Health Care Price Pressures Ease

Employers face an average increase of 10.6 percent in health care costs in the next 12 months, according to a survey by Aon Consulting of more than 70 leading health care insurers, representing more than 100 million insured individuals. The survey projects that health care costs will increase by 10.6 percent for HMOs, 10.5 percent for POS plans, 10.7 percent for PPOs and 10.5 percent for CDH plans. These represent the lowest trend rate increases since the study began in 2001 and are slightly lower than one year ago, when HMO cost increases were 10.9 percent, 10.8 percent for POS plans, 11.2 percent for PPOs and 10.7 percent for CDH plans. Aon notes that while the medical trend rate is still more than twice the consumer price index, the continuing slow down in health care cost rate increases is encouraging. It attributes the decrease in the medical trend rate to more employers and employees taking advantage of wellness, health promotion and consumer driven programs. Check out further I.I.I. facts and stats on health insurance.

Oil and Gas Risk Report

National oil companies (NOCs) are facing a riskier business environment, yet there is a gap between the importance of the risks they face and how well they are managed. A new survey from Marsh found the overall level of risk facing the industry remains high, with the NOC Risk Index score rising to 4.51 out of a possible 6 in 2008. By contrast, the Risk Management Effectiveness Index score was just 3.8. The top five risks in 2008 ranked by participants are: availability of oil and gas resources; recruitment and retention of a qualified workforce; energy price volatility; environmental impact of operations; and political/regulatory risk issues. Availability of oil and gas resources as a risk issue was rated 5.3 out of a possible 6. It was also the top-ranked risk in 2007 but with a rating of 4.9.

Business Oversights on Natural Disasters

A new survey of financial executives representing the largest corporations in North America reveals that almost all companies are exposed to natural disasters, yet many of those firms are ill-prepared for such catastrophes. FM Global said the gap between levels of natural catastrophe exposure and levels of preparedness is concerning.   The 2008 Natural Disaster Business Risk Study found that while 96 percent of financial executives said their companies have operations exposed to hurricanes, floods and earthquakes, less than 20 percent indicated that their firms were very concerned about such disasters negatively affecting their bottom line. For example, while 80 percent of companies have North America operations located in hurricane-exposed regions, nearly 50 percent reported they are not well-prepared for a hurricane. Nearly 80 percent are not overly concerned that a hurricane/typhoon or tropical cyclone could negatively impact their company’s bottom line. FM Global said the findings suggest companies should also consider the impact a disaster could have on maintaining competitiveness, market share and corporate reputation. Check out I.I.I. facts and stats on U.S. catastrophes.

Data Loss Vulnerability

Federal prosecutors yesterday said they have charged 11 individuals allegedly involved in the hacking of nine major U.S. retailers and the theft and sale of more than 40 million credit and debit card numbers. In the words of U.S. Attorney General Michael Mukasey, this is “the single largest and most complex identity theft case ever charged in this country†. The case underscores not only the increasing vulnerability of individuals to identity theft, but also the potential liability faced by companies when a breach in data security occurs. The retailers targeted included: TJX Companies, BJ’s Wholesale Club, OfficeMax, Boston Market, Barnes & Noble, Sports Authority, Forever 21 and DSW. The perpetrators used sophisticated computer hacking techniques, breaching security systems and installing programs that gathered enormous quantities of personal financial data, which they allegedly sold to others or used themselves. In total they caused widespread losses to banks, retailers and consumers. A risk survey conducted by the Economist Intelligence Unit and sponsored by ACE European Group (ACE) last year found that one in three global businesses see loss of data as a significant threat. A trend to monitor.

More Active Hurricane Season Forecast

Colorado State University’s Tropical Meteorology Project team today warned that the 2008 Atlantic hurricane season will be much more active than the average of the 1950-2000 seasons. The team upped its forecast to 17 named storms, including nine hurricanes and five major (Category 3-4-5) hurricanes. This is up from its early June prediction of 15 named storms, including eight hurricanes and four intense hurricanes. The team continues to predict an above-average probability of at least one major (Category 3-4-5) hurricane making landfall in the U.S. and in the Caribbean. It said the raised forecast is due to a combination of a very active early tropical cyclone season in the deep tropics and more favorable hurricane-enhancing sea surface temperature and sea level pressure patterns in the tropical Atlantic. The team noted that the 2008 season has already gotten off to a very fast start, with four named storms forming through July. Tropical storm Edouard  this  week became  the fifth named storm of the season. Check out further I.I.I. facts & stats on hurricanes.  

Edouard Etc

Texas and Louisiana are bracing for the arrival of Tropical Storm Edouard. The National Hurricane Center expects the fifth named  storm of the season to strengthen to near-hurricane status before making landfall tomorrow morning. Coincidentally Colorado State University’s Tropical Meteorology Project tomorrow will issue an update of its 2008  Atlantic basin  hurricane forecast. By then the center of Edouard is expected to be very near the upper Texas coast or the coast of southwestern Louisiana. As of earlier today, a hurricane watch was in effect from west of Intracoastal City, Louisiana, to Port O’Connor, Texas. A hurricane watch means that hurricane conditions are possible within the watch area, generally within 36 hours. A tropical storm warning remained in effect from the mouth of the Mississippi River westward to San Luis Pass. This means that tropical storm conditions are expected within the warning area within the next 24 hours. Check out I.I.I. information on the Texas insurance market.

Captive Commentary

Medical malpractice continues to be the dominant line of business for U.S. captives. The performance of this line therefore can have a significant impact on the overall captive insurance market. A new report by ratings agency A.M. Best notes that medical malpractice net premiums written fell 26 percent in 2007, leading to a 15 percent drop in net premiums written for a composite of 177 captive insurance companies. However, captives overall benefited from favorable underwriting trends. Solid underwriting results in medical malpractice helped the captive composite’s loss ratio to improve substantially in 2007 to 61.9, for example. Looking ahead, A.M. Best predicts that in spite of the soft market, the outlook for the captive industry is stable. Captive formations continue even as the commercial market softens and new domiciles have entered the market. A key advantage for captive insurers is also their ability to compete not just on price, but on customized services for their insureds. Check out I.I.I. updates on captives and  other risk  financing options and on medical malpractice.  

Aging Infrastructure Remains Concern

Tomorrow marks the one-year anniversary of the Minneapolis Interstate 35W bridge collapse that resulted in 13 fatalities (see our August 3, 2007, posting). A year on, a new report by the American Association of State Highway and Transportation Officials (AASHTO) outlines the difficult challenges that lie ahead in maintaining, repairing, and replacing the nation’s bridges. Age, deterioration, soaring construction costs, and increasing traffic congestion were cited by the AASHTO as some of the major bridge problems facing the U.S. The report notes that the average bridge in the U.S. today is 43 and almost 20 percent of these “Baby Boomer† bridges are now over 50 years old. It puts the price tag to repair or modernize the country’s 600,000 bridges at $140 billion. The report calls for increased investment in transportation at all levels of government; support for revenue options such as tolls, tax increases, annual road user fees; and a continued commitment to research, innovation and technology. What do you think  of these  proposed solutions?

California Quake Risk

Yesterday’s magnitude 5.4 earthquake that struck 35 miles east of downtown Los Angeles is a reminder of the heightened risk faced in California and the importance of having earthquake insurance. The majority of the most costly earthquakes in U.S. history have occurred in California. Standard homeowners and business insurance policies in the U.S. do not cover earthquakes, but coverage is available via an endorsement. In California, coverage is available from private insurers and from the privately financed, publicly managed California Earthquake Authority (CEA). The CEA is the largest residential earthquake insurer in the state, with $498.5 million in direct premiums written in 2007, accounting for 32 percent of the market.  

Persuading people to buy earthquake insurance remains a key challenge; only about 12 percent of homeowners in California buy it. Yet the risk is significant. Earlier this year scientists unveiled a scenario for a magnitude 7.8 earthquake along the San Andreas fault in southern California. The ShakeOut scenario estimates this earthquake would cause some 2,000 fatalities, 50,000 injuries, and $200 billion in damage and other losses. A preparedness week planned for mid-November will include the largest earthquake drill in U.S. history. Check out further I.I.I. facts and stats on earthquake coverage and the CEA.  

Green Homeowners Insurance

The first green homeowners policy in California will be available August 1, following approval by California’s Insurance Commissioner. Plaudits to Fireman’s Fund for developing this innovative policy. The product will enable California homeowners with conventional homes to rebuild to the latest environmental standards after a loss. Under the coverage a policyholder whose home has been partially damaged or completely destroyed will be able to repair it with green alternatives including: Energy Star-rated appliances, lighting, electronic equipment and roofing/insulation; an Energy Star upgrade of heating, ventilation and air-conditioning systems; Forest Stewardship Council certified wood for millwork, ceilings, siding and framing; non-toxic, low odor paints and carpeting; and water-saving plumbing fixtures. The green homeowners insurance is already approved for policyholders in around 25 other states. Most other states are expected to offer the coverage by year-end.  

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