Climate Change Tops Risk List

Climate change is the greatest strategic risk that insurance industry leaders must manage if they are to maintain dominant competitive positions. A new study from Ernst & Young and Oxford Analytica puts climate change at the top of the strategic risk list for insurers, followed by demographic shifts in core markets (a priority for life insurers) and catastrophic events. The study’s findings were based on interviews with more than 70 industry analysts around the world. The analysts also identified five emerging risks, just outside the top 10, with the potential to become as significant during the next five years. These are: over reliance on model-based risk management; threats to industry reputation; losing the war for talent; increasing exposure to global regulatory heterogeneity; and the possible emergence of entirely new risks. Are you surprised by the findings? Check out Insurance Journal’s March 12 online article for more information on the study.

’07 World Cat Loss Tally

The number and cost of natural and man-made disasters is increasing, according to Swiss Re, even though 2007 was not an exceptional year in terms of either fatalities or losses. Its latest annual sigma study found that economic losses from natural and man-made catastrophes around the world exceeded $70 billion in 2007 ($22 billion more than in 2006). More than 20,000 people lost their lives in the 335 natural catastrophes and man-made disasters occurring in 2007. In the aftermath, property insurers paid out claims totaling $28 billion ($10.7 billion more than in 2006). In terms of insured property losses, Europe was the worst hit (contributing 45 percent to the world total), while losses in the U.S. were minor in comparison to previous years. Winter storm Kyrill caused insured losses of $6.1 billion across Germany, the U.K., Belgium and the Netherlands when it struck in January 2007. Word of warning: Swiss Re says that natural catastrophe losses are rapidly on the rise, especially those related to storms and flooding. For example, it noted that insured flood losses have increased by 7 percent annually in real terms since 1970. Check out further I.I.I. information on flood insurance.  

Leadership Forum

Saturday marked International Women’s’ Day (IWD) and March is Women’s History Month  in the U.S. With that in mind, we’d like to highlight an event being held later this month and spearheaded by the Association of Professional Insurance Women (APIW). The first-ever Women’s Leadership Forum will be held at the Yale Club in New York City on March 27. Co-hosts include some of the most prestigious professional women’s organizations in the city, including 85 Broads (an independent network of women investment banking professionals), Financial Women’s Association (FWA), National Association of Insurance Women (NAIW) and National Association of Women Lawyers (NAWL). Keynote speaker will be Professor Linda Carli, Ph.D., a visiting associate professor at Wellesley College and co-author of Through the Labyrinth: The Truth About How Women Become Leaders. For registration information check out the APIW site.

Industry Billionaires

It’s that time of year again. Forbes has just published its 2008 World Billionaires Survey and a scan of the list reveals a number of industry heavyweights. Top of the list? Berkshire Hathaway chairman Warren Buffett, who ended Microsoft co-founder Bill Gates’ 13-year reign as the world’s richest person, claiming the number one spot with an impressive net worth of $62 billion. Still, Buffett is not included in this year’s list of 11 insurance industry billionaires who have a combined net worth of $26.3 billion. Maurice Greenberg remains the top U.S. insurance industry billionaire contender with a net worth of $1.9 billion. Check out I.I.I. facts on insurance careers and employment.  

Environmental Inaction Costly

Act now or the costs of addressing key environmental issues will increase significantly. That’s the message from the Organization for Economic Cooperation and Development (OECD) in its Environmental Outlook to 2030. The report identifies four priority areas where urgent action is needed: climate change, biodiversity loss, water scarcity and the impacts on human health of pollution and toxic chemicals. It highlights a mix of policies that can address these challenges in a cost-effective way. By 2030, world GDP is projected to nearly double from today’s levels. The OECD analysis shows that it would cost just over 1 percent of that growth to implement policies that can cut key air pollutants by about one third, and contain greenhouse gas emissions to about 12 percent, instead of 37 percent growth under the scenario without new policies. OECD also recommends use of market-based instruments, such as green taxes, efficient water pricing, emissions trading and polluter-pay systems. However, more stringent regulations and standards, such as for transport and building construction, are also needed.

ID Theft Update

Recent reports suggest that identity theft is on the decline, so new data from the Federal Trade Commission (FTC) makes for interesting reading. According to its findings, identity theft remains the number one consumer complaint received by the Federal Trade Commission (FTC), accounting for 32 percent of all fraud complaints in 2007. Some 258,427 identity theft complaints were reported to the FTC in 2007, up 5 percent on the previous year. Credit card fraud (23 percent) continues to be the most common form of reported identity theft, followed by phone or utilities fraud (18 percent), employment fraud (14 percent) and bank fraud (13 percent). Other significant categories of identity theft reported by victims were government documents/benefits fraud (11 percent) and loan fraud (5 percent). By the way, the metropolitan areas with the highest per capita rates of reported identity theft are Napa, California; Madera, California; and Greeley, Colorado. Check out further I.I.I. info on identity theft.  

Florida Focus

As the annual legislative session gets underway tomorrow in Tallahassee, Florida, the availability and affordability of coastal property insurance continues to be a hot-button issue. So it’s appropriate we check in with the latest poll of Florida voters for their take on the issue. The statewide poll, by the Property Casualty Insurers of America (PCI), surveyed and analyzed the views of 800 likely voters in the sunshine state. Its key findings:Â  

  • Homeowners insurance ranked as the No. 2 overall priority among Floridians after property taxes  

  • 91 percent agree that the state should focus on helping reduce losses through better storm-proofing, such as controlling how and where homes are built  

  • 75 percent of Floridians believe that the Legislature has not delivered on their promises to reduce the cost of homeowners insurance  

  • 75 percent of Floridians believe that the long-term stabilization of rates is more important than immediate rate relief

Check out the I.I.I.’s latest information on the Florida property insurance market.  

Cat Bond Activity Accelerates

Speaking of capital markets solutions as an alternative†¦Mainstream, rather than alternative is how the catastrophe bond market can now be described, according to Guy Carpenter. Its sixth annual review of the market reveals a phenomenal level of transaction activity in 2007, even as rates softened for traditional reinsurance capacity. At year-end, cat bond risk capital outstanding reached $13.8 billion, a 63 percent increase over 2006’s record-setting year-end total of $8.5 billion. Cat bond risk principal now accounts for 12 percent of property limits in the U.S., and 8 percent on a worldwide basis. A couple of other highlights: publicly disclosed cat bond issuances totaled $7 billion in 2007, a 49 percent increase over the record $4.7 billion in 2006; some 27 transactions were completed in 2007, up from 20 in 2006 and nearly tripling the 10 placed in 2005. Check out further I.I.I. facts.  

Global Reinsurance Still Stable

Ratings agency A.M. Best’s continuing stable outlook for the global reinsurance sector is good news for the entire industry. It goes without saying the reinsurance sector plays a critical role by increasing capacity in the global insurance marketplace, and offering protection against catastrophic losses. In fact, despite facing enormous loss potential from natural and man-made catastrophes, the reinsurance market is remarkably robust. In affirming the sector’s outlook, A.M. Best cited generally strong balance sheets, continued improvements in enterprise risk management (ERM) and general earnings momentum through 2007. However, it added that price deterioration, competition and increased cedant retentions are drivers of concern relating to the sustainability of the sector’s long-term operating performance. Other challenges remain in light of the increased capacity of industry participants, new entrants and forms of capital. For example, A.M. Best noted that it is no longer easy to ignore the reality of the capital markets as an alternative. Check out further I.I.I. info on reinsurance.  

Contaminant Threat to National Parks

Numerous airborne contaminants, including heavy metals and pesticides have been detected at measurable levels in ecosystems at 20 western U.S. and Alaska national parks from the Arctic to the Mexican border. That’s the upshot of a six-year federal study funded primarily by the National Park Service (NPS). Some 70 contaminants were found at detectable levels in snow, water, vegetation, lake sediment and fish, according to the study. The three contaminants of most concern for human and wildlife health were mercury, and the insecticides dieldrin and DDT. The eight core national park areas studied were: Glacier, Mount Rainier, Olympic, Rocky Mountain, Sequoia and Kings Canyon, Denali, Gates of the Arctic, and Noatak. Something to think about as we admire the views on our next visit to one of these national parks.  

Latest research and analysis