Happy Halloween

The extension of daylight savings time means that it will get dark later this Halloween, helping to make for a safer holiday. Still, parents need to keep in mind steps to minimize the risks as their kids go trick-or-treating. I.I.I. advises parents to accompany small children around the neighborhood and to make sure children old enough to explore the neighborhood on their own visit homes where they know they’ll be welcome. Once darkness does fall a well-lit porch is a signal that kids are welcome. Motorists need to remember that kids may be distracted by all the costumes and candy. Parents should also warn children to stay on the sidewalks and to cross the streets carefully. Reflective tape on costumes and trick-or-treat bags is a good idea, as is arranging for youngsters to go out in groups rather than alone. Further I.I.I. safety tips include: make sure costumes fit properly as loose-fitting costumes can cause a child to trip and fall; use make-up instead of masks as some masks can obstruct vision; make sure all costumes are made of non-flammable materials; keep lighted jack-o’-lanterns and candles away from children and flammable materials; inspect all treats before allowing children to eat them. Have a safe and happy Halloween!  

Psychological Impact of Wildfires

As California residents displaced by  last week’s  wildfires begin the recovery process a reissued RAND study is a reminder of the potential impact of the event on their mental health. The study, conducted after the October 2003 California firestorm, surveyed 357 people who sought assistance from the American Red Cross and government relief centers. Within days of the mandatory evacuation participants completed baseline self-administered questionnaires assessing demographic characteristics, initial subjective reactions and degree of fire exposure. A follow-up mail-in survey three months later measured symptoms of posttraumatic stress disorder (PTSD) and major depression. The results found that 33 percent showed evidence of probable major depression, while 24 percent exhibited probable PTSD. Check out latest I.I.I. information on the wildfires.  

Top States For Deer/Vehicle Collisions

Cars and deer can be a lethal combination, particularly during deer migration and mating season which generally runs from October through December. A State Farm study of annual deer claims data from 2006 to 2007 and motor vehicle registration counts by state from the Federal Highway Administration, highlights the growing frequency and cost of deer/vehicle collisions. The upshot is that West Virginia is the leading state by frequency. State Farm estimates the chance of a West Virginia vehicle colliding with a deer in the next 12 months at 1 in 57. That’s three times more likely than one estimate of the possibility that a person will be audited by the Internal Revenue Service in 2008 and 5,000 times more likely than the chance that an individual will be struck by lightning in the next year, according to State Farm. Michigan (1 in 86) is second on the list of states where deer/vehicle collisions are most frequent, followed by Wisconsin (1 in 99), Pennsylvania (1 in 100) and Iowa (1 in 109). State Farm’s data also shows that the total number of deer/vehicle collisions in the U.S. has increased 6.3 percent over a year ago. The average property damage cost of these incidents also increased by 3 percent to just under $2,900.  

Market Common Sense

It’s amazing how just days after a disaster, some will jump to wild conclusions about the potential impact on premium rates. Those of us in the industry know that many forces affect the price and availability of insurance. The insurance industry is cyclical and rates and profits fluctuate depending on the phase of that cycle. While it’s true that the property/casualty industry’s profits may still be reasonably strong, it’s also true that profitable years are needed to offset years where profits are minimal or the industry suffers a loss, as all too recent history shows us. For example, in 2005 losses from Hurricanes Katrina, Rita and Wilma wiped out the profits of some insurers and forced others to raise additional capital. Further, insurers cannot arbitrarily raise rates to make up for past losses. So as the full impact of the California wildfires becomes clearer, I.I.I.’s issues update on financial and market conditions may be a helpful information tool.  

CA Wildfires Latest

Warnings of increased wildfire risk for the West this year (see our June 25 posting) sadly appear to have become reality as the worst wildfires in years continue to burn in California. In a preliminary estimate, the I.I.I. and the Insurance Information Network of California (IINC) expect that insured losses will exceed $500 million. This figure includes damaged and destroyed homes, as well as payments for additional living expenses and losses to businesses. For California wildfire statistics, check out the I.I.I. disaster Web site. Further information is also available from IINC.

Detailing ID Thieves

Identity theft continues to be the top consumer fraud complaint, according to the Federal Trade Commission (FTC), so a study of Secret Service cases released yesterday makes for interesting reading and highlights the multitude of ways in which ID theft can occur. Surprisingly, in half of the cases surveyed by the Center for Identity Management and Information Protection at Utica College, no use was made of the Internet or technology in the commission of the crime. Within this half, the most frequently used non-technological methods were change of address and dumpster diving. Despite ID theft’s impact on individuals, financial industry organizations made up the largest percentage of victims in this study (37.1 percent), closely followed by individuals (34.3 percent) and retail businesses (21.3 percent). Meanwhile, only one-third of cases involved ID theft through employment, with retail (including stores, gas stations, casinos, hospitals, doctors offices) being the most frequent type of business from which personal identifying information or documents were stolen (43.8 percent). Private corporations were vulnerable to insider ID theft in about 20 percent of those cases. In terms of losses incurred by ID theft victims, the median loss was $31,356, and in general the more offenders involved in the case the higher that figure. Check out further I.I.I. facts & stats on ID theft.

NY Reinsurance Collateral Proposal

Reinsurance regulation in the U.S. has long been a broad  issue of debate about which different parts of the industry have varying opinions. Last week’s proposal put forward by New York insurance superintendent Eric Dinallo addresses just one area of the debate: collateral requirements. Currently, any U.S. or non-U.S. reinsurance company that is not authorized or accredited to do business in New York must post collateral equal to 100 percent of its share of policyholder claims. Under Superintendent Dinallo’s proposal, well-capitalized non-authorized reinsurers with the highest credit rating doing business in New York would be treated on an equal footing with authorized companies and would no longer be required to post collateral. Companies that are not as strong would still have to post collateral on a sliding scale from 10 to 100 percent. New York is the first state to suggest the change and it remains to be seen how other states may react. Clearly, reinsurance is an international business that enables risks to be spread more widely. It plays a critical role by increasing capacity in the global insurance marketplace and offering catastrophe protection. But from insurers’ perspective concerns have been raised over ceding insurer solvency and reinsurance recoverables. We welcome your comments on this issue.  Check out the NAIC for further information on its reinsurance modernization proposal. Check out  further I.I.I. facts & stats on reinsurance.

Insurance and Changing Demographics

Insurers are constantly looking to develop products for the future, products that respond to emerging trends and changing customer needs. One of those trends is shifting demographic patterns. A media roundtable hosted by Allianz next Tuesday in Manhattan will address the topic of changing demographic trends in the U.S. and how this will play an increasingly important role in the products offered by insurers and financial services companies. A panel of experts from Allianz companies will address different aspects of this trend. Fireman’s Fund will talk about the aging society and the increased need for assisted and senior living facilities as an opportunity for the commercial insurer. Allianz Life will discuss how a life insurer can cater to the changing face of the U.S. population with increasing influence from Latino and other ethnic communities. Allianz Global Investors will discuss the importance of financial planning for the future given increasing college participation at skyrocketing costs. The event will take place 10-11am Tuesday October 23, at Allianz Global Investor HQ, 1345 Avenue of the Americas, 49th Floor, New York, NY 10105. Tel: (212) 938-0630.  

On The Hill Update

A quick update on the terrorism and flood measures in the Senate. The bill to further extend the federal terrorism risk insurance program passed the Senate Banking Committee by a vote of 20-1 yesterday. The Senate bill would extend the program for a further seven years from its upcoming expiry December 31. Undoubtedly this is a positive step, as a continued federal terrorism risk insurance program is critical to ensuring that terrorism insurance remains available to those businesses that want and need the coverage. The White House also said it would back the Senate version, another positive development. While the bill does not expand the program to cover chemical, nuclear, biological and radiological (CNBR) terrorism, it does require a study into the existing insurance market for CNBR by the Government Accountability Office (GAO). On what was a busy day, the same Senate Committee also approved legislation to reform the National Flood Insurance Program (NFIP). The contentious issue of adding windstorm coverage to the flood program was not included in this measure. For more on the risks posed by expanding the NFIP to include windstorm, check out I.I.I. president Dr. Robert Hartwig’s testimony delivered before the U.S. House subcommittee on Housing and Community Opportunity earlier in July.  

Litigation Trends

U.S. companies may afford themselves a sigh of relief, albeit brief, when they take in the headline findings of the fourth annual Litigation Trends Survey by Fulbright & Jaworski showing a distinct drop in the number of new lawsuits and regulatory actions filed against them. Based on interviews with in-house counsel at 250 major U.S. corporations, 17 percent of respondents said their companies had escaped the past year without having to defend a single new lawsuit, a sharp increase from just 11 percent in 2005-06. But despite the fact that internal investigations are down and fewer businesses are filing suit, Fulbright cautions that the litigation landscape remains fully loaded, with one-third of U.S. companies facing at least 25 lawsuits, and 18 percent defending 100+ cases domestically. As industries go, it appears insurers along with retailers faced the most litigation. Some 93 percent reported having to defend at least one new case this past year, and more than half from both sectors got stung with one or more $20 million dispute – the highest of 10 industry segments represented. Insurers contended with the most $20 million-plus cases with 54 percent taking on more than 20 such actions. The upshot is that even with fewer companies reporting new lawsuits this past year, Fulbright notes that the vast majority of U.S. businesses remain significantly exposed to litigation. Check out further I.I.I.  facts  & stats  on  litigiousness.