Senate Endorses Terrorism Backstop

The news snuck in just after we had posted Friday, but we should mention that the Senate has approved extension of the federal terrorism risk insurance program. The move would extend the program for a further seven years from December 31. The Senate version is very different to House legislation passed a couple of months ago (see our September 21 posting). However, like the House, the Senate version would expand coverage under the program to include domestic acts of terrorism. Coming just days before Thanksgiving, this is a timely and positive step for the industry. Final consensus on the program will now need to be reached so that it can be reauthorized before year-end. Check out further I.I.I. information on terrorism risk.

Top Auto Safety Picks

Safer cars are just one of the factors contributing to a downward trend in auto insurance premiums. Awards announced this week by the Insurance Institute for Highway Safety (IIHS) confirm a continuing trend of safer vehicle designs. A total of 34 vehicles earned the IIHS top safety pick award for 2008, close to triple the 13 models that qualified at the start of the 2007 model year. IIHS noted that 10 additional vehicles qualified during the year as manufacturers made changes and introduced new designs. Another 11 vehicles have been added to the list for 2008. The award recognizes vehicles that do the best job of protecting people in front, side and rear crashes based on ratings in the Institute’s test. Winners also have to be equipped with electronic stability control (ESC). IIHS research indicates that ESC reduces the risk of fatal single-vehicle crashes by 56 percent and fatal multiple-vehicle crashes by 32 percent. Many single-vehicle crashes involve rolling over, and ESC reduces the risk of fatal single-vehicle rollovers by 80 percent (SUVs) and 77 percent (cars). Check out I.I.I. facts & stats on highway safety.  

Battle of the Bobs

National Underwriter Company’s first virtual conference and expo features a debate at 11am EST this morning between I.I.I. president and economist Dr. Robert Hartwig and J. Robert Hunter, insurance director of the Consumer Federation of America. Topics up for discussion include post-Katrina litigation, credit scoring, federal regulation and industry profitability. Don’t miss it! Registration for the event is free. To register and learn more about the conference, go to:  

Captive Groups Coordinate IRS Response

Those of you in the alternative risk transfer business may be interested in today’s item. Two prominent captive insurance associations have teamed up to form a coalition to battle a proposed Internal Revenue Service (IRS) rule change that would significantly alter the landscape for captive insurers in the U.S.   Issued September 28, the proposed IRS regulation would eliminate the right of U.S.-sponsored captives to claim reserve deductions against their domestic tax for future claims and losses on consolidated, or related, business. Instead, they would only be allowed to claim deductions when claims are actually paid. The change would essentially result in treating the transaction as non-insurance for tax purposes. We don’t need to remind you that captive insurers are the oldest form of alternative risk transfer vehicle, dating back to the 1950s. Use of captives by corporations has grown exponentially during the last 30 years in the U.S. In 2006, the U.S. was the largest captive domicile– with 1,251 licensed captives – followed by Bermuda with 989. If the IRS proposal goes ahead, it seems likely that it would drive more business offshore. The Coalition for Fairness to Captive Insurers (CFCI) has been formed by the Captive Insurance Companies Association (CICA) and the Vermont Captive Insurance Association (VCIA). Those interested in joining the coalition should contact either association. Check out further I.I.I. information on captive insurers.

Subprime Notes

Another day, another broker brief on the subprime market turmoil and its potential impact on insurance markets. Willis has released an alert from the company’s financial institutions practice. It notes that Directors & Officers (D&O) and Errors & Omissions (E&O) insurers have seen a number of claims arising from the subprime issue, though these could be just the tip of a huge iceberg. Other key points from Willis: a worst-case loss scenario for D&O insurers could be in the realm of $3 billion; the downturn in the real estate market resulted in a 52 percent increase in the amount of title insurance claims paid in the second quarter of 2007 as compared to 2006; foreclosure activity in the first half of 2007 was up 55 percent from 2006; foreclosures for the month of July rose 93 percent from the prior July; and 43 states have reported an increase in foreclosure activity in 2007. Willis plans to issue alerts on some insurance coverages that will receive more prominence as a result of the crisis, such as mortgage impairment, foreclosed and forced placed covers, in coming weeks. For I.I.I.’s take on the subprime issue, check out a paper authored by Dr. Steven Weisbart, I.I.I. vice president and chief economist.  

Wellness Benefits

The need for workers to have access to a workplace wellness program has been touted as an essential component in the drive to combat obesity. The 2007/2008 Staying@Work survey released last week by Watson Wyatt indicates that employers are listening. According to its findings, nearly half (46 percent) of employers surveyed currently offer financial incentives to encourage workers to monitor and improve their health or plan to offer incentives next year and by 2009 that number is expected to surpass 70 percent. The survey also found that a healthier workforce makes for a healthier company. Companies with effective health and productivity programs demonstrate superior performance, achieving 20 percent more revenue per employee. They also have 16.1 percent higher market value and deliver 57 percent higher shareholder returns (2004 to 2006 data). Those companies that invest in improving the health and productivity of their workforce also have cost increases that are five times lower for sick leave; four and one-half times lower for long-term disability; four times lower for short-term disability; and three and one-half times lower for general health coverage. Check out further I.I.I. information on obesity and workers comp.

Charitable Wildfire Response

In response to the recent wildfires in California, the Insurance Industry Charitable Foundation (IICF) has established an industry-wide campaign to provide needed support to the American Red Cross Southern California Wildfires Fund. The IICF is kicking off the campaign with a $25,000 contribution and is asking everyone from the insurance industry to make a contribution. Contributions can be made online at the IICF Web site or via mail. All proceeds will be presented to the American Red Cross to be used solely for the California firestorm relief effort. Check out further I.I.I. facts and stats on the insurance industry’s charitable contributions.

Subprime Professional Impact

We’re in D.C. today at the Professional Liability Underwriting Society (PLUS) International Conference. Much to talk about for professional liability lines, especially given recent headlines on the subprime market turmoil. Reinsurance broker Guy Carpenter just released a briefing on this very topic titled: “Credit Market Aftershock Threatens Professional Lines Profits.” In its analysis Guy Carp notes that estimates of the insurance impact range from $1 billion to $3 billion, but when the dust settles total insured losses are likely to be at the top end of that scale. Most of the credit crunch’s impact will affect the D&O product line, although E&O suits, ERISA actions and other suits have been filed and could lead to substantial further insurance losses, according to the briefing. Guy Carp puts the potential D&O loss at in excess of $2 billion, but cautions that the full impact will not be known until 2008 or 2009. For our take on the subprime issue, check out a paper authored by Dr. Steven Weisbart, I.I.I. vice president and chief economist.

Market Barometer

Yesterday we took the temperature of the aviation insurance market. Today we bring you the latest gauge on the condition of the U.S. commercial property-casualty market from online insurance exchange MarketScout. Its data indicates a continuing soft market, with an average property-casualty rate decrease of 15 percent in October, compared with a year ago. According to MarketScout, the market is likely to remain extremely competitive through the remainder of 2007 and well into mid-2008. By line of coverage, general liability led the pack with a rate decline of 17 percent in October. Commercial property, business interruption, umbrella/excess, professional liability, and D&O liability experienced the second largest drop in rates of 16 percent. Surety saw the smallest rate decline of 7 percent. Check out the I.I.I.’s latest industry outlook.

Airline Insurance Review

As aviation aficionados know, the last quarter of the year traditionally is when many of the world’s major airlines renew their insurance programs. Broker Aon has just published its Airline Insurance Market Pre-Renewal Season Review 2007 which offers a good barometer of the market and where it is headed. According to Aon, average hull and liability premium prices have fallen by 15 percent in 2007 so far, yet at the same time exposures continue to grow as new larger aircraft come off production lines ready to fly ever increasing numbers of passengers. From the safety standpoint, so far 2007 also stands out in terms of the high number of fatalities, hull losses and liabilities. Aon notes that compared to the same time last year: there have been nearly 80 percent more fatalities; the value of hull losses ($420.7 million) is 18 percent higher; and the value of liability losses ($406.7 million) has doubled. Aon’s airline risk management survey also throws out some interesting results. While attitude to risk and risk priorities remain broadly unchanged, future risk requirements reflect a growing focus among airlines on corporate social responsibility. Environmental pollution has become the highest future risk requirement, jumping from sixth place in the 2005/06 survey. This change knocked computer crime insurance into second place, while business interruption climbed to become the third highest additional risk that organizations will be looking to insure against in the next three years. Check out further I.I.I. facts & stats on aviation.  

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