2007 Judicial Review

Apart from the headline news that Atlantic County, New Jersey, and Clark County, Nevada, for the first time made the 2007 judicial hellholes list, the American Tort Reform Association’s (ATRA) sixth annual report highlighted a number of other hotspots. One trend to watch, according to ATRA president Sherman Joyce is the increasingly common contractual relationships between some state attorneys general and their leading political patrons: personal injury lawyers. ATRA explains: “The scheme works like this: trial lawyers help a friend become an attorney general, the attorney general then “hires† his or her trial lawyer friends by deputizing them with the awesome power of the state and unleashing them to sue entire industries for the promise of billions of dollars in contingency fees.† The problem? These contingency fee arrangements are too often made behind closed doors without any public oversight, leading to potential abuse for personal gain, political patronage and litigation based on profit, not the public interest. In the last year ATRA says it has filed amicus (friend of the court) briefs in three appeals against these unholy alliances, including one in a Rhode Island lead paint case. By the way, last year’s public nuisance trial in the state’s lead paint case put Providence, Rhode Island on ATRA’s watch list for the first time. It remains a place to watch this year. Check out further I.I.I. info on the liability system.  

Terrorism Backstop Moves Ahead

Congressional deadlock on extension of the federal terrorism risk insurance program has been broken with House approval of a bill extending the program for seven years from December 31. The bill, which passed the House yesterday  by a vote of 360-53,  is the same Senate measure that was passed last month (see our November 19 posting). The bill is now expected to be signed by the President. For more on this story check out a December 18 Business Insurance online article by Mark Hofmann. I.I.I. has further info on terrorism risk available online.

Phishing Attacks Up

In November the Federal Trade Commission (FTC) reported that approximately 8.3 million U.S. adults were victims of identity theft in 2005. In 10 percent of these cases, thieves got at least $6,000 in goods and services, and in 5 percent of cases at least $13,000. With the holiday shopping season underway, now a Gartner Survey finds that 3.6 million adults lost money in phishing attacks in the 12 months ending August 2007, up from 2.3 million the previous year. Phishing is a form of online identity theft where emails and Web sites masquerading as official businesses are created and used to deceive Internet users into disclosing their personal data.  According to Gartner,  the average dollar loss per incident declined to $886 from $1,244 in 2006, but because there were more victims, a total of $3.2 billion was lost to these attacks in 2007. The attacks were also more successful than the previous two years. Of the individuals who received phishing emails in 2007, 3.3 percent say they lost money because of the attack, up from 2.3 percent in 2006 and 2.9 percent in 2005. Check out further I.I.I. info on identity theft.

I.I.I. Earlybird Survey

It’s that time of year again. The Insurance Information Institute’s Earlybird Forecast 2008 is out, revealing the prospects for the industry in the year ahead according to a panel of Wall Street stock analysts and industry professionals. I.I.I. president Dr Robert Hartwig notes that this year’s results – with the apparent paradox of strong profits but stagnant premium growth – are a reminder of the highly cyclical nature of the property/casualty business. Looking ahead, Dr Hartwig also points to looming challenges for the industry in 2008. Catastrophic loss and the potential loss of pricing and underwriting discipline are among the chief concerns. Resurgence in bad faith litigation in auto, home and medical malpractice claims and state referenda that potentially raise damage awards are other causes of concern. Regulatory and legislative risks also loom large in 2008.  

Climate Compromise?

As the United Nations Climate Change Conference in Bali enters its final day, a scan of the news headlines suggests the U.S. and Europe may be able to reach compromise on targets to reduce greenhouse gas emissions. The UN’s World Meteorological Organization (WMO) this week released a report saying that the decade from 1998-2007 was the warmest on record. Preliminary data compiled by WMO in the report also  indicates that 2007 will be the seventh warmest year on record. Whatever the outcome in Bali, the latest reports continue to point out that climate change  represents a key risk for countries, governments, businesses and individuals moving forward.  

Tort Costs Update

Tillinghast has just released its 2007 update on U.S. Tort Cost Trends. The good news is that tort costs declined by 5.5 percent to $247 billion in 2006. That approximates $825 per person – $57 less per person than in 2005. The $13.4 billion decrease in costs over 2005 marks the first downward trend since 1997. A significant drop in commercial tort costs, due in part to the waning impact of asbestos costs was a contributing factor. But the near-term outlook is not so rosy, according to Tillinghast. It warns that several factors, including the potential fallout from the current subprime loan crisis, are expected to reverse the figures in 2007. As it notes: when people lose money, litigation tends to follow. Looking ahead Tillinghast expects growth in U.S. tort costs of around 2.5 percent in 2007, with slightly higher growth of 4.5 percent in the following two years. As well as subprime mortgages, global warming and backdating of options are just some of the issues that it expects will impact future trends. Check out I.I.I.’s update on the liability system.  

Health and Wellness

We’ve posted before about the growing investment companies are making in the health and productivity of their workforce. The shifting focus on wellness and prevention rather than just health coverage is noted in MetLife’s Fifth Annual Employee Benefits Trend Study. According to its findings, more than one-fourth (28 percent) of all employers and nearly half (49 percent) of companies with 500 or more employees offer some type of a wellness program as a workplace benefit. The study also reveals that 17 percent of employers offer health insurance credits for employees following wellness guidelines such as exercise, nutrition, check-ups, and disease screenings. Nearly one-third of employers with 500 or more employees (31 percent) are offering these wellness credits – up from 25 percent a year before. But there is a flip side. While employers increasingly are offering employees financial incentives to encourage them to monitor their health, there can be penalties if they don’t. According to MetLife, one-in-10 employers (9 percent) and one-in-five (19 percent) of employers with 500 or more employees say they impose financial penalties on employees for not following wellness guidelines. It’s a two-way street.  

E&O Subprime Risk by State

Reinsurance broker Guy Carpenter has released a  briefing on the threat of errors & omissions (E&O) litigation on U.S. real estate professionals. To more accurately gauge the likelihood of litigation Guy Carp has developed its own subprime E&O litigation index. The index measures a combination of factors influencing the E&O litigation climate including foreclosure rate, subprime mortgage delinquency rate, litigation attorneys per mortgage professional, truth in lending legislation and banking litigation ranking. According to the index, Illinois, Michigan and Massachusetts claim the highest overall E&O litigation risk levels, with Mississippi, Indiana and Ohio close behind. The study throws up an interesting fact: there is little to no correlation between the highest risk states for subprime-related E&O litigation and those states such as Arizona and Nevada with the greatest number of subprime mortgage delinquencies and/or foreclosures. Guy Carp also notes that the riskiest states are those with average rankings in most categories and an extremely high result in a single category.

Subprime Litigation Latest

In our September 21 posting we cited future predictions of an uptick in securities class actions as a result of the subprime market turmoil. Willis has just released another alert from the company’s financial institutions practice in which it confirms this trend. It notes that claims in the U.S. against directors and officers of financial institutions have started coming as a result of nearly 40 class actions and there will undoubtedly be more. At first these suits were predominantly restricted to U.S. subprime lenders and certain real estate investment trusts (REITs). However, Willis says it has become apparent that class actions are now touching financial institutions not directly related to subprime loan default exposures. Such cases allege that directors failed to disclose their companies’ exposures to losses in the subprime market and misled shareholders. A trend to monitor. Further commentary on securities class actions can be found at The D&O Diary, a blog focused on D&O liability issues.  

Coastal Flooding Exposure

Hot on the heels of yesterday’s posting about modeling and as the UN Climate Change Conference continues in Bali, the release of a global study on coastal flooding by the OECD, RMS and the University of Southampton is timely. The study makes a first estimate of the exposure of the world’s largest port cities to coastal flooding due to storm surge and damage due to high winds. It also investigates how climate change is likely to impact each port city’s exposure to coastal flooding by the 2070s, alongside subsidence and population growth and urbanization. The upshot is that the total population  reliant on flood defenses  could more than triple from 40 million today to around 150 million people by 2070. In the same period, total assets exposed will grow even more dramatically, more than 10 times current levels reaching $35,000 billion. The findings are ominous for a number of U.S. cities, with Miami topping the list in terms of assets exposed to coastal flooding ($416.3 billion today and increasing to $3,513 billion by the 2070s). New York-Newark places third with exposed assets of $320.2 billion, rising to $2,147 billion by the 2070s. New Orleans ranks 12th, with $233.7 billion in exposed assets, rising to $1,013 billion by the 2070s, while Virginia Beach ranks 19th, with $84.6 billion in current exposed assets, increasing to $581.7 billion by the 2070s. How to put in place effective climate change policies and disaster management strategies are just some of the challenges the study highlights. Check out I.I.I. facts & stats on flood insurance.