A Happy—and Safe—Halloween

As we put the finishing touches to our Halloween costumes we’ve rounded up some of the not-so-spooky posts from around the insurance blogosphere to keep the ghouls and ghosts away.

First up is Erie Insurance with its post 4 Lesser-Known Halloween Safety Tips. Read all the way to the end and you’ll learn of the dangers of glow sticks. As a parent to two young children who gravitate towards anything that glows, I appreciate the tip that glow sticks cause an increase in poisoning on Halloween. Make sure to tell your kids to keep them away from their mouths.

Next up is Zillow and HomeInsurance.com with an excellent post on how Halloween carries potential financial risk for homeowners. Whether it’s Halloween-related fires leading to property damage or liability claims from trick-or-treaters injured on your property, some practical safety steps and a homeowners or renters insurance policy can help protect your most valuable assets.

Do you have a secure place to park your car? In this Insurance Institute for Highway Safety (IIHS) post (from 2013)  we learn  that vehicle vandalism peaks on Halloween with nearly twice as many insurance claims on October 31 as on an average day. Such claims include things like slashed tires and smashed windows. Hence the importance of comprehensive auto insurance coverage.

And for the insurance fans  among you, last but not least is a post on WillisWire, reflecting not on make-believe monsters, but on the scariest real risks faced by their clients during the year. Which one keeps you up at night? Have your say and take their poll.

Wishing all our readers a safe and Happy Halloween!

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Employment Matters Cost

If you’re a small or medium-sized business with fewer than 500 employees you might think that none of your employees would file discrimination charges against your company.

But a just-released survey by Hiscox dispels that myth, showing just how costly employment matters can be for small and medium-sized enterprises (SMEs)–and how important it is to have employment practices liability (EPL) insurance.

A representative study of 446 closed claims reported by SMEs with fewer than 500 employees found that some 19 percent of employment charges resulted in defense and settlement costs averaging a total of $125,000. On average, those matters took 275 days to resolve, Hiscox found.

While the average self-insured retention (deductible) for these charges was $35,000, without employment practices liability insurance, these companies would have been out of pocket by an extra $90,000, Hiscox said.

“Most employment matters don’t end up in court, but for those that do, the damages can be substantial,” Hiscox noted.

Its survey cites data showing the median judgment is approximately $200,000, which is in addition to the cost of defense. About 25 percent of cases result in a judgment of $500,000 or more.

Where a business is located can make a big difference in the potential employment exposure it faces.

The 2015 Hiscox Employee Lawsuit Handbook found states with the highest risk of employees filing lawsuits are: New Mexico (66 percent higher than national average), Washington DC (65 percent higher), Nevada (47 percent higher), Alabama (41 percent higher) and California (40 percent higher).

Overall, U.S.-based companies of all sizes have at least an 11.7 percent chance of having an employment charge filed against them, Hiscox found.

Claims Journal has more on this story here.

Wondering what’s covered by EPL insurance? The Insurance Information Institute (I.I.I.) explains all here.

 

Bucking the Rating Trend

Broker Willis has just published its commercial insurance rate predictions for 2016.

What’s the outlook for insurance buyers?

Overall, the property/casualty insurance market continues to soften and Willis predicts further softening ahead, fueled by relatively benign losses and an oversupply of capacity from traditional and non-traditional sources.

For 2016, 10 lines of insurance–property, casualty, aviation, energy, health care professional, marine, political risks, surety, terrorism and trade credit–are expecting decreases.

In contrast, just five lines of insurance–cyber, employee benefits, errors & omissions (E&O), fidelity and kidnap & ransom–are expecting increases.

The main exception to the overall softening trend is in cyber and E&O insurance, Willis reports, where the growing threat of cyber intrusion and data theft is sending rates upward.

By how much?

For retailers with POS (point-of-sale) exposures and large health care companies, rate increases are up to an eye-opening 150 percent at renewal, with additional increases on excess layers.

In fact most buyers of cyber insurance are seeing primary premium increases of up to 15 percent, Willis says. For smaller organizations (with revenues less than $1 billion) lower premium increases are typical.

What about terms and conditions?

Willis observes that underwriting requirements continue to rise and cyber insurers are also increasing retentions, reducing capacity and exiting certain sectors.

Despite the reduction in capacity by some carriers, available limits in the cyber marketplace are around $350 million to $400 million.

Willis also predicts the marketplace for first-time buyers of cyber insurance (except for POS retailers and large healthcare organizations) will continue with relatively favorable terms, conditions and pricing.

Willis offers this single piece of advice to buyers of cyber insurance:

In approaching the markets, be ready to identify key investments in security and privacy protections over the past policy year that will help differentiate you from your peers.”

The I.I.I.’s new paper Cyber Risks: Threat and Opportunities sheds more light on the rapidly evolving market for cyber insurance.

Cyber Insurance: Growing and Innovating

The Internet of Things (IoT) is expanding rapidly–even permeating the minds of five-year olds.

My own Kindergartener’s query from the back of the car during a routine drive to swim class the other day is a good example:

“Mummy, how did God know to create all these things that we need?” As I paused to consider the appropriate response, he answered for me: “You can just ask Siri, or Google it.”

Just how far we’ve come in our technological transformation is reflected by the development of innovative insurance products to cover the associated–and growing–risk.

A new white paper from the Insurance Information Institute (I.I.I.) Cyber Risk: Threat and Opportunity which I co-authored with I.I.I. president Dr. Robert Hartwig, offers us a glimpse of how cyber insurance has evolved as a product since the mid- to late-1990s.

From a coverage that has its origins in the so-called “Y2K” or Millennium bug that prompted fears the Year 2000 date change would cause widespread computer failure, cyber coverage in the U.S. took off in response to the enactment of numerous privacy and data breach notice laws across the country.

More than 60 insurance carriers now offer stand-alone cyber insurance policies, the I.I.I. says, and interest in this coverage continues to grow following numerous high profile data breaches. Broker Marsh estimates the U.S. cyber insurance market was worth over $2 billion in gross written premiums in 2014.

And while there are many guesstimates out there, PwC suggests the global cyber insurance market could grow to at least $7.5 billion in annual premiums by the end of the decade. PwC also suggests insurers need to move quickly to innovate before a disruptor such as Google enters the market.

No business or industry is immune from the cyber threat.  Our paper takes a look at where the threats are coming from and  the challenges that cyber insurers face writing this coverage given  the rapidly evolving nature of cyber attacks.

How insurers manage these risks while creating products for this multi-billion market opportunity as the legal and regulatory landscape becomes more defined will determine how best we all are protected from cyber risks in the years to come.

NOAA: Warmer, Wetter Winter Ahead

Those of us in the Northeast still thawing out from the last two winters will be relieved to hear that this year’s winter is likely to bring warmer and wetter conditions thanks to El Niño.

NOAA’s just-released 2015 U.S. Winter Outlook (December through February) calls for cooler and wetter weather in the South, and above-average temperatures in the West and across most of the Northern tier states.

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That’s not to say there won’t be snow.

NOAA says this year’s El Niño, among the strongest on record, is expected to influence weather and climate patterns this winter by impacting the position of the Pacific jet stream.

In the words of Mike Halpert, deputy director, NOAA’s Climate Prediction Center:

A strong El Niño is in place and should exert a strong influence over our weather this winter. While temperature and precipitation impacts associated with El Niño are favored, El Niño is not the only player. Cold-air outbreaks and snow storms will likely occur at times this winter. However, the frequency, number and intensity of these events cannot be predicted on a seasonal timescale.”

Other factors that can play a role in the winter weather NOAA says include the Arctic Oscillation, which influences the number of arctic air masses that penetrate into the South and nor’easters on the East Coast, and the Madden-Julian Oscillation, which can impact the number of heavy rain storms in the Pacific Northwest.

Winter storms are historically very expensive for insurers, and the third-largest cause of catastrophe losses, behind hurricanes and tornadoes. Check out the I.I.I.’s insurance-related facts and statistics on winter storms here.

 

 

California Wildfires: A Billion Dollar Loss

Wildfires in 2015 have already caused more damage and financial loss in the United States than in any other year since 2007.

Aon Benfield’s latest Global Catastrophe Recap report reveals that California wildfires during September destroyed more than 2,000 homes and resulted in estimated insured losses of at least $1.1 billion–the costliest since 2007.

The Valley Fire, northwest of San Francisco, and the Butte Fire, southeast of Sacramento, were the most destructive of the fires.

In its report, Aon notes that the Valley Fire left four people dead, destroyed 1,958 residential and commercial structures and damaged 93 others. It is the third-most damaging wildfire in state history.

Total economic losses were estimated beyond $1.5 billion, while preliminary insured losses were put at in excess of $925 million, Aon reports.

The Butte Fire left two people dead and destroyed 475 homes, 343 outbuildings and damaged 45 other structures. It is the seventh most damaging wildfire in state history.

Total economic losses were estimated at $450 million while preliminary estimated insured losses are in excess of $225 million.

With the peak of California wildfire season just beginning, the severity of the September events serves as a reminder of how costly the peril can be for the insurance industry, Aon Benfield said.

Elsewhere around the world, wildfires continued to pose problems in parts of Indonesia as officials declared 2015 the worst year for wildfires since 1997.

One study reported that Indonesia would endure $4 billion in direct and secondary economic losses from the fires in the regions of Sumatra and Kalimantan, Aon said.

The Insurance Information Institute (I.I.I.) provides some useful facts and statistics on wildfires here.

A recent I.I.I. media advisory notes that seven of the 10 costliest wildfires in U.S. history in terms of insured losses have occurred in California. The costliest of these was the 1991 Oakland fire which produced $2.7 billion in claims (in 2014 dollars).

For more on the California wildfires, Janet Ruiz, I.I.I.’s Northern California-based representative can be reached at janetr@iii.org or (707) 490-9375.

Cybersecurity Governance Moves Up Boardroom Agenda

A poll of board directors and executives from Forbes Global 2000 companies finds that cybersecurity is being taken much more seriously in the boardroom these days, as is cyber insurance.

Nearly two-thirds (63 percent) of respondents to the study developed by the Georgia Tech Information Security Center (GTISC) say they are actively addressing computer and information security, up from 33 percent in 2012.

There has also been a significant shift in the number of boards reviewing cyber insurance. Nearly half (48 percent) of respondent boards were reviewing their company’s insurance for cyber-related risks, compared with just 28 percent in 2012.

However, the 2015 survey suggests there may be confusion over what type of insurance to purchase or appropriate coverage limits. Only about half of the respondents (47-54 percent) indicated that they had quantified their business interruption and loss exposure from cyber events.

Almost all boards (90 percent) are reviewing risk assessments, and an increasing number of them (53 percent) are hiring outside experts to assist on risk issues. Interestingly, the highest degree of attention was being paid to cyber risks associated with supplier relationships.

The survey, which was supported by Forbes, the Financial Services Roundtable (FSR), and Palo Alto Networks, found that some of the biggest improvements over time have been organizational.

For example, the majority of boards (53 percent) have established a risk committee, separate from the audit committee, with responsibility for oversight of cyber risk. In 2008, just 8 percent of boards had this in place.

The financial sector far exceeds other industry sectors with 86 percent having a board risk committee separate from the audit committee, followed by the IT/Telecom sector at 43 percent.

Another positive sign? Boards are now placing much more importance on risk and security experience when recruiting board directors, with 59 percent saying their board had a director with risk expertise, and nearly one quarter (23 percent) one with cybersecurity expertise.

Something to bear in mind: the response rate to the 2015 survey was low — with results received from just 6 percent, or 121 respondents at the board or senior executive level at 1,927 Forbes Global 2000 companies.

VW: Reputation Risk Report

We’re well into the second week of the VW emissions scandal fallout and as we scan the latest news headlines it appears that reputation risk-related matters remain front and center.

Multiple  auto manufacturer reputations are on the line especially with the news that the Environmental Protection Agency (EPA) has now broadened its investigation to  look into  at least 27 diesel vehicle models made by BMW, Chrysler, General Motors, Land Rover and Mercedes-Benz.

From ignition switch defects, to exploding air bags, to unintended acceleration and now diesel emissions test cheating the beleaguered auto industry continues to face record recalls and massive reputation damage, not to mention the associated financial impact on stock prices and corporate profits.

After all, more than 25 percent of a company’s market value is directly attributable to its reputation, according to the World Economic Forum.

A global survey of 300 executives by Deloitte notes that a company’s reputation should be managed like a priceless asset and protected as if it’s a matter of life and death.

Some 41 percent of companies that experienced a negative reputation event reported loss of brand value and revenue, Deloitte found.

In the case of VW, the struggle to regain consumer trust in its product and to rebuild its tattered reputation is likely to be protracted and costly.

Criminal investigations, civil fines and penalties and a mounting pile of lawsuits add to the rising volume of liability costs the company will face. Some analysts even estimate the total cost to VW could reach $87 billion.

Consider the following:

–Some €29 billion wiped off VW’s market capitalization in a matter of days after its deception was uncovered, a cost which far outweighs the savings VW made by cutting corners on its diesel vehicles in the U.S., as the New York Times DealBook reports here.

–A refit of 11 million diesel VW and Audi vehicles that have the illegal software, a fix which some analysts have estimated could cost more than $6.5 billion, according to this Reuters report.

–U.S. lawsuits filed against VW are seeking billions of dollars in damage, the Wall Street Journal reports. More than 34 lawsuits filed by U.S. vehicle owners, shareholders and dealerships have been noted so far, and that number is set to grow.

–More than $18 billion in civil penalties and fines, plus other fees for violating the Clean Air Act, based on the Environmental Protection Agency (EPA) notice of violation.

The resignation and replacement of VW’s CEO Martin Winterkorn (now the subject of his own criminal investigation) and widespread criticism of VW’s supervisory board leads us to the potential directors & officers’ exposure facing VW.

A Business Insurance article here explains why VW’s exposure to D&O lawsuits may be limited in the U.S. More on this topic in an excellent post by Kevin La Croix of The D&O Diary blog.

The Insurance Information Institute (I.I.I.) explains why a business should consider purchasing D&O insurance here.