Captive Market

Captives owned by American firms are the most significant contributors to the overall growth of the global captive insurance market. According to a new benchmarking report from Marsh, approximately 75 percent of captives originate from six countries, with U.S. owned captives representing 53 percent. Whereas Bermuda was once the default choice for North American corporations, Marsh notes that many companies are now selecting onshore U.S. domiciles. Over 25 states have put in place some form of captive legislation. With this in mind it’s no surprise that within the survey sample group there is a significant concentration of risk in the U.S. However, in Europe, Middle East and Africa and Asia Pacific regions over 65 percent of the exposure is written on a European or global basis. Marsh says this divergence perhaps reflects the fact that much of the new captive growth in the U.S. has been driven by firms with domestically focused risk financing issues, e.g. Gulf coast exposed property. Check out further I.I.I. info on captive insurers.  

Global D&O Protection Gap

Worldwide U.S. directors and officers (D&O) policies do not provide the global protection that many insureds may believe they have. That’s the upshot of  the latest annual D&O  liability survey by Towers Perrin. It found that only 3 percent of survey participants with international operations have  purchased separate local D&O liability insurance policies for individual countries. This is despite the fact that many countries do not permit non-admitted D&O insurance policies to cover local directors and officers. Towers Perrin warns that many companies are not yet aware of this emerging issue. Given the  increased claim activity outside the United States, this issue is unlikely to go away. By the way, some 43 percent of survey participants indicated that their firms are global. Something to think about.

Insured Coastal Property Values to Double

The insured value of properties in coastal areas of the United States continued to grow at an annual rate of 7 percent in the three years from 2004 through 2007. The finding comes in an updated analysis of insured coastal property values by catastrophe modeling firm AIR Worldwide. Despite the recent weakening of the real estate market in many areas, AIR says the insured value – or the cost to rebuild properties – has maintained an annual growth rate that will lead to a doubling of total value every decade. AIR warns that the significant increase in the number and value of exposed properties over the last decade has and will continue to contribute to increasing hurricane losses for insurers.

A couple of other takeaways: the insured value of residential and commercial properties in coastal counties of Florida and New York passed $2 trillion each, followed by Texas ($895 billion) and Massachusetts ($793 billion); due to the impact of Hurricane Katrina, the total insured value of properties in the coastal counties of Louisiana has grown at the lowest annual rate of all coastal states, at just over 2 percent; Mississippi coastal counties averaged a 5 percent annual increase, the second lowest of all coastal states. Check out related I.I.I. info.

Pride Focus

As June is Pride month, it’s time to review a number of legal and legislative developments with implications for the lesbian, gay, bisexual and transgender (LGBT) community. From next Tuesday same-sex marriages will be legal in the state of California. The change in law follows a May 15 ruling by the Supreme Court of California overturning the state’s ban on gay marriage. California follows Massachusetts where same-sex marriage has been legal since May 2004. California already has a domestic partnership law in place.

A growing number of other states now have civil union or domestic partnership laws, including: Vermont, Connecticut, New Jersey, New Hampshire, Oregon, Maine, Washington, and the District of Columbia. Other trends to watch for†¦ Two cases, one before the Supreme Court in Connecticut  and another about to be heard in Iowa, could bring rulings making same-sex marriage legal. Meanwhile same-sex marriage legislation is being considered by legislatures in both New Jersey and New York. While state laws do not extend any of the benefits on the Federal level, insurers along with other businesses are monitoring these developments.  

Disaster Matters

With record floods in the Midwest, tornadoes hitting Iowa, Kansas and  Nebraska, and wildfires forcing hundreds to evacuate homes in northern California, it’s a catalogue of disaster across the United States right now. Whatever the event, the I.I.I. has relevant facts and stats to help put the insured and economic losses into perspective. Check out I.I.I. facts  and stats on: U.S. catastrophes, earthquakes, hurricanes, lightning, tornadoes, and wildfires. For state by state catastrophe information, check out state-specific editions of our online publication “A Firm Foundation†.

Lightning Strikes

Anyone doubting the power of thunderstorms should have been in New Jersey last night. A wave of storms blew through the state around 8-9pm EST, leaving downed power lines, trees and damaged property in their wake. Check out today’s article in the NJ Star Ledger. As I watched the lights show exploding from the downed power line further along my street, I was reminded of the potential damage caused by lightning every year in the United States. In fact, I.I.I. analysis found that the total cost of homeowners claims for damage due to lightning strikes has increased dramatically in recent years. For example, in 2006 some 256,000 lighting claims caused about $882 million in insured losses, compared with 278,000 claims causing $735 million in insured losses in 2004. Increasing technology and costly household items such as wide screen TVs, multiple computers and gaming systems are leading to increased claims costs for insurers. Check out further I.I.I. info on lightning  and lightning safety.

Regulatory Hearing

Those following the Treasury’s plan to establish an optional federal charter (OFC) for insurers, will turn their attention to Capitol Hill tomorrow where a hearing is scheduled before the Capital Markets Subcommittee of the House Financial Services Committee on H.R. 5840, the Insurance Information Act of 2008. H.R. 5840 would create a federal Office of Insurance Information within the Treasury department. Creation of this office was recommended as part of the blueprint on federal regulation of financial services, including insurance, unveiled by the Treasury in April (see our March 31 posting). The hearing will take place at 10am, 2128 Rayburn House Office Building. Check out further I.I.I. info on the OFC.  

Green Opportunities

Businesses face growing risks from the environment, as testified by the increasing number of studies on this topic. But what about the opportunities? Two days ago we cited a new Economist Intelligence Unit (EIU) survey that focused on the changing conditions for managing environmental risk. One of the many questions survey participants were asked was to rate the significance of opportunities and risks associated with climate change. In response, 44 percent said they saw the risks as significant, but 49 percent saw the opportunities as significant. Insurers, like other companies, are taking advantage of growing potential opportunities in the green arena. For example, earlier this week Fireman’s Fund announced a new green auto insurance product for its commercial customers. In addition to offering new replacement cost coverage for commercial fleets, Fireman’s Fund is introducing a hybrid upgrade endorsement. This allows policyholders to upgrade to a hybrid model during the first three model years in the event of a total loss. This product is just one of a range of new green products now on offer from insurers.  

Drought Conditions in CA

California Governor Arnold Schwarzenegger’s declaration of a statewide drought and executive order comes after two straight years of below-average rainfall, very low snowmelt runoff and the largest court-ordered water transfer restrictions in state history. Meanwhile, reports point to the unusually early start to the wildfire season out west (check out the June 3 Wall Street Journal article by reporter Jim Carlton). California communities are being forced to mandate water conservation or rationing, and the lack of water has created a number of other problems, including extreme fire danger due to dry conditions, notes the Governor’s office. As the saying goes, forewarned is forearmed. Check out further I.I.I. wildfire statistics.  Ã‚  

  

Environmental Risk and Responsibility

Despite the increasing attention and resources being dedicated to managing environmental risk, many companies are still at the early stage of this process. The finding comes in a new Economist Intelligence Unit (EIU) survey co-sponsored by ACE, KPMG, SAP and Towers Perrin. It reveals that environmental risk management is frequently managed in an ad hoc fashion, and that there is no clear consensus about who should be responsible for environmental risk. Lack of certainty about the impact of environmental liabilities and the future scope of legislation are the main obstacles to effective environmental risk management. According to the survey, the top three risks cited by respondents for which they face potential environmental liabilities – extreme weather events, the potential impact of climate change over the longer-term and water scarcity – are inherently unpredictable in both timing and scale. “Faced with such a high degree of uncertainty, and the huge challenge of quantifying these threats, it is perhaps unsurprising that environmental risk management remains at a relatively early stage of development,† it notes. What do you think?  

Latest research and analysis