State Litigation Threat

The U.S. Chamber Institute for Legal Reform (ILR) has released its annual study ranking the best and worst state liability systems across the country. For the third year running, West Virginia’s legal climate ranked as the worst in the country. Louisiana, Mississippi, Alabama and Illinois rounded out the bottom five states. Meanwhile, the states doing the best job of creating a fair and reasonable litigation environment are: Delaware, Nebraska, Maine, Indiana and Utah. The ILR noted that just over half (55 percent) of senior attorneys view the state court liability systems in America as only fair or poor. A majority (63 percent) also report that the litigation environment in a state is likely to impact important business decisions at their company, such as where to locate or do business, up from 57 percent in 2007. Check out further I.I.I. information on the liability system.  

Even Softer Market

Surveys of current policy renewal prices as reported by agents and brokers, and corporate risk managers, appear to confirm that the soft cycle for commercial lines is getting even softer. According to the latest market survey from the Council of Insurance Agents & Brokers (CIAB), the average premium decline for all commercial accounts regardless of size was -13.5 percent in the first quarter of 2008, compared with a -12 percent decline in the fourth quarter of 2007. Although coverage for coastal properties was still problematic, there was more capacity available and rates were down in most areas.

Similarly, the 2008 RIMS Benchmark Survey reports that another year free of major natural catastrophes, combined with abundant insurance capacity contributed to falling insurance costs, leading to lower average total cost of risk (TCOR) per $1,000 of revenue in 2007. Even property premiums began to edge downward, according to RIMS. Meanwhile, online insurance exchange MarketScout puts the average P/C rate decrease at -12 percent in March 2008, with commercial property and general liability experiencing the largest rate decreases of -14 percent.     

  

CA Wildfire Claims Update

This week marks the six-month anniversary of the October 2007 California fire and wind storms (see our Oct 24, 2007 posting) and we’re pleased to report that a new survey of insurers estimates that nearly 90 percent of claims stemming from the event have been settled. A poll by the Insurance Information Network of California (IINC) of companies representing nearly two-thirds of the California’s homeowners market found that 29,954 of their 33,789 residential claims have been settled. To date, those claims have resulted in more than $1.27 billion in claims settlements among the surveyed companies, a total which is ultimately expected to reach $1.47 billion. By comparison, roughly 86 percent of claims from the 2003 wildfires had been settled by April 2004, according to a previous IINC survey. The survey tallied brushfire and wind-related homeowners insurance claims settled. Check out further I.I.I. wildfire statistics.  

Midwest Earthquake

The U.S. Geological Survey (USGS) today will issue updated earthquake hazard assessment maps for the entire U.S. Information on these maps is used to update building codes. The USGS map updates come as a strong aftershock shook southern Illinois early this morning, three days after a magnitude 5.2 quake struck the region. The quake is a reminder of the fact that earthquakes can strike anywhere, not just in California and parts of the west. The USGS noted that the event also highlights that earthquakes east of the Mississippi River are felt more widely than those in the west. Apparently the Illinois quake was felt as far west as Kansas, as far north as Upper Michigan, and as far south as Georgia. It is the strongest quake in southern Illinois since a magnitude 5.4 earthquake occurring in November 1968. Check out further I.I.I. earthquake facts & stats.  

‘Invisible Wounds of War’

Is the title of a new RAND report that estimates nearly one in five military service members who have returned from Iraq and Afghanistan report symptoms of post traumatic stress disorder or major depression, yet only slightly more than half have sought treatment. Researchers also found about 19 percent of returning service members report experiencing a possible traumatic brain injury while deployed, with 7 percent reporting both a probable brain injury and current PTSD or major depression. In what RAND describes as a “major health crisis†, researchers estimate that PTSD and depression among returning service members will cost the nation up to $6.2 billion in the two years following deployment, including both direct medical care and costs for lost productivity and suicide. Injured veterans returning from war present unique challenges for insurers as I.I.I. president Dr. Robert Hartwig outlined in a January 2006 report: When Johnny Comes Marching Home.  

Increasing Coverage Options

After all the hearings that have taken place up and down the country on coastal property insurance, legislation introduced in the House earlier this week that would expand the coverage options for commercial property insurance has been welcomed by the Risk and Insurance Management Society (RIMS). HR 5792, known as the “Increasing Insurance Coverage Options for Consumers Act†, would allow Risk Retention Groups (RRGs) and Risk Purchasing Groups (RPGs) to write property coverage. The issue is likely to be a topic of discussion at the upcoming 2008 RIMS annual conference in San Diego April 27 to May 1. For further information on RRGs and RPGs, check out the I.I.I. issues update on captives and other risk-financing options.

Subprime Crisis and Policy Options

An article by reporter Greg Ip in today’s Wall Street Journal highlights a timely new report from the Paris-based Organization for Economic Cooperation and Development (OECD) on the subprime crisis. In its analysis, the OECD now puts the total estimated loss range from the crisis at between $352 billion to $422 billion. In addition to the headline figures, the OECD also notes that the world is moving to a situation in which individuals bear more and more risks, without necessarily being able to cope with them. This concerns not only credit, including sub-prime mortgages, but also insurance or pensions. According to the OECD, this situation calls for a new culture of risk awareness and financial education mechanisms. What do you make of this warning?  

Climate Change Top P/C Challenge

A global survey of insurance equity analysts by Accenture reveals that climate change is the most widely cited industry challenge among P/C insurers. Perhaps surprisingly, the issue came in ahead of a range of other topics including aging systems and IT modernization (85 percent), new regulations and reforms (76 percent), cross-border competition (69 percent), terrorism and geopolitical instability (61 percent) and growing risk to investment portfolios (59 percent). Among the other findings, analysts expect a significant increase in P/C mergers and acquisitions this year and say that life insurers who expand into emerging markets over the next three years are likely to be rewarded with superior ratings. The survey queried more than 100 leading insurance equity analysts in 14 of the world’s largest insurance markets. What do you make of the findings?

Signs of Cyclical Strain

A decline in profitability in 2007 primarily due to a marginal deterioration in underwriting performance is one of the takeaways of the P/C insurance industry’s full-year 2007 results just released. Despite the decline, the industry posted a full-year combined ratio of 95.6, up from 92.4 in 2006, but still one of the best combined ratios in the past 80 years. I.I.I. president Dr. Robert Hartwig notes that while profits remained reasonably strong, industry margins did fall short of those realized by the Fortune 500 group of companies, which turned in an estimated average return on equity (ROE) in the 13 to 14 percent range in 2007. He also points out that net written premium growth was down 0.6 percent in 2007, the first such decline since 1943, noting: “One major cause for concern is the fact that negative premium growth in 2007 means that industry growth has come to a screeching halt and is, in fact, severely negative on an inflation-adjusted basis.† Check out Dr. Hartwig’s full commentary at: http://www.iii.org/media/industry/financials/2007yearend/

Well Above-Average Season Forecast

Colorado State University’s (CSU) Tropical Meteorology Project has upped its forecast for the 2008 Atlantic hurricane season. The team now estimates there will be 15 named storms, eight hurricanes and four intense hurricanes in the season starting June 1. The probability for at least one major (Category 3-4-5) hurricane making landfall in the U.S. is put at 69 percent, compared with an average of 52 percent over the last century. The likelihood of an East coast landfall, including the Florida peninsula, is 45 percent, while there is a 44 percent chance of a Gulf Coast landfall, including the Florida Panhandle westward to Brownsville, Texas. There is also an above-average major hurricane landfall risk in the Caribbean. For further hurricane resources, check out the I.I.I. disaster information site.  

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