Category Archives: Insurers and the Economy

Marine Matters

The annual gathering of the International Union of Marine Insurers (IUMI) took place in Copenhagen, Denmark this week. One of the featured speakers was I.I.I. president Dr. Robert Hartwig, who gave a presentation focused on issues relating to the global maritime industry. As well as marine insurance trends,  such as  premiums, pricing and underwriting performance, Dr. Hartwig spoke on the economic environment for marine insurers in the context of a relatively healthy global economy and a depreciating U.S. dollar. The important role China is likely to play as a trading partner in the 21st century was another focus of his discussion. Catastrophe loss activity, the energy market and terrorism and liability-related issues in the maritime sector were other topics of discussion. Access the full report on the I.I.I. Web site.  

Aging Infrastructure

As the recovery process continues following the Minneapolis Interstate 35W bridge collapse Wednesday night, many of us have given it more than a passing thought during our commutes via roads, rails, bridges and tunnels. Naturally the collapse is prompting questions concerning the quality of the nation’s transportation infrastructure. The insurance industry plays a vital role in helping individuals and businesses recover from an event like this. It underpins the economic security of individuals and businesses and helps sustain a number of related industries across the country. But maintaining and strengthening the existing outdated transportation infrastructure is a mammoth task that will require public and private input. For insurers, the potential liability exposure is enormous and certainly something to think about. Check out I.I.I.’s publication “A Firm Foundation† for further information on how insurers support the economy.

CA Quake Exposure Update

California is the second leading state for earthquakes, with an average of over 160 earthquakes per year. The majority of the most costly earthquakes in U.S. history occurred in California. So a new study indicating that recent reforms to the state’s  workers comp  system would result in a substantial drop in the potential WC losses arising from earthquakes is welcome news. Based on the assumption of 15.6 million employees working statewide, the Workers’ Comp Insurance Rating Bureau of California study found that the expected annual loss for the state’s WC insurers would be slightly over $180 million, or $11.56 per employee, compared with $418.7 million, or $26.93 per employee, in a similar 2002 study. The updated study also projects the total statewide WC loss in a one-in-100 year quake would be $4.2 billion, and $6.3 billion for a one-in-200 year event. Looking at the 20 counties with the greatest exposure, the study puts Los Angeles County at the top of the list, with 4.25 million employees. While the drop in costs is a positive development, we note that WC is a compulsory  coverage for most businesses  in CA and that earthquake exposure continues to be significant. Check out I.I.I. earthquake facts & stats, workers comp info  and how insurers support the CA economy online. Further info is also available from the Insurance Information Network of California  (IINC).  

Global Trends

The decision whether to operate purely on a domestic basis or to expand globally is a key one for many companies. Cultural, economic, political and regulatory differences can make for a challenging global environment. For those considering a global presence, the good news is that world insurance premium growth in 2006 accelerated, with total premium volume growing by 5 percent, according to a study from Swiss Re sigma. However, the same study indicates the world insurance outlook for 2007 is mixed. While healthy growth is expected to continue in life insurance, boosted by solid development of savings and pensions products, Swiss Re notes that premiums in non-life are expected to stagnate. Overall profitability is set to remain robust. As always, the findings of this annual world insurance report reflect contrasting growth between life and non-life sectors. For example, 2006 saw the life insurance market grow by 7.7 percent, while global non-life business grew by just 1.5 percent. There was also a sharp divergence in performance between the industrialized world and the emerging markets. For non-life the industrialized world saw marginal growth of 0.6 percent, while the emerging markets saw robust growth of 11 percent. For life insurance, industrialized countries produced growth of 6.6 percent, while growth in emerging markets was 21.1 percent. For further info check out I.I.I.’s international insurance site.  

Beyond Insurance

We’ve said before that our industry has a powerful story to tell in terms of the major contribution it makes to state, local and national economies, and a new report from the Insurance Research Council (IRC) highlights this very point. The study shows that property/casualty insurers held investments of more than $320 billion in municipal bonds at the end of 2005, helping fund the construction of schools, roads and hospitals and support a variety of other public sector activities. Nearly one-fourth (23 percent) of those investments funded education-related activities and projects, according to the IRC. Municipal bonds for projects involving public utilities made up 15 percent of the total combined value of all municipal bonds held by p/c insurers, while transportation-related bonds accounted for 12 percent. I.I.I. research dovetails with the IRC report, showing that the industry as a whole (p/c and life) held some $3.5 trillion in stocks and bonds in 2005. For further information on the myriad ways in which insurance supports the economy, check out our online publication “A Firm Foundation†.  

Litigation Costs

The news that tentative settlement has been reached in the Katrina case between Senator Trent Lott and State Farm Fire & Casualty Co is good not just for State Farm, but for the industry as a whole. Litigation remains one of the top risks facing our industry and imposes billions of dollars of costs annually on the broader economy, so to the extent that it can be avoided, curtailed or mitigated, everyone benefits. Last week the U.S. Chamber Institute for Legal Reform (ILR) released a study ranking the best and worst state liability systems across the country. For the second year running, West Virginia came in last place. Other states at the bottom of the list included Mississippi, Louisiana, Alabama, Illinois and California. A broader analysis of the survey data revealed an overall improvement in state legal climates and in a number of states this trend correlates with legal reforms enacted over the same period. However, as U.S. Chamber of Commerce president and CEO Tom Donohue said: “Even though we’re seeing some improvements, from the perspective of global competitiveness, we’re only as good as our worst states. So we need to keep working.† I.I.I. has further information on the liability system online.  

Economic Anchor

In a week in which the availability and affordability of coverage offered by our industry was called into question once again, it’s perhaps time to remind people of the major contribution made by insurers to state, local and national economies. The Insurance Information Institute’s online publication “A Firm Foundation† shows the myriad ways in which insurance supports the economy. State-specific editions also highlight the insurance industry’s role as a key player in the Alabama, California, Florida, Maryland, New York, South Carolina, Texas and Wisconsin economies. From defraying the costs of catastrophes, to providing employment, to fueling the capital markets, the industry’s contribution goes way beyond its core function of helping to manage risk. A story worth telling.  

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†.  

It’s Not Just About Paying Claims…

Our industry also has a powerful story to tell in terms of the major contribution it makes to state, local and national economies. The Insurance Information Institute’s online publication “A Firm Foundation† shows the myriad ways in which insurance supports the economy. The I.I.I. has also created state-specific editions which concentrate on the insurance industry’s role as a key player in the California, Florida, Maryland and Texas economies. Dozens of charts highlight the economic support provided by the insurance industry, from defraying the costs of catastrophes, to providing employment, to fueling the capital markets.