Top Ten Posts of 2015

As we get ready to ring out the old and ring in the new, we wanted to share with you our most popular posts in 2015.

Our most-read posts here at Terms + Conditions illustrated how interested our readers are in the advancing technology landscape and its impact on the insurance industry. Self-driving cars, cyber insurance and the sharing economy were all featured among the top 10 posts during the year.

In Self-Driving Cars – With or Without You? we recounted a Time.com writer’s chauffeured ride by a prototype Audi from Silicon Valley to Las Vegas for last year’s Consumer Electronics Show. Self-driving vehicles are no longer a thing of the future, we wrote, and this has evolving implications for insurers.

Our post Cyber Business Interruption Risk Often Underestimated reported on a study by Allianz warning that the impact of business interruption (BI) from a cyber attack is a risk that is often underestimated. It predicted that BI costs could be equal to–or even exceed–direct losses from a data breach.

The growing appetite for cyber insurance among small and mid-sized companies was another popular post.

Two of our most-read posts during 2015 also revisited the impact of Obamacare on workers compensation insurance.

In case you missed them, here’s a complete list of our top 10 posts from the year:

  1. Self-Driving Cars – With or Without You?
  2. WCRI Looks At Impact of Affordable Care Act on Workers Comp
  3. A Revisit: Impact of Obamacare on Workers Comp
  4. Cyber Business Interruption Risk Often Underestimated
  5. More Small and Mid-Sized Companies Buying Cyber Insurance
  6. Cyber Value-At-Risk
  7. Homeowners Claims: A Picture of Volatility
  8. Cyber Losses vs. Property Losses
  9. One Ruling, but Uber Impact
  10. Litigation Trends and the Class Action Factor

Thanks for following. We wish all our readers a happy and healthy new year!

P/C Insurers and Charitable Giving: A Recap

While many parents are putting the final wrappings on gifts from Santa, we thought we’d take a moment to acknowledge the charitable giving of insurers.

As Insurance Journal reminds us here, U.S. property/casualty insurers have increased their charitable giving by an average of 15 percent since 2011, to an industry total of $575 million.

According to a 2015 McKinsey report, an increasing number of insurers are aligning their programs with their business strategy.

While the P/C industry continues to direct almost two-thirds of its giving to three areas – education, health and social services, and community needs – the emphasis has shifted since an earlier study in 2011.

Education funding declined by about half while contributions to health and social services increased by half and contributions to community needs rose by about 70 percent.

The survey also found that while insurers ranked the same three factors for determining the focus of charitable giving at the top of their list in 2014 as in 2011– serving local communities, aligning with business needs and meeting the interests of stakeholders such as employees and customers, the emphasis has shifted.

Some 28 percent of carriers now put local community needs at the top, up from 22 percent in 2011.

And increasing alignment with business needs has seen the biggest shift, with 22 percent now considering this factor most important, up from 14 percent in 2011.

The survey revealed that firms that look for such synergies are more likely to select charitable causes that could lead to opportunities for innovation or building new market knowledge.

The Insurance Journal article cites Bill Ross, CEO of the Insurance Industry Charitable Foundation (IICF):

The more closely you can align charitable giving to your business the greater value generation you will see. That alignment means a lot of things to P/C carriers.

The obvious one is disaster relief but if you look at insurance, the industry is involved with every aspect of life.”

We couldn’t have said it any better.

For information on the insurance industry’s contribution to community development see Impact, the Insurance Information Institute’s online resource.

 

Man-made Disaster Losses Increase in 2015

Natural catastrophes made up the lion’s share of global insured disaster losses in 2015, but a man-made loss was the year’s costliest.

Preliminary estimates from Swiss Re sigma put insured losses from disaster events at $32 billion in 2015, of which $23 billion were triggered by natural catastrophes and $9 billion by man-made disasters.

The explosions at the Port of Tianjin, China in August are expected to lead to claims of at least $2 billion, making it the costliest event of the year and the biggest man-made insured loss in Asia ever, sigma said.

Some 173 people were killed and many more injured in the Tianjin explosions, which damaged and destroyed vehicles, shipping containers, production facilities and surrounding property.

The insured loss estimate is subject to a high degree of uncertainty due to the many different lines of business and coverage impacted, including potentially contingent business interruption,  sigma noted.

An  earlier  report by Guy Carpenter has suggested potential losses of up to $3.3 billion resulting from the Tianjin explosions.

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Insured losses from man-made disasters were up 30 percent in 2015 at $9 billion, from $7 billion in 2014, according to sigma.

However, at $23 billion natural catastrophe insured losses were below the annual average of $55 billion for the previous 10 years.

Losses were caused by various severe natural catastrophes across different perils in 2015, including windstorms, hurricanes, earthquakes, flooding and wildfires.

A February winter storm in the United States was the costliest natural disaster of the year, resulting in insured losses of more than $2 billion.

Low activity during the North Atlantic hurricane season kept the total global insured loss low, sigma noted.

Sadly, approximately 26,000 people lost their lives in disasters this year, double the amount in 2014.

Large disasters in other parts of the world contributed to the high level of fatalities.

The magnitude 7.8 earthquake that struck Nepal and neighboring countries in April triggered a humanitarian catastrophe, killing around 9,000 people.

More than 5,000 people also died in waves of extreme temperatures during the summer season in India, Pakistan, Europe, North Africa and the Middle East.

And more lives were lost due to capsizing of many boats carrying migrants from conflict zones in northern Africa to Europe, often in unseaworthy vessels, sigma noted.

More facts and statistics on man-made  disasters available from the I.I.I. here.

New Era Ahead for Protecting Personal Data in Europe

“Clear rules that are fit for the digital age.” That’s how Vera Jourova, the European justice commissioner, described tough new European data protection regulations just agreed by European policy makers.

The long-awaited reforms, which are expected to take effect in early 2018, will establish one set of rules on data protection across all  28 member nations in the European Union (EU).

As the New York Times reports, the new regulations would apply to any company with customers in the EU, whether or not it is based in the region.

This will expand potential liability for companies, experts note.

What key changes can businesses active in the EU market expect?

Among the policy changes the new law would require companies to inform national regulators within three days of any reported data breach.

The other proposed change that jumps off the page is one that would link sanctions (read: fines) to company revenues.

Policymakers have agreed that fines could total up to 4 percent of a company’s global revenue for the most serious breaches to European data privacy rules. This could amount to billions of dollars, according to this report by the Guardian.

While the tougher fines are seen as a major step forward for consumer protection, they have raised concerns among large tech companies such as Google and Facebook, the NYT says.

It cites Peter Church, a technology lawyer at Linklaters in London:

Europe’s approach to privacy is much stronger than in the United States. There’s a fundamental difference in culture when it comes to privacy.”

The new law will also expand potential liability for companies, bringing increased responsibility and accountability for those controlling and processing personal data, according to this politico.eu article.

Currently the data controller at a company is liable for data breaches in the EU, but Politico notes that once the law takes effect, both the controller and data processors will be jointly liability for any damages.

Business Interruption: Risks and Losses On the Rise

Economic impact from business interruption (BI) is often much higher than the cost of physical damage in a disaster and is a growing risk to companies worldwide, according to a new report from Allianz Global Corporate & Specialty (AGCS).

Its analysis of more than 1,800 large BI claims from 68 countries between 2010 and 2014 found that business interruption now typically accounts for a much higher proportion of the overall loss than was the case 10 years ago.

Both severity and frequency of BI claims is increasing, AGCS warns.

The average large BI property insurance claim is now in excess of €2 million (€2.2 million: $2.4 million), some 36 percent higher than the corresponding average property damage claim of just over €1.6 million ($1.8 million), the global claims  review found.

The vast majority of BI losses are not caused by natural catastrophes, with non-natural hazard events such as human error or technical failure accounting for 88 percent of BI losses by value.

Reported loss estimates from the largest non-natural catastrophe BI events across the insurance industry during 2015 total more than $7 billion so far, with the Tianjin loss potentially accounting for almost half this total.

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Fire and explosion is the top cause of BI loss around the globe by value (2010-2014), with each incident analyzed averaging €1.7m ($1.9 million) in BI costs alone, but there are some major differences regionally.

Storm and flood related losses are notable in Asia, highlighting the region’s continuing economic development and increasing exposure to natural hazards.

Storm is also the top cause of BI loss in the Caribbean and Central America region, accounting for one-third of insurance claims by value.

As Chris Fischer Hirs, CEO of AGCS, says:

The growth in BI claims is fueled by increasing interdependencies between companies, the global supply chain and lean production processes.

Whereas in the past a large fire or explosion may have only affected one or two companies, today losses increasingly impact a number of companies and can even threaten whole sectors globally.”

Check out Insurance Information Institute resources on business interruption insurance here.

Disruptive Change to Continue in 2016

U.S. property-casualty insurers face another year of disruptive change in 2016, according to a new report by Ernst & Young.

In its 2016 U.S. Property-Casualty Insurance Outlook, EY says that digital technologies such as social media, analytics and telematics will continue to transform the market landscape, recalibrating customer expectations and opening new ways to reach and acquire clients.

The rise of the sharing economy, in which assets like cars and homes can be shared, is requiring carriers to rethink traditional insurance models.

An outlook for slower economic growth, along with increased M&A and greater regulatory uncertainty, will set the stage for innovative firms to capitalize on an industry in flux in 2016.

EY’s take:

Insurers that stay ahead of these shifts should reap substantial benefits, while laggards risk falling behind, or even out of the race.”

EY reports that competitive pressures in the insurance industry are building as digital technology erodes the advantages of scale enjoyed by established insurers and empowers smaller players to compete for market share through more flexible pricing models and new distribution channels.

It cites the recent launch of Google Compare, which allows customers to comparison shop for insurance, as the start of a larger wave of insurance tech activity in 2016.

Along with this, customer expectations and behaviors are evolving at a rapid pace, often faster than traditional mechanisms can react.

EY observes:

Driven by their interactions in other digitally enabled industries, such as retail and banking, property-casualty customers are increasingly demanding a more sophisticated and personalized experience–including digital distribution, anytime access, premiums accurately reflecting usage and individual risk and higher levels of product customization and advice.”

Policyholders are also seeking coverage of a broader range of risks, such as cybersecurity and under-protected property exposure, according to EY’s outlook.

Hat tip to Insurance Journal which reported on this story here.

Check out a recent presentation by I.I.I. president Dr. Robert Hartwig titled Insurance, the Sharing Economy, Millennials and More.

Digital Deadwalker Risks Are Growing

This is a good one for the holiday season–and ahead of your commute home.

A majority (78 percent) of U.S. adults believe that distracted walking is a serious issue, but only 29 percent see themselves as the culprit.

The new study by the American Academy of Orthopaedic Surgeons (AAOS)  found that many (46 percent) feel distracted walking is a danger, yet 31 percent admit it is something they are likely to do.

In the words of Alan Hilibrand, MD, AAOS spokesperson:

Today, the dangers of the ‘digital deadwalker’ are growing with more and more pedestrians falling down stairs, tripping over curbs, bumping into other walkers, or stepping into traffic causing a rising number of injuries–from scrapes and bruises to sprains and fractures.”

The AAOS cited a 2013 study that showed a doubling in emergency department hospital visits for injuries involving distracted pedestrians on cell phones between 2004 and 2010 (see our earlier post on that study  here).

So how common is distracted walking?

According to the AAOS, nearly four out of 10 Americans say they have witnessed a distracted walking incident, and just over one quarter (26 percent) say they have been in an incident themselves.

One of the challenges in combating distracted walking may be that people are overly confident in their ability to multitask, the AAOS found.

When asked why they walk distracted, 48 percent of respondents say they just don’t think about it, while 28 percent feel they can walk and do other things, and 22 percent say they are busy and want to use their time productively.

The AAOS  survey which was conducted by polling  firm IPSOS  involved more than 2,000 respondents nationally and another 4,000 total in select urban areas.

Here’s the infographic:

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