Archive for October, 2012

As Hurricane Sandy makes its final approach towards the New Jersey/New York area with landfall expected this evening, insurers are closely monitoring the storm and ready to respond to the needs of their policyholders.

The Wall Street Journal reports that insurers are assembling rapid-response teams along the Eastern seaboard and preparing to deploy claims specialists into hard-hit communities once the storm passes by.

In its 8am EDT advisory, the National Hurricane Center (NHC) says Sandy is expected to transition into a frontal or wintertime low pressure system prior to landfall:

However…This transition will not be accompanied by a weakening of the system…and in fact…a little strengthening is possible during this process. Sandy is expected to weaken after moving inland.”

See the NHC’s statement about Sandy’s transition to a post-tropical cyclone here.

It’s important to recognize that hurricane-force winds extend outward up to 175 miles from Sandy’s center and tropical-storm-force winds extend outward up to 485 miles, making this a very expansive storm.

Insurers play a vital role in helping individuals and businesses recover from the potentially devastating effects of disaster such as a catastrophic hurricane, according to the Insurance Information Institute (I.I.I.).

Insured catastrophe losses in the United States totaled $35.9 billion in 2011, well above the 2000 to 2010 average of $23.8 billion (in 2011 dollars) according to figures from Munich Re. Thunderstorms, including tornado events, were the costliest type of natural disaster in 2011, based on insured losses (over $25 billion). However, tropical cyclones, which include hurricanes, were the second most costly event category ($5.5 billion in insured losses), with Hurricane Irene accounting for most of the losses ($5 billion, including flood losses covered under the National Flood Insurance Program).

Catastrophe modelers AIR Worldwide and EQECAT are posting regular updates on the storm’s approach and expected damage to the Northeast.

As Hurricane Sandy’s #Frankenstorm tag gathers momentum on Twitter, so does the size of the actual storm.

In its 8am EDT outlook, the National Hurricane Center (NHC) noted that tropical storm force winds extend outward up to 275 miles from the center and that Sandy’s wind field is expected to grow in size during the next couple of days.

Sandy is currently a Category one hurricane on the Saffir-Simpson hurricane wind scale, but some weakening is possible during the next day or so, the NHC said.

The current forecast track from the NHC brings Sandy to landfall along the Delaware/New Jersey coastline early Tuesday (see below).

Regardless of the exact track of the storm, these images show the size of the wind and rain event that the U.S. east coast can expect.

 

Check out iii.org for answers to all your insurance coverage questions.

A tropical storm watch is now in effect for Southeast Florida and the Upper Keys as Tropical Storm Sandy continues to strengthen and moves towards Jamaica.

In its 8am EDT outlook, the National Hurricane Center (NHC) says Sandy is expected to become a hurricane before it reaches Jamaica and Cuba, later today.

The NHC notes:

Tropical storm conditions are expected to reach Jamaica this morning…with hurricane conditions expected by this afternoon. Tropical storm conditions are expected in portions of Haiti by this afternoon. Hurricane conditions are possible in eastern Cuba by this evening. Tropical storm conditions are expected in the central Bahamas by early Thursday…and in the northwestern Bahamas by Thursday afternoon.”

It adds:

Tropical storm conditions are possible along the southeast Florida coast…the Upper Keys…and Florida Bay by Friday morning.”

Jamaica, Haiti and the Bahamas are members of the Caribbean Catastrophe Risk Insurance Facility (CCRIF), a multinational insurance pool developed by the World Bank. Funded by premiums paid by participating countries, the facility provides early payout to members after a major hurricane or earthquake.

Check out I.I.I. hurricane facts+stats.

The National Hurricane Center (NHC) has given a tropical system located about 300 miles south of Jamaica a 90 percent chance of becoming a tropical cyclone during the next 48 hours.

In its 8am EDT tropical weather outlook, the NHC said:

Heavy rains from this disturbance are likely to spread over Jamaica…Hispaniola…and Eastern Cuba during the next several days. These rains could produce life-threatening flash floods and mud slides…especially in areas of high terrain.”

A Hurricane Hunter aircraft is scheduled to investigate the system this afternoon.

With six weeks left to the official end of the 2012 Atlantic hurricane season which runs from June 1 to November 30, it’s important to keep an eye on the potential track of “Sandy”.

Here’s a visual of the latest modeled tracks for the system, courtesy of Weather Underground. It’s worth noting that some of the computer models have “Sandy” approaching the east coast by next weekend:

October hurricanes can be costly.

Remember 2005? Hurricane Wilma today ranks as the fourth most costly hurricane in the U.S., according to the Insurance Information Institute (I.I.I.).

Hurricane Wilma, which made landfall as a Category 3 hurricane down in Florida on October 24, 2005, produced insured losses of $10.3 billion, or $11.7 billion in 2011 dollars.

October is Domestic Violence Awareness Month and while providing shelter and security for victims is often the first priority, helping them attain financial or economic security is just as important.

Financial security and access to resources is the number one predictor of whether domestic violence victims will stay in or leave an abusive relationship. And insurance is a key component of financial planning that helps survivors prepare for a better life, according to the Insurance Information Institute (I.I.I.).

Loretta Worters, vice president, I.I.I. says:

The financial cost of leaving an abusive partner can be crushing. Once you decide to leave your partner, you may be solely responsible for providing for yourself and your family and insurance can play a critical role in gaining your financial freedom and self-sufficiency.”

To mark Domestic Violence Awareness Month, the I.I.I. suggests the following financial
strategies for anyone who is leaving or has left an abusive situation:

1. Secure your financial records: It’s essential to prevent identity theft or damage to your credit. Birth certificates, drivers licenses, passports, bank and credit card information needs to be kept with a trusted family member or friend, or in a bank safety deposit. It’s also a good idea to set up a P.O. Box to conceal all your important mail from your abuser.

2. Know where you stand financially: Knowledge is power, and it is critical that you understand where you stand financially. That means knowing your main sources of income, bank account balances, property owned and debts owed.

3. Build a financial safety net: Once you have a good idea of your financial picture, you are in a better position to plan your exit. Begin with estimating your income and expenses to see if the money you earn right now will allow you to meet your basic needs. Also, start a savings plan and create an emergency fund so you have a safety net if things get difficult financially once you leave.

4. Make necessary changes to your insurance plans: If you plan to take a car with you when you leave your abuser, you will need to get separate auto insurance coverage immediately. Also, when you move out of the house, it is likely you will be renting a place to live and will need to purchase a renters insurance policy. If a life insurance policy on your own life is payable to the abuser, and you own the policy, you have the right to change the beneficiary, and probably should.

5. Maintain good credit: Having a good credit report is going to be essential when it comes to starting your new life, as it can help you more easily rent an apartment, get a new credit card and get better rates on your insurance—it can even affect your ability to get a job. Take care of your current debts and avoid missing any payments. Obtain a copy of your credit report and monitor your credit often.

6. Seek assistance: If you are in a precarious financial situation, or have limited money management skills, it may be difficult to implement some of the steps mentioned above so it is important that you use all the assistance available. Local domestic violence programs, libraries, the Internet and faith-based organizations are all places that you can go to get assistance, and many offer free workshops and seminars that can help you with money management.

Just as the second Presidential debate was about to kick off last night, a 4.0 magnitude earthquake struck southern Maine.

The epicenter of the quake was located some 3 miles west of Hollis Center, Maine, west of Portland, but it was felt throughout New England.

The United States Geological Survey (USGS) notes that earthquakes in the central and eastern U.S., although less frequent than in the western U.S., are typically felt over a much broader region:

A magnitude 4.0 eastern U.S. earthquake typically can be felt at many places as far as 100 km (60 miles) from where it occurred, and it infrequently causes damage near its source. A magnitude 5.5 eastern U.S. earthquake usually can be felt as far as 500 km (300 miles) from where it occurred, and sometimes causes damage as far away as 40 km (25 miles).”

Moderately damaging earthquakes strike somewhere in New England every few decades, according to USGS. Smaller earthquakes are more common in the region and felt roughly twice a year.

The two largest known New England earthquakes occurred in 1638 (magnitude 6.5) in Vermont or New Hampshire, and in 1755 (magnitude 5.8) offshore from Cape Ann northeast of Boston. The Cape Ann quake caused severe damage to the Boston waterfront.

The most recent New England earthquake to cause moderate damage occurred in 1940 (magnitude 5.6) in central New Hampshire.

These numbers help put last night’s earthquake into perspective.

Remember earthquakes are not covered under standard homeowners and business insurance policies. However, coverage is available in the form of an endorsement to a home or business insurance policy.

Check out I.I.I. facts and stats on earthquake insurance.

An annual report by Willis expects North American insurance buyers will see a mix of rising and falling commercial property/casualty rates in 2013.

Modest rate increases in casualty, executive risks and several specialty lines will be balanced by declining rates for non-catastrophe-exposed property programs and other risk areas, according to Willis’ 2013 Marketplace Realities report.

Property risks can expect flat renewals, while buyers with non-CAT exposed risks will experience decreases in the 5 percent to 10 percent range, Willis says.

Meanwhile casualty lines are experiencing some upward movement and general liability buyers are facing increases in the 3 percent to 7.5 percent range, with excess rate increases running higher on some programs.

Willis experts also project price firming will continue into 2013 for some specialty risks, including primary directors and officers liability, employment practices liability and some segments of construction.

In introductory remarks, Willis Group Chairman and CEO Joe Plumeri noted that there are still big savings to be had, even in a market that is firming after years of soft rates. Brokers and buyers just have to work a little harder and look a little deeper to find them.

Here are the key price predictions for 2013 outlined in the report:

Property:

Non-CAT Risks: -5% to -10%

CAT-Exposed Risks: Flat

Casualty:

General Liability: +3% to +7.5%

Umbrella: Flat to +7.5%

Excess: +2% to +15%

Workers’ Comp: +2.5% to +7.5%; up to +20% in CA

Auto: +2% to +5%

Executive Risks:

Directors & Officers: Flat to +10%

Errors & Omissions: +5% or more with good loss experience; +10 to +25% with poor loss experience

Employment Practices Liability: Flat to +10%

Fiduciary: Flat to +15%

Cyber: Flat to -3%; more competitive for first-time buyers

Benefits: +8% to +10%

Business Insurance has more on this story.

It’s been commonly understood that insurance fraud accounts for up to 10 percent of property/casualty insurance industry losses, but a new survey of U.S. insurers indicates that fraud may be much more prevalent.

Some 45 percent of insurers responding to the FICO and Property Casualty Insurers Association of America (PCI) survey estimated that insurance fraud costs represent 5-10 percent of their claims volume, while 32 percent said the ratio is as high as 20 percent.

The survey also found that more than half (54 percent) of insurers expect to see an increase in the cost of fraud this year on personal insurance lines, while less than three percent of insurers expect to see a decline in the cost of fraud on personal lines.

Insurers responding to the survey said they expect the most significant increase in the cost of fraud will affect personal property, workers’ compensation and auto insurance. The majority (61 percent) attribute the increases in fraud to sustained economic hardship by policyholders.

While only 17 percent of insurers attributed the expected increase in fraud to a rise in the sophistication of criminal gangs, 60 percent expect a rise in workers compensation fraud rings, and 61 percent expect a rise in auto fraud rings.

The survey also found that 76 percent of insurers believe there is increased risk of fraud in no-fault states compared to states with tort systems.

When asked about fraud-fighting initiatives that can have the greatest impact on insurance fraud, predictive analytics was identified as the most effective by 45 percent of respondents.

Insurers also included the use of anti-fraud teams for specific books of business (37 percent), link analysis for detecting fraud (31 percent), business rules for stopping known fraud types (29 percent), and external databases (29 percent) as other useful approaches to fight fraud.

In a press release, Russ Schreiber, who leads FICO’s insurance practice, says:

The insurance fraud problem is estimated to exceed $40 billion globally and is showing no signs of abatement. The findings of the FICO PCI Insurance Survey demonstrate that insurers recognize the problem and are looking to improve ways to detect and prevent fraud earlier in the claims process.”

Insurance Journal has more on this story.

Check out I.I.I. facts+statistics on insurance fraud.

Global insurance rates increased by 1.4 percent in the third quarter, unchanged from the second quarter, according to a quarterly market briefing just released by Marsh.

Figures showing the typical renewal rate changes suggest that increases, although varying across lines of business, may be stabilizing, Marsh said.

The Marsh Risk Management Global Insurance Index, a composite of changes in insurance costs over a rolling 12-month period, also showed that prices across major lines of insurance increased by 0.9 percent in the third quarter.

In a press release Andrew Chester, CEO of Bowring Marsh, says:

While the global insurance market continues to be in a state of clear transition, the results for individual insureds vary significantly. With capacity and appetite for well-managed risk still strong, insureds are still able to achieve favorable results on renewal in many lines of business.”

Data on the U.S. market showed that for the second quarter in a row, U.S. companies were more likely to experience rate increases than decreases in major lines of insurance.

Marsh makes three key points on the U.S. market:

– Although general liability rate increases accelerated in the third quarter, it is too soon to call it a trend. By contrast, workers’ compensation rates stabilized.

– The majority of property insureds experienced rate increases in the third quarter. However, the lack of a significant hurricane restricted insurers’ efforts to increase rates.

– In excess casualty lines, more clients are seeing rate increases in their excess liability programs compared to the last quarter. (Note: Marsh said that underwriters continue to show caution around particular risks. For example, fracking, cyber liability, and wildfires continue to be top concerns for excess liability underwriters in the U.S., with many tightening terms and conditions when these risks are involved.)

Check out I.I.I. information on industry results and market conditions.

Profitability in the property/casualty insurance industry rebounded during the first half of 2012, propelled chiefly by a sharp drop in catastrophe losses and a marked acceleration in premium growth, according to I.I.I. president Dr. Robert Hartwig.

In his commentary on the industry’s 2012 first half results, Dr. Hartwig notes that catastrophe losses plunged by 43 percent ($10.6 billion) to $13.8 billion in the first half of this year from $24.4 billion in the first half of 2011.

Net written premiums were up 3.6 percent in the first half—the best first half performance since 2005—and a full point above the 2.6 percent gain recorded in the year-earlier period.

What did this mean for industry profitability?

The P/C industry reported an annualized statutory rate of return on average surplus of 5.9 percent during the first half of 2012 (6.2 percent after excluding mortgage and financial guaranty insurers), up from 1.7 percent in the first half of 2011 (2.3 percent after excluding mortgage and financial guaranty insurers).

Overall net income after taxes (profits) in the first half reached $16.4 billion, up 245.2 percent from $4.8 billion a year earlier.

Dr. Hartwig comments:

Ever since plunging by 96 percent during the height of the global financial crisis in 2008, net income after taxes (profit) had been rebounding fairly steadily and robustly as asset prices recovered, underlying claim frequency and severity trends remained relatively subdued and the release of prior year reserves bolstered the bottom line. That was, until Mother Nature got her way in 2011.

So far in 2012, however, Mother Nature has been much less cruel and profits and profitability are once again rebounding as a result.”

Looking ahead, Dr. Hartwig notes that catastrophe losses during the third quarter were relatively benign and stock markets surged:

Though both developments are highly favorable to the industry, it is impossible to fully anticipate catastrophe loss activity and the investment environment through year’s end. Nevertheless, it is possible that the P/C insurance industry in 2012 could match or even surpass the post-crisis profit peak of $35.2 billion reached in 2010.”

The industry’s results were released by ISO and the Property Casualty Insurers Association of America (PCI).