Now is the time to invest in pandemic preparedness

Despite progress made since the Zika and Ebola crises, most countries are not adequately prepared for a pandemic and are still investing too little to strengthen preparedness.

A report by the International Working Group on Financing Preparedness (IWG), established by the World Bank, finds that the investment case for financing pandemic preparedness is compelling.

“Failing to invest in preparedness is especially short-sighted given the low cost of preparedness relative to the devastating impact of a pandemic.”

In low- and middle-income countries that have calculated the cost of financing preparedness, the investment required is just $1 per person per year, the IWG says.

Meanwhile, a severe pandemic could result in millions of deaths and cost trillions of dollars, while even smaller outbreaks can cost thousands of lives and immense economic damage.

“The most conservative estimates suggest that pandemics destroy 0.1 to 1.0 percent of global GDP, on par with other global threats such as climate change. Recent economic work suggests that the annual global cost of moderately severe to severe pandemics is roughly $570 billion, or 0.7 percent of global income.”

The report lays out 12 recommendations to ensure the adequate financing of the capabilities and infrastructure required to prevent, identify, contain, and respond to infectious disease outbreaks.

Many countries chronically underinvest in critical public health functions like disease surveillance, diagnostic laboratories, and emergency operations centers, which enable the early identification and containment of outbreaks, according to the IWG.

How to protect crops and property from hail

Damage to vineyards following several years of severe hailstorms in the famed wine-growing region of Burgundy, France, is prompting greater prevention efforts.

London’s Daily Telegraph reports that producers are protecting their entire grape harvest with a cloud-seeding system—a hi-tech hail shield that is designed to modify storm clouds and suppress hail formation.

The system works by releasing tiny particles of silver iodide into the clouds where they stop the formation of hail stones, thereby reducing the risk of damage.

Cloud-seeding, or weather modification, has been used for many years in parts of the United States and Canada not just to suppress hail, but to enhance rainfall and snowfall in some cases. Insurers are involved in the research.

This makes sense. According to the National Oceanic Atmospheric Administration, hail causes approximately $1 billion in damage to crops and property annually.

A monster hailstorm that pounded Colorado’s Front Range on May 8 is on pace to be Colorado’s most expensive insured catastrophe, with an estimated preliminary insured loss of $1.4 billion, according to the Rocky Mountain Insurance Information Association.

For auto, home and business owners living in hail-prone areas, taking steps to minimize hail damage to property is essential.

The Insurance Institute for Business and Home Safety (IBHS), is continuing a major multi-year research study into hailstorms. IBHS resources on preventing property losses are available here.

Swiss Re: Natural catastrophes: tornadoes, earthquakes, wildfires & floods – the story of 2016

On-demand Webinar

Last year, economic losses from Natural Catastrophes nearly doubled to USD 175 billion. Insured losses also jumped from to USD 54 billion from USD 38 billion. These numbers were at their highest since 2012 and mark a reversal from the recent below-average years.

In this webinar, experts from Swiss Re and the Insurance Information Institute review 2016’s global natural catastrophe and man-made disaster losses and explain what they could mean to the insurance industry on Thursday, April 27 from 11 – 12 PM EDT.

Watch this webinar now.

Presentation Date
Thursday, April 27, 2017

Speakers
Dr. Steven N. Weisbart, CLU
Senior Vice President and Chief Economist, Insurance Information Institute

Dr. Thomas Holzheu
US Chief Economist, Swiss Re

Dr. Josh Woodbury
Specialist Flood, Swiss Re

UK terrorism reinsurance pool will respond to any claims arising from Manchester attack

UK terrorism reinsurance mutual Pool Re stands ready to respond to any claims arising from last night’s horrific attack at a major concert venue in the city of Manchester.

At least 22 people were killed and more than 50 injured in the bombing as they left the Manchester Arena at the end of an Ariana Grande concert.

“Pool Re will work with its Members in resolving any claim arising from the attack as quickly as possible. We will make a further statement as more information becomes available.”

Most insurers providing commercial property and business interruption insurance in the UK (including many overseas companies and Lloyd’s syndicates) participate in Pool Re.

The government formed the mutual reinsurance pool for terrorist coverage in 1993, following acts of terrorism by the Irish Republican Army.

Last night’s attack comes 21 years after a bombing in Manchester’s main shopping district injured more than 200 people and caused an insured property loss of $966 million (in 2015 dollars). The 1996 Manchester bombing still ranks as the third costliest terrorist attack by insured property damage, according to the I.I.I.

Pool Re is one among a number of public/private risk-sharing schemes around the world that provide terrorism coverage, as discussed in a recent report by Marsh:

Here’s how the Pool Re scheme works:

  • Member insurers pay premiums at rates set by the pool. There are two geographic zones, one for major cities, with an adjustment for a “target risk,” and the other for the remainder of the country.
  • The primary insurer pays the entire claim for terrorist damage but is reimbursed by the pool for losses in excess of a certain amount per event and per year, based on its share of the total market.
  • The maximum industry retention increases annually per event and per year.
  • The government acts as the reinsurer of last resort, guaranteeing payments above the industry retention.
  • Only terrorism losses arising from damage to commercial property are covered by the pool. Coverage does not extend to life or personal injury.

Knowledge transfer gap at retirement needs attention

Talent management is a key concern among business owners, yet only 40 percent of businesses transfer knowledge from retiring staff, a Travelers survey found.

Only 60 percent of businesses surveyed reported that they provide employee training. These business practices can help promote a safe and well-trained workforce, Travelers said.

While businesses use a wide range of measures to prevent or mitigate common risks, including talent management, many could be doing more.

The survey found that roughly 2 out of 5 organizations do not safeguard the security of their premises (42 percent), post emergency exit plans (40 percent), or have emergency contact plans to reach employees or their families (39 percent).

Travelers surveyed 1,202 business owners and decision makers, including 493 small businesses (2 to 49 employees), 453 midsized businesses (50 to 999 employees) and 256 large businesses (1,000+ employees) across 11 industry sectors.

Check out the latest Insurance Industry Employment Trends report from I.I.I. chief economist Dr. Steve Weisbart.

I.I.I. facts and statistics on Careers and Employment are available here.

Bike to work with insurance

In honor of National Bike To Work Day here are some key facts for our two-wheeled transportation enthusiasts:

  • The number of cyclists commuting by bike increased by 64 percent between 2000 and 2012, according to the National Highway Traffic Safety Administration
  • An estimated 900,000 U.S. workers rode a bike to work in 2015, up from 730,000 in 2010, Census data reveals
  • Bicyclists accounted for 2 percent of all traffic deaths and 2 percent of all crash-related injuries in 2014. Bicyclist deaths occurred most often in urban areas (71 percent)
  • If your bike is stolen or damaged it will be covered under the personal property section of your homeowners or renters insurance policies
  • If you own a particularly expensive bicycle, you may want to consider getting an endorsement that will provide additional coverage, advises the I.I.I.
  • If you injure someone in a bicycle accident and you get sued, there is liability protection under your homeowners or renters insurance policy that will cover you up to the limits of your policy
  • Your homeowners or renters insurance also includes no-fault medical coverage in the event you injure someone

Check out additional I.I.I. information on bicycle safety and insurance here.

And for those living in NYC, Curbed NY has a handy guide to the city’s five best neighborhoods for cyclists.

Man-made earthquakes in Oklahoma – a headache for insurers

I.I.I. research manager Maria Sassian and I.I.I. chief actuary James Lynch take a closer look at man-made earthquakes, based on a presentation by Kelly Hereid, Chubb Tempest Re at Reinsurance Association of America’s Cat Risk Management 2017 conference:

In Oklahoma, for each barrel of oil extracted by energy companies, seven to 10 barrels of wastewater are produced. Oil and gas companies use a technique called ‘dewatering,’ which allows a cheap separation of oil and water, making old geologic formations economic. The water, which sits underground for millions of years getting saltier and nastier with the passage of time, must be disposed of safely. Oil companies send it to disposal wells where it is injected deep into the earth. This disposal process has been linked to an increase in earthquakes because the injected wastewater counteracts the natural frictional forces on underground faults and, in effect, “pries them apart”, thereby facilitating earthquakes. Because of wastewater disposal earthquakes on natural faults are occurring faster than they would have happened otherwise.

The spate of earthquakes in Oklahoma (Figure 1) over the past few years has driven earthquake insurance take-up rates in that state from 2 percent to 15 percent (higher than in California).  According to NAIC data from S&P Global Market Intelligence and the I.I.I., direct premiums written from earthquake insurance in Oklahoma increased by over 300 percent from 2006 to 2015 (Figure 2). The Oklahoma market has been declared noncompetitive as only four companies combine to write a 55 percent market share. The action gave the state Insurance Department the right to approve rate changes in advance. Some insurers suggested a better solution would be to encourage competition rather than increase regulation.

Due to the volatile nature of the risk there is potential for insurance market surprises. Earthquake liability could harm energy prices and create an environmental risk problem for insurers. Some economists argue that housing prices could fall by nearly 10 percent following strong (MMI VI) shaking, which is not uncommon in magnitude 5+ earthquakes. Lawsuits over loss of value could get big fast.

The 2016 Pawnee earthquake was the largest in the Oklahoma historical record with a magnitude of 5.8.

One of the problems for insurers is that lots of wells are injecting so it’s tough to tell which company caused the earthquake. It’s also tough to tell if an earthquake has been induced since an induced earthquake looks the same on a seismograph as a natural earthquake. The USGS 2014 seismic hazard update is being incorporated into earthquake risk models now, but the update doesn’t contemplate induced earthquakes, which are now covered in USGS annual rate forecasts instead.

In recent years, the rate of injection has fallen due to regulation in the form of a mandated 40 percent decrease in wastewater disposal in key earthquake regions, falling oil prices and new geologic targets which produce less water. And it looks like reductions in injection volume are reducing activity. However, some experts believe the damage has already been done. Above-normal earthquake activity may continue for several decades, with fewer but potentially stronger earthquakes.

Oklahoma is a hotspot for earthquakes linked to wastewater disposal, but it’s not alone. Concerns in Texas led to the closing of a wastewater injection site near the Dallas-Fort Worth International Airport and there is evidence that some of the earthquakes that occurred in California decades ago may have been induced.

Check out the I.I.I. issues update Earthquakes: Risk and Insurance.

I.I.I. Market Report: Managing Geopolitical Risk

On-demand Webinar
With the rising tide of nationalism and regional tensions around the world arguably more severe than since the Cold War, geopolitical risks seem to be only increasing. For insurers and insureds, the impacts of geopolitical risks can have a significant impact on the bottom line; whether through business disruption, financial loss, or even – and most tragically – human peril. Insurance is at the center of how businesses and people prepare and mitigate the risk.

In this webinar, leading experts from the insurance industry and the world of public affairs discuss the current geopolitical climate, subsequent risks for organizations and risk transfer solutions.

Watch this webinar now.

Presentation date
Tuesday, May 16, 2017

Speakers
Natalie de Clermont
Underwriter, Political Risk and Trade Credit, Neon

Harriet Karwatowska
Broker, Miller

Amy Pope
Nonresident Senior Fellow, Adrienne Arsht Center for Resilience

Hank Watkins
President, North America, Lloyd’s

Sean Kevelighan (moderator)
Chief Executive Officer, Insurance Information Institute

Additional Resources
Lloyd’s Report: Political Violence
I.I.I. White Paper: Terrorism Risk Insurance Program: Renewed and Restructured

Demand For Commercial Insurance Up Slightly

Demand for commercial insurance continued to follow a slight upward trend in the first three months of 2017, according to the latest Council of Insurance Agents & Brokers’ Commercial P/C Market Survey.

A large number of brokers reported an increase in demand for cyber coverage as clients became more familiar with the product and more interested in purchasing stand-alone policies.

The majority of brokers, 68.5 percent, reported that demand for commercial insurance products stayed the same in the first quarter of 2017, compared to the fourth quarter of 2016.

Nearly 30 percent of broker responses saw an increase in demand, while only 2.2 percent saw a decrease.

As for pricing, the soft market continued in Q1 2017, with the average rate decline across all commercial P/C accounts at 2.5 percent, compared to 3.3 percent in Q4 2016.

This is the ninth straight quarter that commercial rates have declined across small, medium and large accounts, The Council said.

Additional I.I.I. facts and statistics on the commercial lines insurance market are available here.

Ransomware: Does Cyber Insurance Make Sense?

As organizations look to recover from the disruption caused by Friday’s massive global ransomware cyberattack, the value of cyber insurance, and other cybersecurity tools, just multiplied exponentially.

Security researchers at Kaspersky Lab recorded more than 45,000 attacks in 74 countries including the UK, Russia, Ukraine, India, China and Italy, the Guardian reports.

The UK’s National Health Service, French car manufacturer Renault, and Spain’s telecommunications giant Telefonica were among those hit by the so-called WannaCry ransomware, which locks up computer systems until the victims pay a ransom.

Cyber risk modeling firm Cyence estimates the average individual ransom cost from the attacks at $300, and the total economic costs from interruption to business at $4 billion, according to this Reuters report.

Kevin Kalinich, global head of Aon’s cyber risk practice, told Reuters:

“If you’re a hospital that turned away patients, if you’re a global delivery company that can’t send a package, or a telecom company in Spain, Russia or China, the financial statement impact from the business interruption is much larger than the $300 ransomware.”

Insurance coverage for ransomware (see earlier post), and other forms of extortion, is available under cyber insurance policies, or other types of policies that specifically cover cyber extortion.

An insured’s ransom payment following an attack is typically covered, subject to individual policy terms and conditions, according to this I.I.I. white paper.

Cyber policies also provide coverage for the costs of forensic investigation, restoring lost or corrupted data, legal expenses and business interruption.

Here are some of the considerations that go into the decision to purchase coverage.

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