The percentage of businesses purchasing commercial insurance increased in the second quarter of 2015, according to the latest Commercial P/C Market Index survey from the Council of Insurance Agents & Brokers (CIAB).

An overwhelming 90 percent of brokers responding to the survey said that take-up rates had increased, in part as premium savings drove interest in new lines of coverage and/or higher limits.

Cyber liability continues to gain traction, brokers noted, and this trend is expected to continue as the cyber insurance market matures, new insurers, products and capacity come to market and as companies realize the true extent of their cyber exposure.

Broker comments came as The Council’s analysis shows that rates declined across all commercial lines in the second quarter, continuing the downward trend from the first three months of 2015.

Premium rates across all size accounts fell by an average of 3.3 percent compared with a 2.3 percent decrease in the first quarter of 2015.

Large accounts once again saw the steepest drop in prices of 5.2 percent, while medium sized accounts fell 3.5 percent and small accounts fell 1.3 percent.

Commercial property, general liability and workers’ compensation premiums were most frequently reported down across all regions, with a slight uptick in commercial auto.

Ken Crerar, president and CEO of The Council said:

As the soft market continues in 2015, carriers are competing for good risks and are willing to work with brokers on price and terms.”

Meanwhile, average flood insurance rates saw an uptick across all regions, most frequently in the Southeast and Southwest regions, the Council noted.

This increase is likely due to premium increases, assessments, and surcharges, mandated by both the Biggert Waters Act and the Homeowner Flood Insurance Affordability Act (HFIAA), which went into effect April 1.

Find out more about business insurance from the Insurance Information Institute (I.I.I.).

As many parts of the United States enter another day of high heat and humidity, we’re reading about the first ever heatwave warning guidelines issued by the United Nations earlier this month.

The guidelines are intended to alert the general public, health services and government agencies via the development of so-called heatwave early warning systems that should ultimately lead to actions that reduce the effects of hot weather extremes on health.

As the foreword to the publication states:

Heatwaves are a dangerous natural hazard, and one that requires increased attention. They lack the spectacular and sudden violence of other hazards, such as tropical cyclones or flash floods, but the consequences can be severe.”

In their joint guidance, the World Health Organization (WHO) and the World Meteorological Organization (WMO) note that heatwaves are becoming more frequent and more intense as a result of climate change.

According to the Intergovernmental Panel on Climate Change, the length, frequency and intensity of heatwaves will likely increase over most land areas during this century.

Recent world heatwave events come to mind:

Both India and Pakistan were hit by deadly heatwaves in the first half of 2015, leading to 3,600 fatalities, according to Munich Re. Temperatures were exceptional, climbing as high as 47°C and accompanied by high humidity which compounded the effect.

European heatwaves in the summer of 2003 led to the deaths of tens of thousands of people, as did the Russian heatwaves, forest fires and associated air pollution in 2010. In fact, the Russian heatwave of 2010 still ranks among the top 10 deadliest world catastrophes 1970-2014.

The UN guidance makes the case that one way to manage the risk of heat-related health effects is through the development of a Heat Health Warning System (HHWS) as part of a broader Heat Health Action Plan (HHAP).

Of primary concern in an HHWS, it notes, is how to assess the level of heat stress associated with the meteorological or climate forecast, translate this into an estimate of a likely health outcome and identify a critical heat-stress threshold for a graded plan of action.

Typically, HHWSs are composed of a number of elements, including:

  • Weather forecasts of high temperatures that may also include humidity;
  • A method for assessing how future weather patterns may evolve in terms of a range of health outcomes;
  • The determination of heat-stress thresholds for action;
  • A system of graded alerts/actions for communication to the general population or specific target groups about an impending period of heat and its intensity and to government agencies about the possible severity of health impacts.

A number of cities and countries around the world have developed these early warning systems, including Canada, England, France, Germany, Italy, the United States and Australia.

The first HHWS was actually implemented in the city of Philadelphia in the United States in 1995. In this system, local city staff work with the National Weather Service (NWS) to determine when a heatwave is imminent.

After an alert is issued, the Philadelphia Health Department contacts news organizations with tips on how vulnerable individuals can protect themselves. People without air conditioning are advised to seek relief from the heat in shopping malls, senior centers and other cool spaces.

Friends, relatives, neighbors and other volunteers are also encouraged to make daily visits to elderly people during the hot weather, ensuring the most susceptible individuals have sufficient fluids, proper ventilation and other amenities to cope with the weather.

After the success of Philadelphia, similar tailor-made systems are being implemented for the 50-60 cities in the U.S. with a population of more than 500,000 and a local meteorological office, the guidance notes.

The NWS reports that heat is typically the leading cause of weather-related fatalities each year.

15205_nwsHeatIndex

Check out Insurance Information Institute (I.I.I.) facts and statistics on drought and heatwaves here.

The number of lightning deaths in the United States in 2015 continues to rise, the National Weather Service (NWS) has warned.

So far this year some 22 lightning fatalities have been recorded, just four shy of the 26 deaths recorded for the whole of 2014.

Alabama, Florida and Colorado top the states for lightning deaths in 2015 to-date with three lightning deaths each.

Lightning kills an average of 49 people in the U.S. each year, and hundreds more are severely injured, according to the NWS.

M-F_Lightning_Deaths15

While storms can be deadly, the number of insurance claims from lighting strikes in the U.S. has been in a period of steady decline, according to the Insurance Information Institute (I.I.I.).

Total insured losses from lightning were up 9.7 percent in 2014, though overall incurred losses between 2010 and 2014 are still down 28.5 percent.

An analysis of homeowners insurance data by the I.I.I. and State Farm found there were 99,871 insurer-paid lightning claims in 2014, down 13 percent from 2013. Yet the average lightning paid-claim amount was up 26 percent, from $5,869 in 2013 to $7,400 in 2014.

James Lynch, chief actuary at the I.I.I. noted that since 2010, the number of paid lightning claims is down more than 53 percent:

The sustained decline in the number of claims may be attributed to an increased use of lightning protection systems, technological advances, better lightning protection and awareness of lightning safety—as well as to fewer storms.”

Still, lightning remains a very costly weather-related event. Despite fewer storms, insurers still paid $739 million in lightning claims to nearly 100,000 policyholders in 2014, the I.I.I. notes.

The Lightning Protection Institute offers some useful lightning safety tips here.

Despite a rather quiet first half of 2015 for global catastrophes, insurers endured at least five separate billion-dollar insured loss events (all weather-related), according to Aon Benfield’s just-released Global Catastrophe Recap: First Half of 2015.

None of the events crossed the multi-billion dollar loss threshold ($2 billion or greater) and four of the five were recorded in the United States, Aon Benfield said.

The costliest event for the insurance industry was an extended period of snow and frigid temperatures in the U.S. during February ($1.8 billion in insured losses). (See our earlier post on first half winter storm losses here).

Other billion-dollar insured loss events in the U.S. included an early April severe thunderstorm outbreak ($1 billion), a severe thunderstorm and flash flood event at the end of May ($1.2 billion), and projected losses arising from the ongoing drought across the West ($1 billion and counting).

The sole billion-dollar insured loss event to be recorded outside the U.S. during the first half of 2015 was Windstorms Mike and Niklas in Western and Central Europe at the end of March/early April. Niklas became the first billion-dollar insured loss windstorm event in Europe since Xaver in December 2013, Aon Benfield said.

Note: the loss totals, which include those sustained by public and private insurance entities, are preliminary and subject to change.

If you’re wondering about the difference between economic and insured loss totals, the 7.8 magnitude earthquake that hit Nepal on April 25 (and subsequent aftershocks) is a good example.

From an economic loss standpoint, the Nepal earthquake ranks as the costliest global natural disaster during the first half of 2015, Aon Benfield reports.

Total damage and reconstruction costs throughout the impacted areas were estimated as high as $10 billion (subject to change), with reconstruction costs in Nepal alone put at nearly $7 billion.

Despite having a multi-billion-dollar economic cost to Nepal with overall economic effects poised to equal more than one-third of the country’s entire GDP, only a very small fraction of those losses – about 2 percent – was covered by insurance.

Check out Insurance Information Institute (I.I.I.) facts and statistics on global catastrophes here.

You may have read that the Justice Department is warning food manufacturers that they could face criminal and civil penalties if they poison their customers with contaminated food.

Recent high profile food recalls, such as the one at Texas-based Blue Bell Creameries and another at Ohio-based Jeni’s Splendid Ice Creams, have drawn attention to this issue once again.

Now a new report by Swiss Re finds that the number of food recalls per year in the United States has almost doubled since 2002, while the costs are also rising.

Half of all food recalls cost the affected companies more than $10 million each and losses of up to $100 million are possible, Swiss Re says. These figures exclude the reputational damage that may take years for a company to recover from.

Contaminated food also takes a financial toll on the public sector. According to the U.S. Department of Agriculture, costs for the U.S. public health system from hospitalized patients and lost wages in 2013 alone was $15.6 billion. In total, 8.9 million people fell ill from the 15 pathogens tracked, with over 50,000 hospitalized and 2,377 fatalities.

Demographic change is putting more sensitive consumer groups at risk. Ageing societies, an increase in allergies in the overall population and the fact that malnourishment is still prevalent in many countries are significant drivers of the increase in exposure, Swiss Re notes.

Which brings us to insurance.

A variety of insurance products are available to help companies protect their bottom line from this potentially catastrophic exposure.

Product recall/contaminated product insurance will cover the costs of recalling accidentally or maliciously contaminated food from the market, and impaired or mislabeled products that cause bodily injury, sickness, disease or death.

Product liability insurance also provides compensation of third party liability claims for bodily injury and property damage caused by an impaired product.

As Roland Friedli, risk engineer at Swiss Re and co-author of the report says:

Food recalls can be caused by something as simple as a labeling error on the packaging, or as complex as a microbial contamination somewhere along a vast globalized supply chain. Yet event a simple mistake can cost a food manufacturer millions in losses and even more in terms of reputation. Insurance and sound risk management are essential for keeping affected businesses afloat.”

Further information on product liability, recall and contamination insurance and is available from the Insurance Information Institute (I.I.I.) here.

As my kids head off for their snowy-themed day at camp, the statistic that jumps off the page in the 2015 Half-Year Natural Catastrophe Review jointly presented by Munich Re and the Insurance Information Institute (I.I.I.) is the record $2.9 billion (and counting) in aggregate insured losses caused by the second winter of brutal cold across the Northeastern United States.

As Munich Re illustrates in the following slide, a total of 11 winter storm and cold wave events resulted in 80 fatalities and caused an estimated $3.8 billion in overall economic losses in the period from January 2015 to the end of winter:

USNatCatLosses2015

But the $2.9 billion in insured losses goes higher still when you factor in 2014’s contribution to winter storm losses.

As Munich Re America notes in a press release, if the harsh U.S. winter of 2014/15 is taken as a whole, then the insured losses rise to $3.2 billion and overall economic losses to $4.3 billion.

And this figure does not include indirect losses due to delayed flights, power failures and business interruptions.

As Tony Kuczinski, president and CEO of Munich Re America, says:

The fact that, once again, tens of thousands of people were temporarily left without electricity shows that the U.S. simply must invest in stronger, more weather resilient, infrastructure.”

And when you consider that losses from snow, ice, freezing and related causes typically cost insurers between $1 billion and $2 billion annually, as noted by Dr. Robert Hartwig, I.I.I. president, the impact of the exceptionally cold winter of 2014/15 really starts to bite.

The unfolding story on what is being described as the largest cyberattack into the systems of the United States government reads like an episode out of CSI Cyber.

Today the head of the Office of Personnel Management (OPM) Katherine Archuleta resigned as fallout continued in the wake of Thursday’s revelation that the second of two massive data breaches exposed the personal data of 21.5 million federal employees, contractors, applicants and family members.

This follows the previous breach OPM announced in June in which some 4.2 million federal personnel records were exposed.

The magnitude of the second breach is incredible. In a release, OPM states:

OPM has determined that the types of information in these records include identification details such as Social Security Numbers; residency and educational history; employment history; information about immediate family and other personal and business acquaintances; health, criminal and financial history; and other details. Some records also include findings from interviews conducted by background investigators and fingerprints. Usernames and passwords that background investigation applicants used to fill out their background investigation forms were also stolen.”

As the New York Times reports here, every person given a background check for the last 15 years was probably affected (that’s 19.7 million people), as well as 1.8 million others, including their spouses and friends.

It is thought that both OPM attacks emanated from China, though this is not confirmed.

In a week in which reported technical issues halted trading on the New York Stock Exchange, grounded United Airlines flights and took the Wall Street Journal’s website offline for several hours, the OPM announcement once again highlights the limitless nature of cyber exposures.

Meanwhile, a joint report from Lloyd’s and the University of Cambridge, points to the insurance implications of a cyber attack on the U.S. power grid and potential aggregation issues for insurers.

A hypothetical blackout that plunges 15 states into darkness, including New York City and Washington DC, leaving 93 million people without power would result in estimated insurance claims of $21.4 billion, rising to $71.1 billion in the worst case scenario, the report suggests.

Insurers would see losses across many lines of business, including property damage, business interruption, contingent business interruption, liability, homeowners and events cancellation.

Claims across other areas of insurance not included in the estimate are also possible, such as: injury-related claims; auto; property fire; industrial accidents; and environmental liability.

As Lloyd’s says in the report, one of the biggest concerns for insurers is that cyber risk is not constrained by the conventional boundaries of geography, jurisdiction or physical laws:

The scalability of cyber attacks – the potential for systemic events that could simultaneously impact large numbers of companies – is a major concern for participants in the cyber insurance market who are amassing large numbers of accounts in their cyber insurance portfolio.”

Insurance Information Institute (I.I.I.) chief actuary James Lynch explains how insurance float works and the impact it has on insurance rates. 

Asked for the secret to his success, famed Berkshire Hathaway CEO Warren Buffett often points to insurance float, “money that doesn’t belong to us but that we can invest for Berkshire’s benefit.”

He is talking about premium and loss reserves, the funds that any insurer holds while waiting for claims to settle. That money gets invested, and the investment income is an important revenue source for insurers. It also lowers insurance premiums, since actuaries take investment income into account when setting prices.

But these days float isn’t so buoyant, as you can see from the accompanying chart, which shows the net new money yield – what insurers typically obtain when they invest the float, adjusted for inflation. The National Council on Compensation Insurance (NCCI) estimates the yield, and we at I.I.I. made the inflation adjustment.

USPCNewMoneyVsCPI

The chart goes back decades, and it is easy to see the steady decline in yields. Thirty years ago the float yielded 5 percentage points above the inflation rate.

Yields have fallen inexorably. In recent years, the float has struggled to beat inflation. The post-recession peak has been 2009, when new money yields beat inflation by 2.6 percentage points, but in four of the past six years the net new money yield was negative.

Insurers differ in their investment strategy, but taken as a whole, the industry has suffered from the loss in yield. As a result, insurers have had to deliver better underwriting results in order to be as profitable as they were 10, 20 or 30 years ago.

Last year the property/casualty industry wrote a combined ratio of 97, and delivered an 8.2 percent return on equity.  The industry had a similar ROE in 1983 – 8.3 percent — but ran a combined ratio of 112, thanks in no small part to the tailwind provided by investment yields nearly 8 percentage points above inflation.

Put another way, rates have to be about 15 percent higher today to achieve the same return as a generation ago, and that’s before considering inflation or any other changes in the marketplace.

PetsSafeJuly4

While Fourth of July is a time of celebration for Americans, man’s best friend may be at increased risk for injury and illness over the holiday.

Veterinary Pet Insurance Co shares the most common Fourth of July related pet injuries based on its database of more than 525,000 insured pets.

Pets are at risk for a number of firework-related injuries. Common injuries include: burns; strangulation from getting a collar caught on a fence or jumping a fence due to the loud noise of fireworks; and laceration from breaking through a glass window or fence. Average costs for treatment run upward from $355.

Other common holiday-related injuries/illness include heat stroke, drowning after falling in a pool and poisoning from eating chocolate or table scraps and ingesting alcohol.

VPI suggests pet owners plan ahead with the following tips to keep our furry friends safe during the holiday weekend:

  1. Set up a safe zone for your pet and never leave your pet unattended or tied up in the back yard.
  2. Leave out extra water bowls to ensure your pet stays hydrated and be aware of foods that could be toxic to your dog.
  3. Be mindful of your dog around a pool and if they are allowed to swim, make sure they’re a comfortable swimmer and know how to get out of the pool.

The American Kennel Club makes the point that it’s safer to keep your pets at home during Fourth of July celebrations instead of bringing them to your neighbor’s party. Keeping your pet in a safe room where he/she is comfortable can reduce stress from the noise of fireworks.

Have a safe and happy Fourth of July!

The Chinese insurance market is changing as quickly as any in the world, writes Insurance Information Institute (I.I.I.) chief actuary James Lynch.

China is the fourth largest insurance market, behind the United States, Japan and the United Kingdom, but it is poised to grow quickly as the government looks to insurance to “play a larger role in the country’s patchy social welfare system,” the Financial Times reports (subscription required).

The market may be best known for buying trophy properties worldwide. In the past two years, Anbang bought New York’s Waldorf Astoria, China Life bought a majority share of London’s Canary Wharf, and Ping An bought the home of insurance, the Lloyd’s Building of London.

Beyond the property plays, Fosun Group in May agreed to buy the 80 percent of property/casualty insurer Ironshore that it doesn’t own and Fosun’s acquisition of U.S. p/c insurer Meadowbrook Insurance Group just received state regulatory approvals in Michigan and California.

The Financial Times report focuses on changes in the life sector, as the Chinese government encourages citizens to buy traditional life products and 401(k)-like pensions, but the P/C market is changing as well, as I recently wrote for the Casualty Actuarial Society (CAS):

China’s market has grown between 13 and 35 percent a year for the past decade . . . Property/casualty insurers wrote RMB 754 billion ($120 billion in U.S. dollars) of premium in 2014, 16.4 percent more than a year earlier. By contrast, U.S. property/casualty insurers wrote about $500 billion and grew just over 4 percent, with both figures reflecting the maturity of the U.S. market.”

Starting June 1, six provinces – about one-fifth of the country – overhauled the way auto insurance is priced, moving a bit closer to the U.S. model of loading expected claim costs for expenses and adjusting rates for underwriting factors like a good driving record.

China is also strengthening of capital standards, working on the same January 1, 2016, deadline as Europe’s Solvency II. It hopes its standard, known as C-ROSS, will become a template for emerging markets:

The new standard splits “supervisable” risks that regulators are good at addressing from the ones better handled by market mechanisms.

The supervisable risks are split between quantifiable ones, like insurance risk, and unquantifiable ones, like reputation risk. Another class of supervisable risks is control risk. For emerging economies like China’s, Huang said, it is even more important to watch how companies control their risks. Good risk management may result in a reduction in regulatory capital requirement, and poor risk management can result in a capital add-on of up to 40%.

There’s also a systemic risk element, which requires systemically important insurers to set aside more capital.”

The I.I.I. is drafting a white paper about global capital standards to be published later this year. I.I.I. President Robert Hartwig gave a presentation that covered global insurance issues (and quite a bit else) late last year.

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