line, reaching business interruption, auto, marine, environmental and eventually liability and D&O, according to Ian Rutherford (pictured), head of the Pacific region and executive property underwriter at HDI Global SE.
Property gets most of the attention after an event because that is where the damage shows up first, Rutherford told Insurance Business.
“But a major event quickly becomes a business interruption, contingent business interruption loss,” Rutherford said.
Read more: A major earthquake could take down more than the Port of Vancouver, Swiss Re exec says
On the West Coast, port closures and damaged rail corridors are among the largest exposures, he said. Port, mining and energy risks all depend on the ports to ship their products, and when the supply chain breaks down, businesses can be forced to stop work even if their own sites are untouched.
That can “stop operations for clients who never actually had a scratch on their own buildings,” Rutherford said.
Beyond earthquake, Rutherford said, catastrophes drive hail claims and flood-damaged vehicles on the auto side, along with losses in marine and cargo, builders’ risk and environmental lines when tanks or containment systems fail. Liability and D&O claims can follow later, he said, “when people start to ask whether a company was adequately prepared.”
A large CAT loss also hits insurers’ capital, Rutherford said.
“It draws surplus down across the whole balance sheets, which can take capacity in lines that have nothing to do with the actual event,” he said. “That’s why CAT accumulation has to be managed at the enterprise level, not really line by line.”
Heading into next year, Rutherford said he wouldn’t try to predict what the retail market will do, but that “buyers are going to find it’s a very well-capitalized market overall, plenty ample capacity for good risks.”
Conditions vary by region, line of business and type of risk, he said.
Buyers should think beyond the premium when they place catastrophe cover, he warned.
“I’d encourage them to look past the rate and price because NAT CAT program should be a bit of a long-term relationship,” Rutherford said.
When a major event hits, what really matters is the financial strength of the insurer behind the policy, how it pays its claims, and the expertise that it brings before and after the loss, he said.
Appetite is strongest for well-managed, well-documented risks, Rutherford said. Deductibles and sublimits for earthquake, flood and wildfire “probably deserve as much attention as the pricing, because those terms are going to decide how a program actually responds after a loss happens,” he said.
Rutherford said some accounts are being drawn away by “some very low pricing coming in from some non-Canadian-based markets.”
A client offered savings of $600,000 for moving its program will find that hard to turn down, even after years with a consistent insurer, Rutherford said.
“We do see some accounts that do move to those markets, but they’re going to inevitably come back into the regular market in a year or two once things change,” he said.
Brokers are caught in the middle, Rutherford said.
“I guess the broker can do what they can to educate, but at the end of the day, they also want to retain the business,” he said.
Rutherford said the biggest change in how CAT risk is assessed over his career has been data and modelling.
“When I started way back when, NAT CAT assessment was kind of a judgment almost,” he said.
Underwriters once worked from an address, a construction type and a zone map, matching the first three digits of a postal code to a hazard zone in a largely manual process, Rutherford said. Today, probabilistic catastrophe models, high-accuracy geocoding, high-resolution flood and wildfire hazard data and better accumulation tools let insurers see a whole portfolio’s exposure in close to real time.
Read more: Too many B.C. property owners still lack earthquake cover, HDI exec warns
The perils themselves have also shifted, he said. For years the focus was earthquake, but wildfire, convective storms and flood have driven some of the biggest losses, including in 2024, which Rutherford described as the costliest period on record for CAT events in Canada, led by the Jasper wildfire and the Calgary hailstorm.
“There was no earthquake,” he said.
Better tools still depend on accurate statements of values, current replacement costs and good construction details, Rutherford said.
“The model is only as good as the information you put into it,” he said.
