Given current concerns about the state of the economy, itÃ¢â‚¬â„¢s a good time to review the myriad ways in which both property/casualty and life insurance contribute to state, local and national economies. The 2008 edition of the I.I.I. online publication Ã¢â‚¬Å“A Firm FoundationÃ¢â‚¬ shows how insurersÃ¢â‚¬â„¢ support of the economy goes far beyond their core function of helping to manage risk. Yes, the insurance industry plays a vital role in helping individuals and businesses prepare for and recover from the potentially devastating effects of catastrophe, such as hurricanes or earthquakes. But insurers are also major employers, taxpayers and investors. Check out state-specific editions of A Firm Foundation for latest numbers highlighting the key role of the industry in state economies.Ã‚
As initial loss estimates following Hurricane Ike start to come in, itÃ¢â‚¬â„¢s worth thinking about the insurance coverage issues that might arise in the weeks and months ahead. Attorney Randy J. Maniloff of law firm White and Williams has done just that in an article titled Hurricane Ike Ã¢â‚¬“ First Impressions on the Impending Insurance Coverage Claims published September 13, 2008. Maniloff says there are some factors why the insurance claims picture in the aftermath of Ike should not resemble the one that emerged as Hurricane Katrina claims handling began. These include:Ã‚
- Flood Insurance: around 75 percent of homes in Galveston have flood insurance while many fewer homes in New Orleans had the coverage. As a result, the incentive that existed to convince Louisiana courts that the flood exclusion contained in homeowners policies is ambiguous, and should not be applied, will not be as great.Ã‚
- Wind vs. Water: Ike claims will have the benefit of the Katrina court decisions to serve as a starting point on the wind vs. water issue. Decisions by courts in both Louisiana and Mississippi resolved the issue as follows: a. damage caused exclusively by wind is covered; b. damage caused exclusively by water is not covered; c. damage caused by wind concurrently or in any sequence with water (i.e. storm surge) is not covered.Ã‚
- Texas Homeowners Policies: The general terms and conditions of homeowners policies in Texas appear in standardized industry-wide forms. By comparison, in Katrina, there were a wide variety of policy forms at issue. This should minimize arguments on differences in policy language.Ã‚
Maniloff concludes that the sheer number of Hurricane Ike claims and human resources required to respond will present a challenge for insurers, but that the claims environment should not resemble the mess that followed Hurricane Katrina. Check out I.I.I. claims filing tips.Ã‚
Insurance executives expect subprime and other credit issues to continue to have a significantly negative impact on the industryÃ¢â‚¬â„¢s financial performance in 2009. According to a survey conducted by KPMG, 82 percent of 375 executives attending its 20th annual Insurance Industry Conference expect the credit crisis to have a significantly or extremely negative impact on 2009 performance. This compares with just 14 percent who said the problem would be finished by the end of the year. In 2007, only 55 percent felt that subprime issues would have a negative impact on financial results and performance. Insurance execs responding to the survey also indicated that the industry as a whole did not do a good job understanding its exposure to the credit and subprime issues in 2008. In fact, 40 percent gave the industry a grade of Ã¢â‚¬ËœDÃ¢â‚¬â„¢ or Ã¢â‚¬ËœFÃ¢â‚¬â„¢, while only 19 percent assigned a grade of Ã¢â‚¬ËœBÃ¢â‚¬â„¢ or better and 41 percent assigned a grade of Ã¢â‚¬ËœCÃ¢â‚¬â„¢. What do you make of this assessment?Ã‚
While itÃ¢â‚¬â„¢s too early to know the precise location of Hurricane Ike upon landfall, itÃ¢â‚¬â„¢s clear that Texas looks to be facing a major storm by the weekend. The Texas Windstorm Insurance Association (TWIA) is the stateÃ¢â‚¬â„¢s insurer of last resort, providing wind and hail insurance for Texas Gulf coast residential and commercial property owners in the event of catastrophic loss. Its exposure base has grown rapidly in recent years. Under its current financial structure, the pool has total funding of $2.3 billion, comprising insurer assessments, the stateÃ¢â‚¬â„¢s Catastrophe Reserve Fund and reinsurance. This season, the TWIA has already made a $100 million assessment of its member insurers for Hurricane Dolly. ItÃ¢â‚¬â„¢s important to remember that any losses to TWIA in excess of $2.3 billion would be financed via an unlimited assessment on insurers that is recoverable through premium tax credits. This means that storms producing insured losses to TWIA in excess of $2.3 billion would have fiscal implications for the state. Check out I.I.I. Texas insurance market facts and stats.Ã‚
Reinsurance executives gathered in Monte Carlo this week for the sectorÃ¢â‚¬â„¢s annual September Rendezvous coinciding with the publication of several commentaries on the state of the reinsurance market. Among them, Swiss Re noted that reinsurers are facing a more challenging environment amid continuing soft market conditions, stock market turbulence and an active hurricane season. Disciplined underwriting has to be the continuing focus, it said. Underwriting discipline and consistent cycle management was also the message from Munich Re. Noting that a difficult capital market environment and higher losses can accelerate a turnaround in the cycle, Munich Re said it will continue to maintain its underwriting discipline at every stage of the cycle. Meanwhile, brokers focused on the issue of price. Aon Re Global said it expects the January 1, 2009 renewals to reflect a slower rate of decline in reinsurance pricing due to the credit and liquidity crisis, provided there are no significant catastrophe losses. In its annual report on the property catastrophe market, Guy Carpenter noted that catastrophe reinsurance rates were declining for a second consecutive year, with price competition intensifying as a result of abundant capital, relatively low catastrophe losses and strong profitability. However, continued volatility in the investment markets may help to underpin the necessity for sound underwriting and steady the decline in pricing as the market heads towards Jan 1 renewals, it said. Check out further I.I.I. information on reinsurance.Ã‚
Insurers are among 259 businesses that have earned the top rating in the seventh annual Corporate Equality index published by the Human Rights Campaign Foundation (HRC). The Index rates employers on a scale from 0 to 100 percent on their treatment of gay, lesbian, bisexual and transgender (GLBT) employees, customers and investors. Ratings are based on factors including nondiscrimination policies, diversity and inclusion, training, healthcare and domestic partner benefits. This year we tip our hat to Marsh & McLennan Cos, New York Life Insurance Co and The Progressive Corp for receiving the 100 percent rating for the first time. MetLife received the 100 percent rating for the sixth year in a row, while Chubb and Nationwide received it for the fifth consecutive year. The number of top-rated businesses reached an unprecedented 259 this year, an increase of one-third on last year. Collectively these businesses employ more than 9.3 million full-time U.S. workers.Ã‚
Now a Category 2 storm, Hurricane Ike is expected to enter the Gulf of Mexico late tomorrow where it may yet regain strength and threaten the Gulf coast states. As of early this morning a tropical storm warning and a hurricane watch remained in effect for the Florida Keys. Over the weekend, Ike hit the Turks and Caicos Islands as a Category 4 storm, leaving a reported 95 percent of buildings on Grand Turk severely damaged. Turks and Caicos is a member of the Caribbean Catastrophe Risk Insurance Facility (CCRIF), a multinational insurance pool developed by the World Bank. Funded by premiums paid by participating countries, the facility provides early payout toÃ‚ membersÃ‚ after a major hurricane or earthquake. Check out I.I.I. hurricane fact files.
With this week living up to its billing as the peak of hurricane season, itÃ¢â‚¬â„¢s a good time to review coastal property exposures. The total value of insured coastal property nationwide was $8.9 trillion in 2007, up 24 percent from 2004, according to AIR Worldwide. Florida still leads the way with nearly $2.5 trillion in insured coastal exposure, followed closely by New York with $2.4 trillion. With all eyes on the Gulf coast, we note that Texas ranks third with $895.1 billion in insured coastal exposure. The next Gulf states on the list are: Louisiana ($224.4 billion), Alabama ($92.5 billion), and Mississippi ($51.8 billion) respectively. Meanwhile, Colorado State UniversityÃ¢â‚¬â„¢s Tropical Meteorology Project today will issue its latest updated forecastÃ‚ of Atlantic seasonal hurricane activity. After GustavÃ¢â‚¬â„¢s arrival this will be received with interest. Check out I.I.I. hurricane fact files and market shareÃ‚ for Gulf CoastÃ‚ states.