Industry eyes turn to Capitol Hill today, as a hearing before the House Financial Services Subcommittee on Oversight and Investigations gets underway to discuss the insurance claims payment processes in the Gulf coast after the 2005 hurricanes. Dr. Robert Hartwig, I.I.I. president and chief economist, will deliver testimony noting that insurance companies have settled, without dispute, nearly all of the 1.7 million claims totaling $40.6 billion from Hurricane Katrina, the most expensive disaster in the history of insurance. Insurers have also strengthened their catastrophe response capabilities to more quickly reach their customers following mega-catastrophes.Ã‚
ItÃ¢â‚¬â„¢s interesting to see that customer satisfaction in the finance and insurance sector apparently reached an all-time high in the fourth quarter of 2006. According to the latest University of Michigan American Customer Satisfaction Index, every industry except one in this sector improved its customer satisfaction ranking. The sector includes commercial banks and property and life and health insurance. In the aggregate, finance and insurance jumped 2.7 percent to 76, its highest score since 1994 (78.5). Improvements in quality and value drove customer satisfaction gains for life and health insurance. However, we note that property and casualty insurance was the odd one out with a customer satisfaction ranking of 78 — unchanged from the previous yearÃ¢â‚¬â„¢s ranking. The index measures customer expectations, perceived quality and perceived value of companies in various industries.Ã‚
As the issue of flood insurance continues to be in the news, we note that flood risk is also a hot topic across the pond in the U.K. The Association of British Insurers (ABI) has just announced that government spending on flood defenses needs to increase by 10 percent annually to approximately $1.5 billion by 2011 to counter an increased risk of flood. Nearly 600,000 U.K. homes are now estimated to be at risk of flood, compared to an estimated 220,000 homes back in 2002. One key difference: while standard homeowners policies in the U.S. do not cover flood damage, U.K. homeowners policies do. However, the ABI notes that U.K. insurers will only continue to be able to offer flood insurance if defenses are kept up to an adequate standard. Maintenance of levees and barriers is obviously important, but flood defenses can take many forms. Preservation of wetlands and saltmarshes is just as important a part of any flood risk management plan. Check out I.I.I.’s flood statistics for more information.
Surveys of current policy renewal prices as reported by agents and brokers, and corporate risk managers, have confirmed a further softening in the commercial insurance market. With the sole exception of hurricane-exposed coastal property coverages, insurers appear willing to lower prices and place fewer restrictions on coverage to get new business, according to the latest market survey from the Council of Insurance Agents & Brokers (CIAB). Ditto the RIMS Benchmark Survey, where the largest decreases in premium rates in the fourth quarter of 2006 were reported in Directors and Officers (D&O) and workersÃ¢â‚¬â„¢ compensation lines. D&O, in particular, continues to be a very competitive line of business with rate decreases further stimulated by the sharp drop in the number of securities class action suits filed in 2006, according to analysis from Advisen. Meanwhile, online insurance exchange MarketScout puts the average P/C rate decrease at -9 percent in January 2007.Ã‚
We all know cars and deer can be a lethal combination, particularly during deer season which generally runs from October through December. But moose, weighing up to 1,000 lbs, can present even greater risks for drivers and their insurers. For example, reports out of Anchorage warn that moose collisions could be double or even triple the average this winter as heavy snow has led more moose than ever to wander into city limits. The Alaska Moose Federation notes that in 2006 some 236 moose were killed on Alaskan highways, with an average cost per accident of $8,356. Vigilant driving is part of the answer, but new high-tech solutions may also help to better manage this risk. Take Connecticut, where state wildlife officials have just announced they will use GPS collars to track and collect data on the stateÃ¢â‚¬â„¢s moose population. Now just imagine that regulators allowed auto insurers to use a similar system to monitor the habits of their policyholdersÃ¢â‚¬ ¦Ã‚ Ã‚
ItÃ¢â‚¬â„¢s easy to forget that tornadoes, though not generally as destructive as hurricanes, are more frequent and can also cause severe damage. We got a stark reminder of this at the end of last week, when tornadoes and storms in Florida left 20 people dead and hundreds of homes and businesses damaged or destroyed. Each year about 1,000 tornadoes with wind speeds as high as 300 mph touch down in the U.S., according to I.I.I. research. Check out ourÃ‚ tornado statistics.Ã‚ Ã‚ Ã‚
For those of us lucky enough to have seen snow this winter (i.e. Denver) the news that Punxsutawney Phil did not see his shadow and that there will be an early spring in 2007Ã‚ will be gladly received. For the industry, however, the freeze looks likely to last a little longer. According to the I.I.I. 2007 Groundhog Day forecast, most insurance industry analysts predict slower P/C premium growth in 2007. Nevertheless, this yearÃ¢â‚¬â„¢s survey results indicate that the respite in catastrophe losses in 2006 will likely propel the industry to its best underwriting performance since 1936. Industry profitability is expected to continue in 2007, albeit with an underwriting performance that generates a much smaller underwriting profit. This apparent paradoxÃ¢â‚¬”a peak in industry profits, but stalling premium growthÃ¢â‚¬”is a clear reminder of the cyclical nature of the property/casualty business, and the fact that our industryÃ¢â‚¬â„¢s financial fortunes are influenced by a number of factors.Ã‚ Ã‚
Some 127 levees across the U.S. are at risk of failing, according to a list released today by the Army Corp of Engineers. We note that the ill-maintained levees are spread across 26 states, the District of Columbia and Puerto Rico. From California, to Florida, to Massachusetts the listed levee projects have beenÃ‚ given an unacceptable maintenance rating meaning that one or more deficient conditions could prevent them from functioning as designed. Animal burrows, erosion, tree growth, movement of floodwalls or faulty culvert conditions are just some examples of the deficiencies. We have two words on this:Ã‚ flood insurance. View I.I.I.Ã¢â‚¬â„¢s latest statistics on the National Flood Insurance Program (NFIP) at http://www.iii.org/media/hottopics/insurance/xxx/Ã‚ Ã‚ Ã‚
New outbreaks of the H5N1 flu virus are reported to have infected and killed birds and poultry in Russia, Hong Kong, Hungary and Japan this week. Meanwhile, Australia, Singapore, and Japan announced they are stepping up their preparedness efforts. I.I.I.Ã¢â‚¬â„¢s latest update from our resident bird flu expert and economist Dr. Steven Weisbart notes that at least 164 people have died and 270 have been confirmed infected since December 2003, the start of the current outbreak. In 2006 alone there were one-third more infections and nearly twice as many deaths as in 2005. Human infection is still believed to be mainly from birds to humans, basically from very close contact with infected chickens and similar birds in home environments.Ã‚ There are still no cases of birds or people in the U.S. with this flu virus.Ã‚
As insurers, legislators and regulators grapple with how to maintain viable insurance markets in the post-Katrina and Rita era; we tip our hat to Illinois Sen. and presidential hopeful Barack Obama who addressed a Senate committee hearing on Gulf Coast rebuilding held in New Orleans Monday. Obama told the committee: Ã¢â‚¬Å“Rebuilding New Orleans is not just good for the Gulf or the state of Louisiana, itÃ¢â‚¬â„¢s good for our nation.Ã¢â‚¬ Good point. Some 18 months since the most costly disaster in U.S. history and of the billions of dollars of government aid promised for Hurricane Katrina reconstruction, only a fraction has reached the hands of those affected. For our industryÃ¢â‚¬â„¢s part, some 95 percent of the 1.2 million homeowners insurance claims in Louisiana and Mississippi had been settled by the stormÃ¢â‚¬â„¢s one-year anniversary on August 2006. With an above-average hurricane season forecast for 2007, and landfall probabilities and intensities up across all regions, the importance of the rebuilding effort in the Gulf cannot be underestimated. Indeed,Ã‚ insurers areÃ‚ not alone in pushing for stronger building codes across the country. Check out I.I.I.’s Louisiana insurance market overview. for the latest catastrophe info.