Archive for June, 2008

With record floods in the Midwest, tornadoes hitting Iowa, Kansas and Nebraska, and wildfires forcing hundreds to evacuate homes in northern California, it’s a catalogue of disaster across the United States right now. Whatever the event, the I.I.I. has relevant facts and stats to help put the insured and economic losses into perspective. Check out I.I.I. facts and stats on: U.S. catastrophes, earthquakes, hurricanes, lightning, tornadoes, and wildfires. For state by state catastrophe information, check out state-specific editions of our online publication “A Firm Foundation”.

Anyone doubting the power of thunderstorms should have been in New Jersey last night. A wave of storms blew through the state around 8-9pm EST, leaving downed power lines, trees and damaged property in their wake. Check out today’s article in the NJ Star Ledger. As I watched the lights show exploding from the downed power line further along my street, I was reminded of the potential damage caused by lightning every year in the United States. In fact, I.I.I. analysis found that the total cost of homeowners claims for damage due to lightning strikes has increased dramatically in recent years. For example, in 2006 some 256,000 lighting claims caused about $882 million in insured losses, compared with 278,000 claims causing $735 million in insured losses in 2004. Increasing technology and costly household items such as wide screen TVs, multiple computers and gaming systems are leading to increased claims costs for insurers. Check out further I.I.I. info on lightning and lightning safety.

Those following the Treasury’s plan to establish an optional federal charter (OFC) for insurers, will turn their attention to Capitol Hill tomorrow where a hearing is scheduled before the Capital Markets Subcommittee of the House Financial Services Committee on H.R. 5840, the Insurance Information Act of 2008. H.R. 5840 would create a federal Office of Insurance Information within the Treasury department. Creation of this office was recommended as part of the blueprint on federal regulation of financial services, including insurance, unveiled by the Treasury in April (see our March 31 posting). The hearing will take place at 10am, 2128 Rayburn House Office Building. Check out further I.I.I. info on the OFC. 

Businesses face growing risks from the environment, as testified by the increasing number of studies on this topic. But what about the opportunities? Two days ago we cited a new Economist Intelligence Unit (EIU) survey that focused on the changing conditions for managing environmental risk. One of the many questions survey participants were asked was to rate the significance of opportunities and risks associated with climate change. In response, 44 percent said they saw the risks as significant, but 49 percent saw the opportunities as significant. Insurers, like other companies, are taking advantage of growing potential opportunities in the green arena. For example, earlier this week Fireman’s Fund announced a new green auto insurance product for its commercial customers. In addition to offering new replacement cost coverage for commercial fleets, Fireman’s Fund is introducing a hybrid upgrade endorsement. This allows policyholders to upgrade to a hybrid model during the first three model years in the event of a total loss. This product is just one of a range of new green products now on offer from insurers. 

California Governor Arnold Schwarzenegger’s declaration of a statewide drought and executive order comes after two straight years of below-average rainfall, very low snowmelt runoff and the largest court-ordered water transfer restrictions in state history. Meanwhile, reports point to the unusually early start to the wildfire season out west (check out the June 3 Wall Street Journal article by reporter Jim Carlton). California communities are being forced to mandate water conservation or rationing, and the lack of water has created a number of other problems, including extreme fire danger due to dry conditions, notes the Governor’s office. As the saying goes, forewarned is forearmed. Check out further I.I.I. wildfire statistics.  

 

Despite the increasing attention and resources being dedicated to managing environmental risk, many companies are still at the early stage of this process. The finding comes in a new Economist Intelligence Unit (EIU) survey co-sponsored by ACE, KPMG, SAP and Towers Perrin. It reveals that environmental risk management is frequently managed in an ad hoc fashion, and that there is no clear consensus about who should be responsible for environmental risk. Lack of certainty about the impact of environmental liabilities and the future scope of legislation are the main obstacles to effective environmental risk management. According to the survey, the top three risks cited by respondents for which they face potential environmental liabilities – extreme weather events, the potential impact of climate change over the longer-term and water scarcity – are inherently unpredictable in both timing and scale. “Faced with such a high degree of uncertainty, and the huge challenge of quantifying these threats, it is perhaps unsurprising that environmental risk management remains at a relatively early stage of development,” it notes. What do you think? 

Colorado State University’s Tropical Meteorology Project team today issued an update of its seasonal hurricane forecast. The team continues to predict an above-average season in 2008, with above-average probability of at least one major (Category 3-4-5) hurricane making landfall in the U.S. Its season estimate of 15 named storms, including eight hurricanes and four intense hurricanes remains unchanged, but includes Tropical Storm Arthur which formed on May 31. Meanwhile, London-based consortium Tropical Storm Risk (TSR) yesterday reduced its outlook, predicting that Atlantic basin and U.S. landfalling activity will be slightly (20 percent) above the long-term (1950-2007) norm, down from its 35 percent above-norm prediction in April (see our April 7th posting). TSR said the lowering of the forecast is due to the unexpected rapid waning of La Nina conditions now occurring in the tropical Pacific. TSR expects four tropical storm strikes on the U.S., of which two will be hurricanes. Check out further I.I.I. facts & stats on hurricanes.