TRIA Hearing

Legislative solutions to extend the Terrorism Risk Insurance Act (TRIA) will be the focus of a hearing scheduled this Thursday before the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises. As with many issues in our industry, there are different viewpoints on what any extension legislation should look like. While there is general agreement a continuing federal role is key to ensuring that terrorism risk insurance remains available to those businesses that want and need the coverage, the devil’s in the detail. Key points under discussion right now include: the length of any proposed TRIA extension; trigger/deductible levels and potential extension of coverage under TRIA to include domestic acts, group life losses and chemical, nuclear, biological and radiological (CNBR). Check out I.I.I.’s additional information on terrorism risk online.  

Pride Awareness

June is Pride month, so it’s time to highlight a few recent developments affecting the lesbian, gay, bisexual, and transgender (LGBT) community that may be of interest. We’ve blogged before about how a more diverse company is a better performing company and another study from research and advisory group Catalyst supports this theory. Titled “Making Change: LGBT Inclusion – Understanding the Challenges† the report explores how LGBT issues are a key component of any comprehensive diversity and inclusion strategy in business. Meanwhile, a growing number of states in the northeast (CT, VT, NJ, ME) and west (CA, HI, WA) now have civil union or domestic partnership laws in place and  same-sex marriage has been legal in Massachusetts since May 2004. New Hampshire recently signed into law a civil union bill and Oregon will soon join the list. It’s important to recognize that the laws in each state are different and offer varying legal protections to same-sex couples. Also, the state laws do not extend any of the benefits on the Federal level. Nonetheless, these developments perhaps point to an underlying trend with a potential impact for many businesses, including insurers. We welcome your thoughts.

Averting Obesity Suits

An interesting announcement by the world’s largest cereal maker today. Kellogg Co. is raising the nutritional value of the cereals and snacks it markets to children and will no longer promote foods in TV, radio, print or online ads to children under age 12 unless a single serving of the product meets the following standards: no more than 200 calories; no trans fat; no more than 2 grams of saturated fat; no more than 230 milligrams of sodium; no more than 12 grams of sugar. The company is also introducing new front-of-pack nutrition labeling. The move, which comes amid growing concerns on childhood obesity, effectively averts a lawsuit that had been threatened by parents and nutrition advocacy groups in January 2006. A recent Federal Trade Commission (FTC) study found that highly sugared cereal accounts for 84 percent of children’s exposure to ads for cereal, while candy accounts for 52 percent of children’s exposure to ads for desserts and sweets. Check out I.I.I.’s report on Obesity, Liability and Insurance and info on the liability system.  Ã‚  

  

Aviation Terror Threat

Since we blogged a few days ago about terrorism insurance take-up rising in the U.S. two further reports have been published confirming the trend of improving availability and affordability of coverage under the Terrorism Risk Insurance Act (TRIA). First, a RAND Corp study finds that TRIA effects are most positive for a conventional attack, with expected costs to taxpayers in this scenario lower with TRIA than without. Then a study from Guy Carpenter points to an emerging global aviation market issue – whether losses to aircraft hulls, passengers and third parties arising from weapons of mass destruction (WMD) should be government risks or commercial market risks. As airlines are required to have passenger and third-party liability insurance cover to receive landing rights, the cancellation of coverage could threaten to bring about a complete shutdown of the aviation industry. While the U.S. government currently provides U.S. air carriers with passenger and crew liability, hull war risk and third-party liability cover, the report notes that since 2002 most other government schemes have been withdrawn and replaced by commercial cover. I.I.I. has further aviation information available online.  Ã‚  

Hurricane Hearings

A busy day on Capitol Hill tomorrow as a joint public hearing titled “National Flood Insurance Program: Issues Exposed by the 2005 Hurricanes† will be held before the Financial Services and Homeland Security Oversight Subcommittees. The hearing is expected to explore public and private sector insurance practices in the wake of the 2005 hurricanes. Specifically, the interaction between the National Flood Insurance Program (NFIP) and private insurers and the allocation of wind vs. water insurance claims will be examined. Later in the day, a hearing before the U.S. Senate Judiciary committee will focus on “Rising violent crime in the aftermath of Hurricane Katrina†. Check out I.I.I.’s flood insurance stats and hurricane insurance facts.

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.

Optional Federal Charter

While we’re on the subject of regulation, today we’re responding to a reader’s request to blog about the bill introduced on Capitol Hill last week by Republican Senator John Sununu and Democratic Senator Tim Johnson. The National Insurance Act of 2007 would create an optional federal charter for insurers. The measure is similar to a bill introduced by the two Senators in April 2006. Those of you familiar with I.I.I. will be aware that the Institute does not lobby, leaving that role to our advocacy trade colleagues. The state system of insurance regulation in the U.S. began when the Constitution gave Congress the right to regulate commerce among the states. However, the question of state versus federal regulation has been bubbling ever since. As with many of the issues we tackle, this is one that elicits a range of viewpoints and there are pros and cons of both systems. So, with that in mind we welcome your comments and tip you to the I.I.I.’s online update on modernizing insurance regulation.  

Top 10 Banana Skins

Insurers around the world are slipping on one major banana skin that is costing them dearly, according to the results of a new survey from London-based think tank Centre for the Study of Financial Innovation (CSFI) and PricewaterhouseCoopers. That is: too much regulation. More than 100 respondents to the 2007 survey say that excessive regulation is endangering the industry by loading companies with costs, distracting management and creating barriers to competition and innovation. This finding is linked to concern about growing political interference, particularly in markets where governments regulate insurance products and prices. Apparently the view is widespread, with responses from 21 countries showing it to be a major issue in North America, Europe, South Africa and the Asia pacific region. Other banana skins high on the list for property-casualty insurers include natural catastrophes and climate change. The main risks facing the life industry include growing human longevity and the soundness of assumptions underlying the pricing of life policies. What are your top insurance banana skins in 2007? Check out I.I.I. info on rates and regulation.

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