Archive for May, 2013

On the eve of the official start of the 2013 Atlantic hurricane season, we highlight the important work of NOAA’s Hurricane Hunters – the pilots who fly directly into the eye of the storm.

Data collected during hurricanes by these sensor-packed aircraft and from a variety of other sources are fed into numerical computer models to help forecasters predict how intense a hurricane will be, and when and where it will make landfall.

As forecasts are only as good as the data received, data collected by the Hurricane Hunters help forecasters make accurate predictions during a storm, and help researchers better understand hurricanes and improve their forecast models.

While hurricane season officially starts June 1 and ends on November 30, it’s important to note that hurricanes don’t always follow the defined calendar. The 2012 Atlantic hurricane season saw the formation of two tropical cyclones – Alberto and Beryl – in May. This was the first occurrence of two pre-season named storms in the Atlantic basin since 1908.

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

Oceanic and atmospheric conditions in the Atlantic basin are expected to produce more and stronger hurricanes during the 2013 Atlantic hurricane season which starts this Saturday June 1 and lasts until November 30, according to the National Oceanic and Atmospheric Administration (NOAA).

In its 2013 Atlantic hurricane season outlook, NOAA’s Climate Prediction Center is forecasting an active or extremely active season this year.

This means there is a 70 percent chance of 13 to 20 named storms (winds of 39 mph or higher), of which 7 to 11 could become hurricanes (winds of 74 mph or higher), including three to six major hurricanes (Category 3, 4 or 5; winds of 111 mph or higher).

These ranges are well above the seasonal average of 12 named storms, six hurricanes and three major hurricanes, NOAA says.

Dr. Kathryn Sullivan, NOAA acting administrator reminds us:

As we saw first-hand with Sandy, it’s important to remember that tropical storm and hurricane impacts are not limited to the coastline. Strong winds, torrential rain, flooding and tornadoes often threaten inland areas far from where the storm first makes landfall.”

There’s no better time than National Hurricane Preparedness Week for residents to take steps to prepare their home, family, and business against hurricanes and other
severe weather.

Also check out disaster preparedness information from the I.I.I. to make sure you are prepared and organized before a storm hits.

It’s a little ironic that in the weeks preceding the devastating May 20, 2013 Moore, Oklahoma tornado, there were numerous reports of how 2013 tornado activity was at a record low.

Unfortunately, these headlines may give the mistaken impression that the United States is in a period of lower risk for tornadoes, and/or that the costs from such events are declining.

Yet as we have seen repeatedly during hurricane, tornado and wildfire seasons, it only takes one storm, or event, to remind us of the dangers and ongoing risks.

Dr. Robert Hartwig, president and chief economist of the I.I.I., notes that the U.S. is actually in the midst of the most expensive period in recorded history for thunderstorm events, which include damage from tornadoes.

The I.I.I. reports that severe thunderstorms, including tornado events, cost $14.9 billion in insured losses in 2012, but that number stood at $25 billion a year earlier because of the two costliest tornado events in U.S. history:

– The $7.5 billion in insured damages (in 2012 dollars) arising out of the late April 2011 twisters that struck multiple states, most notably Alabama, which accounted for nearly $3 billion of the total damages, and;

– The $7 billion in insured damages (in 2012 dollars) that resulted from the May 2011 tornado outbreak, which also impacted numerous states. Joplin, Missouri, was the hardest hit community, incurring $2.2 billion of the $7 billion in damages, making that tornado the single largest insurance event in Missouri’s history.

Dr. Hartwig adds:

Over the past five years, insurers paid some $75 billion to victims of these events. As the events in Moore tragically demonstrate, this trend toward more violent and destructive weather patterns shows no signs of abating.”

A post on the Wall Street Journal Money Beat blog suggests that property/casualty insurers will face at least a few billion dollars of insured losses from the May 20, 2013 Moore, Oklahoma tornado, according to rough calculations by Wall Street analysts.

Check out the New York Times for panoramic images taken Tuesday comparing the same locations before and after the storm struck Moore.

The workers compensation insurance market showed some signs of recovery in 2012, according to the annual “State of the Line” report from NCCI.

Among the positives, the combined ratio for workers compensation improved for the first time since 2006, premium grew for the second consecutive year, and clam frequency declined significantly for the first time since 2009.

The workers compensation calendar combined ratio was 109 in 2012, a six-point decrease from 2011. While a 109 combined ratio is far from satisfactory, the decline is welcome, NCCI said.

The accident year combined ratio also experienced a six-point improvement, declining to 108 in 2012, following 114 in 2011.

Net written premium (including state funds) also increased by 9 percent to $39.63 billion in 2012, after an 8 percent increase in 2011 – a welcome shift following the cumulative 27 percent decline in premium from 2006-2010.

In other good news, lost-time claim frequency improved significantly in 2012 – down 5 percent on average in NCCI states. This is slightly larger than NCCI’s long-term annual estimate of a 2-4 percent decline per year.

NCCI president and CEO Steve Klingel noted that while the positives are beginning to outweigh the negatives, there remains great opportunity for improvement:

Our optimism is tempered by knowing that external forces such as the economy, healthcare reform, and new legislation may still negatively affect the market. But for now, we view the overall industry condition as encouraging.”

Check out Insurance Journal for more on this story.

I.I.I. facts and statistics on workers comp are available here.

The United States and Japan will remain the largest insurance markets in 2020, while China will rise to third place, according to a study by Munich Re.

Munich Re’s Insurance Market Outlook 2013 indicates that the global insurance market is set for strong growth in the years to come, with growth rates especially strong in emerging countries.

As a result the global rankings of the largest primary insurance markets will change over time.

While China was only in 15th place in 2000 in terms of total premium income, in 2010 it had already reached sixth place, and in 2020 is likely to be ranked as the third largest market.

Brazil and India will also be in the top 10 in 2020. However, Munich Re does not expect the dominant position of the U.S. market, followed by Japan, to have changed by the end of the decade.

Munich Re estimates that until 2020 the property-casualty insurance market as a whole will grow by approximately 50 percent compared with 2012 to €1.85tn ($2.38tn), and the life insurance market by almost two-thirds to €3.1tn.

Growth in insurance and reinsurance in emerging countries will be significantly stronger than in industrialized countries.

Nevertheless, the mature markets in North America, western Europe and the industrialized countries of the Asia/Pacific region remain the dominating growth force. These markets will account for a 73 percent share of primary insurance premiums by 2020, around 10 percentage points lower than in 2012. The share generated by the emerging countries in Asia will move up from 8 percent to 16 percent.

Munich Re notes:

Approximately half of all the additional premium earned between 2013 and 2020 will come from the USA, China and Japan. In this respect, saturated markets and emerging markets both represent great potential for growth in insurance and reinsurance alike.”

 

A continued threat of a terrorist attack or political violence exists in 44 percent of countries, according to Aon’s 2013 Terrorism and Political Violence Map.

Aon says this trend is especially prevalent in African and the Northern African countries, with the worst affected being Afghanistan, India, Iraq, Nigeria, Pakistan, Russia, Somalia, Syria, Thailand and the Yemen.

The Middle East and North Africa region saw the highest proportion of countries with a terrorism and sabotage peril, at 85 percent.

Despite 19 countries showing improved terrorism and political violence ratings, including the United Kingdom and Germany, Aon’s analysis suggests growing awareness is needed for businesses looking to expand.

A press release cites Neil Henderson, head of Aon Risk Solutions’ Crisis Management Terrorism team:

Terrorism is having an increasing impact on today’s global organizations and terrorist attacks are now regarded as a foreseeable risk. An attack not only on, but near an organization’s premises can result in human casualties, property damage, business interruption, legal liability issues and long term damage to brand and reputation.”

The map measures political violence and terrorism in 200 countries and territories to help companies assess the risk levels of exchange transfer, political violence and terrorism.

Check out I.I.I. facts and statistics on terrorism risk.

Online insurance exchange MarketScout says the U.S. composite rate index for property, casualty and professional liability business rose 5 percent in April 2013, matching the increase from March 2013.

Commercial property and workers’ compensation rates led the way with rate increases of 6 percent in April.

Jumbo accounts (over $1 million premium) once again came into favor as the rate increases moderated from 5 percent in March to 3 percent in April.

Richard Kerr, CEO of MarketScout, said:

The market is bumping along in a continued slow but steady path towards overall increases. For the rest of 2013, we expect some months with lower composite increases than prior months but the general direction of rates will be upward, unless new capacity enters the market.”

Kerr added that recent movements by Berkshire Hathaway could affect the market if the plan is to enter the primary property and casualty market in a meaningful way.

Berkshire Hathaway recently hired four senior executives from AIG to help it expand its commercial insurance operations.

The Wall Street Journal has more on this story.

Despite recognizing natural catastrophes as a growing threat, many companies have insufficient mitigation plans in place, and considerably more effort will be required before the risks of natural catastrophes are adequately controlled, according to a global survey by Zurich Insurance Group.

The study, conducted in January 2013 by the Economist Intelligence Unit and sponsored by Zurich, polled 170 executives from medium-sized and large companies around the world.

The findings confirm a widespread perception among organizations that natural catastrophes are becoming both more frequent and more severe, and that commensurate importance is assigned to assessing and mitigating the associated risks.

Survey respondents were asked to rate the severity of potential disruptions to distinct areas of their business operations in the event of a natural catastrophe occurring within the next three years.

Combining the top two most severe ratings on a scale of five puts continuity of IT support as facing the most severe disruption (46 percent), followed by supply-chain logistics (44 percent) and business-critical functions (44 percent).

While most companies have taken some steps to mitigate associated threats to IT systems, the adoption of systematic, integrated approaches to risk management is surprisingly low, the survey found.

Fewer than half (45 percent) of the companies surveyed use some form of scenario analysis to assess the risks of natural catastrophes.

Moreover, while a large majority of respondents say they have addressed the challenges of mitigating IT risks from natural catastrophes, only 31 percent say that their risk-management strategy explicitly addresses the interconnectedness of different types of risk.

Zurich says the findings suggest that while businesses are aware of the challenges they face, most have not yet developed a holistic approach to confronting these risks.

Company executives consider inadequate budgets for business-continuity planning and/or disaster recovery as the biggest obstacle to adopting more effective risk management strategies. An inability to present compelling business cases for risk management initiatives is cited as another significant hurdle.

Canadian Underwriter has more on this story.

With the June 1 start of the 2013 Atlantic hurricane season just one month away the Insurance Information Institute (I.I.I.) is urging people to prepare for heightened flood risks that come with hurricanes and tropical storms.

The I.I.I. notes that the most recent two hurricane seasons have shown how devastating the consequences of seasonal flooding can be, with losses felt well beyond the high risk areas nearest the water:

While coastal states have an increased risk of flooding during hurricane season, it is important to note that flood risks extend far beyond those areas. Some of the most severe flooding has occurred when the remnants of a hurricane or tropical storm system traveled inland, such as Hurricane Irene two years ago, producing heavy rainfall hundreds of miles from the coast. For this reason, it is important to have coverage no matter where you live.”

Flood damage is excluded under standard homeowners and renters insurance policies. Residential flood insurance is available in the form of a separate policy primarily from the National Flood Insurance Program (NFIP).

A 2012 poll by the I.I.I. found that 13 percent of American homeowners had a flood insurance policy, virtually unchanged from the 14 percent of homeowners in 2011, but well below the 17 percent who said they purchased flood insurance in May 2008.

Many homes that sustained flood damage from Superstorm Sandy did not have flood insurance, according to joint research by the Wharton Risk Center and Resources for the Future.

For example, along the entire New York coast, take up rates were lower than 30 percent in most ZIP codes. Take-up rates along the New Jersey coast were apparently higher than New York, particularly in Manhattan.

Check out I.I.I. information on flood insurance here.

While the percentage of auto insurance shoppers has reached a six-year low, the percentage of those shoppers who select a new insurer is at a six-year high, according to the just-released J.D. Power and Associates 2013 U.S. Insurance Shopping Study.

The study found that only 23 percent of auto insurance customers shopped for a new policy in the past 12 months, but 45 percent of those that did ultimately switched insurer.

J.D. Power notes that the proportion of insurance customers who shop has decreased from a high of 33 percent in 2011, while the switching rate among shoppers has steadily increased from a low of 33 percent in 2010.

The findings come as overall customer satisfaction with auto insurance companies has improved to an all-time high of 804 (on a 1,000 point scale) in 2012. Overall new buyer satisfaction with the auto insurance shopping experience averages 828 for the third consecutive year.

In a press release, Jeremy Bowler, senior director of the global insurance practice at J.D. Power and Associates says:

Unlike many other industries we measure, policy retention rates for personal auto insurance in the U.S. market average 90 percent. With customer satisfaction generally high and climbing, this industry has witnessed fewer customers shopping, but those who are shopping are serious about switching insurers.”

Another key takeaway from the study is that insurer websites are becoming increasingly important in the new-buyer purchase experience, increasing to 24 percent in 2013, up from 22 percent in 2012.

The call center representative is less influential among customers selecting a new insurer in 2013 (20 percent), compared with 2012 (22 percent), while the local agent remains as influential as in previous years.

As more shoppers are buying their insurance online, J.D. Power says it is vital that insurers provide a high-quality and effective Web experience, whether customers are accessing the site via a desktop computer, a tablet or a smartphone.

The study examines insurance shopping and purchase behavior and overall satisfaction among customers who recently purchased insurance across three factors (in order of importance): price, distribution channel, and policy offerings.

The 2013 U.S. Insurance Shopping Study is based on responses from more than 16,900 shoppers who requested an auto insurance price quote from at least one competitive insurer in the past 12 months.