Archive for August, 2007

This week online job search site Monster Worldwide announced that it would be boosting its security measures following a significant data breach earlier this month. Apparently Monster recently became aware of illegal downloads of personal information of at least 1.3 million job seekers with resumes posted on Monster.com, including names, addresses, phone numbers and email addresses. The delay between finding out about the breach and notifying those affected is still being explained by the company. Part of the answer may lie in the fact that it can take months for companies to uncover data loss incidents. Many breaches also go unreported as companies try to limit the damage to their reputation. Meanwhile, we read that the Ohio Court of Claims has dismissed a lawsuit by two Ohio University graduates seeking to compel the school to pay for credit monitoring following a 2005 computer breach. The judge decided that the two original plaintiffs could not prove harm because they have not experienced identity theft. Needless to say, attorneys now plan on refiling the complaint with new plaintiffs who are victims of identity theft. Both stories highlight the continuing liability facing corporations when a breach in data security occurs. Insurance is one of the tools available to help corporations prepare and recover. Check out further I.I.I. info on this topic. 

I.I.I. president Dr. Robert Hartwig has sent a detailed rebuttal to the September 2007 Bloomberg Markets cover story that claimed that insurers use secret tactics to avoid paying claims. In I.I.I.’s response, Dr. Hartwig notes that the article’s premise and facts were unsound and that the insurance industry has an excellent claims-paying track record. Dr. Hartwig also notes that property/casualty insurers annually pay out hundreds of billions of dollars on tens of millions of claims. See the August 15 I.I.I. letter.

Yesterday we cited projections of increasing catastrophe losses in years to come along the Atlantic and Gulf Coasts, so today we turn our attention to the topic of how to finance catastrophic risk. Historically the capacity to finance such risk was limited to the traditional re/insurance markets, or to self-insurance and pooling. Now insurers can diversify their risk and expand the availability of insurance in cat-prone areas by tapping into the capital markets. An article by Michael Lewis in the New York Times magazine on Sunday August 26 focuses on this very topic and describes one well-known capital markets solution: catastrophe bonds. Catastrophe bonds developed in the wake of mega-cats Hurricanes Andrew and Iniki in 1992 and the Northridge earthquake in 1994. Since then, cat bonds have been used to cover a wide variety of exposures, with earthquakes (both U.S. and Japan) and U.S. hurricanes accounting for the majority of bond issues. Without question, the market for natural catastrophe bonds is growing. Guy Carpenter reports that annual issuance of cat bonds reached a record $4.69 billion in 2006, up 136 percent from $1.99 billion in 2005. The number of transactions completed also doubled to 20 in 2006, from 10 in 2005. However, despite recent gains, over the longer-term the dollar value and number of catastrophe securitization transactions is still modest in relation to global reinsurance capacity. Between 1997 and 2006, 89 catastrophe bonds were completed, representing $15.35 billion in catastrophe bond issuance, relative to $330 billion in global reinsurance capacity. What do you think? Check out further I.I.I. info on reinsurance and alternative risk financing options.

Tomorrow is the two-year anniversary of Hurricane Katrina, the single largest loss in the history of the insurance industry and the fourth deadliest world catastrophe in 2005 (1,326 dead and missing). Two years on, a quick review of the numbers: insurers have paid an estimated $40.6 billion to policyholders on 1.7 million claims for damage to homes, businesses and vehicles in six states; Louisiana ($25.3 billion) and Mississippi ($13.6 billion) received by far the most insurance dollars to aid in their recovery; and the vast majority of claims have been settled. However, we also know that disaster losses along the Atlantic and Gulf Coasts are likely to escalate in the years to come because of huge increases in development and soaring property values. To be precise, the total value of insured coastal exposure nationwide is more than $7 trillion. After Florida and New York (with more than $1.9 trillion insured coastal property each), the Northeast states of Massachusetts and Connecticut have the highest coastal exposure as a share of all insured exposure in their states. Given these figures, a $100 billion hurricane event is really a matter of when, not if. Check out further I.I.I. Katrina info online. 

A report just published by the Trust for America’s Health (TFAH) confirms the continuing alarming rise in adult obesity rates across the U.S. According to its findings, rates of adult obesity now exceed 25 percent in 19 states, an increase from 14 states last year and nine in 2005. Mississippi – at 30.6 percent – topped the list with the highest rate of adult obesity in the country for the third year in a row. Ten of the 15 states with the highest rates of adult obesity are located in the South. Even Colorado (the leanest state again this year) recorded an increase in its adult obesity rate over the past year from 16.9 to 17.6 percent. Of even more interest, a new public opinion survey within the report found that 85 percent of Americans believe that obesity is an epidemic. At the same time, 81 percent of Americans believe the government should have a role in addressing the obesity crisis. If any further incentive was needed, the report also found that the rates of overweight children (ages 10 to 17) ranged from a high of 22.8 percent in Washington, D.C. to a low of 8.5 percent in Utah. Eight of the 10 states with the highest rates of overweight children were in the South. Among its recommendations for combating obesity, TFAH notes that federal, state and local governments should work with private employers and insurers to ensure that every working American has access to a workplace wellness program. As always, we welcome your comments. Check out further information from the I.I.I. on obesity.  

In our July 17 posting, we blogged about how take-up rates for certain insurance coverages remain low, even as the risks increase. The floods across the Midwest bring this issue to the fore once again. Flood insurance is an optional coverage, available under an insurance policy provided by the National Flood Insurance Program (NFIP). It’s easy to buy either via an insurance agent or insurance company rep. Yet, it’s estimated that just 49 percent of homeowners in U.S. flood zones purchase NFIP policies, and only 1 percent of homeowners outside flood zones have flood insurance.  A policy with the NFIP can run as little as $112 a year, if you live in a low to moderate risk area and are eligible for a Preferred Risk Policy. This would provide a minimum of $20,000 building and $8,000 contents coverage. Meanwhile, businessowners can buy $50,000 building and $50,000 contents coverage (per building) for only $500 per year. As to the risk, some 90 percent of natural disasters in the U.S. involve some type of flooding and according to the Federal Emergency Management Agency (FEMA), floods, including inland flooding, flash floods and seasonal storms, occur in every region of the U.S. Check out further I.I.I. flood insurance facts & stats.

As U.S. Gulf coast states breathe a collective sigh of relief after dodging the bullet of Hurricane Dean, it’s a good time to remember that the 2007 Atlantic hurricane season is far from over and as we’ve said before, the most recent hurricane forecasts continue to point to an above-average season and above-average landfall probabilities for the U.S. coastline. Because no catastrophic hurricanes made landfall in the U.S. last year it’s easy to forget that 2006 was still a close to average season, with nine named Atlantic storms (the average is 11), of which five became hurricanes (the average is six). Also, three named storms did make U.S. landfall as tropical storms. For example, Tropical Storm Ernesto caused an estimated $245 million in insured losses in eight states in late August/early September 2006 – hardly chump change. In the run-up to the peak of the 2007 hurricane season in early to mid-September, Hurricane Dean reminds us that the risk remains real. Check out further I.I.I. hurricane-related facts & stats. 

Every day another news headline appears on the subprime loan crisis in the U.S., so a release out of the London offices of Marsh on this topic makes for interesting reading. In it Marsh warns that the European financial services sector, including insurers, hedge funds, banks and ratings agencies, may be exposed to greater Directors’ and Officers’ liability (D&O) and Errors and Omissions (E&O) liability claims in the wake of the subprime meltdown in the U.S. Citing a recent NERA Economic Consulting primer, Marsh says potential litigation arising out of D&O and E&O liability could include: lenders’ lawsuits versus banks; shareholders’ lawsuits versus lenders, accountants, trustees and underwriters; insurers’ lawsuits versus lenders; investors’ lawsuits versus trustees; trustees’ lawsuits versus lenders and underwriters on behalf of investors; as well as individual investor lawsuits. Marsh goes on to caution that European insurers, hedge funds, banks and ratings agencies must continue to assess the risks raised by the crisis and to examine their D&O and E&O exposures. What do you make of this analysis?

As Hurricane Dean, now a Category 4 storm strengthens on its way to Mexico after brushing the south coast of Jamaica yesterday, we bring you the results of a survey by Access America. According to its findings, just one in five Americans (21 percent) has factored hurricanes into their choice of vacation destination. Ok. But the survey goes on to note that only 41 percent of Americans know when hurricane season is. We hasten to add that the National Hurricane Center defines the Atlantic hurricane season as running from June 1 to November 30. It just goes to show that we can never repeat ourselves too much. Check out further info on hurricane season at the I.I.I.’s disaster insurance information site.

We blogged recently (see Aug 6 posting) about the continued declining claims frequency for workers comp injuries in 2006. A PowerPoint report by I.I.I. president Robert Hartwig, presented at the 62nd Annual Workers Compensation Educational Conference in Orlando, Florida, earlier this week, offers further details on the state of the workers comp line. Dr. Hartwig notes that workers comp insurers should be justifiably proud of the historical role they have played in reducing workers’ injuries. In fact, workers comp insurers and the entire workplace safety community have contributed to a 14 percent decline in workplace fatalities since 1994. Further, the rate of fatal work injuries continues to drop and is down 26.4 percent since 1994 – nearly double the 14 percent decline in the number of on the job fatalities. The report underlines that workers comp insurers are a major force in saving workers lives, increasing productivity and preserving worker incomes. For additional data on workers comp insurance, access Mega-Trends Influencing the Workers Compensation Insurance Industry online.