Market Conditions: Round-Up

Latest market surveys of property/casualty insurance rates appear to show signs of stability out there. Aon predicts that property, casualty and directors’ and officers’ liability insurance rates will continue to stabilize in 2010. Highlights of Aon’s Q3 2009 Quarterly Market Overview include: property rates in the third quarter were generally flat after increasing in the first two quarters of 2009 and are expected to remain stable with some downward pressure for the remainder of 2009 and 2010; average casualty rate decreases remained in the low single digits through the third quarter for most lines and barring any unforeseen events the majority of insureds are expected to see flat to single-digit rate decreases; D&O rates decreased 2.7 percent in the third quarter with pressure easing for financial institutions. Meanwhile, Towers Perrin’s latest Commercial Lines Pricing Survey reported that commercial p/c prices increased by 0.3 percent during the third quarter of 2009 – the second consecutive quarterly increase after nearly five years of steady decline. Only two lines showed price reductions in the quarter: workers’ compensation and commercial auto. In both cases, the price declines were minimal. In a press release, Towers Perrin said: “Two quarters of flat prices underscore our belief that market conditions have changed from an environment of rampant price cutting to one where greater caution prevails.† Commercial insurance prices rose 0.8 percent during the second quarter of 2009 as well.

Financial Regulation Overhaul

Debate on financial services reform gets underway in the House today. Increased oversight of systemic risk and the creation of a new federal agency to protect financial consumers are major components of the overhaul in the wake of the financial crisis. For insurers, a new federal insurance office that will collect information about the industry and advise on policy issues is in the pipeline. For more on this story check out a Reuters article by Kevin Drawbaugh. Yesterday PriceWaterhouseCoopers said in a new report that the insurance industry may not see a return to relative stability and certainty for a few years as it reacts to the effects of regulatory reform, increased government intervention and potential tax law changes in the aftermath of the financial crisis. Within five years, the industry landscape could look markedly different, and Americans may find their insurance policies underwritten by a handful of large, well-capitalized firms that can demonstrate financial strength and economies of scale, according to PWC. It said the most significant of nine key developments for the industry will likely be sweeping regulatory changes resulting from proposed legislation to reform health insurance and increased federal oversight of insurance and financial industries. I.I.I. info on regulation modernization is available here.

Distracted Driving Lawsuit

It’s perhaps inevitable that amid rising concerns about cellphone use and distracted driving a lawsuit has been filed against a cellphone manufacturer and wireless provider by the daughter of a woman killed after her car was hit by a driver talking on his cellphone. A December 6 article in the New York Times by Matt Richtel outlines the details of the suit which alleges the companies failed to provide adequate warnings of the risks of cellphone use while driving. It goes on to cite legal experts explaining why the suit – currently the only such case and one of only a handful ever filed – faces steep challenges. Over at the Consumer Class Actions Mass Tort Blog, Russell Jackson, a partner at law firm Skadden Arps and quoted in the NYT article, offers analysis on why various legal defenses should make this cellphone suit untenable. First and foremost is the common knowledge defense, as Jackson explains:

It is commonly known that using a handheld mobile phone without a hands-free device increases the risk of accidents. Manufacturers warn about it in the product literature. Service providers post billboards about it. Governmental authorities and public interest groups erect signs warning against it. And most notably, it is illegal, and all licensed drivers are charged with knowledge of that law. On this point, tort law is clear: one has no duty to warn of a commonly known hazard. And what sort of warning would possibly alter the behavior of the driver who insists on using a hand-held mobile phone while possessed of the common knowledge about the risks? Simply put, there is none.

Meanwhile, we’re wondering how the concept of personal responsibility fits into all this. After all, there’s plenty of widely-publicized research and data out there that makes clear the risks of cellphone use and driving. Armed with this knowledge consumers continue to take the risk. What do you think? Check out I.I.I. information on cellphones and driving.

EPA: Greenhouse Gases Threaten Public Health

Yesterday’s announcement by the Environmental Protection Agency (EPA) that greenhouse gases threaten the public health and welfare of the American people has drawn a wide range of responses in the media. In its comments, the EPA also said it found that greenhouse gas emissions from on-road vehicles contribute to that threat. The findings respond to the 2007 U.S. Supreme Court decision that greenhouse gases fit within the Clean Air Act definition of air pollutants. While the findings do not in and of themselves impose any emission reduction requirements, it’s seems likely that the decision may lead to new emissions rules and regulations. The EPA announcement also comes as the UN climate change summit opens in Copenhagen. An item on the Wall Street Journal’s Washington Wire blog makes the interesting point that of the 380,000 public comments received by the EPA in response to its proposed finding, more than 70 percent were supportive of the agency’s move, and less than 30 percent were opposed. While it’s not clear how many of the comments submitted may be duplicates, this appears to indicate a substantial level of support. However, as the Washington Wire notes, recent public opinion polling (here, and here) suggests that the public sees global warming as a less urgent problem than it did a year ago. Check out I.I.I. information on climate change and insurance.

Asbestos Loss Estimates Increase

Ratings agency A.M. Best has upped its estimate of how much asbestos losses could cost the U.S. property/casualty industry to $75 billion, from $65 billion. The revision comes as A.M. Best reports the U.S. p/c industry’s asbestos and environmental losses were down nearly 50 percent in 2008. In its latest market review of U.S. asbestos and environmental liabilities, A.M. Best says the increase in asbestos estimates reflects ongoing, elevated levels of annual incurred losses, as well as a subtle shift of losses away from products liability claims to more costly non-products claims against more peripheral defendants. This shift in emphasis has resulted in some opening up of policy limits, A.M. Best notes. Efforts at tort reform have also had mixed results, with some jurisdictions still proving problematic for asbestos defendants. Also affecting asbestos losses is a growing proportion of settlements in more serious cases, principally related to mesothelioma, which is increasing the average values of such claims. Some 1,500-2,000 mesothelioma claims have been filed annually over the past few years and as a result A.M. Best says the industry is likely to continue incurring losses for asbestos liabilities for years to come. Release of the report comes as the trust funds set up to resolve some of the lengthy asbestos-related litigation face growing criticism. According to a December 3 Wall Street Journal article by Nathan Koppel, insurers and legal experts contend that the funds are not transparent, paying claims that may not be valid and providing excessive amounts to plaintiffs’ lawyers. Some 40 asbestos trusts were set up with court approval by Johns Manville Corp., Owens Corning and other asbestos manufacturers to oversee around $20 billion in assets. According to consulting firm Bates White LLC, the assets of these funds have nearly tripled since 2005 and they paid out some $3 billion in claims in 2008, more than double the previous year’s total. Check out the Wall Street Journal Law Blog for more on this story. Check out I.I.I. background information on asbestos liability.

Regulatory Change Moves Closer

Debate on a bill creating a federal insurance office and other financial services reform legislation could begin in the House as early as next Wednesday, according to several media reports. Yesterday the House Financial Services Committee passed H.R. 2609, the Federal Insurance Office Act of 2009 by a voice vote. Following a number of revisions, the new federal office would not have any regulatory authority over the business of insurance and also would not be able to preempt state insurance laws governing rates, premiums, coverage requirements, antitrust laws, underwriting or sales practices. The office will collect information about the industry and advise on policy issues. Check out a December 2 Insurance Journal article for more on this story. Meanwhile, H.R. 3996, the Financial Stability Improvement Act  giving  the government authority to deal with troubled financial institutions, including insurers, also passed the House Financial Services Committee yesterday on a 31-27 vote. Check out more on this story in a December 2 National Underwriter article. I.I.I. background information on regulation modernization is available here.

Climate Change Talks and Insurer Initiatives

Just days ahead of the UN climate change summit in Copenhagen, two leading climate scientists from the Obama administration today will give testimony at a hearing before the House Select Committee on Energy Independence and Global Warming. According to the media advisory, the Select Committee will explore “the urgent, consensus view on our planetary problem: that global warming is real, and the science indicates that it is getting worse.† Testimony will be provided by Dr. John Holdren, director of the Office of Science and Technology Policy, and Dr. Jane Lubchenco, administrator of the National Oceanic and Atmospheric Administration (NOAA). Meanwhile, in a presentation at the annual conference of the Institute for Business and Home Safety (IBHS) earlier this week, I.I.I. president Dr. Robert Hartwig said the role played by insurers in the climate movement and the process of pricing “green† or “climate† or “environmental† risks is no different than any other risk assumed over the centuries. Dr. Hartwig noted that insurers can play a key role in the area of climate risk only if two conditions are met: insurers are allowed to charge risk appropriate premiums on new products designed to mitigate climate risks; insurers are allowed to adjust premiums, underwriting criteria, risk assessment and management practices to reflect actual and expected changes arising from climate threats. Check out I.I.I. information on climate change and insurance.

2009 Cat Losses Drop

Both the human toll and monetary impact of global natural catastrophes and man-made disasters dropped significantly in 2009 compared to 2008. But the overall figures mask a  tale of two halves. Initial estimates from Swiss Re indicate that some 12,000 people worldwide were killed by catastrophes in 2009, compared to 240,000 in 2008. At $52 billion, the total cost to society of the catastrophes was also about one-fifth of the $267 billion total cost the previous year. Insurers paid out an estimated $24 billion in property losses from these events, compared to total insured losses of over $50 billion in 2008. Natural catastrophes cost insurers roughly $21 billion, while man-made catastrophes triggered additional claims of $3 billion. Swiss Re attributed the below average insured losses to the calm U.S. hurricane season. Contrary to the U.S., Europe suffered above average insured losses in 2009. In a press release Swiss Re cautioned that while cat losses have trended upward in the past 20 years, there is high volatility from year to year. The figures also indicate the volatility of cat losses within any given year. For example, cat losses in the first seven months of 2009 were nearly double the average of the last 20 years. Had that trend continued in the second half it could have been a different story. Thomas Hess, chief economist of Swiss Re, sums it up: “We were lucky, but that may not be the case next year.“ Check out I.I.I. facts and stats on global catastrophes.