Category Archives: Insurers and the Economy

Why a higher percentage of first half CAT losses were insured

Some $23 billion of first-half 2017 global catastrophe losses were covered by insurance, according to preliminary estimates from Swiss Re sigma.

With total economic losses from disasters at $44 billion in the first-half, that means 52 percent was covered.

As Artemis blog reports, this is actually a relatively high percentage insured which makes for a smaller protection gap.

“The 10-year average economic loss of $120 billion and the average insured loss of $33 billion, show that a more typical percentage insured is just 28 percent.”

The reason?

Severe thunderstorms in the U.S. resulted in the largest losses in the first six months of this year—accounting for $16 billion of the $23 billion insured losses.

Kurt Karl, Swiss Re chief economist explains: “Fortunately, in the U.S., most households and businesses are insured against wind risk so they are financially protected when severe storms strike.”

Proper protection is key in a sharing economy

Whether you’re sharing rides, homes, workspaces, driveways, food experiences, or even, as in China, umbrellas and basketballs, the sharing economy continues to expand into new areas.

And so do the associated risks and liability.

From today’s I.I.I. Daily, via The New York Times: “Airbnb, the peer-to-peer vacation rental and hospitality site, is facing a lawsuit in which a guest says that the company did not perform appropriate background checks on a host who allegedly sexually assaulted her. According to the plaintiff, a background check would have uncovered information that the owner had been arrested and charged with battery, preventing him from listing property on Airbnb according to the terms of service.”

Whether you’re looking to rent out your space to someone or rent a space from someone via a peer-to-peer network, it’s important to know whether you’re insured.

Some tips on peer-to-peer home rental from the I.I.I.

Note: Airbnb has a Host Protection Program that provides hosts and landlords up to $1 million coverage for property damage and liability claims that occur in a listing or on an Airbnb property, during a stay.

But here are the risks that the Airbnb policy doesn’t cover:

“The Host Protection Insurance program does not apply to liability arising from (1) Intentional Acts including: (i) Assault and Battery or (ii) Sexual Abuse or Molestation – (by the host or any other insured party), (2) Loss of Earnings, (3) Personal and Advertising Injury, (4) Fungi or Bacteria, (5) Chinese Drywall, (6) Communicable Diseases (7) Acts of Terrorism, (8) Product Liability, (9) Pollution and (10) Asbestos, Lead or Silica.”

 

Autonomous ships are coming

You’ve heard about self-driving cars, but what about autonomous ships?

Fortune Tech reports that the world’s first autonomous cargo ship, to be christened the Yara Birkeland is expected to start sailing in 2018, initially delivering fertilizer along a 37-mile route in southern Norway.

“The ship, according to the Wall Street Journal, will cost $25 million, about three times as much as a conventional ship of similar size, but will save up to 90% in annual operating costs by eliminating both fuel and crew.”

Analysis by Allianz Global Corporate & Specialty (AGCS) shows that human error accounts for approximately 75 percent of the value of almost 15,000 marine liability insurance claims studied over five years, equivalent to over $1.6 billion.

From the AGCS Safety & Shipping Review 2017:

“Autonomous vessels could improve maritime safety and revolutionize movement of cargo on a scale not seen since containerization.”

Check out Insurance Information Institute facts & statistics on marine accidents.

May severe weather: multi-billion dollar insurance payout aids recovery

Severe weather across the United States in May resulted in combined public and private insured losses of at least $3 billion.

Aon Benfield’s latest Global Catastrophe Recap report reveals that central and eastern parts of the U.S. saw extensive damage from large hail, straight-line winds, tornadoes and isolated flash flooding during last month’s storms.

The most prolific event? A May 8 major storm in the greater Denver, Colorado metro region, where damage from softball-sized hail resulted in an insured loss of more than $1.4 billion in the state alone.

Check out I.I.I. facts and statistics on hail here. The National Weather Service has detailed information on severe storm events, including hail, tornadoes and wind. 2016 data on the number of hail events are posted online.

Total aggregated economic losses from U.S. severe weather in May were in excess of $4 billion, Aon Benfield said.

UK terrorism reinsurance pool will respond to any claims arising from Manchester attack

UK terrorism reinsurance mutual Pool Re stands ready to respond to any claims arising from last night’s horrific attack at a major concert venue in the city of Manchester.

At least 22 people were killed and more than 50 injured in the bombing as they left the Manchester Arena at the end of an Ariana Grande concert.

“Pool Re will work with its Members in resolving any claim arising from the attack as quickly as possible. We will make a further statement as more information becomes available.”

Most insurers providing commercial property and business interruption insurance in the UK (including many overseas companies and Lloyd’s syndicates) participate in Pool Re.

The government formed the mutual reinsurance pool for terrorist coverage in 1993, following acts of terrorism by the Irish Republican Army.

Last night’s attack comes 21 years after a bombing in Manchester’s main shopping district injured more than 200 people and caused an insured property loss of $966 million (in 2015 dollars). The 1996 Manchester bombing still ranks as the third costliest terrorist attack by insured property damage, according to the I.I.I.

Pool Re is one among a number of public/private risk-sharing schemes around the world that provide terrorism coverage, as discussed in a recent report by Marsh:

Here’s how the Pool Re scheme works:

  • Member insurers pay premiums at rates set by the pool. There are two geographic zones, one for major cities, with an adjustment for a “target risk,” and the other for the remainder of the country.
  • The primary insurer pays the entire claim for terrorist damage but is reimbursed by the pool for losses in excess of a certain amount per event and per year, based on its share of the total market.
  • The maximum industry retention increases annually per event and per year.
  • The government acts as the reinsurer of last resort, guaranteeing payments above the industry retention.
  • Only terrorism losses arising from damage to commercial property are covered by the pool. Coverage does not extend to life or personal injury.

Demand For Commercial Insurance Up Slightly

Demand for commercial insurance continued to follow a slight upward trend in the first three months of 2017, according to the latest Council of Insurance Agents & Brokers’ Commercial P/C Market Survey.

A large number of brokers reported an increase in demand for cyber coverage as clients became more familiar with the product and more interested in purchasing stand-alone policies.

The majority of brokers, 68.5 percent, reported that demand for commercial insurance products stayed the same in the first quarter of 2017, compared to the fourth quarter of 2016.

Nearly 30 percent of broker responses saw an increase in demand, while only 2.2 percent saw a decrease.

As for pricing, the soft market continued in Q1 2017, with the average rate decline across all commercial P/C accounts at 2.5 percent, compared to 3.3 percent in Q4 2016.

This is the ninth straight quarter that commercial rates have declined across small, medium and large accounts, The Council said.

Additional I.I.I. facts and statistics on the commercial lines insurance market are available here.

Industry Full Year Results In Context

By now you’ll have read the headlines that the U.S. property/casualty (P/C) insurance industry’s $42.6 billion profit for the full year 2016 was 25 percent lower than its $56.8 billion profit for 2015.

Putting some context around the numbers is important.

I.I.I. commentary: “U.S. economic activity slowed somewhat in 2016 compared to 2015 — real GDP rose by 1.6 percent in 2016 vs. 2.6 percent in 2015—and the P/C insurance industry’s results followed suit.”

And: “this result should be viewed in the context of the last 20 years (adjusted for inflation), in which case the 2016 profit is the median result.”

Two other key takeaways:

—Despite the challenge of ongoing low interest rates, weak domestic and global economic growth and rising claims, the industry nevertheless posted a modest 2.7 percent net written premium growth (compared to 3.5 percent in 2015).

—Overall industry capacity (policyholder surplus) rose to $700.9 billion (up 4.0 percent) as of December 31, 2016. This is a new peak for industry surplus.

As I.I.I. chief economist Dr. Steven Weisbart notes:

“The industry’s performance in 2016 could be characterized as its “new normal,” neither as profitable as in 2013-15 nor as affected by catastrophes as in 2011-12.”

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

Insurance Payouts Underpin Disaster Recovery Process

Tens of thousands of policyholders caught in a disaster in 2016 were better able to recover from the losses and hardships inflicted thanks to insurance.

Global insured losses from catastrophes totaled around $54 billion in 2016 – the highest level since 2012, according to the latest report from Swiss Re sigma.

North America accounted for more than half the global insured losses in 2016, with insured losses from disaster events reaching $30 billion, the highest of all regions.

This was due to a record number of severe convective storms in the United States and because the level of insurance penetration for such storm risks in the U.S. is high, sigma noted.

For example, a hailstorm that struck Texas in April 2016 resulted in an economic loss of $3.5 billion, of which $3 billion, or 86 percent, was covered by insurance.

“With insurance, many households and businesses benefited from insurance payouts for the heavy damage to their property caused by large hailstones.”

However, insurance cover is not universal. The shortfall in insurance relative to total economic losses from all disaster events—the protection gap—was $121 billion in 2016. See this chart:

“Under-insurance against catastrophe risk is a reality in both advanced and emerging markets, and there is still large opportunity for the industry to help strengthen worldwide resilience.”

For example, Swiss Re noted that the U.S. has been and continues to be critically underinsured for flood risk, with a flood protection gap of around $10 billion annually.

Additional Insurance Information Institute facts and statistics on global catastrophe losses are available here.

The Definition And Risk Of Terrorism Is Shifting

A man drives a car into pedestrians on Westminster Bridge, keeps driving, crashes the car outside the Houses of Parliament, then tries to enter the complex armed with a knife. Four people are dead, including a policeman and the assailant, and at least 40 injured.

The investigation into yesterday’s terrorist attack in the heart of London is ongoing, as Westminster bridge reopens and Parliament gets back to work.

Small group and “lone wolf” terrorist attacks are seen as indicative of the shifting nature of terrorism, according to experts (here and here).

In the U.S. such attacks have yet to meet the $5 million damage certification threshold required to trigger the government-backed terrorism risk insurance program (the Terrorism Risk Insurance Program Reauthorization Act of 2015).

Broker Marsh reports that while recent attacks may have resulted in little direct physical damage and losses, they still have the potential for significant business disruption costs and contingency losses, for example if a city is put under curfew, or travelers cancel reservations, travel is disrupted, and business activity levels are diminished.

To address these evolving threats, insurers have adapted coverage to consider: active shooter situations; extra expense for evacuating people due to threat; contingent interruption of operations; canceled reservations; loss of attraction.

Policies can be structured to include nonphysical damage scenarios such as damage resulting from a cyber event, and nuclear, biological, chemical, and radiological (NBCR) risks.

Terrorism preparedness is evolving too as businesses adapt to the changing threat (see active shooter prevention and response steps).

The last major terrorist attack in the UK in July 2005 targeted the public transportation system during rush hour and left 52 people dead.

Insurance Information Institute facts and statistics on terrorism risk available here.

This chart, via the New York Times, shows that with the exception of the 9/11 and Oklahoma City attacks, there is no year since 1970 when terrorism killed more than 50 people in the United States:

Winter Weather Hazards Alert

With winter storm warnings in place for large swathes of the Northeast, including major metro hubs of Philadelphia, New York City and Boston, the onset of heavy snow is all but a certainty.

But as insurers and reinsurers will tell you, the term ‘winter storm’ covers a multitude of hazards, such as high winds, snow, severe cold, and freezing rain, all of which can cause significant property damage and ultimately insured losses.

Insurance Information Institute facts and statistics show that from 1996 to 2015 winter storms resulted in about $30.4 billion in insured catastrophe losses (in 2015 dollars), or about $1.5 billion a year on average, according to Property Claim Services (PCS).

Screen Shot 2017-02-08 at 9.37.29 AM

Given the broad definition and impacts of winter storms, how we prepare for them and prevent loss has to expand too.

Check out this FEMA resource on what actions to take when you receive a winter weather storm alert from the National Weather Service for your local area, and what to do before, during and after a snowstorm and severe cold.

And here’s a handy last minute winter weather checklist from the Insurance Institute for Business & Home Safety to help homeowners and businesses prepare for power outages, prevent frozen pipes and roof collapses due to snow.