Hill Hearings

Availability, affordability and oversight are the watchwords of two separate hearings on Capitol Hill today. Hearing No. 1. before the Senate Committee on Housing, Banking and Urban Affairs will examine the availability and affordability of property casualty insurance in the Gulf coast and other coastal regions. Dr. Robert Hartwig, I.I.I. president and chief economist, will deliver testimony noting how population growth, rising property values and continued development in vulnerable areas are increasing the cost of property damage inflicted by hurricanes. Current regulatory, legislative and litigation-related obstacles are also raising costs and reducing choices for insurance consumers in hurricane exposed areas. The second hearing before the Senate Committee on Commerce, Science and Transportation will focus on oversight of the property and casualty industry. The industry’s limited federal antitrust exemption under the McCarran Ferguson Act is expected to be the topic du jour.  

Top 50 for Diversity

By our count, five insurers have made it onto the Top 50 Companies for Diversity 2007 list published by DiversityInc magazine. They are: Allstate (40), Blue Cross and Blue Shield of Florida (15), Health Care Service Corp (33), Kaiser Permanente (27) and Prudential Financial (24). If we include banks offering insurance, the list expands by another six or so. A total of 317 companies participated in this year’s survey. Perhaps more compelling is that expressed as a stock index, DiversityInc’s Top 50 outperformed the S&P 500, the Dow Jones Industrial Average and the NASDAQ for the fourth consecutive year on a 10-, five- and one-year basis. Noteworthy mention: Allstate, a top 50 mainstay, also ranked 10th on the Top 10 Companies for African Americans.  

  

ART Info

Alternative Risk Transfer (ART) market mechanisms cover 30 percent of the U.S. commercial insurance market, yet general understanding of them is limited. For anyone grappling with the concept, an I.I.I.-penned chapter in the recently published Handbook of International Insurance hopefully will shed some light. The chapter “An Overview of the Alternative Risk Transfer Market† explains that the concept of ART defies a precise definition in part because the broad range of risk products that can be defined as ART has expanded over time as product innovation continues. The chapter covers the major categories of ART solutions commonly found in the market today, including captives, self-insurance, risk retention groups, finite risk (re)insurance, catastrophe bonds and government programs. I.I.I. also has additional information on captives and other risk-financing options available online.

Small Biz Guide

At least 25 percent of all businesses that shut down in a disaster never reopen their doors. But it’s not just about being prepared for disasters. For small businesses in particular, understanding their overall insurance needs can make the difference between long-term success or failure. Purchasing the appropriate amount and type of insurance coverage is critical. A new website launched by the Insurance Information Institute can help. Insuring Your Business: A Small Business Owners’ Guide to Insurance provides information on what coverages businesses should consider, as well as what business owners should know about risk management and loss control.

Rapid Change?

Tomorrow sees the release by the UN’s Intergovernmental Panel on Climate Change (IPCC) of the second volume of a study that among other things is expected to highlight the human impact of climate change and how far adaptation and mitigation can reduce this impact. So it’s perhaps timely that Lloyd’s just issued its latest climate change report – Rapid Climate Change. While the Lloyd’s report acknowledges that the impact of climate change is far from certain and not completely understood, it urges insurers that now is the time to start planning and modeling for a higher level of losses across the world as both the severity and frequency of weather events increase. The report explores what climate change could mean in four areas of particular relevance to the insurance industry: sea level rise, melting icecaps, flood and drought. Wherever you stand on the climate change debate, these reports are worth a read.

Ill Winds

Batten down the hatches! Today marks the official launch of the Insurance Information Institute’s industry blog. An inauspicious start some might say, particularly following the upgraded forecast for the 2007 hurricane season from Colorado State University’s Tropical Meteorology Project. So what do we have to look forward to? In a nutshell: 17 named storms, 9 hurricanes, 5 of which will be intense (Category 3-4-5). The forecasters also put the probability of a major hurricane hitting the U.S. coastline at 74 percent; the probability of a major storm hitting the East Coast, including the Florida Peninsula at 50 percent; and the probability of the same at 49 percent for the Gulf Coast. We may have been spared in 2006, but flashback to April 2005 when the CSU team upped its forecast to 13 named storms, 7 hurricanes, 3 of them intense. Sound familiar? The 2005 season actually saw a record 26 named storms, 14 hurricanes, of which seven were intense. Check out the I.I.I.’s catastrophe facts for more information.  

Greenhouse Gases Are Pollutants

A landmark environmental decision out of the Supreme Court today may have significant potential implications for our industry over the long-term. In a 5-4 decision, the court said that greenhouse gases fit well within the Clean Air Act’s definition of air pollutant and that the Act gives the Environmental Protection Agency (EPA) the authority to regulate emissions of carbon dioxide and other greenhouse gases from cars. The upshot of all this is that the federal government will now have to reconsider its refusal to regulate greenhouse gas emissions. While it’s too soon to draw any conclusions, clearly for insurers this opinion raises the threat of increasing environmental exposures and liability-related claims going forward.

SC Hurricane Focus

Much has been reported about the vulnerability of the Gulf coast states to hurricane risk, but with the start of the 2007 hurricane season just 62 days away, a new presentation from I.I.I. president and chief economist Dr. Robert Hartwig takes us to the Eastern seaboard, specifically South Carolina. The biggest hurricane to hit the state was Hurricane Hugo back in 1989. Since then, South Carolina has experienced enormous growth in coastal population and property. Latest available figures show the state has some $150 billion in insured coastal exposure, of which  about 56 percent is commercial and 44 percent residential. As Dr. Hartwig notes, a major storm could result in far higher commercial than residential losses,  particularly if business interruption as well as property damage coverage is triggered.  

Data Loss

Today another company, this time in the retail sector, revealed details of a breach in data security that saw hackers access information from at least 45.7 million customer credit and debit cards. A further 455,000 customers who returned merchandise without receipts also had their personal data stolen, according to news reports. Indeed, a recent risk survey conducted by the Economist Intelligence Unit (EIU) and sponsored by ACE European Group (ACE) found that one in three global businesses see loss of data as a significant threat and the key issue to address in operational risk management planning. Some 43 percent of survey respondents identified reputational damage as the main threat arising from data loss. Yet only 19 percent of respondents saw loss of revenue as a concern. These latest developments are a reminder of the potentially enormous liability facing corporations, if and when a breach in data security occurs, and the apparent  growth opportunity for insurers.

Industry Billionaires

Whoever says insurance is a dull business that has trouble attracting talented human capital to its ranks may want to turn to the Forbes 2007 World Billionaires Survey as part of its marketing and recruitment campaign. By our count, this year’s list includes seven insurance industry billionaires with a combined net worth of $18.2 billion. The “magnificent seven† include such well-known names as Maurice Greenberg and Rolf Gerling. Oh, and not included in the seven is Berkshire Hathaway chairman Warren Buffett, who again claims the number two spot with an impressive net worth of $52 billion. For more on employment in the industry, check out the Insurance Information Institute’s online publication “A Firm Foundation†.  

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