U.K. Climate Initiative

We bring the week to a close by noting that a number of leading insurers and industry organizations (38 at last count) have signed on to a U.K. initiative aimed at addressing climate change. Known as the ClimateWise Principles, the initiative has been launched by the Association of British Insurers (ABI). It was developed following discussions between insurers and HRH the Prince of Wales. The principles commit insurers that sign up to: lead the way in analyzing and reducing risks; support climate awareness among their customers; incorporate climate change into their investment strategies; inform and engage in public policy debate; and reduce the environmental impact of their businesses. Specifically, insurers will be required to incorporate climate risk into their business strategy and planning, and to publish a statement as part of their annual report detailing the actions that have been taken in support of the principles. Check out more on this at: http://www.climatewise.org.uk/Â  

Marine Matters

The annual gathering of the International Union of Marine Insurers (IUMI) took place in Copenhagen, Denmark this week. One of the featured speakers was I.I.I. president Dr. Robert Hartwig, who gave a presentation focused on issues relating to the global maritime industry. As well as marine insurance trends,  such as  premiums, pricing and underwriting performance, Dr. Hartwig spoke on the economic environment for marine insurers in the context of a relatively healthy global economy and a depreciating U.S. dollar. The important role China is likely to play as a trading partner in the 21st century was another focus of his discussion. Catastrophe loss activity, the energy market and terrorism and liability-related issues in the maritime sector were other topics of discussion. Access the full report on the I.I.I. Web site.  

Revisiting Terrorism Risk

On the sixth anniversary of September 11, we take a look at a timely new Marsh risk survey of Fortune 1000 companies. The survey findings offer us an insight into how board-level executives at these companies view international terrorism attacks among seven other risk scenarios, including natural disasters, rapidly rising oil prices and pandemics. While terrorism ranks second only to natural disasters in terms of the most likely crisis scenario to occur, just 38 percent of Fortune 1000 executives felt that international terrorist attacks were likely to occur in the next eight to 10 years. This compares with 65 percent who felt that natural disasters were the most likely to occur. At the same time, 39 percent said a terrorist attack would have a catastrophic impact on their business. When asked if they had taken steps to prepare, roughly four in 10 (44 percent) of those surveyed said their company has prepared for a terrorist attack, compared to 58 percent for natural disasters. On the flip side, very few executives believe it is likely that a housing market collapse, reduced access to water or a pandemic disease, will occur in the coming decade. Encouragingly, in the event of one or more of the eight crisis situations, 74 percent of those surveyed say their company has prepared a business continuity plan. Check out further I.I.I. terrorism risk information  online.

Popcorn Concerns

Reports that four of the largest microwave popcorn manufacturers in the U.S. are working to remove the butter flavoring chemical diacetyl from their products due to health risks to workers is good news for everybody it appears. It’s been acknowledged for some time that a potentially significant exposure arises from factories packaging butter-flavored popcorn. Already a number of lawsuits have been pursued by workers at these factories due to alleged exposure to diacetyl. Further, various federal agencies have said they believe the butter-flavored chemical may result in bronchiolitis obliterans, also known as “popcorn packers lung.† Now Dr. Cecile Rose, a pulmonary specialist at Denver’s National Jewish Medical and Research Center  has written to federal agencies, saying that doctors  believe they have identified  the first case of a consumer who developed lung disease from the fumes of microwaving popcorn several times a day for years. The letter was first published by fellow blogger David Michaels, of the George Washington University School of Public Health on his public health policy blog (http://thepumphandle.wordpress.com). An emerging products liability exposure to keep our eye on.  

Information Insecurity

This week online job search site Monster Worldwide announced that it would be boosting its security measures following a significant data breach earlier this month. Apparently Monster recently became aware of illegal downloads of personal information of at least 1.3 million job seekers with resumes posted on Monster.com, including names, addresses, phone numbers and email addresses. The delay between finding out about the breach and notifying those affected is still being explained by the company. Part of the answer may lie in the fact that it can take months for companies to uncover  data loss incidents.  Many breaches also go unreported as companies try to limit the damage to their reputation. Meanwhile, we read that the Ohio Court of Claims has dismissed a lawsuit by two Ohio University graduates seeking to compel the school to pay for credit monitoring following a 2005 computer breach. The judge decided that the two original plaintiffs could not prove harm because they have not experienced identity theft. Needless to say, attorneys now plan on refiling the complaint with new plaintiffs who are victims of identity theft. Both stories highlight the continuing liability facing corporations when a breach in data security occurs. Insurance is one of the tools available to help corporations prepare and recover. Check out further I.I.I. info on this topic.  

Bloomberg Rebuttal

I.I.I. president Dr. Robert Hartwig has sent a detailed rebuttal to  the September 2007 Bloomberg Markets cover story that claimed that insurers use secret tactics to avoid paying claims. In  I.I.I.’s response, Dr. Hartwig notes that the article’s premise and facts were unsound and that the insurance industry has an excellent claims-paying track record. Dr. Hartwig also notes that property/casualty insurers annually pay out hundreds of billions of dollars on tens of millions of claims. See the August 15 I.I.I. letter.

Financing Catastrophes

Yesterday we cited projections of increasing catastrophe losses in years to come along the Atlantic and Gulf Coasts, so today we turn our attention to the topic of how to finance catastrophic risk. Historically the capacity to finance such risk was limited to the traditional re/insurance markets, or to self-insurance and pooling. Now insurers can diversify their risk and expand the availability of insurance in cat-prone areas by tapping into the capital markets. An article by Michael Lewis in the New York Times magazine on Sunday August 26 focuses on this very topic and describes one well-known capital markets solution: catastrophe bonds. Catastrophe bonds developed in the wake of mega-cats Hurricanes Andrew and Iniki in 1992 and the Northridge earthquake in 1994. Since then, cat bonds have been used to cover a wide variety of exposures, with earthquakes (both U.S. and Japan) and U.S. hurricanes accounting for the majority of bond issues. Without question, the market for natural catastrophe bonds is growing. Guy Carpenter reports that annual issuance of cat bonds reached a record $4.69 billion in 2006, up 136 percent from $1.99 billion in 2005. The number of transactions completed also doubled to 20 in 2006, from 10 in 2005. However, despite recent gains, over the longer-term the dollar value and number of catastrophe securitization transactions is still modest in relation to global reinsurance capacity. Between 1997 and 2006, 89 catastrophe bonds  were completed, representing $15.35 billion in catastrophe bond issuance, relative to $330 billion in global reinsurance capacity. What do you think? Check out further I.I.I. info on reinsurance and alternative risk financing options.

After Katrina

Tomorrow is the two-year anniversary of Hurricane Katrina, the single largest loss in the history of the insurance industry and the fourth deadliest world catastrophe in 2005 (1,326 dead and missing). Two years on, a quick review of the numbers: insurers have paid an estimated $40.6 billion to policyholders on 1.7 million claims for damage to homes, businesses and vehicles in six states; Louisiana ($25.3 billion) and Mississippi ($13.6 billion) received by far the most insurance dollars to aid in their recovery; and the vast majority of claims have been settled. However, we also know that disaster losses along the Atlantic and Gulf Coasts are likely to escalate in the years to come because of huge increases in development and soaring property values. To be precise, the total value of insured coastal exposure nationwide is more than $7 trillion. After Florida and New York (with more than $1.9 trillion insured coastal property each), the Northeast states of Massachusetts and Connecticut have the highest coastal exposure as a share of all insured exposure in their states. Given these figures, a $100 billion hurricane event is really a  matter of when, not if. Check out further I.I.I. Katrina info online.  

Obesity Epidemic

A report just published by the Trust for America’s Health (TFAH) confirms the continuing alarming rise in adult obesity rates across the U.S. According to its findings, rates of adult obesity now exceed 25 percent in 19 states, an increase from 14 states last year and nine in 2005. Mississippi – at 30.6 percent – topped the list with the highest rate of adult obesity in the country for the third year in a row. Ten of the 15 states with the highest rates of adult obesity are located in the South. Even Colorado (the leanest state again this year) recorded an increase in its adult obesity rate over the past year from 16.9 to 17.6 percent. Of even more interest, a new public opinion survey within the report found that 85 percent of Americans believe that obesity is an epidemic. At the same time, 81 percent of Americans believe the government should have a role in addressing the obesity crisis. If any  further incentive was needed, the report also found that the rates of overweight children (ages 10 to 17) ranged from a high of 22.8 percent in Washington, D.C. to a low of 8.5 percent in Utah. Eight of the 10 states with the highest rates of overweight children were in the South. Among its recommendations for combating obesity, TFAH notes that federal, state and local governments should work with private employers and insurers to ensure that every working American has access to a workplace wellness program. As always, we welcome your comments. Check out further information from the I.I.I. on obesity.  Ã‚  

Opting For Flood?

In our July 17 posting, we blogged about how take-up rates for certain insurance coverages remain low, even as the risks increase. The floods across the Midwest bring this issue to the fore once again. Flood insurance is an optional coverage, available under an insurance policy provided by the National Flood Insurance Program (NFIP). It’s easy to buy either via  an insurance agent or insurance company rep. Yet, it’s estimated that just 49 percent of homeowners in U.S. flood zones purchase NFIP policies, and only 1 percent of homeowners outside flood zones have flood insurance.   A policy with the NFIP can run as little as $112 a year, if you live in a low to moderate risk area and are eligible for a Preferred Risk Policy. This would provide a minimum of $20,000 building and $8,000 contents coverage. Meanwhile, businessowners can buy $50,000 building and $50,000 contents coverage (per building) for only $500 per year. As to the risk, some 90 percent of natural disasters in the U.S. involve some type of flooding and according to the Federal Emergency Management Agency (FEMA), floods, including inland flooding, flash floods and seasonal storms, occur in every region of the U.S. Check out further I.I.I. flood insurance facts & stats.

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