Archive for July, 2012

An estimated 7,630 people died in motor vehicle traffic crashes in the first quarter of 2012, a 13.5 percent increase on the same period of 2011, according to analysis from the National Highway Traffic Safety Administration (NHTSA).

Preliminary data reported by the Federal Highway Administration (FHWA) shows that vehicle miles traveled (VMT) in the first three months of 2012 increased by about 9.7 billion miles. The fatality rate for the first quarter of 2012 increased significantly to 1.10 fatalities per 100 million VMT, up from 0.98 fatalities per 100 million VMT in the first quarter of 2011.

The NHTSA says it’s too soon to speculate on the contributing factors or potential implications of any increase in traffic deaths.

However, two key takeaways from the NHTSA report are:

– The historic downward trend in traffic fatalities in the past several years – a pattern which has continued through the early estimates for 2011 released recently that show deaths at a 60-year low – means any comparison will be to an unprecedented low baseline figure.

– The rate for the first quarter each year is traditionally significantly lower than the rates for the other three quarters, potentially due to, but not restricted to, the effects of winter weather. However, the winter of 2012 was also unseasonably warmer than usual in most areas of the country. Consequently, the fatality rate for the first quarter should not be used to make inferences for the fatality rate for the whole of 2012.

A report over at CNN.com quotes a safety expert at the Automobile Association of America (AAA) agreeing that the warmer winter weather may have contributed to higher vehicle miles traveled and ultimately more fatal crashes.

AAA also tells CNN that more work needs to be done to improve driver safety.

More facts and statistics on highway safety from the I.I.I.

The #London2012 Olympic stadium, via @VisitBritain on Twitter.

As the final touches are made to the Olympic venues in and around London, let’s take a tour of the insurance stories ahead of Friday’s opening ceremonies.

It should come as no surprise that insurers and reinsurers play an important role in providing billions of dollars in risk coverage for this sporting display that brings together more than 10,000 athletes from some 200 different nations.

Munich Re is shouldering a significant share of the risk in the event of the abandonment, interruption, delay or relocation of the 2012 Games.

Direct from Munich Re’s website, Andrew Duxbury, underwriting manager at Munich Re in London, explains:

Munich Re carries a substantial portion of this risk. If the Games were called off, Munich Re would provide cover of around €350 million [$425.5 million] through several policies. Guaranteeing this amount of cover requires not just financial strength, but also the necessary expertise to allow the risk to be assessed and managed in the best possible way.”

Over at Insurance Journal, an article by Lee Tookey, head of Aviation Reinsurance, Space and Specialty Lines, for Aspen Re speaks to the challenges insurers face in the transmission of the Games to the world.

New technology will allow the live broadcast of sporting events via mobile devices to viewers around the world. There are concerns about whether or not satellites and cellular networks will be able to meet the expected demand.

Tookey points out:

Some events at the games – most notably the opening and closing ceremonies- are expected to attract audiences around the world numbering perhaps four billion: the insurance industry will certainly play an important role in both terrestrial and extra-terrestrial aspects of these Olympic events as they are transmitted.”

And finally, an article from Business Insurance reminds us of the importance of detailed risk management when hosting a sporting event on this scale.

Business Insurance quotes Lance Ewing, hospitality and leisure industry practice group leader at Chartis Inc as follows:

These are formidable risk exposures including health insurance, cancellations coverage, terrorism, kidnap and ransom, travel insurance and property coverage. There also are exposures surrounding the construction of event venues, dormitories and other facilities.”

London’s heightened exposure to terrorist threats during the Games is one of the main areas of concern.  The British government has called in extra troops, police officers and civilian security workers to help keep the Games safe for athletes and spectators.

Rates in the airline insurance market continue to decline, despite rising exposures (average fleet values and passenger number forecasts), according to Aon’s Q3 2012 market update.

Aon reports that a high level of capacity continues to drive the soft market conditions, with healthy competition for attractive risks.

The low level of claims in 2011 and so far in 2012 is another key factor.

Including an estimate for minor losses, Aon says total claims for 2012 so far are 40 percent lower than the 1995-2011 average and 60 percent lower than the five year average.

By the numbers this puts the current overall loss figure so far this year at $426.6 million, compared to $466.7 million at the same point in 2011.

Aon comments:

Last year’s loss figures at this point in the year were also at a historic low, meaning that overall claims figures so far for 2012 are extremely positive.”

Adding:

It should be pointed out that the airline industry will always represent a considerable risk and that a single claim or string of claims can instantly change these statistics.”

Despite the soft market conditions, Aon says aviation underwriters remain highly selective of the risks they support.

Check out I.I.I. facts and stats on aviation.

More customers are satisfied with the auto claims experience in the second quarter of 2012 than  were in the first quarter, according to a report from J.D. Power and Associates.

The study, which is based on responses from more than 2,600 auto insurance customers who filed a physical damage claim within the past six months, found that overall customer satisfaction increased by 10 points (on a 1,000-point scale) to 852 in the second quarter of 2012.

Depending on the complexity of the claim, an individual may experience some or all of the following measured in the study: first notice of loss; claim service interaction; damage appraisal; repair process; rental experience; and settlement.

Satisfaction with settlement – the largest driver of increased satisfaction – is one of the most improved among the six factors, increasing by 12 points from the first quarter of 2012. Satisfaction in all factors increased in the second quarter, compared with the first quarter.

Settlement satisfaction falls significantly among claimants paying in excess of $300 above and beyond their deductible, according to J.D. Power, with satisfaction 89 index points lower than among those who pay only their insurance deductible.

So it’s important to note that the study found the amount paid out-of-pocket fell by $36 to an average of $218 in the second quarter of 2012, compared with the first quarter. Among the 21 percent of claimants who had an out-of-pocket expense, the percentage that spent more than $300 has decreased to 22 percent, compared with 25 percent in the first quarter.

Jeremy Bowler, senior director of the insurance practice at J.D. Power and Associates explains:

The amount spent out-of-pocket most definitely affects the perception of fairness of a settlement, further influencing satisfaction with the overall auto claims process. Additionally, the settlement factor is influenced highly by the clarity and thoroughness of the settlement explanation given to the customer by the insurance company. If the customer understands the process and what they are paying for, they tend to have higher satisfaction with their experience.”

The 2012 U.S. Auto Claims Satisfaction Study – Wave 3 excludes claimants whose vehicle only incurred glass/windshield damage or was stolen, or who only filed roadside assistance claims.

Check out I.I.I. facts and statistics on auto insurance.

The ongoing revelations surrounding the manipulation of interest rates by big banks during the financial crisis are making headlines around the world.

On Saturday the New York Times reported that fallout from the scandal is prompting greater scrutiny of bank regulators, amid questions over whether they allowed banks to report false rates before and during the 2008 financial crisis.

For an understanding of the potential risk costs to banks involved in the scandal, a recent post on the Financial Times Alphaville blog covers the latest estimate of Libor risk from Morgan Stanley, including litigation risk.

And what about the implications for insurers?

Over at the D&O Diary, Kevin LaCroix has been keeping readers updated on possible implications of the Libor scandal in the world of directors’ and officers’ liability.

In a July 13 post about the filing of the first securities class action lawsuit by a Barclays shareholder, LaCroix noted that the Libor scandal shows that the financial institutions arena remains a risky neighborhood.

In another post earlier in the week, LaCroix said that it remains to be seen what the fallout from the scandal means from an insurance perspective:

The ultimate consequences for the companies involved and their insurers will only emerge over the coming months and years as this scandal continues to unfold. It does seem likely that the related civil litigation will continue to accumulate. To the extent additional derivative claims are filed, or if shareholders of target banks file securities claims, the follow-on civil litigation could develop into a significant event for the D&O insurance industry. At this point, the one thing that is clear is that it will pay to watch closely as the investigation unfolds and the follow-on civil litigation continues to emerge.”

Check out information from the I.I.I. on specialty risks.

The worsening drought across the United States is the subject of numerous news reports. A couple of stories caught our eye:

CNN reports that as of last Tuesday, some 61 percent of the contiguous U.S. was experiencing drought conditions – stretching from Nevada to South Carolina. Apparently, this
is the highest percentage in the 12-year record of the U.S. Drought Monitor.

The Lede blog at the New York Times posts that more than 1,000 counties in 26 states across the
country have been named natural disaster areas by the U.S. Department of Agriculture. It cites government officials saying this is the single largest designation in the program’s history and the worst drought since 1988.

Higher temperatures and drier conditions increase the risk of wildfire activity. In just the past three weeks, total acres scorched by wildfires jumped from 1.1 million to 3.1 million.

Over at Wunderblog, Dr. Jeff Masters posts that it has been another severe year for wildfires in the U.S., with the National Interagency Fire Center reporting 4800 square miles of burned acreage so far in 2012, an area about 87 percent the size of Connecticut:

This is pretty close to the 10-year average for this point in the year, and ranks as the fourth highest of the past ten years. However, with summer not yet half over, and more than 2/3 of the Western U.S. experiencing moderate to extreme drought, the Western U.S. fire season still have plenty of time to add significant acreage to its burn total.”

So far, Colorado has been hardest hit by this year’s wildfires. In its 2012 Half Year Natural Catastrophe Review Munich Re noted that two major wildfires in Colorado in June (the “High Park” fire near Fort Collins, and the “Waldo Canyon” fire near Colorado Springs) caused record damage in the state. Insured losses from both fires are estimated at US$ 500m, Munich Re said.

Check out I.I.I. facts and statistics on wildfires.

Extreme weather event losses in the United States dominated natural catastrophe loss statistics in the first half of 2012, according to a review by Munich Re and the Insurance Information Institute (I.I.I.).

In the 2012 half-year natural catastrophe review, Munich Re noted that some 85 percent of worldwide insured losses and 61 percent of overall losses were incurred in America, predominantly in the U.S. – compared with an annual average of 65 percent and 40 percent respectively since 1980.

Severe thunderstorm, tornado events in the U.S. accounted for the five costliest natural catastrophes for the insurance industry in the first six months of the year.

The most severe single event was a squall line that crossed several states between 2 and 4 March. Some 170 tornadoes were counted in and around the Ohio and Tennessee River alone, and a small number of communities were almost completely destroyed. Insured losses totaled $2.3 billion.

In a press release Peter Höppe, Head of Munich Re’s Geo Risks Research unit, noted:

Overall, most of the severe thunderstorm-related outbreaks with tornadoes affect a limited area, and may cause serious damage locally but are not comparable in scale to events like severe hurricanes. However, due to the number of events, the aggregate annual loss amounts can attain the level of a major hurricane landfall, as seen last year.”

The good news for insurers is that natural catastrophe losses in the first half of 2012 were relatively moderate. Overall global losses to the end of June were $26 billion, of which some $12 billion were insured.

In a recent post over at the Property/Casualty Insurance blog, Gary Kerney commented that for decades, hurricanes got the headlines and caused more insured losses than tornadoes and thunderstorms, but last year, all that changed.

More facts and statistics on tornadoes and thunderstorms from the I.I.I.

A new study by NOAA and UK Met Office scientists makes the link between global warming and extreme weather events.

The paper, Explaining Extreme Events of 2011 from a Climate Perspective, looks at six global extreme weather and climate events from 2011, including last year’s drought in Texas.

Key takeaways from the paper are:

– Determining the causes of extreme events remains difficult. While scientists cannot trace specific events to climate change with absolute certainty, new and continued research help scientists understand how the probability of extreme events change in response to global warming.

РLa Ni̱a-related heat waves, like that experienced in Texas in 2011, are now 20 times more likely to occur during La Ni̱a years today than La Ni̱a years fifty years ago.

– The UK experienced a very warm November 2011 and a very cold December 2010. In analyzing these two very different events, UK scientists uncovered interesting changes in the odds. Cold Decembers are now half as likely to occur now versus fifty years ago, whereas warm Novembers are now 62 times more likely.

– Climate change cannot be shown to have played any role in the 2011 floods on the Chao Phraya River that flooded Bangkok, Thailand. Although the flooding was unprecedented, the amount of rain that fell in the river “catchment” area was not very unusual. Other factors, such as changes in reservoir policies and increased construction on the flood plain, were found most relevant in setting the scale of the disaster.

The New York Times has more on the study findings.

Release of the study comes along with NOAA’s 2011 State of the Climate report which found that worldwide 2011 was the coolest year on record since 2008, yet temperatures remained above the
30 year average.

NOAA’s climate report also provides details on a number of global extreme events from last year, including the Thailand floods, drought and tornado outbreaks in the U.S., floods in Brazil and the summer heat wave in central and southern Europe.

In the words of Deputy NOAA Administrator Kathryn Sullivan:

2011 will be remembered as a year of extreme events, both in the United States and around the world. Every weather event that happens now takes place in the context of a changing global environment. This annual report provides scientists and citizens alike with an analysis of what has happened so we can all prepare for what is to come.”

Check out information from the Insurance Information Institute (I.I.I.) on climate change and insurance.

The composite rate for U.S. commercial lines – commercial property, casualty and professional lines coverage – was up 4 percent in June 2012 compared to a year ago, according to the latest analysis from online insurance exchange MarketScout.

Commercial property coverage rates were up 5 percent, while BOP, general liability, commercial auto and workers’ compensation were up 4 percent.

MarketScout CEO Richard Kerr said the market for workers’ compensation is ‘bumpy’ as insurers try to settle in at appropriate pricing:

We did record rate moderation for workers’ compensation accounts from plus 5 percent in May to plus 4 percent in June…Accounts with class codes related to high hazard exposures are being assessed considerable rate increases of plus 7 percent to plus 15 percent. Traditional ‘main street’ workers’ compensation accounts are renewing as expiring to plus 2 percent.”

 

We note that just a couple weeks ago, Dr. Robert Hartwig, president of the Insurance Information Institute (I.I.I.) told a meeting of reinsurance actuaries that despite rates drifting upward in recent months, the property/casualty industry is unlikely to see a return to the traditional hard market this year or next.

Speaking at the Casualty Actuarial Society’s (CAS) Seminar on Reinsurance, Hartwig said that four criteria have to be present for a truly hard market, one in which rates climb sharply – in excess of 10 to 15 percent or more.

- First, the industry must endure a sustained period of large underwriting losses. Only when underwriting losses are large and sustained do insurers turn disciplined, Hartwig said.

- Second, the industry suffers a material decline in industry surplus or capacity. When surplus falls, rates rise as customers compete for access to the surplus.

- Third, the reinsurance market must be ‘tight,’ meaning reinsurance costs are rising and there is a shortage of reinsurance capital.

- Finally, the industry must show renewed underwriting and pricing discipline.

More on this story from the CAS here and as reported by Insurance Journal here.

Total exposure in the residual property market hit a new peak in 2011 at $884.7 billion, according to the Insurance Information Institute’s (I.I.I.) latest report on the topic.

The still burgeoning growth of the market comes despite attempts by certain states to reduce the size of their residual market plans, the I.I.I. says:

Despite attempts by certain states to reduce the size of their plans, the fact of the matter is that this market of last resort remains the market of first choice for many vulnerable, high risk coastal properties.”

The following chart documents the explosive growth in exposure value from 1990-2011 (Source: PIPSO):