Tornado Loss

We’ve blogged before about tornado risk (see February 5 posting) and this weekend’s twisters in Kansas, South Dakota, Oklahoma, Nebraska and Iowa underline the oft forgotten point that tornadoes, though not generally as destructive as hurricanes, are more frequent and can also cause severe damage. The F5 tornado (the highest category on the scale) that struck Greensburg, Kansas, late Friday night is estimated to have destroyed as much as 95 percent of the town. It was part of a swathe of storms that killed at least 10 people over the weekend. According to A.M. Best, tornadoes and related weather events caused more than $8 billion in insured losses in 2006. Each year about 1,000 tornadoes with wind speeds as high as 300 mph touch down in the U.S., according to I.I.I. research. Check out further I.I.I. tornado statistics.  I.I.I. has activated a disaster response plan following the tornadoes. For more information, please email Mike Barry, I.I.I. Media Relations Director, at michaelb@iii.org.

Wildfire Education

California’s Wildfire Awareness Week gets underway Monday with a series of events planned across the state to educate residents on wildfire safety and preparedness. I.I.I. research shows that most of the large fires with significant property damage have occurred in California, where some of the fastest developing counties are in forest areas. Earlier this week the National Interagency Fire Center warned that the West and Southeast face an increased wildfire risk this year, due to ongoing drought conditions and a predicted warmer than average summer. In Florida, where over 90 percent of the state is experiencing drought, some 95 wildfires are reported to be active. Meanwhile, in Georgia, a state of emergency has been declared in 21 southeast counties that are facing extreme drought conditions. I.I.I.’s free home inventory software can help residents better protect their property ahead of disaster. Further information is also available from the Insurance Information Network of California  (IINC).

Mitigating Climate Change

Tomorrow the UN’s Intergovernmental Panel on Climate Change (IPCC) will release its latest report on climate change. This, the third and final IPCC volume for the year, will focus on mitigation of climate change. Among other things, it is expected to highlight how various economic steps and technologies could help limit the effects of global warming. Measures to reduce greenhouse gases and the costs associated with such action will also be weighed. Whatever its conclusions and recommendations, the report again indicates that climate change represents a key risk for countries, governments, businesses and individuals moving forward. Bear in mind a recent survey from the Economist Intelligence Unit (EIU), and sponsored by ACE, IBM and KPMG, revealed that international risk managers were least confident about how their organizations were managing climate change risk. Interestingly, survey respondents also felt that terrorism risks and human capital risks are not being handled so well.

Communication on Flood

Yesterday marked the official countdown to the start of the 2007 hurricane season. It’s now just 29 days away, but as we know there’s a 30-day wait before a flood insurance policy takes effect, so this is a good time to remind people of the importance of flood insurance. By the way, if you were wondering, Sacramento voters have agreed to pay a higher assessment tax to finance municipal flood protection initiatives that will eventually provide a 200-year level of protection to the region (see our  April 26 posting). All well and good, but we’re curious as to how this will affect the purchase of flood insurance? Communicating the risk  remains crucial, according to a new report from the Water Policy Collaborative at the University of Maryland. It makes clear that levees in urban areas should provide protection to at least a 500-year flood standard. In fact for homes outside of the 100-year floodplain but within the 500-year floodplain there is still a six percent chance of at least one 500-year flood event during a 30-year mortgage. The study recommends that FEMA seek legislative authority to require mandatory purchase of flood insurance by those living in the 500-year floodplain and those living behind levees. So let’s get the message out there.  

Benchmark Lowers

That commercial insurance premiums continued their decline in the first quarter of 2007 is only part of the story of the RIMS Benchmark Survey. But let’s take a look at the  highlights: Directors and Officers (D&O), down by 7.7 percent in Q1 2007 and by more than 12 percent in the last two quarters of 2006 combined; workers’ compensation down by 3.8 percent in Q1 2007; and general liability down by just 0.8 percent in the fourth quarter of 2006. Once again commercial property was the only line to report an increase in Q1 2007. No surprise there, but consider that rates in this line reflected a marginal increase of just 0.8 percent, compared with a spike of 6.6 percent in the fourth quarter of 2006. While there is no doubt that companies with properties in catastrophe-exposed regions are still seeing premiums rise, perhaps the underlying story is that even risk managers with coastal property exposures are seeing some relief ahead of  the 2007 hurricane season. For more perspective on pricing and overall industry trends, check out I.I.I. president and chief economist Dr. Robert Hartwig’s latest Overview and Outlook for the P/C Insurance Industry.  Ã‚  

  

Litigation Costs

The news that tentative settlement has been reached in the Katrina case between Senator Trent Lott and State Farm Fire & Casualty Co is good not just for State Farm, but for the industry as a whole. Litigation remains one of the top risks facing our industry and imposes billions of dollars of costs annually on the broader economy, so to the extent that it can be avoided, curtailed or mitigated, everyone benefits. Last week the U.S. Chamber Institute for Legal Reform (ILR) released a study ranking the best and worst state liability systems across the country. For the second year running, West Virginia came in last place. Other states at the bottom of the list included Mississippi, Louisiana, Alabama, Illinois and California. A broader analysis of the survey data revealed an overall improvement in state legal climates and in a number of states this trend correlates with legal reforms enacted over the same period. However, as U.S. Chamber of Commerce president and CEO Tom Donohue said: “Even though we’re seeing some improvements, from the perspective of global competitiveness, we’re only as good as our worst states. So we need to keep working.† I.I.I. has further information on the liability system online.  

Sacramento Flood Vote

We’re going west today to Sacramento, California, where the results of the Sacramento Area Flood Control Agency’s (SAFCA) special assessment election are due. Ballots were mailed in March to approximately 140,000 property owners in Sacramento and Sutter counties asking whether they would be willing to pay a higher assessment tax to finance municipal flood protection initiatives. Why is this important? In our Feb 1 posting we cited the list from the Army Corp of Engineers showing that 127 levees across the U.S. are at risk of failing. Well, of those 127, some 36 are located in the district of Sacramento – that’s nearly one third. If voted in, the assessment would raise $326 million over 30 years and help pay for $2.7 billion in flood improvements, including raising and strengthening levees on the Sacramento and American rivers.  The improvements  would bring the region up to 200-year flood protection.  Check out  further information from the I.I.I. on flood risk  and flood insurance, and also from the Insurance Information Network of California  (IINC).  Ã‚  

  

Risk Management Flurry

The 45th annual Risk and Insurance Management Society (RIMS) conference opens in New Orleans this weekend so it’s no surprise that a rash of risk management surveys are being released this week. Two of the highlights are from leading brokers Marsh and Aon. A study by Marsh reveals that the majority of national oil companies do not fully understand the emerging risks they face and how to manage them. Among the top five risks identified by the oil companies one in particular stands out: environmental impact of operations. At last it appears the climate change issue is on the radar screen. Meanwhile, Aon’s first Global Risk Management Survey reveals that damage to reputation is the number one risk faced by multinationals today. Business interruption is cited as the second key risk, with 30 percent of survey respondents  reporting they are unprepared. Third party liability risk comes in at number three, as the U.S. compensation culture spreads. For more information on insurance and risk management for businesses, check out I.I.I.’s insuring your business website.  

Obesity and Workers Comp

It’s well-documented that the health consequences of overweight and obesity are serious. For example, individuals who are obese have a significantly increased risk of premature death and chronic conditions like heart disease and type 2 diabetes. The growing economic and social costs of obesity also have direct consequences for insurers. A study out of Duke University this week focuses on the impact on workers comp insurers. It notes that obese employees lost many more workdays and filed twice as many workers comp claims as other workers. Even more concerning, the claims filed by obese workers cost nearly seven times as much as those filed by other workers. The average workers comp medical claims cost per 100 employees was $51,019 for obese workers, compared with $7,503 for other workers. Check out further information from the I.I.I. on obesity and workers comp.  

A Greener Big Apple

A plan aimed at improving New York City’s environment has been unveiled by Mayor Michael Bloomberg. Among the proposals, the idea to charge an $8 congestion fee to drivers entering Manhattan at peak hours during the week. A series of cameras would capture license plates, either charging the car’s commuter account or generating a bill. Modeled after a similar congestion charge introduced across the pond in London in 2003, the plan may have significant implications for auto insurers and their policyholders. It’s easy to identify a few potential benefits right away. As the risk of auto accidents increases in areas of high traffic density, a reduction in the number of vehicles on the road could have a positive effect on auto claims. For drivers who decide to leave their car at home and take the train instead, the lower average miles per year driven could reduce the price they pay for auto insurance. What is not so certain and perhaps up for debate is how the new technology under such a scheme might intersect with the auto insurance underwriting process. What are your thoughts?  

Latest research and analysis