Archive for April, 2009

Perhaps not surprisingly the piracy storm has taken a legal turn with the news that the chief cook on board the U.S. flagged cargo ship Maersk Alabama hijacked earlier this month by pirates off the coast of Somalia has filed a lawsuit against the owners of the vessel. The suit alleges that owner Maersk Line Limited and Waterman Steamship Corp., which provided the crew, ignored requests to improve safety measures for vessels sailing along the Somali coast. It seeks at least $75,000 in damages and improved safety. Piracy has long been an issue for the shipping industry and marine insurers, but this development sounds a warning to shipowners everywhere. Latest figures from the ICC International Maritime Bureau (IMB) indicate that both pirate activity and violence against crewmembers continue to increase. In the first quarter of 2009 there were a total of 102 piracy attacks, almost double the 53 incidents in the first quarter of 2008. Worldwide, a total of 34 vessels were boarded, 29 vessels fired upon and nine vessels hijacked. Some 178 crew were taken hostage, nine injured, five kidnapped and two killed. In the majority of incidents the attackers were heavily armed with guns or knives. Check out an April 12 article by Keith Bradsher in the New York Times on the reviving debate over arming crews.

Insurers’ use of credit scoring and its impact on consumers will be the subject of a public hearing to be held tomorrow by the National Association of Insurance Commissioners (NAIC) in Arlington, VA. The hearing will focus on three key issues: an explanation of what constitutes a credit-based insurance score; an explanation of how insurers use credit-based insurance scores; and a discussion on how current economic conditions have affected policyholder premiums related to credit-based insurance scores. Dr. Robert Hartwig, president of the Insurance Information Institute (I.I.I.) will be among those giving testimony at the hearing. Check back on the I.I.I. Web site for a copy of Dr. Hartwig’s testimony. Check out further I.I.I. information on credit scoring.

Climate change will increase water scarcity, alter food production and dramatically change energy supply and migration patterns, according to a new report from Lloyd’s and the International Institute for Strategic Studies (IISS). The report, titled Climate Change and Security: Risks and Opportunities for Businesses, finds that businesses have a vital role to play in the mitigation of and adaptation to climate change. There are many ways that business can protect itself from the adverse effects of climate change and adapt to the new conditions, but business can also contribute to the goal of minimizing climate change. Boards should consider four key points: awareness and information; risk assessment and analysis of vulnerabilities; awareness of opportunities as well as risks; and spreading best practice. The report concludes that significant changes in the natural and political environment will place great stresses on businesses of every sort, but they will also create opportunities for the alert and nimble. Check out I.I.I. information on climate change and insurance. 

In response to confirmed human cases of swine influenza A(H1N1) in Mexico and the United States and possible new cases in Canada and now Spain, a second meeting of the emergency committee of the World Health Organization (WHO) has been brought forward to later today to decide whether to raise the pandemic alert level, currently at 3 on a scale of 1 to 6. Yesterday the U.S. declared a public emergency as the Centers for Disease Control and Prevention (CDC) confirmed 20 human cases of swine flu infection in five U.S. states. This followed Saturday’s announcement by WHO that the current situation constitutes a public health emergency of international concern and could become a pandemic. So far, Mexico is the only country to have reported deaths (103 at last count) from the virus. For more on this story check out today’s article by Donald McNeil Jr in the New York Times. For more information on swine flu check out this WHO FAQ. Dr. Steven Weisbart, I.I.I.’s chief economist and resident pandemic expert can be reached via email at: stevenw@iii.org.

Wildfires have swept through a coastal area of South Carolina destroying about 70 homes and damaging 100 others in the Myrtle Beach area. Some reports describe this as the biggest wildfire to hit South Carolina in 30 years. While I.I.I. research shows that most of the large fires with significant property damage have occurred in California, this is a reminder that other states face significant wildfire risk. South Carolina ranked eighth among the top 10 states by number of fires in 2008, with a total of 2,626 fires burning some 15,751 acres. The South Carolina Insurance News Service has tips on how to file a claim after a wildfire. Check out I.I.I. wildfire statistics and FAQ on wildfires.

Retaining existing customers has never been more important for insurance carriers in terms of long-term profitability, according to a new survey from J.D. Power and Associates. The 2009 Personal Insurance Retention Special Report finds that even though 90 percent of customers overall stayed with their insurer during the past 12 months, those households that are more impacted by the recession present a real challenge for insurance carriers. The report finds that in the past year, 30 percent of households with annual incomes below $50,000 shopped for a new insurance carrier and 45 percent of those customers eventually switched carriers. In contrast, only 26 percent of more affluent households (annual incomes of $100,000 or more) shopped for a new carrier, with only 31 percent of customers eventually switching. The survey also finds that there are significant variances in customer retention between different consumer demographic or attitudinal groups. For example, while retention rates average 91 percent among married customers, the average retention rate among divorced policyholders is 89 percent and among single policyholders 87 percent. J.D. Power and Associates notes that auto insurers need to tailor their products, services and retention tactics to specific attitudinal or demographic segments, rather than operating on a “one size fits all” mentality. The report also notes that retention rates are particularly high among customers who bundle multiple insurance products. Check out I.I.I. auto insurance information. 

We glance across the pond today where the UK government announced in the Budget that it will offer a temporary top-up scheme for companies struggling to get trade credit insurance amid the economic downturn. According to latest reports, the scheme will provide up to £5 billion ($7.2 billion) of additional trade credit insurance to businesses that have suffered reductions in their level of insurance cover. Trade credit insurance – which protects businesses against unexpected credit losses due to default or insolvency of their own customers (i.e. buyers) – is another key example of how insurers support the economy. The Association of British Insurers (ABI) just reported that the number of trade credit insurance claims in the UK rose to 8,366 in the fourth quarter of 2008, up 51 percent from 5,540 in the fourth quarter of 2007. The value of claims incurred in 2008 was £360 million ($520 million), up from £257 million ($371 million) in 2007. At the same time, the total value of turnover insured increased to £302.5 billion ($438 billion), up from £282 billion ($408 billion) in 2007. As the ABI noted, this demonstrates the commitment of trade credit insurers to support their clients when trading is difficult by providing them with as much cover as possible and carefully monitoring their risks. For more on how insurers support the U.S. economy, check out the I.I.I. online publication A Firm Foundation. 

Amid the unprecedented economic crisis, the First Quarter RIMS Benchmark survey of North American corporate risk managers finds that insurance premiums for businesses continued to slide towards a soft landing, rather than an abrupt reversal resulting in rate increases. While banks and other financial institutions bought directors and officers (D&O) insurance at substantially higher rates, the rest of the commercial insurance market in the first three months of 2009 saw an ongoing trend of little or no change in rates, according to RIMS. Data from the survey indicates that: 

  • General liability premiums fell 3.8 percent for policies renewing during Q1 2009, compared to a 5.9 percent decline in Q4 2008. 

  • The average workers compensation premium fell 2.5 percent, similar to price decreases of the past several quarters. 

  • The average property renewal was flat for the first quarter compared to a decline of 3.8 percent in Q4 2008. However premiums changes for individual property risks ranged from a decrease of 11 percent to an increase of 14 percent. 

A press release cites Dave Bradford, executive vice-president of Advisen and editor-in-chief of RIMS Benchmark survey, saying: “Insurers struggle against falling rates, increased losses in some lines, and sharply lower investment income due to the credit crisis, but the commercial insurance industry is still overcapitalized. We expect to see a favorable pricing environment for risk managers through 2009.” Check out I.I.I. information on the industry’s financial outlook. 

Environmental risk management is among the many topics up for discussion at this week’s Risk and Insurance Management Society (RIMS) 2009 Annual Conference in Orlando, Florida. On Friday the Environmental Protection Agency (EPA) confirmed that greenhouse gases are air pollutants that may endanger public health or welfare. The proposed finding, which now moves to a public comment period, identified six greenhouse gases (carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride) that pose a potential threat. As an April 17 New York Times article notes, this basically sets in motion a process that will lead to regulation of greenhouse gases for the first time in the United States. It follows a landmark April 2007 U.S. Supreme Court decision that greenhouse gases fit well within the Clean Air Act’s definition of air pollutant and that the EPA has the authority to regulate emissions. Check out I.I.I. information on climate change and insurance. 

Businesses are increasingly tapping into the growing popularity and use of social media as another way to reach their customers and communities. If you’re in Mississippi this hurricane season you may want to sign up to receive tweets from the Mississippi Department of Transportation (MDOT). The MDOT has just announced that it will utilize the social networking site Twitter to assist in providing traffic information for evacuation routes during the upcoming 2009 hurricane season. MDOT has created six separate Twitter feeds that will provide route-specific traffic information to evacuees traveling Interstates 10, 20, 55, 59 and U.S. Highways 49 and 98. Evacuees will receive information on traffic delays, contraflow information, fuel availability and roadway openings on a real-time basis. For more on this story, check out this online article at Insurance Journal. And if you’d like to receive tweets from our blog, just sign up to follow us on Twitter.