Atlantic Hurricane Season Off to Early Start

Whichever way you slice it, NOAA’s just-released outlook for the 2016 Atlantic Hurricane Season appears to suggest we’re on track for more hurricane activity than we’ve seen in a while.

NOAA predicts a 70 percent chance of 10 to 16 named storms (winds of 39 mph or higher), of which 4 to 8 could become hurricanes (winds of 74 mph or higher), including 1 to 4 major hurricanes (Category 3, 4 or 5; winds of 111 mph or higher).

It calls for a 45 percent chance of a near-normal season, but there is also a 30 percent chance of an above-normal season. The likelihood of a below-normal season is at 25 percent.

NOAA2016AtlanticHurricaneOutlook

In the words of Dr Gerry Bell, lead seasonal hurricane forecaster with NOAA’s Climate Prediction Center:

“This is a more challenging hurricane season outlook than most because it’s difficult to determine whether there will be reinforcing or competing climate influences on tropical storm development.

“However, a near-normal prediction for this season suggests we could see more hurricane activity than we’ve seen in the last three years, which were below normal.”

To put that in context, the 2012 Atlantic hurricane season was extremely active and tied with 1887, 1995, 2010 and 2011 for having the third-most named storms on record.

Insurers paid out more than $26 billion in hurricane losses that year, including Superstorm Sandy which caused $19 billion in insured property losses.

With Bonnie threatening to develop into a tropical storm over the Memorial Day weekend, the Atlantic could have its second storm before the official start of hurricane season, which starts June 1, as the Insurance Information Institute reminds us here.

Bear in mind that NOAA’s outlook includes Hurricane Alex, a pre-season storm that formed over the far eastern Atlantic in January.

With El Niño dissipating, NOAA’s Climate Prediction Center forecasts a 70 percent chance that La Niña— which favors more hurricane activity — will be present during the peak months of hurricane season, August through October.

However, current model predictions show uncertainty as to how strong La Niña and its impacts will be.

Check out this earlier post over at Artemis blog about the potential impact of La Niña.

As we’ve said before, regardless of predictions and outlooks it pays to be prepared and this year’s hurricane season is no different.

Check out I.I.I. facts and statistics on hurricanes.

Emerging Risk: the Internet

We think of the Internet as a borderless entity, but that could all change, according to an annual emerging risk report from Swiss Re.

The publication is based on the SONAR process, an internal crowdsourcing tool that collects inputs and feedback from underwriters, client managers, risk experts and others to identify, assess and manage emerging risks.

Increased localization of internet networks within country borders is one of the key emerging risks that industry players should prepare for, the report suggests.

It notes that as cybercrime has grown rapidly, so the Internet has become less safe and governments are instituting more regulation, requiring companies to protect their online assets more effectively and to store data on servers physically located within their geographical borders.

Some countries are even using special software to filter out unwanted information, firewalls and isolated IT infrastructure detached from global networks, Swiss Re reports.

“A step further in this direction is the design and development of internet protocols which make certain communications impossible. In China, for instance, the government already controls all Internet content as well as the physical infrastructure.”

While no international consensus has emerged yet on how the internet should be governed, the report reveals that there is a chance that disconnected national and regional nets will become more common.

As Swiss Re says:

“Such developments would increase IT costs and regulation and would hurt insurance companies operating across borders.”

In particular, the report highlights that evolving regulation would increase operational risk and could trigger more liability claims in the directors and officers (D&O) and fidelity arena, as well as massively increasing costs for setting up and maintaining separate legal structures.

Another concern is that technology companies may face liability suits from customers if they are no longer able to access data stored on cross-border servers.

Where Insurance Meets Transgender Rights

Both as assumers of risk and as employers, insurers are in a unique position when it comes to navigating the changing legal environment and civil rights.

Recent federal and state rulings pertaining to the rights of transgender individuals raise a number of issues, and there are potential insurance implications to consider.

In March North Carolina passed a controversial law (HB 2) requiring transgender individuals to use public bathrooms that correspond to their gender at birth. This led the U.S. Justice Department to send a letter to North Carolina leaders saying the law violates the U.S. Civil Rights Act and Title IX.

More than 150 CEOs and business leaders of major companies voiced their opposition. PayPal withdrew its plans for a $3.6 million investment and 400 jobs in the Tar Heel state.

Also in April, in a landmark ruling on transgender students’ rights in schools, the Fourth Circuit Court of Appeals in Virginia decided that the U.S. Department of Education can prohibit anti-transgender discrimination under Title IX, a federal law that prohibits sex discrimination in education. (G.G. v Gloucester County School Board)

In the wake of this ruling, President Obama issued a directive instructing public schools to allow transgender students to use the restroom that matches their gender identity.

Meanwhile, several federal agencies have issued strong opinions on the issue of discrimination and transgender rights, for example:

—The U.S. Department of Health and Human Services has ruled that hospitals, clinics and other healthcare providers cannot discriminate against patients on the basis of gender identity.

U.S. Attorney General Loretta Lynch has made clear that laws restricting restroom access that affect transgender individuals are discriminatory.

—The Departments of Justice and Education issued a joint letter to public schools explaining how federal law prohibiting sex discrimination affects schools’ obligations toward transgender students.

—The U.S. Equal Employment Opportunity Commission (EEOC) has sued several employers over their treatment of transgender employees, including restroom access, on the basis that alleged conduct violates Title VII of the Civil Rights Act of 1964, which prohibits sex discrimination, i.e.. employment discrimination based on gender identity or sexual orientation.

While this is an evolving area of law and liability for businesses and municipalities everywhere, insurers—and the policies they write—will no doubt be implicated.

Industry experts say it’s critical that businesses find out what their state or municipality has enacted on this issue and establish a coherent nondiscriminatory policy to minimize their own liabilities.

In a recent PodCast with A.M. Best on the legal issues surrounding transgender restroom access Brian Cafritz, a partner at Kalbaugh, Pfund & Messersmith Law P.C. said there could be potential implications for commercial general liability policies that cover slander, defamation, assaults, or other discrimination acts.

Cafritz also noted that as federal laws change, negligent hiring or retention claims could be raised impacting the insurance policies that cover these entities.

School districts and municipalities in particular face rising potential liability. A recent brief by Munich Re noted that policy coverage that might be impacted by transgender litigation against school personnel include:

—General liability: physical bodily injury and/or mental anguish, mental injury

—Personal Injury: defamation of character, violation of privacy rights

—Wrongful Acts – tortious error, act or omission

Workplace issues as they relate to transgender employees was a topic of discussion at the recent RIMS conference session, as reported by Business Insurance.

P/C Industry Resilient Even in Face of Disaster

The property/casualty insurance industry is, and will remain, extremely well capitalized and financially prepared to pay very large scale losses in 2016 and beyond, according to Insurance Information Institute (I.I.I.) president Dr. Robert Hartwig and chief economist Dr. Steven Weisbart.

In their commentary on the industry’s 2015 year end results, Drs. Hartwig and Weisbart note that overall industry capacity remains near an all-time record high.

“Overall industry capacity (policyholder surplus) slipped slightly to $673.7 billion as of December 31, 2015, but was still extraordinarily strong, as measured by a premium-to-surplus ratio of 0.76—virtually the strongest it has ever been.”

They go on:

“Thanks to a surging stock market until 2015, policyholders’ surplus has generally continued to increase with the end of the Great Recession and three consecutive years without large-scale catastrophe losses. But the lack of stock gains in 2015 ended (or at least stalled) this trend.”

At $673.7 billion as of December 31, 2015, policyholders’ surplus was down $1.5 billion or 0.23 percent from year-end 2014.

The bottom line is that the industry is extremely well-capitalized, even in the face of disaster.

As the I.I.I. reports:

“The fact that the P/C industry was able to rapidly and fully recoup its losses to surplus even in the event of disasters like superstorm Sandy (which produced $18.8 billion in insured losses in 2012) is continued evidence of its remarkable resilience in the face of extreme adversity.”

Other takeaways of the industry’s 2015 year end results: moderate profits in 2015, as measured by a return on average surplus of 8.4 percent, virtually the same as in 2014; modest premium growth (net written premiums in 2015 crossed the half-trillion-dollar mark to $514.0 billion, although the rate of increase slipped slightly to 3.4 percent growth from 4.2 percent in 2014); and a below-100 combined ratio for the fourth straight year (97.8 in 2015, compared with 97.0 in 2014).

The industry results were released by ISO, a Verisk Analytics company, and the Property Casualty Insurers Association of America (PCI).

Fido Takes A Bite Out of Homeowners Claims

Don’t bite on this, but next week’s National Dog Bite Prevention Week is a reminder that Fido can cost dog owners—and their insurers—dearly.

Dog bite (and dog-related injuries) accounted for more than one-third of all homeowners insurance liability claim dollars paid out in 2015, costing in excess of $570 million, according to the Insurance Information Institute (I.I.I.) and insurer State Farm.

In its analysis, the I.I.I. found that while the number of dog bite claims nationwide decreased 7.2 percent in 2015, the average cost per claim for the year was up 16 percent.

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The average cost paid out for dog bite claims nationwide was $37,214 in 2015, compared with $32,072 in 2014 and $27,862 in 2013.

In fact, the average cost per claim nationally has risen more than 94 percent since 2003.

Why is this?

Loretta Worters, vice president at the I.I.I., says increased medical costs as well as the size of settlements, judgments and jury awards given to plaintiffs, which are still on the upswing, are responsible for the higher costs per claim.

Dog-related injuries also have an impact on the potential severity of losses. In addition to bites, dogs knock down children, cyclists, the elderly, all of which can result in fractures and other blunt force trauma injuries.

Another factor might be the surge in U.S. Post Office worker attacks, many of which take place at the customer’s door.

The study found the average cost per claim varies substantially across the country.

While Arizona had only the ninth largest number of claims at 393, it registered the highest average cost per claim of the 10 states with the most claims: a staggering $56,654.

State Farm notes that insurance is an important aspect to being a responsible dog owner and offers this important advice:

“When renting a property make sure to have rental insurance because most landlords do not provide coverage should there be a dog bite incident. If you are a homeowner, talk to your insurance agent about what is covered under a standard homeowner policy related to dogs.”

More on this story over at propertycasualty360.com

 

Commercial Insurance Rate Declines Continue

The soft market may be limited in length and severity, though that would be surprising, according to the latest analysis of commercial insurance pricing from online insurance exchange MarketScout.

The comments came as MarketScout reported that the composite rate for U.S. commercial property/casualty insurance declined by 2 percent in April, compared to a 3 percent decline in March and minus 4 percent in January and February 2016.

Richard Kerr, CEO of MarketScout observed:

“It seems we may have a reversal of sentiment. Rates are moderating. We are only seven months into a soft market that has so far yielded a maximum composite rate decrease of minus 4 percent.”

Kerr also noted:

“A limited soft market would be a bit surprising noting the current ample market capacity; however, more sophisticated underwriting tools seem to be limiting market swings.”

Rates changed in most coverage classifications with property, business interruption, BOP, inland marine, workers’ compensation, general liability, and fiduciary all moderating by 1 percent as compared to March.

Umbrella, auto, D&O, EPLI, crime, professional and surety were unchanged, according to MarketScout.

By account size, rates for small accounts (under $25,000) were down 1 percent from March to April. All other account sizes were down 2 percent in April 2016, compared to minus 4 percent in March 2016.

By coverage classification, transportation accounts adjusted more than any other industry classification from minus 4 percent in March 2016 to minus 2 percent in April 2016. Manufacturing, habitational, public entity and energy accounts all moderated 1 percent in April, while contracting and service accounts remained unchanged.

Here’s the visual by coverage classification:

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Check out this post over at Artemis blog for more on why the moderation in commercial insurance rates is unlikely to persist.

The Insurance Information Institute has further information with financial results and commentary on the p/c insurance industry here.

Canadian Wildfire Underscores Risk

If ever there were an example of the real danger posed by wildfires, the Fort McMurray wildfire in Alberta, Canada is it.

Firefighters are struggling to control this massive fire that started last Sunday, is estimated to have destroyed more than 1,600 structures in Fort McMurray and has resulted in more than 80,000 evacuations.

As gccapitalideas.com reports here, record high temperatures exceeding 32 C (90 F) and extremely dry air, together with strong winds have enabled the wildfire to grow and spread rapidly.

AIR Worldwide also reports:

“With very few exceptions, catastrophic wildfires occur when three conditions are met simultaneously: dry heat maximizes the volatility of vegetation; extreme winds, which can drive the propagation of a fire through that vegetation, occur; and a fire ignites close to a moderately or heavily populated area.”

All three of these conditions have occurred in the Fort McMurray vicinity, and AIR Worldwide notes: “the wildfire that is now happening there is certainly catastrophic.”

While it is too soon to know the extent of the damage and the size of the Fort McMurray wildfire insurance loss, some early reports are helpful.

AIR Worldwide makes the important point that because of the oil industry, housing in the Fort McMurray area is more expensive than its remoteness would suggest and already it is clear that there has been a massive loss of property.

Losses arising from this fire will likely far exceed those resulting from the Slave Lake wildfire in 2011 that destroyed 522 homes and structures, it suggests. The Slave Lake wildfire cost insurers more than C$700 million at the time, according to the Insurance Bureau of Canada.

One analyst at Bank of Montreal observed that if Fort McMurray has to be completely rebuilt, insured losses could reach as high as C$9 billion ($7 billion), making this the costliest insured disaster in Canadian history.

This catastrophe is also a reminder that wildfires pose a significant risk across the United States.

For more on how to protect property from wildfire damage and to reduce the costs associated with wildfire damage check out information from the Insurance Institute for Business and Home Safety (IBHS).

Small Business Interrupted

Every business comes with a certain amount of risk. Although difficulties and challenges can’t be avoided, they can be mitigated with the proper precautions, planning and insurance coverage.

In support of National Small Business Week (May 1-7) and to help business owners understand insurance, the Insurance Information Institute (I.I.I.) developed this infographic that focuses on business interruption insurance which is also posted on the I.I.I’s Business Pinterest Board.

Did you know that after a catastrophe or other disaster 40 percent of businesses do not reopen and another 25 percent fail within a year?

When a business is shut down due to a damaging event it loses revenue. Meanwhile, the business still has to pay its bills and may incur additional expenses as a result of the disruption.

Fortunately, with business interruption coverage, many of these costs and losses can be reimbursed.

A recent report from Allianz Global Corporate & Specialty (AGCS) found that the economic impact from business interruption is often much higher than the cost of physical damage in a disaster and is a growing risk to companies worldwide.

In that report AGCS also noted that the vast majority of BI losses are not caused by natural catastrophes, but rather non-natural hazard events like human error or technical failure.

Cyber business interruption risk is often underestimated, another report found.

More information on covering losses with business interruption insurance is available at the I.I.I. website.

Distracted Drivers, Meet the Textalyzer

After years of decline in road fatalities, numbers were up 8 percent in 2015. Many believe the rise is due at least in part to distracted driving and advocates are looking to programs that have successfully curtailed drunk driving for potential solutions.

The New York Times reports that one idea from New York lawmakers, would give police officers a new digital device that is the equivalent of the Breathalyzer — a roadside test called the Textalyzer.

An officer arriving at the scene of a crash could ask for the phones of any drivers involved and use the Textalyzer to tap into the operating system to check for recent activity, according to the New York Times article.

“The technology could determine whether a driver had used the phone to text, email or do anything else that is forbidden under New York’s hands-free driving laws, which prohibit drivers from holding phones to their ears. Failure to hand over a phone could lead to the suspension of a driver’s license, similar to the consequences for refusing a Breathalyser.”

However, the proposed legislation faces hurdles to becoming law, including privacy concerns, even though the Textalyzer bill would not give the police access to contents of any emails or texts.

If the law were to pass in New York, some believe it could spread across other states in the same way that the hands-free rules did after New York adopted them.

This is an interesting idea. The insurance industry has long been a major supporter of anti-drunk driving and seatbelt usage campaigns.

Distraction was a factor in 10 percent of fatal crashes reported in 2013, according to National Highway Traffic Safety Administration (NHTSA) data. Some 14 percent of distraction-affected crashes occurred while a cell phone was in use, the NHTSA notes.

A Highway Loss Data Institute study of collision claims patterns in four states (California, Louisiana, Minnesota and Washington) also found that texting bans may not reduce crash rates. Collisions went up slightly in all the states, except Washington, where the change was statistically insignificant.

The use of technology to better assess risk is something that insurers embrace in many different lines of business, including auto and health. Clearly, privacy concerns will need to be weighed, but this is a novel approach to tackling the distracted driving problem.

Check out Insurance Information Institute statistics on distracted driving here.

Industry Well-Prepared to Weather Hail Damage

Hail claims are making headlines following multiple springtime hailstorms in Texas, including one in the San Antonio region that is expected to be the largest hailstorm in Texas history.

While the estimated insured losses from the storms—$1.3 billion and climbing from two storms that hit the Dallas-Fort Worth region in March; as yet not estimated (but expected to be worse) insured losses from a third storm in the Dallas-Fort Worth region April 11; plus a further $1.36 billion early estimate of insured losses from the San Antonio storm April 12—may seem high, property insurers are well-prepared to handle such events.

In a new briefing, ratings agency A.M. Best says it expects limited rating actions to result as affected property/casualty insurers are expected to maintain sufficient overall risk-adjusted capitalization relative to their existing financial strength ratings.

Which insurers will be most affected?

A.M. Best explains that for property insurers, in particular in property lines of business, losses are expected to stem from broken windows and roof damage. This will have an impact on underwriting performance and overall earnings.

Companies with a heavy concentration of automobile physical damage will also have significant losses.

However, for property insurers the increased use of actual cash value (ACV) for roof repairs, increased deductibles, and improved risk management strategies will help limit the amount of the ultimate claim payment, A.M. Best explains.

The impact on most auto physical damage insurers is also expected to be mitigated given the generally large economies of scale of major writers in the market, A.M. Best adds.

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So, while the Texas hailstorm damage is poised to exceed the nine-year average of $1.2 billion for the United States, most insurers are well-capitalized and able to handle these severe weather events.

Nevertheless, as A.M. Best says:

“The volatile weather is a harsh reminder of the damages a property and casualty writer can be exposed to and the need for companies to continue to practice prudent and evolving risk management.”

Check out this review of research and testing related to hail damage by the Insurance Institute for Business & Home Safety.

The Insurance Information Institute also has some handy statistics on hail here.

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