Archive for January, 2009

It’s that time of year again. The Super Bowl is upon us and if you’re wondering whether to put your money on the Steelers or the Cardinals, you might want to take a look at the predictions of one of our favorite sports statisticians. In his Stat of the Week, John Dewan, owner of Baseball Info Solutions and co-publisher of ACTA Sports, offers a Super Bowl prediction system that comprises 12 statistical indicators: five defensive, four offensive and three based on overall stats. The strongest indicators overall are the defensive ones. Each of the 12 indicators successfully predicts the Super Bowl winner 55 percent to 68 percent of the time. Taken collectively, the indicators have an even better track record — increasing the odds of predicting the winner to 84 percent. May the best team win! Oh, and if you’re throwing a Super Bowl party check out I.I.I. tips on being a responsible host.

The impact of the global credit crunch will shift from an economic problem to a political problem in 2009 and Iceland and Greece serve as early warnings, according to the 16th annual Political Risk Map produced by Aon. In its ranking of the political risk of 209 countries and territories, Aon said the past year has seen a number of High Risk countries (Afghanistan, Congo DRC, Iran, Iraq, North Korea, Somalia and Zimbabwe) continue to deteriorate to the point that the creation of a Very High Risk category was warranted. Overall some 18 countries were downgraded to a higher risk level, reflecting the general rise in the risk level globally. On the other hand, four High Risk countries (Malawi, Moldova, Syria and Turkmenistan) saw an improvement in their status to Medium-High Risk. A total of 13 countries were upgraded to a lower risk level. The map measures the risk of: currency inconvertibility and transfer; strikes, riots and civil commotion; war; terrorism; sovereign non-payment; political interference; supply chain interruption; legal and regulatory risk. Included in this year’s map is a Commodity Crunch Exposure Matrix, which identifies the countries most vulnerable to political instability in 2009 if commodity prices (including oils, metals and minerals) continue to fall, as suggested by some forecasters. Check out I.I.I. facts & stats on terrorism. 

The American Society of Civil Engineers (ASCE) has assigned a grade of D to the nation’s infrastructure and warned that $2.2 trillion in repairs and upgrades is needed over the next five years to meet adequate conditions. The 2009 Report Card for America’s Infrastructure shows that since ASCE’s last assessment in 2005, there has been little change in the condition of America’s roads, bridges, drinking water systems and other public works. According to an early Associated Press report on the findings, out of 15 infrastructure categories, three were given lower grades in 2009: aviation and public transit went from D+ to D; while the nation’s roads went from D to D-. A key takeaway from the report is that America’s 100,000 miles of levees have been added as a new area of failing infrastructure. Levees are graded D- with ASCE warning that the risk to the public health and safety from levee failure has increased. The report is timely given renewed attention from the White House, Congress and the public on infrastructure as part of President Barack Obama’s $825 billion economic stimulus package. At last count some $77.7 billion of the $825 billion is assigned to transportation and infrastructure (including highway infrastructure, clean water, transit and water resources).

The financial crisis resulted from a system-wide failure to embrace appropriate enterprise risk management (ERM) behaviors, rather than a failure of risk management as a business discipline. The assertion comes in an executive report from the Risk and Insurance Management Society (RIMS). RIMS notes that when we look for a cause of the current financial crisis, it is critical to remember that organizations failed to do a number of things: 

  • truly adopt an enterprise risk management culture. 

  • embrace and demonstrate appropriate enterprise risk management behaviors, or attributes 

  • develop and reward internal risk management competencies, and 

  • use enterprise risk management to inform management decision-making in both taking and avoiding risks. 

RIMS believes that the 2008 financial crisis is a call to action for enterprise risk management to demonstrate its value, but that to be effective it must fundamentally change the way organizations think about risk. “When enterprise risk management becomes part of the DNA of a company’s culture, the warning signs of a market gone astray cannot go unseen so easily. When every employee is part of a larger risk management process, companies can be much more resilient in the face of risks,” it notes. What do you think? 

Another market survey reports that commercial property/casualty market premiums showed definite signs of leveling off in the fourth quarter of 2008. According to the latest Council of Insurance Agents & Brokers’ (CIAB) Commercial P/C Market Index survey, while still a competitive market insurers were trying to hold the line on pricing in the fourth quarter. Some 43 percent of agents and brokers responding to the survey reported that premiums for small accounts (<$25K Comm. and fees) were down 1-10 percent, with 35 percent reporting no change in premiums compared with the third quarter. For medium accounts ($25K-$100K) 50 percent said premiums were down 1-10 percent while 17 percent saw decreases in the 10-20 percent range, and 18 percent said there was no change in rates compared to the last quarter. Premiums for large accounts (>$100K) saw more slippage, but not as much as the third quarter. Some 41 percent of respondents said rates declined 1-10 percent, while 21 percent said rates dropped 10-20 percent and 17 percent reported no change in rates since the third quarter. The CIAB noted that Directors and Officers (D&O) premiums saw the most upward movement with 17 percent of respondents reporting a 1-10 percent increase for the line, while 36 percent reported no change.

The size of the top 10 jury awards rose dramatically in 2008, reversing the declining trend of recent years. According to the latest report from Lawyers Weekly USA, the sum of the top 10 jury awards more than doubled to $1.3 billion in 2008, from $615 million in 2007. The top verdict in 2008 was for $388 million, more than triple 2007’s top award of $109 million. Lawyers USA notes that the average award also increased sharply driven by three verdicts of well over $100 million during the year. The average award for 2007 was just shy of $51 million, while the average award for 2008 more than doubled to $112 million. In the top verdict of 2008 a Nevada jury awarded $388 million to a 70-year-old inventor who claims he was hounded by California tax authorities for the past 15 years. A couple of other observations: absent from the top 10 list this year for the third year running were any $1 billion-plus awards; no medical malpractice awards made this year’s top 10 either. Lawyers USA compiles the Top 10 Jury Verdicts each year applying certain ground rules. Verdicts must be to an individual plaintiff and the list does not include business-against-business suits, class actions or consolidated suits. Cases must have been defended and suits against indigent incarcerated individuals are not included. Check out I.I.I. info on the liability system. 

The Gulf coast, from Texas to the Louisiana/Florida border, is most vulnerable to tropical cyclones coming ashore in the United States in 2009. An update from Guy Carpenter in collaboration with WSI Corporation puts the landfall rate for the Gulf region at 0.65 for the upcoming 2009 hurricane season (compared to the 1951-2007 average landfall rate of 0.66). The Southeast coastline, from the Atlantic Florida-Georgia border to Cape Hatteras, has the next highest predicted landfall rate for this year at 0.50 (higher than the long-term average of 0.41). The good news, if there is any, is that the Florida coastline appears to have a below average vulnerability to storms this year. It has a forecast landfall rate of 0.36, significantly lower than the long-term average landfall rate of 0.49. Meanwhile, the Northeast coastline from Cape Hatteras to Maine has a forecast landfall rate of 0.30, on par with its long-term average of 0.29. The rates represent the mean number of landfalling tropical cyclones in a given region for the upcoming 2009 hurricane season. Check out related I.I.I. facts & stats on hurricanes. 

ISO’s Property Claim Services (PCS) unit yesterday reported that U.S. property/casualty insurers are expected to pay $25.2 billion in property losses from 37 catastrophes in 2008. This is the fourth highest cost in a decade and the highest frequency in a decade, according to preliminary analysis by PCS. Among the states affected, Texas took by far the biggest hit from catastrophes ($10.2 billion in insured losses). Louisiana, with $2.2 billion in insured losses experienced the next largest loss. A couple of other takeaways from the report: six consecutive tropical systems (Dolly, Eduoard, Fay, Hanna, Gustav and Ike) made landfall on U.S. coastlines in 2008; and unusually frequent tornado touchdowns and related insured property damage contributed to record-setting frequency and significant losses in the first six months of 2008. Hurricanes caused the largest loss of 2008, currently estimated at $13.3 billion in insured damage, while severe weather events (including hail and tornadoes) caused an estimated $10.5 billion in losses. Winter storms resulted in just over $1 billion in losses, PCS noted. For more on 2008 catastrophe losses, check out highlights from a recent webinar hosted by Munich Re and the Insurance Information Institute (I.I.I.). 

As America’s 44th President takes office, there are any numbers of experts ready to predict what this Administration change will mean for the country. The potential impact on the legal and judicial landscape is one such area of discussion. Empirical research from Vanderbilt professor of law and political science Tracey George shows how the United States court system, especially the Supreme Court and the Court of Appeals, could dramatically change soon after Barack Obama takes office. George says there is likelihood that as many as three Supreme Court justices could leave the court while Obama is in office. There are also currently 13 vacancies on the courts of appeals and an additional 41 vacancies on the district courts. While George W. Bush came into office with even more openings to fill, George says the number of openings may quickly rise because the change in party in power may prompt Clinton and Carter appointees to step down soon to ensure a like-minded replacement. For more on this story, check out a January 16 online article at Insurance Journal. From the perspective of insurers, an Insurance Information Institute (I.I.I.) poll indicates the changing legal landscape is on the radar screen. Sixty-three percent of insurance industry executives believe that tort trends will deteriorate in 2009, while 32 percent believe they will stay the same. Only 5 percent believe they will improve. Check out further I.I.I. info on the liability system.

Yesterday’s narrow escape for 155 people aboard a US Airways Airbus 320 aircraft forced to make an emergency landing on the Hudson River in New York City after its engines were reportedly struck by a flock of geese is a reminder of the significant safety risk that bird and wildlife strikes pose for civil aviation around the world today. As noted previously here at Terms & Conditions, bird hazard may not be the first risk that comes to mind when stepping aboard an aircraft, but bird strikes are a major risk exposure for airlines and their insurers. Globally, wildlife strikes have killed more than 219 people and destroyed over 200 aircraft since 1988. According to the Federal Aviation Administration (FAA), some 82,057 strikes were reported to civil aircraft in the U.S. from 1990 to 2007. Birds were involved in 97.5 percent of the reported strikes, terrestrial mammals in 2.1 percent, bats in 0.3 percent and reptiles in 0.1 percent. The number of strikes annually reported more than quadrupled from 1,759 in 1990 to a record 7,666 in 2007. For the 18-year period (1990-2007), reports were received of 43 aircraft destroyed or damaged beyond repair due to wildlife strikes. The annual cost of wildlife strikes to the U.S. civil aviation industry is estimated at in excess of $628 million. The growing potential frequency and severity of wildlife-aircraft collisions is not that surprising given that natural habitats around airports tend to be home to increasing populations of large bird species that have adapted to living in urban environments. At the same time air traffic worldwide has increased substantially, adding to the risk. The Bird Strike Committee annual meeting includes a wide variety of presentations on how to mitigate bird strike hazard. Check out further I.I.I. facts on aviation.