MLB Champ Forecast

With the World Series all but upon us, we happily give away the pen for today’s posting to I.I.I. executive vice president and resident baseball expert Cary Schneider for his take on the 2007 postseason finale: “Defying all odds, the team with the fewest wins among all the division champs went on to win the World Series last year. So predicting the outcome of the World Series is a riskier task than ever. Rather than speculate on which team should win, I prefer to identify the team that should lose. My overwhelming pick is the sentimental favorite, the Chicago Cubs. After all, they have not been in the fall classic since 1945 and have not won one since 1908.  I believe the team’s historic futility must continue. A Cubs victory in the World Series would alter the natural balance of the universe, the laws of physics as well as all established actuarial principles, particularly Simpson’s Paradox of Confounding Variables.  Besides, I’m a St. Louis Cardinals fan.  World Series winner?  Anyone but the Cubs.†Ã‚  

Obesity Update

Evidence of the growing economic and social costs of obesity continues to dominate the news. Research by Emory University published in the journal Health Affairs reveals that Americans are nearly twice as likely as Europeans to be obese. Apparently while 17.1 percent of European adults are obese, the rate is 33.1 percent for U.S. adults. Older U.S. adults are also more likely than their European counterparts to be diagnosed with costly chronic diseases and to be treated for those diseases, adding about $100 billion to $150 billion per year to the U.S. health care tab, according to the study. Interesting stat: Emory professors believe the U.S. could save $100 billion a year if it could bring its obesity rates more in line with Europe. Point to bear in mind: explanations for the TransAtlantic differences in disease prevalence remain varied. While  it’s possible Americans are actually sicker than Europeans, it’s also possible that more aggressive diagnosis and pretreatment of chronic diseases in this country raises disease prevalence rates, researchers say. Meanwhile, another  study of 663 patients with HIV at Navy hospitals in San Diego and Bethesda, Maryland, found that 63 percent of them were overweight or obese, while only 3 percent were underweight.  Check out further information from the I.I.I. on obesity.

Volcanic Risk

We notice that the top search on Yahoo! today is Active Volcanoes. A glance at the headlines reveals why. A volcano on the Yemeni island Jabal al-Tair in the Red Sea is erupting for the third straight day,  with so far three reported dead and five missing. Meanwhile, the possibility of a major eruption of Mount Kelud, located about 385 miles east of Jakarta, Indonesia, led authorities there to prepare to evacuate about 24,000 residents over the weekend. And just last week, Mount Ruapehu volcano on New Zealand’s North Island erupted, injuring one. Heightened public interest on this natural hazard is a good thing. The 2007 Hazard and Risk Science Review from Benfield and PartnerRe notes that as another year goes by without a major eruption in a developed country, and no large insured loss arising from volcanic activity, so market interest in the volcanic threat remains low. Nevertheless, at least 1,500 (and possibly as many as 3,000) volcanoes have the potential to erupt in future, many located where they can cause major damage and huge losses. By the way, volcanic eruption is a covered cause of loss under homeowners and business  insurance policies in the U.S. The May 1980 eruption of Mount St. Helens was the most catastrophic in U.S. history. Check out I.I.I. world catastrophe facts & stats.

Auto Spend Down

Countrywide average expenditures  for auto insurance declined by 1.3 percent in 2005, the first drop since 1999, according to a September 2007 report from the National Association of Insurance Commissioners (NAIC). That’s good news for the many millions of drivers in the U.S. and underscores the point made by I.I.I. president Dr. Robert Hartwig in his recent commentary on the industry’s first-half 2007 results that falling insurance prices are lowering the cost of driving a car (as well as doing business and owning a home) for most Americans. In our annual auto insurance forecast the I.I.I. has highlighted the slowdown in auto insurance costs over the past several years. Fewer auto accidents due to better drivers and safer cars, crackdowns on fraud and advances in technology are some of the key reasons behind this trend. For state-by-state auto insurance cost comparisons, check out I.I.I.’s auto insurance facts & stats online.

Illuminating Surplus Lines

Phrases like non-admitted or non-standard are enough to give any market a complex, but as is widely known, surplus lines insurers perform a vital role by assuming risks that licensed companies decline to insure or will only insure at a very high price. With that in mind the latest figures indicating that despite the soft market, the surplus lines share of the commercial insurance market grew again in 2006, might come as a bit of a surprise. In fact A.M. Best reports that surplus lines insurers benefited from the one notable soft market exception: catastrophe-exposed coastal property. It also notes that the growth of the surplus lines market as a percentage of total commercial lines premiums has increased steadily over the past two decades, from 5.4 percent in 1986 to 14.4 percent in 2006. How to sustain that growth in the coming year is likely to be one of the discussion points at the annual meeting of the National Association of Professional Surplus Lines Offices (NAPSLO) in New Orleans this week. For more on the surplus lines market, what it is and how it operates, check out I.I.I.’s commercial insurance site.  

Corporate Equality

A number of insurers have earned top marks in the sixth annual Corporate Equality Index published by the Human Rights Campaign Foundation (HRC). The Index rates employers on a scale from 0 to 100 percent on their treatment of gay, lesbian, bisexual and transgender (GLBT) employees, consumers and investors. Ratings are based on factors including nondiscrimination policies, diversity training and benefits for domestic partners and transgender employees. A few standouts: Allstate, Aon, Esurance, Hartford Financial Services and Massachusetts Mutual Life received the 100 percent rating for the first time. Chubb and Nationwide each received the 100 percent rating for the fourth year in a row. Overall, some 195 U.S. businesses employing more than 8.3 million workers earned the top rating of 100 percent in this year’s survey, a 41 percent increase on last year. Pause for thought: when the index was first released in 2002, only 13 companies employing 690,000 workers received the top rating.  

Virtual Threat

Business leaders do not fully understand their dependencies on the Internet, even as their reliance on the Internet for fundamental business applications increases. That’s the warning from Business Roundtable, an association of 160 chief executive officers of U.S. companies, in a new report on Internet security. The group cites estimates from the World Economic Forum (WEF) that there is a 10 to 20 percent probability of a breakdown of the critical information infrastructure (CII) in the next 10 years, at a cost of approximately $250 billion to the global economy. No small number, and more than costly than two-thirds of the 23 global risks examined in the WEF report. Potential threats include malicious code written by individuals, accidental disruptions caused by coding error, natural disasters that have major impacts on vital Internet hubs, and attacks by terrorists or other adversaries. The Business Roundtable urges CEOs to address the risks of a virtual attack by assessing company Internet dependencies and interdependencies based on their business operations, and addressing these in corporate continuity and recovery plans. As Ed Rust, chairman and CEO of State Farm and co-chairman of the Business Roundtable states in the press release announcing the report: “Similar to physical threats, the risks of attack through the Internet intended on impacting our businesses, economy and national security present new challenges and must be addressed.† What do you think?  

Glass Half Full Or Empty?

The P/C industry’s profits may still be reasonably strong, but industry margins are virtually guaranteed to fall well short of those realized by the Fortune 500 group of companies which is expected to turn in an average return on equity in the 14 to 15 percent range this year. That’s the view of I.I.I. president Dr. Robert Hartwig in his commentary on the industry’s first-half 2007 financial results. A decline in overall profitability due to a marginal deterioration in underwriting performance are the low notes of what was otherwise a strong first half performance that bodes well for the rest of the year. The headline numbers: the industry’s annualized statutory rate of return on average surplus declined to 13.1 percent during the first half of 2007, down from 13.5 percent in last year’s first half; the industry’s combined ratio deteriorated slightly to 92.7, compared with 92.0 during the first half of 2006. Point of interest: ISO estimates that the combined ratio would have had to improve to 91.5 percent in order for insurers to have earned the 13.9 percent long-term average rate of return for the Fortune 500. Nevertheless, the industry is on track to record what could be its seventh best combined ratio since 1920. But, intensifying competition is taking its toll on insurers with premium growth at just 0.1 percent in the first half of 2007. If maintained through the rest of the year, this would represent the lowest growth rate for the industry during the past 40 years. Check out Dr. Hartwig’s full commentary at http://www.iii.org/media/industry/financials/2007firsthalf/Â  

Fraud Costs

We’re often asked how much insurance fraud costs the industry (the answer is an estimated $30 billion annually), so a new global survey on corporate fraud commissioned by risk consulting firm Kroll and conducted by the Economist Intelligence Unit makes for interesting reading. According to its findings, new technologies, new investors and expansion into overseas markets are opening the door to different forms of fraud and four out of five companies have suffered from corporate fraud in the past three years. As you might expect the associated costs are substantial. The survey shows the average cost due to fraud to large companies (those with annual revenues of more than $5 billion) was more than $20 million, with about one in 10 losing more than $100 million. In some sectors, more than one-fifth of all companies have lost more than $1 million – these sectors include financial services and healthcare. Looking to future risks, companies cite theft, loss of or attack on information as their biggest concerns, with 20 percent of respondents describing themselves as highly vulnerable. More than 30 percent believe that IT complexity has increased their exposure to fraud. For those companies, the good news is that there are some innovative insurance covers out there to help protect against cyber risks. See our paper on information security and liability for further information.

UN Climate Change Convention

Top officials from more than 150 countries gather at United Nations HQ in New York City today, to address the leadership challenge of climate change. The event, billed as the largest meeting ever of world leaders on climate change, takes place on the eve of the opening of the UN General Assembly’s annual General Debate. The discussion is intended to build momentum for the UN Climate Change conference in Bali this December where negotiations about a new international climate agreement should start. Sessions will cover adaptation, mitigation, technology, and financing. For our industry’s part, Jacques Aigrain, chief executive officer and member of the executive board committee of Swiss Re, will be speaking.  

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