Archive for October, 2010

Because Halloween falls on a Sunday this year the usual costume parties and trick-or-treating may extend over the weekend. While this makes for a fun time, it also means this Halloween has the potential to be particularly hazardous.

Luckily, insurers have some tips to help make the holiday a little less spooky:

Geico reports that with so many people enjoying the holiday, it’s necessary to be cautious whether trick-or-treating on foot or behind the wheel of your car. The U.S. Department of Transportation notes that the most dangerous time on Halloween for young pedestrians is between 4 and 8 p.m., prime trick-or-treating time. Geico urges drivers to watch for young children running in the streets, keep driving distractions such as cell phones out of reach, and to slow down.

The number of people in California hit by cars jumps 25 percent on Halloween vs. the rest of October, according to Allstate Insurance Co. The insurer asks Californians to keep their eyes on the road whether driving or on foot during Halloween. It offers the following three safety tips: don’t text and walk; don’t text and drive; don’t drink and drive.

Anyone hosting a Halloween party should take steps to limit their liquor liability and make sure they have the property insurance, according to the Insurance Information Institute (I.I.I.). I.I.I. vice-president Loretta Worters notes that depending on the jurisdiction, violations of social host laws can lead to civil or criminal fines, imprisonment and monetary damages awards. So, if you’re throwing a party where alcohol is served, be a responsible host.

Have a safe and happy Halloween!

Countries in Asia and the Pacific are four times more prone to natural disasters than those in Africa and 25 times more vulnerable than Europeans or North Americans, a United Nations report says.

Its release comes as Indonesia’s death toll rises in the wake of a tsunami and volcanic eruption that hit separate parts of the country earlier this week. More than 370 people are reported dead and tens of thousands driven from their homes.

The Asia-Pacific Disaster Report 2010 notes that while the region generated one quarter of the world’s gross domestic product (GDP), it accounted for 85 percent of deaths and 42 percent of global economic losses due to natural disasters over the last three decades.

The report was launched at the Fourth Asian Ministerial Conference on Disaster Reduction (AMCDRR) by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) and the United Nations International Strategy for Disaster Reduction (ISDR).

Today officials at the AMCDRR meeting approved a five-year road map to cope with weather-related hazards in Asia. Fifty Asian and Pacific region governments agreed to make risk reduction part of their national climate change adaptation policies to address the increase in more frequent and severe weather-related events.

In a video message to the AMCDRR, UN Secretary-General Ban Ki-moon said disasters such as the recent floods in Pakistan are a reminder that disaster risks due to climate change are increasing and there is an urgent need to invest more in risk reduction.

Check out I.I.I. facts and stats on global catastrophes.

Most small private companies ignore the risk of data breach, despite serious concerns over the financial consequences of a breach, according to a just-released survey from Chubb.

Some 92 percent of executives surveyed did not believe it likely that they would endure an electronic breach of confidential customer information that would require them to comply with costly notification laws in more than 40 states.

What’s more, most (67 percent) of the companies in Chubb’s survey do not have an incident response plan for an electronic security breach.

Yet a breach of electronically-stored private customer data was seen as the third most financially damaging event a company could experience, according to the survey.

The findings come as a list compiled by the Privacy Rights Clearinghouse shows that more than 500 million sensitive records, such as personal medical records, credit card and social security numbers,  have been compromised due to data breaches in the U.S. since 2005. And the Clearinghouse says this is only a fraction of the total number of breaches.

Ahead of data breaches, an employment practices lawsuit followed by employee theft were the most financially damaging events a company could experience, according to Chubb’s survey.

Nearly one in five (16 percent) of those surveyed expect an EPL charge would be lodged against their firm in the next 12 months.

Meanwhile, 54 percent expect their employees would steal company funds, equipment, inventory or merchandise in the next year. Just 30 percent of companies have experienced such thefts in the past five years.

The Chubb Private Company Risk Survey interviewed decision makers at 451 U.S. for-profit companies, more than 90 percent of which had annual revenues of less than $25 million.

Check out I.I.I. information on identity theft and the I.I.I. small businessowners’ guide to insurance.

The majority of U.S. homeowners insurance rate filings approved by regulators still do not adequately recognize the cost of capital needed to protect policyholders in the case of a large catastrophic event, according to an annual review by Aon Benfield Analytics.

The study finds that at current rates the 2010 estimate of expected return on equity (ROE) for insurers writing U.S. homeowners business is 6.9 percent, compared to 6.1 percent in 2009.

However, for insurers to attain an ROE of 14 percent homeowners rates countrywide would need to increase by 19.9 percent. A number of states, such as those prone to hurricanes, would require far higher rate increases.

For example, Florida would require an average rate increase in the homeowners line of business of 79.4 percent for insurers to achieve an ROE of 14 percent, according to Aon Benfield’s analysis.

A press release cites Steve Mildenhall, CEO of Aon Benfield Analytics:

In many cases, we find that approved rates in the U.S. regulatory system do not recognize the need to hold capital to fund for the possibility of catastrophic loss. Rates that are solely based on average annual losses do not provide the necessary incentive for insurers to put such capital at risk.”

Aon Benfield’s Annual Homeowners ROE Outlook is based on more than 100 insurer rate filings from the 25 largest U.S. states.

Check out I.I.I. facts and states on homeowners insurance.

Communities along the U.S. Gulf Coast could face $350 billion in economic damage by 2030 due to the impact of climate change, economic growth and land subsidence, according to a new study released last week by energy company Entergy Corp.

Wind and storm surge damage from hurricanes today already costs the Gulf Coast some $14 billion per year in annual losses, according to the study findings.

Severe climate change, along with economic growth and land subsidence could drive up expected annual losses by up to 65 percent to an average $23.4 billion by 2030.

These losses also represent a significant annual impact of 2-3 percent on the region’s GDP.

The study recommends a range of economically attractive adaptation initiatives that could prevent a large part of the expected increase in losses.

For example, by investing $50 billion in cost-effective measures over the next 20 years, such as improved building codes, beach nourishment and roof cover retrofits, Gulf Coast communities can avert about $135 billion in annual losses over the lifetime of the implemented measures.

The study on the economics of climate adaptation along the U.S. Gulf Coast considers assets across 77 coastal parishes and counties in four energy-producing states, including Texas, Louisiana, Mississippi, and Alabama.

The analysis was conducted to estimate the potential impact of natural hazards on key sectors of the region’s economy, notably the electric utility and oil and gas industries, and inform coastal communities on how to strengthen their resilience.

Swiss Re was a lead contributor to the research.

Check out I.I.I. information on Catastrophes: Insurance Issues and Climate Change: Insurance Issues.

The National Oceanic and Atmospheric Administration (NOAA) has just released its annual winter outlook, reminding us that now is a good time to begin preparations for the cold weather.

According to NOAA’s predictions, another winter of extremes is in store for the United States, due to a strengthening La Niña.

Accuweather.com chief long range forecaster Joe Bastardi also points to the influence of La Niña in his winter outlook.

La Niña winters are typically synonymous with harsh conditions across the northern tier of the U.S. and drier than normal conditions throughout the southern tier, according to Bastardi.

Note: La Niña is associated with cooler than normal water temperatures in the Equatorial Pacific Ocean, unlike El Niño which is associated with warmer than normal water temperatures. Both phenomena, which typically occur every 2-5 years, influence weather patterns throughout the world and often lead to extreme weather events.

Regional highlights of NOAA’s winter outlook include:

NOAA predicts the Pacific Northwest should brace for a colder and wetter than average winter, while most of the South and Southeast will be warmer and drier than average through February 2011.

However, for the Northeast and Mid-Atlantic the picture is less clear, with equal chances for above-, near-, or below-normal temperatures and precipitation.

Why the uncertainty? Well, NOAA explains that winter weather for these regions is often driven not by La Niña but by weather patterns over the northern Atlantic Ocean and Arctic. These are often more short-term, and generally predictable only a week or so in advance.

If you still have questions, the Weather Channel has the answers in its excellent “Winter’s Top 5 Hottest Questions” segment.

Winter storms can be costly for insurers. Insurance Information Institute (I.I.I.) research shows that winter storms result in about $1 billion in insured losses annually and are the third largest cause of catastrophe losses, behind hurricanes and tornadoes.

According to Munich Re, average annual winter storm losses have increased by more than 50 percent since 1980. A series of winter storms in the Mid-Atlantic and New England states in the early part of 2010 created the highest insured losses for this peril since 2003.

NOAAWinterOutlook

State-run beach and windstorm plans in some states provide unintentional incentives for economic development in areas vulnerable to severe wind damage, according to a new study from the Insurance Research Council (IRC).

The study comes just months after a Government Accountability Office (GAO) report that found that most state-run plans do not charge premium rates that reflect the full risk of loss.

Insurance Information Institute (I.I.I.) research and analysis has also found that over the last four decades, state-run property insurers have experienced explosive growth both in terms of the number of policies issued and the exposure value covered.

The combination of burgeoning exposure growth and inability to charge rates that are commensurate with the risk means that a number of residual market property plans in hurricane-exposed states are in a precarious financial situation.

The IRC study focuses on the role of beach and windstorm plans and explains how state-run plans interact with voluntary homeowners insurance markets.

It also describes how each of the five state beach and windstorm plans – Alabama, Mississippi, North Carolina, South Carolina and Texas – and two state wide plans (Louisiana and Florida) would weather a hurricane catastrophe.

Check out an online article at National Underwriter for more on this story. Check out I.I.I. information on residual markets for an explanation of state-run property insurers.

The grand opening of the Institute for Business & Home Safety (IBHS) Research Center yesterday demonstrates insurers’ ongoing commitment to reduce and prevent damages and losses caused by natural disasters.

This unique, state-of-the-art, multi-risk applied research and training facility on a 90-acre parcel of land in Chester County, South Carolina, will significantly advance building science by enabling researchers to more fully and accurately evaluate various residential and commercial construction materials and systems.

At yesterday’s opening USA Today reports that researchers used more than 100 giant fans to create hurricane-force winds in an experiment that destroyed a home built with conventional construction materials and standards within minutes, but left a home built with fortified materials standing at its side.

Check out this IBHS video on YouTube to see the results for yourself:

Theft of information and electronic data at global companies has risen in the past year and overtaken physical theft for the first time as the most widespread fraud, according to the latest edition of the Kroll Annual Global Fraud Report.

The study reveals that data theft was reported by 27.3 percent of companies over the past year, up from 18 percent in 2009. In contrast, reported incidences of theft of physical assets or stock declined slightly from 28 percent in 2009, to 27.2 percent in 2010.

Information-based industries reported the highest incidence of theft of information and electronic data in the past year. Financial services (42 percent in 2010 vs. 24 percent in 2009) and professional services (40 percent in 2010 vs. 27 percent in 2009) are most vulnerable to data theft.

As for the cost of fraud, Kroll says the total amount lost by businesses to fraud in the past year went from $1.4 million to $1.7 million per $1 billion of sales – an increase of more than 20 percent.

Kroll also observed that the speed of technological developments poses new challenges in the fight against fraud.

Nearly one-third of companies (28 percent) reported information infrastructure complexity as the single most important factor in raising exposure to fraud. However, despite the increased risk, only 48 percent of companies are planning to spend more on information security in the next 12 months, down from 51 percent last year.

The findings are the result of a study commissioned by Kroll with the Economist Intelligence Unit or more than 800 senior executives worldwide.

The Financial Times has more on this story.

Check out I.I.I. information on identity theft insurance.

The upward trend in litigation against U.S. companies that began with the economic downturn continued in 2010 and will likely increase again in the coming year, according to the Seventh Annual Litigation Trends Survey from international law firm Fulbright & Jaworski.

Some 93 percent of corporate counsel at U.S. firms polled by Fulbright & Jaworski expect legal disputes to increase or remain the same in the next 12 months, while 87 percent said their companies faced new litigation in the past year, up from 83 percent the previous year.

Fulbright reports that more large-cap companies than mid- and small-caps expect litigation increases over the next 12 months, while by industry sector a sizeable 42 percent of energy companies are bracing for a jump in disputes.

As well as the lagging economy, nearly one-third of U.S. in-house counsel cited stricter regulation as a major concern.

Fulbright noted that more regulators have been investigating a greater variety of companies, from small to large and across sectors – particularly banking, healthcare and energy.

Looking ahead, one-quarter of all respondents – and one-third of respondents from energy, healthcare and insurance – expect the number of regulatory proceedings their companies face to increase in the coming year.

From the insurance perspective, large increases in tort costs lead to higher insurance costs and can harm businesses trying to grow. Check out the latest Insurance Information Institute (I.I.I.) report that examines the state of tort inflation in the U.S.