Regulatory Change

Industry eyes today will be on the news out of the Treasury department, where U.S. Treasury Secretary Henry Paulson is expected to outline the agency’s blueprint for federal regulation of financial services, including insurance. Word on the street is that the Treasury’s plan would endorse optional federal charters (OFC) for both insurers and producers. It would also propose the creation of an interim federal insurance regulator. Check out National Underwriter’s March 31 online article by Arthur Postal and Daniel Hays for more information on the proposal. Check out the I.I.I.’s online update on the OFC.

Retirement Revolution

Is the title of a two-hour PBS documentary on the financial challenges and options facing America’s baby boomers that will debut nationally next Monday (March 31). Dr. Steven Weisbart, I.I.I.’s chief economist, will appear in the program that will be aired in separate, one-hour installments. The first episode, “Hazards and Vicissitudes,” offers a look at the origins of retirement in the U.S. and the creation of Social Security and Medicare. In the second segment, “On Our Own,” the focus shifts to how Americans are more personally involved today than previous generations in planning for their own retirement. The second segment, featuring Dr. Weisbart, airs on Monday, April 7. Check out further I.I.I. info on life insurance, annuities and long-term care insurance.  

Business Continuity Threat

It’s becoming a recurring theme. Climate change has again been identified as a major threat by global businesses, according to a new survey on emerging risks conducted by Business Continuity Expo 2008 and sponsored by Marsh. Its findings reveal that some 87 percent of businesses see climate change as the single biggest threat in terms of risk assessment and the effect it could have on their businesses future growth. Perhaps of more concern, many are at a loss as to what can be done in order to prepare or plan for this eventuality. To embellish the point, the threat posed by climate change to the continuity and long-term success of their business is ahead of terrorism, pandemic flu, flooding, the credit crunch, government red-tape and outsourcing and offshoring. The survey was conducted among 150 major U.K. and European companies.

Hanging by a Thread

Another identifiable impact of climate change on the Antarctic environment has been captured in satellite and video images by the British Antarctic Survey (BAS). The footage shows images of a huge chunk of ice breaking away from the Wilkins Ice Shelf on the Antarctic Peninsula. The BAS press release indicates the scientists’ surprise at the speed with which this has happened. “The ice shelf is hanging by a thread – we’ll know in the next few days or weeks what its fate will be,† said Professor David Vaughan of the BAS. Professor Vaughan predicted in 1993 that the northern part of the Wilkins Ice Shelf was likely to be lost within 30 years if climate warming on the Peninsula were to continue at the same rate. According to the BAS, the Antarctica region has experienced unprecedented warming over the last half century. Several ice shelves have retreated in the past 30 years, six of them collapsing completely (Prince Gustav Channel, Larsen Inlet, Larsen A, Larsen B, Wordie, Muller and the Jones Ice Shelf).

Claims Industry Concerns

Managing claims is a key element of our business, so a Towers Perrin survey of 62 claim officers from property/casualty insurers of various sizes gives some insight into the challenges facing this industry. For example, attracting and retaining top talent is cited as the top priority for 82 percent of companies surveyed. Next up, the effective use of data and analytics as a main driver to meeting business objectives was cited by 52 percent of claim officers, closely followed by an interest in better ways to use technology in general (cited by 50 percent). The survey also focused on emerging trends and issues bringing change to the claims industry, with some surprising results. Nearly two-thirds (65 percent) of respondents chose sophisticated analytics, trumping the perennial issue of escalating claims severity (identified by 50 percent of respondents). Increasing technology needs and reliance on software was the third ranked emerging issue. Both commercial and personal lines companies participated in the survey.  

Hayward Earthquake Anniversary

This October marks the 140th anniversary of the 1868 Hayward earthquake, dubbed the first great San Francisco earthquake and one of the most damaging quakes in U.S. history. If the 1868 earthquake were to reoccur today, catastrophe modeler Risk Management Solutions (RMS) estimates that total economic losses to residential and commercial properties would likely exceed $165 billion. Fire, damage to infrastructure and related disruption would substantially increase the loss. Interesting fact: more than 95 percent of projected Hayward Fault earthquake residential losses and 85 percent of commercial losses will be uninsured. This is in marked contrast to Hurricane Katrina, where uninsured losses accounted for some 60 to 70 percent of total economic losses. If ever there were a time to buy earthquake insurance, it appears to be now. Just 10-12 percent of California homeowners buy the coverage today. Check out the 1868 Hayward Earthquake Alliance for more information. Check out the  I.I.I. issues update on earthquakes.  

Coastal Development Accelerating

The continuing population influx to high risk coastal areas is an ongoing issue for U.S. property insurers, as is the rise in coastal properties. Unfortunately, a new National Oceanic and Atmospheric Administration (NOAA) survey of land use along U.S. coasts indicates that the pace of development in coastal areas is increasing. The survey shows that 53 percent of the new development between 1996 and 2001 occurred along the Southeastern U.S. coast between Texas and North Carolina. The biggest areas of new development include Harris County (Houston), Texas; Palm Beach County, Florida; and Will County (Chicago), Illinois. NOAA also notes that the Mid-Atlantic three-state area of Maryland, Virginia and Delaware, including the District of Columbia, now has development covering over 10 percent of the total land area. An additional area approximating half the size of Washington, D.C., is estimated to be already cleared for development.

Nose Insurance

Today another example of the innovative and unusual side of our industry comes from across the pond at Lloyd’s. Word has it that a Dutch wine maker has insured his nose for ┚ ¬5 million ($7.8 million) to cover against any incident that could threaten his livelihood. The individual, owner of Chateau de La Garde in Bordeaux and producer of Tulipe Wines, recognized that his nose is the most important asset in his profession which relies on a good sense of smell to guarantee the constant quality of wines. The policy is co-insured by Watkins Syndicate and Allianz Nederland. Lloyd’s notes that nose insurance is not just restricted to wine buffs. For example, Watkins Syndicate is currently working on a policy with a U.S. perfume consultant who develops new fragrances for perfume houses. As the lead underwriter himself commented, these insurance policies are not to be sniffed at…  

Tornado Watch

If you don’t think of the southeastern U.S. as prime tornado country, this weekend’s twisters that hit Atlanta and other parts of Georgia are a timely reminder of how deadly and destructive such events can be. In fact, tornadoes  account for  approximately 56 percent of all insured catastrophe losses in the U.S. in any given year. Tornadoes and related weather events caused more than $8 billion in insured losses in 2006, according to a recent A.M. Best study. A March 31, 1973 tornado in central and northern Georgia was the costliest tornado on record, with $5.21 billion in damage in 2007 dollars, according to the study. Although tornadoes can occur at any time of the year, the weather conditions that cause tornadoes are common in the southern states from March through May. Check out further I.I.I. facts & stats on tornadoes.  Ã‚  Ã‚  


Underestimating Risk

Hindsight is a beautiful thing. Just as the current credit crisis and related economic issues began to emerge in the third quarter of 2007, senior executives felt very confident about their ability to manage risk and opportunity it appears. The striking findings come in a new study conducted by Towers Perrin, in conjunction with the Economist Intelligence Unit. Towers Perrin notes that with the benefit of hindsight, the study reveals that many organizations underestimated risks or completely missed emerging risks and that the levels of optimism and confidence revealed in the third quarter of 2007, when economic times were relatively good, were not justified. Survey respondents included CEOs, CFOs, board members, presidents, managing directors and other senior execs of midsize and large companies across a range of industries, including insurance. What are your thoughts?