Insurance Regulatory Moves

The future shape of insurance regulation in the United States is one of many topics that elicit a wide range of views within the industry. So insurers will be closely monitoring the  progress of a revised insurance regulatory bill, the National Insurance Consumer Protection and Regulatory Modernization Act, which is expected to be introduced in the House next week. Sponsored by Rep. Melissa Bean, D-Ill., and Rep. Ed Royce, R-Calif., the bill would create a national office of insurance regulation (OIR). It would also call for a new systemic risk regulator and strengthened consumer protection. For more on this story, check out February 11 online articles at Business Insurance and at National Underwriter. Check out further I.I.I. information on regulatory modernization and the optional federal charter (OFC).  

Australian Bushfires Update

More than 20 bushfires continue to burn in the Australian state of Victoria where at least 181 people have been killed and more than 1,000 homes destroyed after 400 bushfires hit the states of Victoria, New South Wales and South Australia over the weekend. A catastrophe update from Guy Carpenter cites sources quoted by Dow Jones International News that insurers could incur losses of more than A$500 million ($335 million) and that some affected insurers could trigger their reinsurance programs. Ratings agency Standard & Poor’s (S&P) has estimated the likely insured loss figure from the bushfires at more than A$500 million and total damage (including infrastructure) could exceed A$2 billion ($1.4 billion). The bushfire event is being described as the worst in Australia’s history. Risk Management Solutions notes that the infamous Ash Wednesday fires that occurred in Victoria and South Australia in 1983 left 75 dead and more than 3,700 buildings destroyed in what is now the second deadliest bushfire event in Australian history. Officials believe the likely cause of some of the bushfires is arson, while others were ignited by lightning strikes, sparks from power lines or discarded cigarettes. For more on the fires, check out the Insurance Council of Australia Web site. Check out additional  I.I.I. international insurance  facts on Australia.

ID Theft on the Rise

In a reflection of current turbulent economic times, Javelin Research & Strategy’s latest annual report on identity fraud yesterday revealed for the first time since its debut in 2004 that the number of identity fraud victims has increased 22 percent to 9.9 million adults. While there were 1.8 million more victims in 2008 than in 2007, the total annual losses ($48 billion in 2008, up 7 percent from $45 billion in 2007) did not show a commensurate rise in scale. Instead, the data shows the average loss declined by 12 percent to $4,849 from $5,488 because of  increased fraud prevention efforts.  On a positive note, individuals spent 31 percent less (an average of $496) to clean up a fraud and more than half spent nothing. A CNNMoney.com report quoted James Van Dyke, president of Javelin as saying the increase in  ID theft cases was likely due to the economic recession. “If people need to make money, and decide to do so illicitly, identity fraud is the logical opportunity,† he said. Another interesting finding: online fraud was the reason for only 11 percent of cases; improper use of checkbooks and credit or debit cards after a wallet or pocketbook is lost or stolen remains the most common means of ID theft (43 percent of cases); while 25 percent had their PINs compromised on ATM cards. Check out I.I.I. info on identity theft.  

Food Safety Concerns

Peanut Case Shows Holes in Safety Net is the apt heading of a February  8  article in  the New York Times by Michael Moss. By now you’ll be aware of the fact that more than 1,000 peanut butter products have been recalled (from as far afield as Canada and Europe) after a salmonella outbreak sickened at least 575 people in 43 states, killing eight. A peanut-processing plant in Georgia that produces just 1 percent of all U.S. peanut products is the apparent source of the tainted peanut butter. The owner of the plant, the Peanut Corporation of America, is under criminal investigation and the event has been described as the largest food contamination case in U.S. history. Note: in 2007 the Government Accountability Office (GAO) added the federal oversight of food safety to its high-risk list (because 15 agencies collectively administer at least 30 food-related laws). This fragmented federal oversight of food safety has caused inconsistent oversight, ineffective coordination and inefficient use of resources, according to GAO. For more on this debate check out the  Room for Debate blog. Whatever the size or nature of a business, this latest food-borne outbreak of salmonella highlights the importance of product safety. Check out I.I.I.’s small business owners’ guide to insurance for more on managing product liability risks.  

Data Breaches: Rising Priority

Data protection and information leakage emerged as a top priority for financial institutions in 2008, according to Deloitte’s 6th Annual Global Security survey. The top three information security priorities of financial institutions are: security regulatory compliance; data protection and information leakage; and access and identity management. Deloitte noted that recent high profile data breach and identity theft incidents and the increasing popularity of social networks and mobile media such as USB keys, MP3 players and PDAs, are contributing to increased awareness of the risk. The leading drivers for financial institutions to protect the privacy of their clients information are privacy regulatory requirements (79 percent) followed by reputation and brand concerns (70 percent), according to the survey. Meanwhile, as companies look to manage their growing exposure to data breaches, insurers are here to help. Earlier this week Lockton, in conjunction with Lloyd’s underwriters (ACE Global Markets, Brit Syndicates Ltd, Hiscox) and legal and security experts announced a risk management package designed to help companies address outsourcing risk and corporate response plans for data breaches. As the well-worn saying goes, prevention is better than cure. Check out further I.I.I. info on identity theft.

Florida Focus

Florida once again has made the insurance headlines in the last week with the announcement by State Farm that it plans to discontinue offering property insurance in the sunshine state. The planned withdrawal of the largest private property insurer in the state understandably has led to widespread media coverage. As our blog has noted before, insurers offering coverage in catastrophe-prone states such as Florida face many challenges. For anybody who doubts this, consider a few Florida facts: the total value of insured coastal property in Florida was $2.5 trillion in 2007, up nearly 27 percent since 2004, and that number is expected to double by 2014; eight of the 10 costliest hurricanes in U.S. history have impacted Florida, and seven of those top 10 storms occurred within just two years – 2004 and 2005; some 37 percent of all hurricane landfalls occur in Florida and 38 percent of those are Category 3 or higher. For more on this story check out the Web site and blog of the Florida office of the I.I.I.. Check out I.I.I. info on how insurers support the Florida economy online.  Ã‚  

  

Cat Bond Market Resilient

What a difference a year can make†¦The catastrophe bond market, described as mainstream rather than alternative after a record-setting year in 2007, saw a sharp fall in issuance both in terms of risk capital and number of transactions in 2008. Guy Carpenter’s latest review of the market reveals that cat bond issuance volume fell 62 percent to $2.7 billion in 2008, from just under $7 billion in 2007 as a soft reinsurance market and the global financial crisis took their toll. Just 13 transactions were completed during the year, compared to 27 in 2007. At year-end 2008, total cat bond risk capital outstanding was $11.8 billion, a 14.5 percent decline from $13.8 billion in 2007. But a slow issuance year in 2008 masks a story of resilience and risk management flexibility, according to Guy Carpenter. For example, in terms of issuance volume it found that 2008 was the market’s third most active year since catastrophe bonds were introduced in 1997. Check out further I.I.I. information on alternative risk-financing options.  

Employee Lawsuits Du Jour

Mounting job cuts amid the economic downturn are resulting in an increase in employee lawsuits, according to various news reports.  A  posting yesterday in the New York Times DealBook blog citing a January 31  article in the newspaper by Jonathan Glater speaks to this growing trend. It suggests that laid off employees may have more legal arguments to draw on than in previous recessions due to a raft of employment protection laws passed in better times. However it does acknowledge that employment cases are not easy to win. Meanwhile, an article in the  Washington Post today notes that the number of allegations of job discrimination filed with the U.S. Equal Employment Opportunity Commission (EEOC) increased by 15 percent in 2008, compared with 2007. A cautionary note to companies looking to lay off employees comes in a January 22 article at CFO.com. It advises that companies that put together a detailed business plan before announcing layoffs may be able to avoid a trip to court. Desperate times can lead to desperate measures and that brings us to these words of wisdom from Lisa Rickard, president U.S. Chamber Institute for Legal Reform: “America cannot sue its way out of this recession. More lawsuits won’t create more jobs, help consumers or rebuild America’s infrastructure.† Check out I.I.I. facts & stats on litigiousness.  

Insurance Fraud Hall of Shame

The Coalition Against Insurance Fraud has just released its annual Insurance Fraud Hall of Shame, highlighting America’s most brazen, vicious or plain klutzy insurance crooks. Among the  top swindlers elected to the No-Class of 2008 are: a serial home arsonist; an elected judge who made phony auto-injury claims; two elderly women who killed homeless men for life insurance money; and dentists who did worthless root canals on children. According to the Coalition, insurance fraud is an $80 billion-a-year crime, yet its research shows that more Americans tolerate insurance fraud than they did 10 years ago. Too many individuals also view fraud as a harmless prank or an obscure white-collar crime, the Coalition says. Check out related I.I.I. information on insurance fraud.