Archive for June, 2009

Increasing use of electronic records in the health care system means a growing number of people are falling victim to medical identity theft. A June 12 article in the New York Times by Walecia Konrad focuses on this emerging risk. It estimates that in 2007 more than 250,000 Americans a year were victims of medical identity theft, a number that is increasing.  A World Privacy Forum report published in 2006 found that despite the profound risk it carries medical identity theft remains the least studied and most poorly documented of all identity theft crimes. The report estimated that there could be as many as a quarter to half a million people who have been victims of this crime. Medical ID theft occurs when someone uses a person’s name or other parts of their identity such as insurance information, without the person’s knowledge or consent to obtain medical services or goods or to make false claims for medical services or goods.  The World Privacy Forum notes that victims may find it more difficult to recover from medical identity theft as medical errors are disseminated and redisseminated through computer networks and other medical information-sharing pathways. ID theft remains the number one consumer complaint received by the Federal Trade Commission (FTC), accounting for 32 percent of all fraud complaints in 2007. Some 258,427 identity theft complaints were reported to the FTC in 2007, up 5 percent on the previous year. Medical identity theft accounted for 1.6 percent of all identity theft victims, according to the FTC. Check out I.I.I. info on identity theft.

Yesterday the World Health Organization (WHO) officially declared the outbreak of the H1N1 virus a pandemic. WHO Director-General Dr Margaret Chan said nearly 30,000 confirmed cases have been reported in 74 countries, but noted that with few exceptions, countries with large numbers of cases are those with good surveillance and testing procedures in place. WHO expects the pandemic will be of moderate severity, though it acknowledged that severity can vary, depending on many factors, from one country to another. On present evidence, WHO noted that the overwhelming majority of patients experience mild symptoms and make a rapid and full recovery. “Worldwide the number of deaths is small. Each and every one of these deaths is tragic, and we have to brace ourselves to see more. However, we do not expect to see a sudden and dramatic jump in the number of severe or fatal infections,” Dr Chan said. However, she went on to note that a characteristic feature of pandemics is their rapid spread to all parts of the world. “Countries should prepare to see cases, or the further spread of cases, in the near future. Countries where outbreaks appear to have peaked should prepare for a second wave of infection,” she added. Check out the LexisNexis Insurance Law Center for discussion of potential insurance coverage implications related to flu pandemics. A 2006 I.I.I. study by chief economist Dr. Steven Weisbart found that a moderate influenza outbreak, similar to those of 1957 and 1968 could cost life insurers an estimated $31 billion. A severe pandemic, like the 1918 influenza outbreak, could cost insurers up to $133 billion.

A bill that would for the first time give the Food and Drug Administration (FDA) the authority to regulate the packaging, manufacturing and marketing of tobacco products heads for a vote in the Senate today where it is expected to win approval. The legislation has been welcomed by public health groups who predict it will have a positive effect by reducing the numbers of smokers and reducing the health care costs associated with tobacco-related illnesses. Under the bill the FDA would have the authority to restrict tobacco advertising, require changes in tobacco products (including ingredients) and ban the use of expressions such as “light” or “mild”. However, as Mark Berlind, a partner at A.T. Kearney points out in a June 8 editorial in the Wall Street Journal, a little-noticed provision of the bill is that it would continue to allow consumers to sue manufacturers even if they fully comply with the FDA’s content and labeling rules. “The regulatory regime that the legislation would establish can’t protect companies from tort liability – even if they rigorously follow every FDA rule,” Berlind writes, noting that the FDA legislation builds on the precedent recently established by the Supreme Court in Wyeth v. Levine. In that 6-3 opinion, the Court decided that federal approval does not preempt consumer complaints in state courts, effectively opening the floodgates to a wave of potential product liability tort suits against pharmaceutical companies at the state level.

The question of whether U.S. property/casualty insurance loss reserves will be adequate in the years ahead is gaining attention.  A panel of actuaries and analysts at Standard & Poor’s recent Ratings Service insurance conference warned that some property/casualty insurers could be in for a rude awakening with respect to their reserve practices. Concerns were expressed that broad expectations for a coming positive turn in the business cycle could be overdone and that reserve releases might be premature, leaving insurers exposed to unforeseen future liabilities. In a press release S&P notes that prudent reserving is the bedrock of the property/casualty industry’s financial strength. “The property/casualty insurance sector’s ability to properly estimate its loss and loss-adjustment expense reserves directly affects its financial strength,” the ratings agency said. Indeed it does. According to an A.M. Best report, deficient loss reserves and inadequate pricing are the leading cause of U.S. p/c insurer impairments, accounting for 38.1 percent of all impairments between 1969 and 2008. In contrast, investment problems (7.0 percent) and catastrophe losses (7.6 percent) played a much smaller role. For more on the panel discussions at the S&P conference, check out an online article at National Underwriter by Susanne Sclafane. Check out recent I.I.I. presentations on the financial strength of the insurance industry.

There’s been a lot of media buzz about the Institute for Legal Reform’s (ILR) Faces of Lawsuit Abuse campaign that features victims of frivolous lawsuits and is coming to a movie theater near you. The stories of small business owners and individuals who have dealt with abusive lawsuits are now running in ads on radio, television and the Internet and shortly as movie trailers for audiences nationwide. The Web site includes a feature where visitors can vote for last month’s most ridiculous lawsuit. A message repeated but not always taken on board is that litigiousness drives up the cost of liability insurance, as well as the cost of goods and services. A new I.I.I. paper “The Tort Threat in 2009: A Changing Liability Landscape” explains that over the course of decades the abuse of the U.S. legal system has had a direct and tangible impact on insurer operations. It notes that after a brief decline of 6 percent in 2006, tort costs are on the rise again. According to the report, political forces can have a powerful influence on the tort system and against the backdrop of the financial crisis and the downturn in the economy, the change in administration as well as shifts in the U.S. Congress herald a sustained period of increased regulatory and legislative activity. These factors, combined with the plaintiff friendly legal system that exists in the U.S. are causing the tort pendulum to swing against businesses and their insurers once more.

Latest suggestions on how to help pay for Obama’s health care reform plan include a proposal to raise taxes on alcohol. In a recent posting fellow blogger Nate Silver over at FiveThirtyEight makes the case that a drunk driver tax, rather than an alcohol tax would be a fairer and more efficient way to go. Why? Silver explains that while alcohol consumption is associated with a wide array of undesirable outcomes such as increased highway fatalities, decreased productivity at work and worsened health outcomes, these behaviors aren’t particularly strongly associated with drinking unto itself. Rather, they are associated with drinking to excess and/or engaging in stupid behaviors while doing so. Silver estimates that a drunk driver tax would produce at least as much revenue as the liquor tax, writing: “In 2006, there were 1.1 million arrests for drunk driving in the United States, not counting Florida which didn’t report its statistics. Fine each of those people $8,000, and you’d have almost about $9 billion more to pay for health care every year.” A quick look at National Highway Traffic Safety Administration (NHTSA) stats show that “under the influence of alcohol, drugs or medication” ranks third in the list of behaviors reported for drivers and motorcycle operators involved in fatal crashes in 2007. The top two behaviors are “failure to keep in proper lane or running off the road” and “driving too fast for conditions or in excess of posted speed limit”, while “inattentive (talking, eating)” ranks fourth. Which reminds us that alcohol isn’t the only vice contributing to increased highway fatalities and/or rising health care costs. What do you think is the most equitable way to pay for health care reform? Check out I.I.I. facts and stats on health insurance.

Word on the street is that the Obama administration is expected to unveil its plan to overhaul financial regulation on June 17. A June 3 Thomson Reuters article reports that Treasury Secretary Timothy Geithner will testify on June 18 before the House Financial Services Committee on the plan. The issue of how regulation of the insurance industry might fit into financial services reform was on the agenda of a meeting yesterday between Treasury officials and the heads of various industry trade associations. For more on this, check out a June 4 Roll Call article. While some form of federal regulation of insurance looks increasingly likely, this is an issue that elicits differing views among industry groups and participants. Check out I.I.I. information on regulatory modernization and optional federal charter.

Although the prospect of a major terrorist attack in a Western country is ever present, Aon’s 2009 Terrorism Threat Map shows a more settled outlook for North America, Europe and Australia. In a press release, Aon notes that while evidence of plots emerges from time to time, there is often a protracted timeframe between them. “We are unlikely to see the frequency of attacks in Western countries that we might have expected a few years ago. We attribute this to better counter-terrorism capability,” Aon said. However, it warned that the global recession could lead to a new generation of terrorists emerging from disaffected communities in a re-emergence of class-based politics. This raises the prospect of new terrorist groups forming in the developed world on the far right and left of the ideological spectrum. With the election of a more liberal President in the United States, uplift in activity from domestic far right and militia groups is possible, according to Aon. A shift in Islamist terrorist activity from the Middle East to South Asia is the primary feature of this year’s terrorism map. It shows a trend towards fewer terrorist attacks in the Middle East but increased activity in Pakistan, India and Afghanistan, with Thailand and Nepal also showing higher levels of activity. Check out I.I.I. facts and stats on terrorism.

Sighting of debris in the Atlantic Ocean 400 miles off the coast of Brazil yesterday appeared to confirm the crash of the Airbus A330-200 operated by Air France with 228 passengers and crew on board. The plane was en route from Rio de Janeiro to Paris when it went missing in the early hours of June 1 while flying through thunderstorms and heavy turbulence. According to latest reports, automatic messages indicating an electrical fault were sent some four hours into the flight and Brazilian authorities also reported that messages indicated a loss of cabin pressure. As the investigation into the cause of crash gets underway, industry commentators say it is too soon to say how the incident would impact the aviation insurance market. A June 1 Business Insurance article by Zack Phillips reports that the hull of the aircraft is insured for around $100 million. A May 2009 aviation market update from Aon noted that a few major losses can completely change the loss profile of a year. Aon said major losses have cost aviation insurers $597 million so far in 2009, compared to $351 million in the same period of 2008. It added that the value of losses so far this year continues to be very high in comparison with long term industry trends. A Guy Carpenter brief notes that this would be the first time an A330 has been lost during an operational flight. It would also be the worst loss of life involving an Air France plane. The last major incident for Air France was the July 2000 crash of a Concorde aircraft in which 109 people on board and at least four on the ground were killed. Check out I.I.I. facts on aviation.

Day two of the 2009 Atlantic hurricane season and a couple of updated hurricane landfall forecasts have been released. Colorado State University’s Tropical Meteorology Project team today downgraded its forecast and said the probability of a major hurricane making landfall along the U.S. coastline this year is 48 percent, compared with the last-century average of 52 percent. There is a 28 percent chance that a major hurricane will make landfall on the U.S. East coast, including the Florida Peninsula, and a 28 percent chance of a Gulf Coast landfall, from the Florida Panhandle west to Brownsville, Texas. Meanwhile reinsurance broker Guy Carpenter said the Gulf Coast region, from Texas to the Alabama-Florida border, remains the most vulnerable to hurricanes coming ashore in the U.S. in 2009, with a landfall rate of 0.65 (represents the mean number of landfalling tropical cyclones in that region). This compares with an average landfall rate for 1951-2007 of 0.66. For the Southeast region, a forecast 0.36 mean rate of landfall has been calculated for 2009 (slightly lower than the long term average of 0.41) while the regions of Florida and the Northeast have mean landfall rates of 0.29 and 0.21, respectively. Check out I.I.I. information on hurricanes.