Litigation Rises Amid Economic Downturn

U.S. companies are seeing a litigation wave that corporate counsel expect to swell next year, according to the Sixth Annual Litigation Trends Survey from international law firm Fulbright & Jaworski. As predicted last year some 42 percent of in-house counsel at U.S. firms expect an increase in the number of legal disputes their companies will face in the next 12 months, up from 34 percent of last year’s respondents, while 83 percent report that lawsuits have already commenced against their companies. Fulbright reports that large-cap companies have the highest expectation of litigation, with 52 percent forecasting an increase in legal disputes, while 47 percent of public company respondents foresee a jump in disputes. The economy was cited as the key reason for the rising litigation. Regulatory investigations and whistleblower allegations are expected to eat up litigation resources in the year ahead. Looking to 2010, 16 percent of all respondents (and 23 percent of large-caps) say they expect the number of internal investigations involving their company to increase. Industry-wise, approximately 20 percent each of financial services, insurance and technology companies expect internal investigations to rise in the coming year. This tracks expected increases in whistleblower cases with 24 percent of all respondents (and 31 percent of large-caps) expecting an increase in claims brought by whistleblowers. Check out a recent I.I.I. paper on The Tort Threat.

Marketplace Realities

While the non-life insurance sector was not hit as hard by the financial crisis as many other industries over the past year that does not mean insurers have a smooth path ahead, according to Willis. In the 2010 Marketplace Realities & Risk Management Solutions: Careful Steps, Willis notes that market forces that have led to frenzied competition among insurers may remain in place into 2010, but potential difficulties brewing on the horizon may have a market-turning effect by late 2010 or 2011. Willis identifies reserve adequacy, lower investment income, uncertainty regarding the economy and inflation as four potential threats facing insurers in the coming months. “The general insurance sector has escaped the global financial crisis relatively intact, with investments bouncing back and many companies still benefiting from prior year positioning. However, remaining obstacles will need to be carefully managed in these uncertain times,† Willis observes. Check out a recent presentation by I.I.I. president Dr. Robert Hartwig on the financial crisis and future of the P/C industry.

Progress on Healthcare Reform?

Today’s headlines are full of promise on U.S. healthcare reform after the Senate Finance Committee’s milestone vote in favor of a bill crafted by Senator Max Baucus (D-MT) that would overhaul the healthcare system. It’s worth noting that this bill does not address medical liability reform. Last week the Congressional Budget Office (CBO) estimated that implementing a typical package of medical liability reform proposals nationwide would reduce total U.S. healthcare spending by about 0.5 percent (about $11 billion in 2009). This figure includes some 0.2 percent in savings from lower direct spending on medical liability premiums and an additional 0.3 percent in indirect savings from slightly less utilization of healthcare services. Overall, enacting medical liability reform proposals would reduce federal government budget deficits by roughly $54 billion over the next 10 years, according to CBO’s analysis. This is something to keep in mind as the healthcare reform debate moves to the floors of the House and Senate. Check out I.I.I. information on medical malpractice.

Slight Rate Increases By 2010

While rate reductions for U.S. property/casualty insurance placements will continue to moderate for the balance of 2009, online insurance exchange MarketScout forecasts that by 2010 most lines of coverage will be renewed as expiring or for a slight rate increase. The comments came as MarketScout reported the average property/casualty rate decrease was 4 percent in September, compared to a double-digit rate decrease of 10 percent a year ago. Workers’ compensation was the most aggressively priced line of business in September with rates down 6 percent. General liability rates showed an average rate decrease of 5 percent from 7 percent in August, while the average property rate decrease was 4 percent. Coverage classes experiencing the smallest decreases were D&O liability (flat at zero percent) and EPLI and crime with an average rate reduction of 2 percent. Check out I.I.I. information on the industry’s financial outlook.

Traffic Fatalities: Steady Decline

Safer roads and vehicles appear to be contributing to what has been a steady decline in U.S. highway deaths since they reached a near-term peak in 2005. Preliminary statistics from the National Highway Traffic Safety Administration (NHTSA) estimate that 16,626 people died in motor vehicle crashes in the first half of 2009, down 7 percent from 17,871 fatalities in the first half of 2008. The fatality rate (the number of deaths per 100 million vehicle miles traveled) also dropped to 1.15 in the first half of 2009, down from 1.23 in the first half of 2008. A New York Times article by Matthew Wald notes that the recession and high gas prices may also have helped a bit. Preliminary data reported by the Federal Highway Administration (FHWA) shows that the number of vehicle miles traveled in the first half of 2009 declined by about 0.4 percent, or 6.1 billion miles. Improved seat belt use is  another  contributing factor. Check out I.I.I. info on highway safety.

Investment Strategies Unchanged in Recession

Despite the economic recession and tumults in the stock market, all major categories of institutional investors, including insurers, have remained fundamentally committed to the same investment policies they were adopting prior to the credit crunch. In its annual Institutional Investment Report, The Conference Board notes that insurance companies were the least affected of all the institutional investors by plunging stock values due to their lower exposure to stock. “The property/casualty segment, in particular, reported asset distributions substantially identical to those of prior years, when investments in equities were never increased to the level that preceded the U.S. recession of 2001-2002,† the report states. I.I.I. data shows that p/c insurers are conservative investors, with some two-thirds of their investment assets held in bonds. The Conference Board report notes that by the end of 2008, institutional investors as a whole had only 36.6 percent of their assets in equities, down from 47.2 percent at the end of 2007. However, these revisions appear to have been driven by market declines rather than by changes in investment policies. National Underwriter writes on the Conference Board report here. Check out I.I.I. information on insurers as investors.

Chinese Drywall Round-Up

There have been a number of media stories on the imported drywall (otherwise known as Chinese drywall) issue in recent days. Here’s a quick synopsis. A story in today’s New York Times by Leslie Wayne reports that hundreds of drywall-related lawsuits are piling up in state and federal courts and a consolidated class action is moving forward in Federal District Court in Louisiana that will begin hearing cases in January. Meanwhile, an article in today’s Miami Herald by Beatrice Garcia and Nirvi Shah underscores the point that homeowners are unlikely to find coverage for Chinese drywall issues under homeowners insurance policies because of exclusions for pollution, contamination damage or problems stemming from construction defect. A September 28 article in the Baton Rouge Advocate by Cain Burdeau reported on how Chinese drywall manufacturers may ignore drywall-related lawsuits pending in U.S. courts. A recent report by Swiss Re provides an excellent overview of the claims, exposure and defense issues  surrounding imported drywall. In particular, it notes that U.S. claimants may have little recourse against manufacturers due to numerous hurdles to a successful lawsuit against foreign manufacturers.

Mudflows Covered by NFIP

Another reason to have a flood insurance policy. A report from the U.S. Geological Survey warns that rainstorms this year in the area hit by the recent Station Fire in Southern California have the potential to trigger mudflows. The USGS said conditions in many of the areas burned by the fire indicated high probabilities of producing large mud and debris flows that may impact neighborhoods at the base of the San Gabriel Mountains as well as areas in Big Tujunga Canyon, Pacoima Canyon, Arroyo Seco, West Fork of the San Gabriel River and Devils Canyon. USGS warned that some rainstorms could generate debris flows of up to 100,000 cubic yards of material – large enough to fill approximately a football field 60 feet deep with mud and rock. Standard homeowners, renters and business insurance policies do not cover flood, mudslide and mudflow damage. However, damage from a mudflow (a river of liquid and flowing mud on the surfaces of normally dry land areas) is covered under a flood insurance policy available from the National Flood Insurance Program (NFIP). Note: other earth movements, such as landslide, slope failure, or a saturated soil mass moving by liquidity down a slope, are not considered mudflows by the NFIP. Check out I.I.I. info on flood insurance.

U.S. Supreme Court: New Term

The U.S. Supreme Court began its new term yesterday and an online  article at Insurance Journal notes that questions on securities fraud, Sarbanes-Oxley and financial executives’ compensation are among the high-profile cases the court will take up. A glance at the list reveals that a major case on gun rights will also be heard. The court will take up a challenge to a handgun ban in Chicago to decide whether the Second Amendment’s right to keep and bear arms acts to restrict state and local laws or only federal statutes. Meanwhile, an article in Business Insurance by reporter Mark Hofmann notes that the court will also hear several business cases with potential implications for risk managers. Check out an I.I.I. paper on the tort threat.

The Value of Homeowners Insurance

Despite recent housing market troubles, homeowners appear to be very happy with their insurance companies. The J.D. Power and Associates 2009 Homeowners Insurance Study reports that for the first time in five years, overall customer satisfaction with homeowners insurance has increased significantly, driven by favorable perceptions of the value of their policies. Satisfaction with homeowners insurance averages 773 on a 1,000-point scale in 2009 – an increase of 21 points on 2008. J.D. Power says the overall increase is primarily due to substantial improvements in the price, policy offerings and billing and payment factors. Satisfaction with price improved most notably – increasing by 46 points from 2008. The apparent prevalence of discounts also contributed to improved perceptions of policy value. The study found that the percentage of policyholders who reported receiving discounts increased in 2009 to 84 percent from 81 percent in 2008. Of the 27 insurers included in the study, 10 have experienced notable increases from 2008 in the proportion of their customers who report getting discounts. J.D. Power noted that policyholders who receive discounts are significantly more satisfied than those who either do not receive discounts or are unsure of the discounts they receive. Check out I.I.I. facts and stats on homeowners insurance.