Category Archives: Catastrophes

Terrorism Take-Up Rises

As debate continues on the renewal of the Terrorism Risk Insurance Act (TRIA) beyond 2007, latest industry stats again support the program’s success. A new report from Marsh shows that U.S. businesses are buying more terrorism insurance than ever, in spite of the increasing cost of coverage. Take-up rates for the coverage have climbed steadily, from 27 percent of U.S. businesses in 2003, to 59 percent at the end of 2006. Almost two-thirds of large U.S. firms and 60 percent of mid-sized firms bought the coverage in 2006, up slightly from 2005. The median terrorism insurance rate was $47 per million of total insured value in 2006, a 9 percent increase on 2005. Financial institutions were the biggest buyers of terrorism insurance (81 percent), followed by real estate and utility firms (77 percent) and educational institutions and health care (76 percent). In terms of region, the Northeast still had the highest take up rate for coverage (66 percent), followed closely by the Midwest (63 percent). Check out further I.I.I. terrorism risk information online.

Clarifying Cat Models

With Florida and Louisiana regulators declining to certify the use of five-year models in the underwriting process, catastrophe modelers must be feeling a little like Albert Einstein who once observed of the disconnect between science and the world beyond the lab: “Science is a wonderful thing if one does not have to earn one’s living by it.† Of course catastrophe models have come under a lot of scrutiny since the record hurricane loss seasons of 2004 and 2005, and it’s important to recognize that they are just one of the many tools that help insurers, reinsurers and risk managers more accurately analyze, write and price for catastrophe risk. The output from a given catastrophe model is also only as good as the data embedded in it and subject to the different variables of an individual insurer’s book of business. That said, today’s models are increasingly sophisticated and constantly being fine-tuned to incorporate the latest technologies and data. Models have also been developed for a wide range of catastrophic risks beyond hurricanes, including earthquakes, tornadoes, floods and terrorism. The use of computer technology in the underwriting process is not new, and in the case of catastrophe models there’s no doubt that with this tool, underwriters are better placed to more accurately analyze and evaluate catastrophe risk going forward. But given recent concerns, clearly there is more to be done in better explaining how the models actually work.  Check out  I.I.I.’s catastrophe modeling update.

Season Opening

So, the 2007 hurricane season is upon us. And on the eve of the official start, Colorado State University’s Tropical Meteorology Project released its latest forecast. Similar to its earlier prediction, the call is still for 17 named storms, 9 hurricanes, 5 of which will be intense (Category 3-4-5). The probability of a major hurricane hitting the U.S. coastline is at 74 percent, while there is a 50 percent probability of a major hurricane hitting the East Coast, including the Florida Peninsula, and a 49 percent chance of the same for the Gulf Coast. All these figures are well above the long-term averages. As the season progresses, check out I.I.I.’s catastrophe update and flood insurance facts for further information. The vital role played by the industry in defraying the cost of catastrophes is also detailed in the Institute’s online publication “A Firm Foundation†.  The I.I.I.’s disaster information Web site is another useful resource.

Eight Days and Counting

With just over a week until the start of the 2007 hurricane season, the forecast put out by the National Oceanic & Atmospheric Administration (NOAA) is another reminder that an above average season is on the cards and that we should prepare for the worst. According to NOAA, there will likely be 13 to 17 named storms this season, with seven to 10 becoming hurricanes. Of those, three to five hurricanes are likely to grow into at least Category 3 storms. This means they will have winds of 111 to 130 mph and possible storm surges of  9 to 12 feet, NOAA notes. Bear in mind an average Atlantic hurricane season brings 11 named storms, of which six become hurricanes, including two major hurricanes. The NOAA forecast is similar to the one released by Colorado State University’s Tropical Meterorology Project (see our April 4 posting) that also predicted 17 named storms and  nine hurricanes,  five of which will be intense. Check out I.I.I.’s catastrophe  update and hurricane stats for more information.  Ã‚  Ã‚  

Twin Threat

As British Prime Minister Tony Blair announces his resignation and with U.S. President George Bush’s tenure soon coming to a close, today we turn to two reports that speak to the growing risks from political violence and terrorism. First, a RAND study finds that technology and knowledge-sharing among diverse terrorist groups is on the up and part of the complex threat posed by terrorism. Given concern about terrorist interest in unconventional weapons, individuals with skills involving chemical, biological, nuclear or radiological (CBNR) technology are frequently a central focus of analysts. But, the RAND study shows the importance of individuals with expertise in conventional explosive technologies as well. Threat assessments should monitor both these areas, it says. Then a report in from Lloyd’s and the Economist Intelligence Unit finds that despite growing awareness of terrorism and political risks, nearly one in four businesses do not have a business continuity plan in place. A further 14 percent of companies believe that their plan is insufficient in the light of political violence. These figures are even greater for smaller firms. Check out I.I.I.’s information on terrorism risk and risk management for small businesses online.  

Tornado Loss

We’ve blogged before about tornado risk (see February 5 posting) and this weekend’s twisters in Kansas, South Dakota, Oklahoma, Nebraska and Iowa underline the oft forgotten point that tornadoes, though not generally as destructive as hurricanes, are more frequent and can also cause severe damage. The F5 tornado (the highest category on the scale) that struck Greensburg, Kansas, late Friday night is estimated to have destroyed as much as 95 percent of the town. It was part of a swathe of storms that killed at least 10 people over the weekend. According to A.M. Best, tornadoes and related weather events caused more than $8 billion in insured losses in 2006. 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 further I.I.I. tornado statistics.  I.I.I. has activated a disaster response plan following the tornadoes. For more information, please email Mike Barry, I.I.I. Media Relations Director, at michaelb@iii.org.

Wildfire Education

California’s Wildfire Awareness Week gets underway Monday with a series of events planned across the state to educate residents on wildfire safety and preparedness. I.I.I. research shows that most of the large fires with significant property damage have occurred in California, where some of the fastest developing counties are in forest areas. Earlier this week the National Interagency Fire Center warned that the West and Southeast face an increased wildfire risk this year, due to ongoing drought conditions and a predicted warmer than average summer. In Florida, where over 90 percent of the state is experiencing drought, some 95 wildfires are reported to be active. Meanwhile, in Georgia, a state of emergency has been declared in 21 southeast counties that are facing extreme drought conditions. I.I.I.’s free home inventory software can help residents better protect their property ahead of disaster. Further information is also available from the Insurance Information Network of California  (IINC).

Terrorism Factor

Policy options for extending the Terrorism Risk Insurance Act (TRIA) beyond the end of 2007 will be the subject of debate at a hearing before the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises scheduled for next Tuesday. We’ve said it before, and we’ll say it again, but a continuing federal role is key to ensuring that terrorism risk insurance remains available to those businesses that want and need the coverage. A study by the American Academy of Actuaries notes that incidents involving chemical, nuclear, biological and radiological (CNBR) incidents in four U.S. cities could result in insured losses in the hundreds of billions of dollars. For example, in New York, a large CNBR event could cost as much as $778.1 billion, with insured losses for commercial property at $158.3 billion and for workers compensation at $483.7 billion. I.I.I. has additional information on terrorism risk online.  

Nor’easter 101

There are 45 days to go until the start of the 2007 hurricane season, but just so we’re clear, nor’easters are not like hurricanes. This is not to say that nor’easters do not have the capacity to cause substantial damage to property and life. In fact, nor’easters get their names from the continuously strong northeasterly winds blowing in from the ocean ahead of the storm and over coastal areas. The National Weather Service defines a nor’easter as a strong low pressure system that affects the Mid Atlantic and New England states and can form over land or over coastal waters. It points out that these winter weather (mid-April?!) events are notorious for producing heavy snow, rain, and tremendous waves that crash onto Atlantic beaches, often causing beach erosion and structural damage. Interestingly, it also notes that wind gusts associated with these storms can exceed hurricane force intensity. After spending the last 24 hours mopping water, I for one, will be asking my agent about flood insurance at this year’s renewal. For more information see the I.I.I.’s flood facts  and catastrophe statistics.

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.