Archive for January, 2011

The world is in no position to face new, major shocks, as the financial crisis has reduced global economic resilience and governments lack the capacity to respond, according to the World Economic Forum (WEF).

The warning comes in the WEF’s Global Risks Report 2011, released ahead of the WEF annual meeting in Davos-Klosters, Switzerland, which begins January 26.

Global governance systems are failing to deal with global risks and new systems are needed, the WEF says:

Twentieth century systems are failing to manage 21st century risks; we need new networked systems to identify and address global risks before they become global crises.”

The WEF also warns that economic imbalances and unfunded liabilities contain the seeds of potential future fiscal and financial crises and will require concerted coordinated action to manage them:

Savings and trade imbalances within and between countries are increasingly unsustainable while unfunded liabilities create extreme long-term pressure on fiscal positions. One way out of these imbalances would be coordinated global action but this is challenging given the conflicting interests of different states.”

The report identifies economic disparity as one of the most important risks in the coming decade. Its findings suggest economic disparity is tightly interconnected with corruption, demographic challenges, fragile states, global imbalances and asset price collapse.

According to the WEF, three risk clusters of particular concern are the relationship between illicit trade, crime, corruption and state fragility; a set of interconnected risks tied to water, food and energy; and risks related to global macroeconomic imbalances.

Other top risks identified by the WEF include: cyber-security; demographic challenges; resource security; retrenchment from globalization; and weapons of mass destruction.

Published in cooperation with Marsh & McLennan Cos, Swiss Re, the Wharton Center for Risk Management and Zurich, Global Risks 2011 draws on the insights of 580 leaders and decision makers around the world.

Regulation and financial stability will be key issues for the insurance industry in 2011, according to international insurance think tank, The Geneva Association.

Hat tip to Business Insurance for more on this story.

Patrick Liedtke, secretary general and managing director of the Geneva Association, observed that the direction of international insurance regulation is going to be critical for the industry this year.

Major regional projects such as Solvency II, which have gained reference status even beyond Europe, and global projects such as International Financial Reporting Standards (IFRS) reforms and International Association of Insurance Supervisors (IAIS) initiatives will see key decisions in 2011.”

Getting the next wave of regulation right is critically important, not only for the industry, but for continued economic growth and development, he said.

On financial stability, Liedtke noted that while systemic threats do not emanate from insurance activities there are a number of issues that remain poorly understood or simply have not been discussed but where important decisions will be taken by governments in 2011.

The key is to ensure that regulatory imprecision or over-stretch do not hamstring well-functioning industry and damage societal interests.”

Two longer term issues that are also of importance are climate change and demographics.

Climate change presents insurers with both long and far-reaching challenges and also opportunities. The shift towards longer life expectancy and ageing populations will change the way societies view risks.

Check out I.I.I. facts and stats on U.S. demographics and information on climate change and insurance.

With another major snow storm headed for the Northeast this week and as southern states from Texas to North Carolina bear the brunt of snow and freezing rain, it’s a good time to review our information on winter storms.

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

According to the latest data from Munich Re, insured annual U.S. winter storm losses in 2010 totaled $2.6 billion – the highest losses from this peril since 2003.

Over at Wunderblog Dr. Jeff Masters predicts up to a foot of snow is possible for New York City, Boston, and coastal Connecticut and Rhode Island beginning on Tuesday night:

The Nor’easter will not be as intense as the December 26 blizzard, however. The winds from the new storm are expected to remain less than 35 mph, resulting in only minor coastal flooding and an absence of blizzard conditions (winds in excess of 35 mph and visibility less than 1/4 mile).

Check out the I.I.I. website for claims filing information and further I.I.I. information on winter weather preparation.

The 15th annual Property/Casualty Insurance Joint Industry Forum (#JIF2011) will be held next Tuesday January 11 at the Waldorf-Astoria Hotel in New York City.

The Forum, sponsored by 16 leading property/casualty insurance trade associations, was created to provide p/c insurance and reinsurance company leaders with an opportunity to meet and discuss topics of general interest.

A panel of experts will first discuss the insurance industry from the perspective of those who regulate, analyze and write about the business.

This will be followed by the CEO panel where industry leaders will discuss general trends in industry services.

A reception and dinner that evening will feature an address by Ari Fleischer, former White House Press Secretary for George W. Bush and president, Ari Fleischer Communications Inc.

Media interested in attending the Forum should contact Loretta Worters at the I.I.I. on 212-346-5545.

Preliminary findings from a new study confirm that the New York City metro area is a hotbed for auto insurance fraud and drivers are paying for it.

Analysis by the Insurance Research Council (IRC) finds that no-fault auto insurance claims costs are far higher in the NYC metro area than in the rest of the state and there is significant evidence of increased utilization of medical care.

Elements of fraud appeared in 22 percent of all NYC metro area no-fault auto insurance claims (known as personal injury protection (PIP) claims) closed in the fall of 2010, while another 14 percent appear to involve either overbilling or excessive utilization of medical services.

In contrast, when IRC looked at PIP claims filed in the rest of the state, only 4 percent of closed claims appeared to be fraudulent, while signs of claims buildup were seen in just 4 percent of upstate PIP claims.

Auto injury claimants in the NYC area are seeing more doctors and going for more visits.

The IRC found that some 44 percent of NYC area PIP claimants visited four or more health care providers in 2010, whereas only 14 percent of claimants elsewhere in the state did the same.

NYC claimants were also much more likely to seek treatment from chiropractors, physical therapists, and acupuncturists than their upstate counterparts.

The typical PIP claims payout for claimants in the NYC area in 2010 was nearly double the payout for claimants in the rest of the state.

The Wall Street Journal’s Metropolis blog has more on this story.

As we’ve noted before, when claim costs rise due to fraud, policyholders are forced to pay for it through higher premiums.

Insurance Information Institute (I.I.I.) analysis shows that fraud in the New York no-fault system accounts for roughly 20 percent of every no-fault claim paid – or about $1,561 per claim.

As a result, in 2009 policyholders paid the equivalent of a $229 million tax on their auto insurance policies due to these unethical and often fraudulent activities.

Check out further I.I.I. information on insurance fraud.

U.S. tort costs are expected to show a significant increase in 2010, due mainly to the Deepwater Horizon disaster.

In its annual update on U.S. tort cost trends, Towers Watson predicts U.S. tort costs will rise by 9 percent in 2010.

However, excluding the Deepwater Horizon event, it expects U.S. tort cost growth will be fairly stable relative to 2009 – at about 2 percent.

Towers Watson says:

Specifically, our 2010 tort cost estimate assumes a 1.5 percent increase compared with 2009, plus $18 billion due to the BP oil spill. This $18 billion amount for the oil spill is a provisional estimate only, which will be modified in our next study as more information regarding the ultimate tort costs of the spill becomes known.”

Looking further ahead, Towers Watson expects growth in U.S. tort costs to range from 1 percent to 5 percent in 2011, excluding the impact of the BP oil spill, and a higher increase in 2012.

Chinese drywall and automobile recalls were two new tort actions that surfaced during 2009, according to the study. Towers Watson estimates total economic losses related to Chinese drywall in the range of $15 billion to $25 billion and total costs from Toyota auto recalls in excess of $1 billion.

The predicted increase in U.S. tort costs for 2010 follows a more favorable year in which tort costs decreased by 2.7 percent in 2009. An increase in personal tort costs was more than offset by a decrease in commercial tort costs, Towers Watson says.

The U.S. tort system cost $248.1 billion in 2009, which translates to $808 per person, versus $838 per person in 2008. Tort costs in 2009 were lower than four of the previous five years.

A major factor was the U.S. economy. Overall economic growth in 2009 was -1.3 percent. As such, the ratio of tort costs to gross domestic product (GDP) shrank in 2009.

This was the sixth consecutive year that tort costs rose less than GDP, according to Towers Watson.

However, since 1950, growth in tort costs has exceeded growth in GDP by an average of approximately two percentage points.

Check out an I.I.I. presentation on the Deepwater Horizon disaster and a recent I.I.I. paper Tort Inflation 2010.

We’ve blogged before about the rising cost of the obesity epidemic in the United States both in terms of pounds and dollars.

Now research from the NCCI confirms anecdotal data that work-related injuries are far more costly if the injured worker is obese. Hat tip to Insurance Journal for highlighting this study.

The dramatically higher medical costs suggest that the types and nature of injuries sustained by obese workers, especially the “morbidly obese,” are more likely to result in permanent disabilities, NCCI says.

Given that obese claimants have more permanent disabilities and longer duration of medical treatments, it is highly likely that obese claimants would also have higher indemnity costs than comparable non-obese claimants, it adds.

So what can be done?

According to NCCI, one way for insurers to manage this risk for the benefit of injured workers and to control costs is to collect data on claims for height and weight:

If the data is available, insurers could be aware up front if obesity is likely to be an issue and try to improve the outcome for the injured worker and their family by keeping the claim from becoming a permanent injury, and, in turn, reducing duration. Depending on the added cost in terms of managing these claims, it may also reduce overall claims costs.”

Another important part of managing obesity risk is prevention. NCCI observes:

In terms of prevention, insurers could offer incentives similar to those already in place for drug-free workplaces. Employers can also play a role in prevention by putting programs in place to try to improve lifestyle choices in terms of nutrition and fitness.

It concludes:

However, ultimately, it is up to the individual to take responsibility for their own health.”

An interesting point.

A related article in the Wall Street Journal today reports on how local communities around the country are taking new steps to push residents to improve their health.

The WSJ quotes New York City’s deputy commissioner for environmental health saying:

To have true control over your health is not just about what you can do as an individual but what is being done at the community level.”

What do you think?

Check out I.I.I. information on workers compensation and obesity risk.

Ongoing severe flooding in Queensland, Australia that has affected 200,000 people so far and disrupted mining operations in the state is a reminder of the human and economic toll of global disasters as we ring in the New Year.

The region has been hit with heavy rain since early December, in an event Australian Prime Minister Julia Gillard has described as a “major natural disaster.”

Mining and agriculture operations in Queensland have been disrupted, as have road, rail and ports infrastructure.

According to Munich Re, it is not yet possible to put an exact figure on the damage from the Queensland floods:

Since the beginning of December many places have been submerged under water and cut off from the outside world. Many mines have had to stop operations. Heavy rain in this region is nothing unusual and such weather patterns are accentuated by the prevailing “La Niña” conditions.”

A Reuters report cites Queensland State Treasurer Andrew Fraser saying the ultimate cost would exceed A$1 billion ($980 million).

Meanwhile, Munich Re today said the overall picture for global natural catastrophes in 2010 was dominated by an accumulation of severe earthquakes to an extent seldom experienced in recent decades:

The high number of weather-related natural catastrophes and record temperatures both globally and in different regions of the world provide further indications of advancing climate change.”

According to Munich Re, a total of 950 natural disasters were recorded last year, nine-tenths of which were weather-related events like storms and floods. Overall losses amounted to around $130 billion, of which around $37 billion was insured:

This puts 2010 among the six most loss-intensive years for the insurance industry since 1980. The level of overall losses was slightly above the high average of the past 10 years.”

For more on the Australian floods, check out the Insurance Council of Australia website. Check out further I.I.I. international insurance facts and stats on Australia.