SC Hurricane Focus

Much has been reported about the vulnerability of the Gulf coast states to hurricane risk, but with the start of the 2007 hurricane season just 62 days away, a new presentation from I.I.I. president and chief economist Dr. Robert Hartwig takes us to the Eastern seaboard, specifically South Carolina. The biggest hurricane to hit the state was Hurricane Hugo back in 1989. Since then, South Carolina has experienced enormous growth in coastal population and property. Latest available figures show the state has some $150 billion in insured coastal exposure, of which  about 56 percent is commercial and 44 percent residential. As Dr. Hartwig notes, a major storm could result in far higher commercial than residential losses,  particularly if business interruption as well as property damage coverage is triggered.  

Data Loss

Today another company, this time in the retail sector, revealed details of a breach in data security that saw hackers access information from at least 45.7 million customer credit and debit cards. A further 455,000 customers who returned merchandise without receipts also had their personal data stolen, according to news reports. Indeed, a recent risk survey conducted by the Economist Intelligence Unit (EIU) and sponsored by ACE European Group (ACE) found that one in three global businesses see loss of data as a significant threat and the key issue to address in operational risk management planning. Some 43 percent of survey respondents identified reputational damage as the main threat arising from data loss. Yet only 19 percent of respondents saw loss of revenue as a concern. These latest developments are a reminder of the potentially enormous liability facing corporations, if and when a breach in data security occurs, and the apparent  growth opportunity for insurers.

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†.  

Cat Modeling With Google

Over the years catastrophe models have been constantly updated and fine-tuned to incorporate the latest technologies, data, and research findings. Following the unprecedented frequency and severity of storms during the 2004 and 2005 hurricane seasons, the output of such models came under close scrutiny. In a recent innovation we can report that underwriters in the Lloyd’s market are now using Google Earth to plot their exposure to hurricanes, earthquakes, terrorist attacks and other catastrophes on a 3D map. This is just the latest evidence that catastrophe models and their  application will continue to evolve amid the ever-changing risk landscape.  Ã‚  

International Women’s Day

Today is International Women’s Day (IWD), a day aimed at connecting women around the world and inspiring them to achieve their full potential. A  review of the IWD site  reveals that among the top companies supporting women and IWD is insurer Aviva. Apparently, more than 50 percent of Aviva staff worldwide and approximately 17 percent of its senior management are women. This is encouraging news, particularly in light of a recent study by research and advisory group Catalyst that reveals a persistent shortage of women in corporate leadership positions. According to its findings, women held just 15.6 percent of Fortune 500 corporate officer positions in 2006, down from 16.4 percent in 2005. At the current rate of change, Catalyst estimates it could take women 47 years to reach parity with men as corporate officers of Fortune 500 companies. Food for thought.  

On the Hill

Industry eyes turn to Capitol Hill today, as a hearing before the House Financial Services Subcommittee on Oversight and Investigations gets underway to discuss the insurance claims payment processes in the Gulf coast after the 2005 hurricanes. Dr. Robert Hartwig, I.I.I. president and chief economist, will deliver testimony noting that insurance companies have settled, without dispute, nearly all of the 1.7 million claims totaling $40.6 billion from Hurricane Katrina, the most expensive disaster in the history of insurance. Insurers have also strengthened their catastrophe response capabilities to more quickly reach their customers following mega-catastrophes.  

Satisfaction Up

It’s interesting to see that customer satisfaction in the finance and insurance sector apparently reached an all-time high in the fourth quarter of 2006. According to the latest University of Michigan American Customer Satisfaction Index, every industry except one in this sector improved its customer satisfaction ranking. The sector includes commercial banks and property and life and health insurance. In the aggregate, finance and insurance jumped 2.7 percent to 76, its highest score since 1994 (78.5). Improvements in quality and value drove customer satisfaction gains for life and health insurance. However, we note that property and casualty insurance was the odd one out with a customer satisfaction ranking of 78 — unchanged from the previous year’s ranking. The index measures customer expectations, perceived quality and perceived value of companies in various industries.  

Flood Risk Beyond the U.S.

As the issue of flood insurance continues to be in the news, we note that flood risk is also a hot topic across the pond in the U.K. The Association of British Insurers (ABI) has just announced that government spending on flood defenses needs to increase by 10 percent annually to approximately $1.5 billion by 2011 to counter an increased risk of flood. Nearly 600,000 U.K. homes are now estimated to be at risk of flood, compared to an estimated 220,000 homes back in 2002. One key difference: while standard homeowners policies in the U.S. do not cover flood damage, U.K. homeowners policies do. However, the ABI notes that U.K. insurers will only continue to be able to offer flood insurance if defenses are kept up to an adequate standard. Maintenance of levees and barriers is obviously important, but flood defenses can take many forms. Preservation of wetlands and saltmarshes is just as important a part of any flood risk management plan. Check out I.I.I.’s flood statistics for more information.

Subzero Market

Surveys of current policy renewal prices as reported by agents and brokers, and corporate risk managers, have confirmed a further softening in the commercial insurance market. With the sole exception of hurricane-exposed coastal property coverages, insurers appear willing to lower prices and place fewer restrictions on coverage to get new business, according to the latest market survey from the Council of Insurance Agents & Brokers (CIAB). Ditto the RIMS Benchmark Survey, where the largest decreases in premium rates in the fourth quarter of 2006 were reported in Directors and Officers (D&O) and workers’ compensation lines. D&O, in particular, continues to be a very competitive line of business with rate decreases further stimulated by the sharp drop in the number of securities class action suits filed in 2006, according to analysis from Advisen. Meanwhile, online insurance exchange MarketScout puts the average P/C rate decrease at -9 percent in January 2007.  

Northern Exposure

We all know cars and deer can be a lethal combination, particularly during deer season which generally runs from October through December. But moose, weighing up to 1,000 lbs, can present even greater risks for drivers and their insurers. For example, reports out of Anchorage warn that moose collisions could be double or even triple the average this winter as heavy snow has led more moose than ever to wander into city limits. The Alaska Moose Federation notes that in 2006 some 236 moose were killed on Alaskan highways, with an average cost per accident of $8,356. Vigilant driving is part of the answer, but new high-tech solutions may also help to better manage this risk. Take Connecticut, where state wildlife officials have just announced they will use GPS collars to track and collect data on the state’s moose population. Now just imagine that regulators allowed auto insurers to use a similar system to monitor the habits of their policyholders†¦Ã‚  Ã‚  


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