Med Mal Alternatives

Two reports published yesterday by ratings agency A.M. Best on U.S. captives and risk retention groups (RRGs) point to continuing growth in these alternative market mechanisms, even amid soft market conditions. A number of trends are highlighted, but one interesting  nugget is that medical malpractice accounts for a significant portion of business for both captives and risk retention groups. According to the reports, medical malpractice continues to be the dominant line of business for domestic captives (close to 40 percent), while medical malpractice (claims made) accounted for 43 percent of RRG business in 2006. Which leads us to conclude that despite greater stability in the price of medical malpractice insurance and some improvement in the tort environment, doctors are not looking to return to the traditional market in a hurry. Check out I.I.I. updates on captives and alternative risk transfer mechanisms and on medical malpractice online.

Refusing Evacuation

With the most active period of the Atlantic hurricane season fast approaching, a poll out of the Harvard School of Public Health Project on the Public and Biological Security is a reminder of the continuing need to get the message out on disaster preparedness. According to the survey of people in high-risk hurricane areas, one-third (31 percent) said if government officials said they had to evacuate due to a major hurricane this season, they would not leave. Of more concern, that number has increased from 2006 when 23 percent said they would not evacuate. Top reasons people give for not evacuating involve issues of safety and security. Some 75 percent said their home is well-built and they would be safe there, while over half (56 percent) felt that roads would be too crowded, and 36 percent felt that evacuating would be dangerous. The survey covered eight states: AL, FL, GA, LA, MS, NC, SC and TX – and only included residents of counties within 20 miles of the coast. The poll included a special sample of the New Orleans metropolitan area. Check out I.I.I.’s disaster insurance information site for more info on disaster preparedness.

Regulating Nanotech

New technologies always bring with them inherent benefits as well as risks. Nanotechnology is one such example. From sun-tan lotions to tennis racquets, it’s estimated the number of consumer products on the market incorporating nanomaterials totaled 475 as of May 2007, more than double the 212 products on the market in March 2006. The ever-increasing array of products and procedures using nanotechnology challenges insurers, as enablers of scientific advances and new technologies, to better understand this emerging exposure going forward. A report released this week by the U.S. Food and Drug Administration’s (FDA) Nanotechnology Task Force therefore makes for interesting reading. Specifically, the FDA’s Nanotechnology Task Force report addresses regulatory and scientific issues and recommends the agency consider developing guidance to address the benefits and risks of drugs and medical devices using nanotechnology. The report also says the FDA should work to assess data needs to better regulate nanotechnology products, including biological effects and interactions of nanoscale materials. Something to think about.  

Flood Accumulations

A month ago we blogged about flood events in the U.S. and U.K. (see June 28 posting) and pointed to the fact that flooding is not just a coastal issue. Now severe flooding of major rivers in England, including the Thames and Severn, has re-flooded some of the previously-hit areas, resulting in what has been described as the worst flooding to hit Britain in 60 years. In early July, the Association of British Insurers (ABI) estimated the insured losses from the June floods at  £1.5 billion ($3.1 billion). Taking into account the fresh floods, that total could now reach  £3 billion ($6.2 billion). The event illustrates how critical it is for insurers to identify and manage accumulation risk. With that in mind, we note that Guy Carpenter has announced the development of a new London flood catastrophe model for insurers. As GC’s press release states: “For insurers and reinsurers, London represents the greatest accumulation of exposure and thus the ability to accurately determine maximum potential flood loss has become an imperative for risk managers.† Check out further I.I.I. info on catastrophe modeling and flood insurance in the U.S.  Ã‚  

Manhattan Explosion Lawsuit

The filing of a lawsuit against Con Edison less than a week after the New York City steam pipe explosion underscores the importance of liability insurance for businesses everywhere. According to reports, the woman’s lawsuit accuses Con Edison of negligence, saying the utility failed to properly maintain the pipe that ruptured outside her offices in mid-town Manhattan and is seeking unspecified damages. At least 30 people were injured and one died as a result of the July 19 explosion. Litigation risk is one of the major exposures facing U.S. businesses. A recent study by the Pacific Research Institute put the total annual cost of tort litigation to the economy at $865.37 billion, or $9,800 per family. It’s worth noting that this figure includes direct as well as indirect costs. The study also estimates that America wastes $589 billion each year on excessive tort litigation. Check out further I.I.I. info on the liability system.  

Credit Scoring Benefits

Much has been written about the pros and cons of using a policyholder’s credit history in the underwriting and rating process. While insurers have long held that how well individuals manage their financial affairs is a reliable predictor of insurance risk, others have criticized the use of credit information by auto and home insurers and in particular the impact on low-income and minority groups. Now a Federal Trade Commission (FTC) report has found that credit-based insurance scores are effective predictors of risk under auto policies, both in terms of the number of claims individuals file and the total cost of those claims. As a result, the use of scores is likely to make the price of insurance better match an individual’s risk of loss. On average, higher-risk individuals will pay higher premiums and lower-risk individuals will pay lower premiums, says the FTC. We couldn’t have said it any better. Check out further I.I.I. info on credit-based insurance scores online.  

Online Sales

Just how important a role the Web plays in the sale of insurance is a question we’re often asked. Luckily Celent has published “Online Insurance Sales and Marketing: What’s Happening and What’s Happening Next†, an update to  a 2002 study. The updated report projects that insurance sales will double by 2011 and that the Web will play a major role in most purchases of personal insurance across auto, life and health. Celent notes that the Web has become an increasingly important communication channel between sellers and buyers of personal insurance. Most consumers’ purchasing process is Web-influenced, it says. Further, search engines like Google and Yahoo! are critical channels for insurers that cannot afford massive consumer marketing campaigns to drive shoppers directly to their sites and more insurers are embracing search engine optimization to help capture these shoppers. While pure online sales are growing, Celent estimates they will still account for less than 15 percent of sales, even in personal auto. It also believes 100 percent online sales are unlikely to exceed 30 percent in any business area. Do you agree with these findings? Is the face-to-face sale becoming a thing of the past?  

Health Study

While we’re on the subject of take-up rates, a just released RAND Corp study finds that price is not the only barrier in the decision to purchase health insurance. The study contradicts suggestions that large numbers of people without health insurance would sign up for coverage if government provided subsidies or tax credits to reduce the cost of health insurance. An estimated 45 million Americans don’t have health insurance, but government subsidies that would halve the price of health insurance would reduce that number by just 3 percent, according to RAND. Apparently, people surveyed for the study cited numerous factors influencing their decision to purchase individual health policies, including: personal attitudes toward risk; whether they believe they can get good health care without insurance; perceived difficulty in selecting a health care plan; and even concern that insurers require too much personal information for individual plans compared with group plans. So, price alone does not solve the take-up issue. I.I.I. has further info on health insurance online.

Boosting Take-Up

A perennial concern of insurers everywhere is why take-up rates for certain insurance coverages remain low, even as the risks increase. How to boost take-up rates among individuals and businesses is an ongoing challenge as insurance competes with any number of products and choices with higher priority on the shopping list. Earthquake, flood, terrorism, and renters insurance are just some examples. Let’s take earthquake. The powerful quake in Japan this week is a reminder of the importance of having adequate coverage. In Japan, as in the U.S., residential earthquake coverage is available in the form of an endorsement. While traditionally the take-up rate of residential earthquake coverage in Japan has been low, recent reports suggest it has been rising and is now at around 37 percent. Meanwhile in California, the U.S. state most commonly associated with earthquakes, it’s estimated that only 13 percent of homeowners buy the coverage. It’s hard to generalize on the reasons why, particularly across countries and different risks, but some contributing factors may be: perceived high cost of insurance, lack of awareness about the risk, and the mindset that expects a government bail-out to follow a disaster. People also may be more likely to buy insurance when the perceived need is greatest (i.e. just after a major disaster has struck). So how can we change the stats and make our products more desirable to the buying public? What are your thoughts? For more on earthquakes and other catastrophes, check out the I.I.I.’s disaster site and facts & stats.

NFIP Hearing

A bill (H.R. 920) that would amend the National Flood Insurance Act of 1968 to allow the National Flood Insurance Program (NFIP) to cover wind-related losses will be the focus of a hearing on Capitol Hill tomorrow before the House Financial Services Subcommittee on Housing and Community Opportunity. Otherwise known as the Multiple Peril Insurance Act of 2007, H.R. 920 was introduced earlier this year by Rep. Gene Taylor, D-Miss. Among those testifying tomorrow will be I.I.I. president and chief economist Dr. Robert Hartwig. Check the I.I.I. site for further  facts on the NFIP and for copies of Dr. Hartwig’s testimony.