Financial Innovation

A new report on global risks from the World Economic Forum (WEF) highlights the growing role the financial markets are playing in the transfer of risk. For example, the WEF notes that the market in insurance-linked securities is broadening from natural catastrophe bonds to credit securitizations and mortality bonds. Besides insurance-linked securities, it points out that a wide variety of derivatives and other financial instruments are now being used to transfer insurance risks.  

Just how financial innovations could reshape the future of the insurance industry is the timely topic of a discussion being held tomorrow evening in New York City. Organized by the Columbia Business School Alumni Club of New York (CBSAC/NY), the panel will feature experts from Swiss Re, Zurich, Deloitte and UBS. The event will take place from 6-8pm at the UJA Federation of New York, 130 East 59th Street, 7th floor conference center. For further information, contact Sepp Ruchti at

Auto Future

This week has been an interesting one in the auto manufacturing world. First we had General Motors announcement that driverless cars will be on the roads within the decade. Then, yesterday Tata Motors of India unveiled the world’s cheapest car, the Nano, which will go on sale in India later this year for 100,000 rupees (that’s around $2,500). Apparently GM plans to test its driverless car technology by 2015 and have cars in production by 2018. Imagine being able to switch to driverless mode on highways and instead send that email? GM claims the technology could improve congestion and safety, as well as addressing energy and emissions.

Tata’s Nano is more of a no-frills concept, with no trunk, airbag or passenger-side mirror. The cheapest versions of the vehicle will forego air-conditioning and power steering. Such technological developments could transform our driving future, but obviously they raise issues related to regulations, liability laws, privacy, the environment and insurance. What do you think?  

Market Softening To Continue

The latest gauge on the condition of the U.S. commercial property/casualty market from online insurance exchange MarketScout points to a continued softening market in 2008. Rates for the December p/c market index fell 16 percent, a continuation of the softening market of the past three years. Steeper rate reductions in the latter part of the year contributed to an average rate reduction of 13.25 percent for calendar year 2007, according to MarketScout. By line of coverage, general liability and umbrella/excess led the pack with a rate decline of 18 percent in December 2007. Professional liability and D&O liability experienced the second largest drop in rates of 17 percent. Surety saw the smallest rate decline of 8 percent. Check out the I.I.I. Earlybird Forecast 2008 for another take on the market.  

I.I.I. Online Store

Holiday shopping season may be over, but have you visited the I.I.I. online store? Whether you’re looking for the latest edition of the Insurance Fact Book, the Insurance Handbook for Reporters, or the I.I.I.’s popular Know Your Stuff – Home Inventory Software, the I.I.I. store is the one-stop shop for our publications. For a complete listing of I.I.I. publications and ordering options, visit the store at:Â  

NV Levee Rupture

Pictures of the extensive flooding in Fernley, Nevada, after a canal levee ruptured due to heavy rainfall gave us pause for thought. Hundreds of homes are reported damaged and while many homeowners were expected to be able to return to their properties, up to 8 feet of flooding was reported in some areas. The canal rupture came amid a winter storm system that hit the West hard over the weekend. Last February (see our February 1, 2007, posting) we cited a list from the Army Corp of Engineers showing that 127 levees across the U.S. are at risk of failing. The ill-maintained levees are spread across 26 states, the District of Columbia and Puerto Rico. The weekend’s events underscore the importance of flood insurance. Check out I.I.I.’s flood statistics for more information.  

P/C Joint Industry Forum

The 12th annual Property/Casualty Insurance Joint Industry forum will be held next Tuesday January 8, at the Waldorf-Astoria Hotel in New York City. Tony Snow, former White House Press Secretary for President George W. Bush, will be the keynote speaker at the event. The Forum, sponsored by the 15 leading p/c insurance trade associations, was created to provide p/c insurance and reinsurance company leaders with an opportunity to meet and discuss topics of general interest. A panel of insurance regulators will first discuss the insurance industry from their perspective. This will be followed by a panel of insurance company CEOs who will discuss general trends in industry services. As always, the event is expected to be well-attended and to stimulate lively discussion on the industry. For more information on the Forum, contact I.I.I. vice president of communications Loretta Worters at 212-346-5545 or

Nat Cat Focus

Much has been made of the lack of megacatastrophes during 2007, but Munich Re’s annual natural catastrophe review is a reminder that size is not everything. In fact, the insurance industry had to cope with far higher natural catastrophe losses in 2007 than in 2006. Despite the absence of extreme events, Munich Re notes that overall economic losses had reached $75 billion by the end of December 2007 — a 50 percent increase on 2006. While the loss figures were well short of 2005’s record $220 billion, at just under $30 billion, insured losses were almost double those of 2006 ($15 billion). The number of natural catastrophes recorded in 2007 also increased to 950 (compared with 850 in 2006) — the highest figure since 1974 when Munich Re began logging records in its NatCatService database. The message from the reinsurer is don’t be misled by the absence of megacatastrophes in 2007 as these loss figures are in line with the continuing rising trend in natural catastrophes. Check out I.I.I. info on global catastrophes.  

Avian Flu Update

We ring in the New Year with I.I.I. chief economist and resident bird flu expert Dr. Steven Weisbart’s year-end update on H5N1 (the Avian Flu). Dr Weisbart reports that in 2007, 83 people were confirmed to have been infected with the disease, and 55 of them have died (66 percent). This brings the cumulative total to 346 confirmed infected and 213 dead since December 2003 (the start of the current outbreak) through 2007. The year had roughly the same pace of infections and deaths as in 2006 (69 percent death rate), though the number of cases is down from 115. Dr Weisbart explains that the lethality rate of the virus varies substantially: in 2007, 6 of 23 (26 percent) of those infected in Egypt died, compared to 36 of 41 (88 percent) of those infected in Indonesia. In 2007, infection and death reached several new counties, including one case each in Myanmar, Nigeria, and Pakistan, and two cases in the Lao People’s Democratic Republic. Vietnam, which had no infections and deaths in 2006, 2005 or 2004, had 8 infections (5 deaths) in 2007. Human infection is still believed to be mainly from birds to humans, basically from very close contact with infected chickens and similar birds in home environments. Virtually all of the cases continue to be under 40 years old. There are still no cases of birds or people in the U.S. with this flu virus.