Archive for March, 2010

Of all natural disasters, earthquakes are notoriously difficult to predict. Establishing a reliable method of predicting quakes so far has eluded scientists, though many have attempted to associate an impending earthquake with various factors such as seismicity patterns, ground movement, weather conditions and animal behavior. The widespread belief that animals can anticipate earthquakes has just gained some credibility with the news that toads may be able to predict imminent quakes. According to a study by British researchers from the Open University, a population of toads showed a dramatic change in behavior five days before the earthquake in L’Aquila, Italy last year, abandoning their breeding site and not resuming normal behavior until some days after the event. The number of male toads active around the breeding site declined by 96 percent five days before the earthquake while the number of toads at the site fell to zero three days before the quake, even though its epicenter was 74km away. The study, published in the Journal of Zoology, on behalf of the Zoological Society of London, says the reason many reports of unusual behavior before earthquakes lack scientific credibility is that they were made after the event but a feature of this study is that toads’ activity and breeding behavior was recorded before, during and after the event. Check out articles in the London Guardian newspaper and the Washington Post for more on this story. Check out I.I.I. facts and stats on earthquakes.

The Environmental Protection Agency (EPA) yesterday announced that it will be studying the impact of bisphenol-A on the environment and adding it to its list of chemicals of concern. BPA is a chemical used in a variety of consumer and industrial products. Some food and drink packaging, such as water and infant bottles, contains BPA. In January the U.S. Food and Drug Administration’s (FDA) said it had some concerns about the potential human health impacts of BPA and it would study the potential effects and ways to reduce exposure to BPA in food packaging. Now the EPA says releases of BPA to the environment exceed one million pounds per year. Its study of the environmental impacts of BPA includes:

  • • Adding BPA to the chemical concern list on the basis of potential environmental effects
  • • Requiring information on concentrations of BPA in surface water, ground water, and drinking water to determine if BPA may be present at levels of potential concern.
  • • Requiring manufacturers to provide test data to assist the agency in evaluating its possible impacts, including long-term effects on growth, reproduction and development in aquatic organisms and wildlife.
  • • Using EPA’s Design for the Environment (DfE) program to look for ways to reduce unnecessary exposures, including assessing substitutes, while additional studies continue.
  • • And, continuing to evaluate the potential disproportionate impact on children and other sub-populations through exposure from non-food packaging uses.

A New York Times article says the EPA action indicates the government is looking to reduce the use of BPA in food packaging, plastic bottles and other sources of exposure. The NYT page includes a list of resources from around the Web about BPA. Washington recently became the fifth state to limit the use of BPA in plastic products intended for children and sports bottles, joining Connecticut, Maryland, Minnesota and Wisconsin. Bills to ban BPA are also pending in a number of other states. Federal legislation to ban BPA in all food and beverage containers was introduced last year.

A post on The Hill’s finance and economy blog says Congress intends to retroactively fund the National Flood Insurance Program (NFIP), after the Senate adjourned Friday until April 12 without passing a measure that would have extended the program beyond its Sunday expiration date. This is the third time in recent months that the NFIP has been allowed to lapse. A report at ifawebnews.com quotes National Association of Mutual Insurance Companies (NAMIC) spokesman Matt Brady saying that coverage will remain in place for those who have protection through the NFIP, but that there is a serious impact on those looking to close a home sale in flood-prone areas. The NFIP provides guidance here on operating during a hiatus. Check out a March 26 National Underwriter article for more on this story. The National Oceanic and Atmospheric Administration’s (NOAA) National Weather Service recently warned that more than one-third of the U.S. faces a high or above-average flood risk as spring rain combines with the melting of record snowfall. A 2008 Insurance Information Institute (I.I.I.) poll found that only 17 percent of Americans have a flood insurance policy, with the take-up rate higher (20 percent) in the Northeast than in other parts of the U.S. Check out I.I.I. facts and stats on flood insurance.

Early forecasts indicate this year’s Atlantic hurricane season will be above-average, so it will be interesting to hear the latest updates to those predictions from forecasters attending next week’s National Hurricane Conference in Orlando. Today’s Sarasota Herald-Tribune article by Kate Spinner points to a new study by NOAA researchers that may hold the key for forecasters making their long-range predictions. Apparently the research shows that the Atlantic and Pacific oceans act as opposites. In other words, a busy season in one ocean makes for a more tranquil season in the other. The study, by NOAA researchers Chunzai Wang and Sang-Ki Lee, is reported to be the first to demonstrate the dynamic clearly over five decades. The Sarasota Herald-Tribune states: “Last year’s quiet hurricane season in the Atlantic coincided with an active Pacific season. The reverse happened in 2005. This year, the Pacific is expected to be mild again, and the Atlantic, if the correlation holds, will be abuzz with hurricanes.” The NOAA study is published in Eos, a journal of the American Geophysical Union. Just last week, Joe Bastardi, chief long-range meteorologist and hurricane forecaster at AccuWeather.com warned this year has the chance to be an extreme season with 16 to 18 tropical storms in total and above-normal threats on the U.S. coastline. Bastardi called for five hurricanes, two or three of which will be major landfalls for the U.S. Look out for an updated forecast of 2010 hurricane activity April 7 from Colorado State University’s Tropical Meteorology Project. Check out I.I.I. hurricane facts and stats.

Both the number and value of securities class action settlements increased in 2009 and as earlier predicted the upward trend is likely to continue in the year ahead as ongoing cases related to the financial crisis get resolved. An annual report by Cornerstone Research found that the value of cases settled in 2009 rose to $3.8 billion, an increase of more than 35 percent on 2008, while 103 settlements were approved in 2009, compared with 97 in 2008. Professor Joseph Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse observed: “If a lawsuit is prosecuted by a large public pension fund, involves a parallel SEC proceeding, and alleges accounting violations, then defendants can expect to pay higher amounts.” He went on to note that because securities fraud litigation typically settles three to five years after the first complaint is filed, this year’s settlement activity reflects lawsuits brought roughly between 2004 and 2006. So while the largest industry concentration among 2009 settled cases was in the financial sector, these were primarily for case filings with class periods ending prior to 2008, i.e. credit crisis-related cases, for the most part, are yet to be resolved. A couple of other takeaways from the report: the average settlement value increased to $37 million in 2009 from $28 million for settlements in 2008; the median settlement in 2009 was $8 million, unchanged from 2008; and estimated plaintiff-style damages for all cases settled in 2009 averaged $2.7 billion, a 35 percent increase (inflation-adjusted) over the average for 2008 settlements. Check out the D&O Diary for further analysis of the Cornerstone report.

In the space of just two days two state supreme courts have issued rulings that signal an ongoing trend by the plaintiffs’ bar to erode damage caps. Yesterday the Missouri Supreme Court ruled that state caps on noneconomic damages in medical malpractice cases cannot be applied retroactively. A 2005 state law had capped noneconomic damages such as pain and suffering in medical malpractice cases at $350,000. The decision came just a day after the Georgia Supreme Court, in a unanimous 7-0 ruling, found a state law limiting damages awarded for pain and suffering in medical malpractice cases to be unconstitutional. The St Louis Business Journal reports that the Missouri court stopped short of declaring the caps themselves unconstitutional but mentioned the Georgia action in a footnote in the Missouri ruling. For more on the Georgia ruling check out the Fulton County Daily Report via law.com. The rulings follow last month’s decision by the Illinois Supreme Court to strike down a state law capping noneconomic damages in medical malpractice cases. Check out I.I.I. information on medical malpractice.

Meanwhile, the U.S. Chamber Institute for Legal Reform (ILR) has released its annual study ranking the best and worst state liability systems across the country. For the fourth year running, West Virginia’s legal climate ranked as the worst in the country. Louisiana, Mississippi, Alabama and California rounded out the bottom five states. The states with the best legal climates are Delaware, North Dakota, Nebraska, Indiana and Iowa. Two-thirds or 67 percent of the 1,482 corporate lawyers and executives surveyed say a state’s lawsuit environment is likely to impact important business decisions at their company, such as where to locate or expand their businesses. That’s up 10 percent from just three years ago. Check out I.I.I. facts and stats on litigiousness.

As President Obama signs landmark healthcare legislation today, a question for us to consider is how the property/casualty insurance sector may be affected by changes in the nation’s healthcare system. Here’s what the bill means for three key areas that have an impact on p/c insurers and that we’ve highlighted in previous posts:

  1. Antitrust exemption: The healthcare legislation does not include a repeal of the industry’s limited exemption from federal antitrust rules that has been in place for 64 years under the McCarran Ferguson Act. The Property Casualty Insurers Association of America (PCI) has applauded the decision: “We appreciate that Congress recognized repealing McCarran-Ferguson would not provide any benefits to the consumer or the insurance marketplace.” Check out I.I.I. info on antitrust law and insurance.
  2. Tort reform: Despite President Obama’s earlier pledge to address medical malpractice liability concerns as part of healthcare reform, the bill does not contain any meaningful tort reform. A Congressional Budget Office (CBO) analysis last October estimated enacting medical liability reforms would reduce federal government budget deficits by roughly $54 billion over the next 10 years. Check out I.I.I. info on medical malpractice.
  3. Workers compensation: Changes in the medical landscape tend to have an impact on workers compensation insurers. Over at Managed Care Matters blog, Joe Paduda observes that while changes to the American healthcare system are more comprehensive than anything we’ve seen in decades, not all of this will be for the better. He discusses some of the likely implications for workers comp here and here. Check out I.I.I. info on workers compensation.

A federal judge has sent a proposed settlement of up to $657.5 million to compensate about 10,000 workers whose health was damaged during the rescue and clean up at the World Trade Center following the terrorist attack of 9/11 back to the drawing board. The decision came just a week after New York City officials and plaintiffs’ lawyers announced the settlement. U.S. District Judge Alvin K. Hellerstein Friday ordered the parties to renegotiate a deal, saying that too much of the settlement – about one-third – was going to plaintiffs’ lawyers and not enough to the victims. According to a New York Law Journal report via law.com Hellerstein also indicated he would demand that attorneys’ fees not come from the money set aside for the settlement, but from other assets of the federally funded WTC Captive Insurance Co which was established to provide coverage for the city. In a statement, WTC Captive Insurance Co said it strongly believes the settlement to be fair, providing timely, guaranteed compensation based on the severity of the claimed injury and the legal strength of that claim. It said attorney fees in this case have been “reasonable” given the complex legal and scientific issues, defenses that can and have been raised, and the sheer volume of approximately 616,000 separate claims. Check out a March 19 New York Times article for further reactions to the decision. Check out I.I.I. information about terrorism risk and insurance.

We reach across the pond today where a poll by the United Kingdom’s Office of Fair Trading (OFT) reveals that consumers are increasingly using social media and company Web sites to complain after receiving poor service. Almost one third of consumers polled by the OFT said they would write a negative review on the company’s Web site if they did not get good service, while some consumers said they would ‘Tweet’ about a company or set up a Facebook complaints group. The survey also reveals the benefits to companies of good service. Of the consumers who received good service, 85 percent said they would recommend that retailer to their friends and family, and one in three said they would contact the business to thank them. Meanwhile, a survey here in the U.S. by Mintel Comperemedia, found that some consumers are much more likely to use blogs, Web discussion groups and social networking sites to shop for insurance than others. Of the 964 adults surveyed by Mintel, only 4 percent said they had used social media when asked where they had last researched insurance policies. However, the insurance social media usage rate was 10 percent among participants earning from $75,000 to $100,000 annually, 9 percent among participants aged 25 to 34, and 6 percent among men. These adults were also more likely to post a question on insurance on a social networking site. Check out Insurance Networking News for more on this story. Click here to become a fan of the Insurance Information Institute on Facebook. Click here to follow the blog via Twitter.

The Chile earthquake could outpace Hurricane Wilma as the most costly insured event in Latin America’s history, according to a recent posting at insurereinsure.com (the insurance and reinsurance blog of Edwards Angell Palmer & Dodge). Quoting commentary from reinsurance broker Cooper Gay it notes that even if insured losses fall in the mid-range of current estimates of between $2 billion and $8 billion, the earthquake likely will overtake Hurricane Wilma in 2005 as the most expensive insured event ever to hit Latin America. Insurereinsure.com goes on to note that some compliance and coverage issues have also begun to emerge from Chile as the investigation of losses progresses. International insurers and reinsurers continue to announce preliminary loss estimates following the quake. Global Reinsurance also quotes Cooper Gay analysis comparing the Chile quake to Hurricane Wilma. While Wilma was very specific to the Cancun region in Mexico, largely affecting coastal, hospitality-related properties, the Chile earthquake covers a much wider area (900 sq miles) and has destroyed a much broader spectrum of property. Cooper Gay also notes that up to 75 percent of the Chile quake was reinsured, but whether it’s a market-changing event will depend on whether losses creep up toward the top end of the insured loss estimates. The comments underscore the point that insurance dollars will go a long way to help rebuild and defray the economic cost of the quake. Check out the I.I.I. International Fact Book for information on the Chile insurance market.