Archive for May, 2014

A report just released by the National Highway Transportation Safety Administration (NHTSA) puts a $277 billion price tag on the economic costs of traffic crashes in the United States in 2010, a 20 percent increase over its 2000 data.

The economic costs are equivalent to approximately $897 for every person living in the U.S. and 1.9 percent of U.S. Gross Domestic Product, the NHTSA says, and based on the 32,999 fatalities, 3.9 million non-fatal injuries, and 24 million damaged vehicles that took place in 2010.

Included in these economic costs are lost productivity, medical costs, legal and court costs, emergency service costs (EMS), insurance administration costs, congestion costs, property damage and workplace losses.

When you add in the $594 billion societal cost of crashes, such as harm from the loss of life and pain and decreased quality of life due to injuries, the total impact of crashes is $877 billion.

The following chart breaks out the economic costs:

It’s interesting to note that the most significant components were property damage and lost market productivity. In dollar terms, property damage losses were responsible for $76.1 billion and lost productivity (both market and household) for $93.1 billion.

The NHTSA explains that for lost productivity, these high costs are a function of the level of disability that has been documented for crashes involving injury and death. For property damage, costs are mainly a function of the very high incidence of minor crashes in which injury does not occur or is negligible.

Another takeaway from the survey is the impact of congestion, which accounts for some $28 billion, or 10 percent of total economic costs. This includes travel delay, added fuel consumption, and pollution impacts caused by congestion at the crash site.

There’s a separate chapter of the NHTSA report devoted to congestion impacts that includes some fascinating data.

For additional data on motor vehicle crashes, check out I.I.I. facts and statistics on highway safety.

We’re honored to be hosting Cavalcade of Risk #209. For those of you not already in the know, the CavRisk blog carnival is a round-up of risk and insurance-related posts from around the blogosphere.

With the official start of the 2014 Atlantic hurricane season just days away, there’s no better place to begin this week’s Cav than with a post on hurricane risk pricing. In Hurricane Pricing At All Time Low, Paul Dzielinski of The Dec Page argues that residual market boards and politicians should be taking advantage of this pricing arbitrage to buy more reinsurance.

The techniques insurers use to evaluate and ultimately price a risk have come a long way over the years. InsureBlog’s Henry Stern steps outside his comfort zone with this post on predictive analytics (aka “modeling”) and how this innovative risk assessment tool is used in the commercial risk field in Predictive Analytics (A Risky P&C Post).

Data Breaches are becoming more common in businesses both large and small and these attacks typically are not covered under your standard general liability insurance policy. In Cyber Liability Insurance – A Definition, R J Weiss CFP of WeissIns provides a timely overview of cyber liability insurance and what it covers.

The Supreme Court upheld the Affordable Care Act with one major exception; it declared that states did not have to expand their Medicaid eligibility rules. This puts in play a risky proposition for several states and their constituents. In ACA, Medicaid Enrollment and the Woodwork Effect Jason Shafrin at The HealthCare Economist explains that the ACA may have indirectly increased Medicaid enrollment even in states that did not change their eligibility rules, while David Williams at Health Business Blog highlights the risk to rural hospitals as a result of the refusal of states to tow the line in Medicaid Expansion Rejection Starts to Bite.

And no risk assessment would be complete without a bold prediction into the future. In McDonald’s Workers Fight to Automate Their Jobs, Bob Wilson at workerscompensation.com speculates that for retail and food service employees fighting to double the minimum wage, the true enemy is not the employer, but rather technology and simple economics.

Over and out from us. Jeff Root at http://www.rootfin.com/ will host the next Cavalcade of Risk.

With just over a week to go until the start of the 2014 Atlantic hurricane season, NOAA’s outlook is hot off the press and garnering a lot of attention.

Here’s NOAA’s take on the season by the numbers:

● NOAA is calling for a 50 percent chance of a below-normal season, a 40 percent chance of a near-normal season, and only a 10 percent chance of an above-normal season.

● NOAA predicts a 70 percent likelihood of 8 to 13 named storms (winds of 39 mph or higher), of which 3 to 6 could become hurricanes (winds of 74 mph or higher), including 1 to 2 major hurricanes (Category 3, 4 or 5; winds of 111 mph or higher).

● These numbers are near or below the seasonal averages of 12 named storms, six hurricanes and three major hurricanes, based on the average from 1981 to 2010.

What are the reasons behind NOAA’s predictions for a near-normal or below-normal season?

A key driver of this year’s outlook is the anticipated development of El Niño this summer that is expected to cause stronger wind shear which reduces the number and intensity of tropical storms and hurricanes.

Cooler Atlantic Ocean temperatures this season also suggest fewer hurricanes, NOAA says.

Despite the prognosis for a below-normal or near-normal season, it’s important that coastal residents don’t underestimate the hurricane threat. As Dr. Kathryn Sullivan, NOAA administrator says:

Even though we expect El Niño to suppress the number of storms this season, it’s important to remember it takes only one land falling storm to cause a disaster.”

Note: NOAA’s seasonal hurricane outlook is not a hurricane landfall forecast and does not predict how many storms will hit land or where a storm will strike.

For a round-up of the latest predictions from the major hurricane forecasters check out this post at Dr. Jeff Masters’ Wunderblog.

Check out I.I.I. facts and statistics on hurricanes here.

Global insurance markets are seeing stronger growth, thanks to the economic upswing in many industrialized countries, according to an annual study by Munich Re.

Munich Re’s Insurance Market Outlook 2014 finds that rate increases in a number of high volume markets are also having a positive effect on premium growth.

At the global level, Munich Re expects real overall growth in primary insurance premiums at 2.8 percent this year and 3.2 percent in 2015, influenced mainly by stronger growth again in life insurance.

[In 2013, global insurance markets saw restrained growth of 2.1 percent in real terms, with primary insurance premiums in the life insurance segment growing by just 1.8 percent, due to a number of regulatory one-off effects.]

While in recent years dynamic growth in emerging countries has served as the decisive growth driver of global premium volumes, especially in property/casualty insurance, Munich Re notes that it is the industrial countries whose contribution to growth is currently increasing.

Many emerging countries are currently experiencing a cooling of their economies, and this is expected to have a dampening effect on premium growth in 2014 and 2015.

In the long-term however, Munich Re expects that emerging countries will continue to become more important for the global insurance markets.

The emerging Asian countries will see the highest increases, with their share of global premium volume expected to rise by 5 percentage points, from 9 percent in 2013 to 14 percent in 2020.

The Chinese market, already the fourth-largest primary insurance market with premium volume of over €210 billion in 2013, will more than double by 2020 to become the third-largest market worldwide, according to Munich Re.

Images of wildfires burning in suburban neighborhoods in Southern California are a reminder of the risk faced by many homeowners.

Nearly 2 million, or 14.5 percent, of the 13.7 million homes in California face severe wildfire risk, according to the most recent FireLine State Risk Report by Verisk Underwriting Solutions.

Some 417,500 of these high-risk homes are located in Los Angeles County, while 239,400 are located in San Diego County.

Check out this snapshot from the Verisk report illustrating California’s wildfire risk:

For the latest information on the wildfires burning in the state go to the CAL FIRE (California Department of Forestry and Fire Protection) site.

I.I.I. facts and statistics on wildfires are available here.

Good news for insurers. Latest data points to a promising decline in the national problem of metal theft, according to the National Insurance Crime Bureau (NICB).

In a new report, the NICB notes that in just three years the number of metal theft insurance claims has declined by over 26 percent from 14,676 in 2011 to 10,807 in 2013.

The report reviews metal theft claims from January 1, 2011, through December 31, 2013.

During this period, 41,138 insurance claims for the theft of copper, bronze, brass or aluminum were handled – of which 39,976 (97 percent) were for copper alone.

The NICB notes that when the number of metal theft insurance claims per month and monthly average copper prices are compared, the number of claims filed is found to have a statistically significant correlation with the price of copper.

Tightening controls on the sale of scrap metal have had a positive impact in local communities, the NICB says.

Ohio still ranks first of all states generating 4,144 metal theft claims in 2013, followed by Texas (2,827), California (2,489), Pennsylvania (2,345) and Georgia (2,067).

New York-Newark-Jersey City, NY-NJ-PA (1,725 claims) was the leading statistical area generating the most metal theft claims.

More on the link between copper prices and incidents of metal theft in this NICB video.

If you haven’t read it already, the April edition of the Global Catastrophe Recap Report by Aon Benfield’s Impact Forecasting puts some numbers around the thunderstorm events that devastated parts of the United States last month.

According to the report, severe weather and flash flooding that caused extensive damage across more than 20 states in April will likely be the first billion-dollar economic loss event of 2014 attributed to convective thunderstorms.

At least 39 people were killed and 250 injured amid nearly 70 confirmed tornado touch-downs, which occurred across more than 20 states in the Plains, Mississippi Valley, Southeast, Midwest, and Mid-Atlantic.

Economic losses are set to exceed $1 billion, with insured losses minimally in the hundreds of millions of dollars, Impact Forecasting reports.

Another U.S. severe weather outbreak in April led to major damage in parts of the Plains, Midwest and the Mississippi Valley. The most significant damage was due to hail, as hailstones the size of softballs struck the Denton, Texas metro region.

Total economic losses were estimated at $950 million, with insured losses in excess of $650 million, according to the report.

In a press release Adama Podlaha, head of Impact Forecasting, says:

The recent outbreaks of tornadoes, large hail and damaging straight-line winds in the United States have emphasized the importance of historical data analysis for insurers and reinsurers when trying to forecast future losses.”

If you’re wondering how many convective thunderstorm events made the list of significant natural catastrophes in 2013, take a look at this slide from a presentation made by I.I.I. president Dr. Robert Hartwig at the National Tornado Summit in February.

It shows that thunderstorms accounted for six of the nine significant natural catastrophe events with $1 billion economic loss and/or 50 fatalities in 2013.

The more than two-year upward trajectory in rates for commercial insurance in the U.S. is in jeopardy as U.S. insurers, supported by reinsurers, catastrophe bonds and insurance linked securities are finding ample reasons to start fighting over business, according to online insurance exchange MarketScout.

Richard Kerr, CEO of MarketScout noted that the composite rate for U.S. commercial insurance remained in positive territory increasing an average of 2 percent in April 2014, but warned that rate reductions are likely by year end if the current trend continues.

If you are in the market on a daily basis, you can almost feel a change in the wind. No reasonable insurer wants rate reductions. However, everyone seems to feel they are coming.”

By line of coverage, Kerr noted that catastrophic property rates will probably hold steady in the next four months with hurricane season about to start:

If the wind doesn’t blow, get ready for a solid round of rate reductions at year-end.”

On workers’ compensation, Kerr noted that it is and always has been a tough class of business with an extremely long tail:

In the last six months, several major workers’ compensation insurers have exited the market. Many others have dramatically cut back their writings. We expect workers’ compensation insurers to hold steady with small rate increases continuing.”

In its April market analysis MarketScout noted that rates for property, business interruption, BOP, umbrella, auto, workers’ compensation, and D&O all moderated one percent.

By account size, medium accounts ($25,001 to $250,000 premium) were down from plus 3 percent to plus 2 percent. Large accounts ($1 million plus premium) adjusted from plus 3 percent to plus 1 percent.

By industry class, rates for manufacturing, contracting, and public entities all moderated one percent.

Business Insurance reports on this story here.

U.S. businesses are losing more financially from cybercrime, compared to their global peers, but are generally less aware of the cost, according to PWC’s 2014 Global Economic Crime Survey.

As cybercrime continues to increase in volume, frequency and sophistication, PWC’s findings suggest that U.S. organizations are more at risk of suffering financial losses in excess of $1 million due to cybercrime.

According to the study, some 7 percent of U.S. companies lost $1 million or more, compared to just 3 percent of global organizations.

In addition, 19 percent of U.S. organizations lost $50,000 to $1 million, compared to 8 percent of global respondents.

PWC doesn’t elaborate on the reasons for this discrepancy, but other studies have noted that the types and frequencies of attacks vary from country to country.

U.S. companies are also more likely to experience the most expensive types of cyber attacks, such as malicious insiders, malicious code, and web-based incidents, the research suggests.

Despite having more to lose, some 42 percent of U.S. companies were unaware of cybercrime’s cost to their organizations, compared to 33 percent of global respondents, according to PWC.

Yet, overall U.S. companies appear to have a greater understanding of the risk of cybercrime than their global peers.

PWC notes that U.S. organizations’ perception of the risks of cybercrime exceeded the global average by 23 percent.

Also, 71 percent of U.S. respondents indicated their perception of the risks of cybercrime increased over the past 24 months, rising 10 percent since 2011.

Hat tip to CNBC.com which reports on this story here.

Some 5,128 executives from 99 countries responded to the survey, of which 50 percent were senior executives of their respective companies. Some 35 percent represented listed companies and 54 percent represented organizations with more than 1,000 employees.

Big savings are not all they seem, at least when it comes to buying auto insurance.

The just-released J.D. Power 2014 U.S. Insurance Shopping Study finds that poor service is a leading reason why customers shop for and switch to a new auto insurer, rather than price.

Declining satisfaction with new price is also the primary reason customers are less satisfied when they do switch insurer, according to the study findings.

J.D. Power notes that some 30 percent of auto customers shopped for a new insurance provider in 2013, of which 36 percent ultimately switched insurers.

Perhaps surprisingly, increases in premiums do not drive shopping as much as poor experience.

Customers who have a poor experience with their insurer shop at a rate of 28 percent – more than double the rate of shopping among those who experience a premium increase (13 percent).

Another key takeaway is that customers are tolerant of rate increases at a certain level. However, rate hikes of more than $200 can triple the rate of customers who switch insurers.

A press release quotes Jeremy Bowler, senior director of the insurance practice at J.D. Power:

The insurance industry spends billions of dollars each year on advertising, and over the last seven years many of those ads have tried to entice customers with big savings. While switching to a new insurer usually results in savings, the ads make promises of savings that a growing number of new customers don’t believe they’ve received.”

Price, however, is still important in the selection process with eight in 10 customers selecting the lowest-price insurer.

Price is also an increasingly important driver of new-buyer purchase experience satisfaction once customers have selected a new insurer. Overall new buyer satisfaction with the auto insurance buying experience averages 821 (on a 1,000-point scale), down significantly from 828 in 2013.

J.D. Power notes that the decline in satisfaction is driven by a 17-point drop in the price factor, which has the greatest impact on customer satisfaction.

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