Occupational Fraud Costs

U.S. businesses lose an estimated seven percent of their annual revenues to fraud, according to a survey of Certified Fraud Examiners who investigated cases between January 2006 and February 2008. That translates to approximately $994 billion in fraud losses when applied to the projected 2008 United States Gross National Product. Fraud schemes tend to be very costly. For example, the median loss caused by the occupational frauds in the study was $175,000 and more than one-quarter of frauds involved losses of at least $1 million. The study also found that frauds were most often committed by the accounting department or upper management and that most fraudsters were first-time offenders. Small businesses are especially vulnerable to occupational fraud. Check out the I.I.I. small business owners’ guide to insurance.

Producer Compensation Hearing

The first of three public hearings takes place in Buffalo, New York, today on the form and disclosure of producer compensation (including contingent commissions). Co-hosted by the New York Superintendent of Insurance and the attorney general, the hearings are expected to elicit views about the proposed addition of a new regulation to the Insurance Department’s regulations regarding permissible forms of insurance producer compensation and disclosure by insurance producers of all forms of compensation. Two other hearings are scheduled for later this month: one in Albany on July 23 and one in Manhattan on July 25. You can follow the meetings live at www.totalwebcasting.com/live/nysins.

Online Buying Increasingly Popular

An increasing number of insurance buyers are purchasing auto insurance online. The J.D. Power and Associates 2008 Insurance New Buyer Study finds that the 44 percent of buyers who bought auto insurance from a new insurer did so via direct channels (including insurer Web sites and call centers), a 3 percent increase on 2007. Among buyers who changed their shopping channel, more buyers also changed to direct purchasing methods (22 percent), compared with those who switched to using an agent (15 percent). However, the study also finds that buyers who purchase their auto insurance via local agents give significantly higher average satisfaction scores, compared to those who buy direct. Despite this, J.D. Powers notes that insurers are enhancing their Web site capabilities and that most prospective buyers cite the ease of shopping via a direct channel. Erie, The Hartford and State Farm are  the top three ranking companies among 18 major auto insurers in satisfying new buyers.  

Auto Theft Continues Decline

There was some good news for auto owners and their insurers yesterday. The National Insurance Crime Bureau’s (NICB) 2008 Hot Wheels study indicates that auto theft is continuing its national decline. Based on preliminary FBI Uniform Crime Report (UCR) data, motor vehicle theft is headed for an 8.9 percent decrease in 2007. This would make it the fourth consecutive year of decline and follows a 3.5 percent decline in 2006. Final data will be released later in the year. Check out further I.I.I. info on auto theft.

House Committee Considers Legislation

Markup of three insurance bills, including H.R. 5840 the Insurance Information Act of 2008, will begin later today at a meeting of the Capital Markets Subcommittee of the House Financial Services Committee. H.R. 5840 would establish a federal Office of Insurance Information within the Treasury department. Creation of this office was part of the financial services regulatory reform package unveiled by the Treasury in April (see our March 31 posting). The two other pieces of insurance legislation up for consideration are: H.R. 5792, Increasing Insurance Coverage Options for Consumers Act of 2008 and H.R. 5611, National Association of Registered Agents and Brokers Reform Act of 2008. H.R. 5792 would amend the Liability Risk Retention Act of 1986 to allow risk retention groups to provide property insurance in addition to current liability coverage to their members. Check out further I.I.I. content on regulation modernization,  the optional federal charter (OFC), risk  retention groups and other  alternative risk financing options.  

Modest Market Decline Continues

Two new surveys on the state of the commercial insurance market point to a continued moderation in rate reductions, albeit with different data. Towers Perrin’s quarterly survey indicates that average prices for all lines of coverage combined continued to decrease during the first quarter of 2008, dropping about 6 percent compared with the same quarter a year ago. Towers Perrin says large insureds experienced price decreases nearly four times larger, on average, than small accounts. However, the dramatic drop in prices seen in 2007 for specialty lines, including directors & officers (D&O) liability appears to have tapered off. Meanwhile, online insurance exchange MarketScout said average P&C rates decreased 11 percent in June, compared to a decline of 14 percent a year ago. Commercial property, general liability and employment practices liability experienced the largest rate decreases (15 percent, 12 percent and 11 percent, respectively). Towers Perrin notes that its data indicates more conservative price reductions than other marketplace surveys and that its information is gathered from insurers, rather than brokers.

Catastrophe Webinar

Though it is currently far from land, tropical storm Bertha  became the first hurricane of the 2008 Atlantic season early today. Meanwhile, California continues to battle hundreds of wildfires and the Midwest is recovering from its severe flooding. An update of U.S. and global catastrophe activity in the first-half of 2008 will be among the timely topics of a webinar presented by Munich Re and the Insurance Information Institute (I.I.I.) tomorrow. The panel features I.I.I. president Dr Robert Hartwig, who will speak on the economic implications of catastrophes. The webinar will also take a look ahead at environmental conditions that can influence catastrophe activity in the second half of the year. To register for the webinar go to: http://www.munichreamerica.com/webinars/form_registration.htm Check out further  I.I.I. facts and stats on U.S. catastrophes and global catastrophes.  

July 4 Tips

Tomorrow is Independence Day and as our regular readers know this is the time of year when us Brits living in America generally head for the hills. For the record, the Census Bureau puts the dollar value of trade last year between the United States and the United Kingdom at $107.2 billion, making the nation’s adversary in 1776 its sixth-leading trading partner today. For those of you planning on enjoying picnics, parades, concerts and fireworks, the I.I.I. has some useful tips to help make your holiday weekend even more pleasurable. Check out I.I.I. car rental insurance and  grilling safety tips for more information. Have a happy and safe holiday!  

RI Lead Paint Ruling Reversed

The Rhode Island Supreme Court has overturned a landmark case against three former lead paint manufacturers. The unanimous 4-0 decision comes just over two years following the landmark February 2006 RI  ruling against the three companies. In reversing the decision, Chief Justice Williams concluded that “the state has not and cannot allege any set of facts to support its public nuisance claim that would establish that defendants interfered with a public right or that defendants were in control of the lead pigment they, or their predecessors, manufactured at the time it caused harm to Rhode Island children.† Recent court decisions in other states, including New Jersey, Missouri, and Ohio have also rejected the public nuisance legal theory on which the RI lead paint suit was based (see our May 15, 2008 posting). Check out I.I.I. info on products liability emerging exposures.

The Question of Catastrophe Models

Insurers’ use of catastrophe models has come under increased scrutiny since the record hurricane loss seasons of 2004 and 2005. Today’s article in the Wall Street Journal by reporter MP McQueen takes aim at insurers’ use of newer hurricane models that incorporate near-term projections of loss. A point worth noting is that insurers cannot arbitrarily raise rates based on catastrophe model outputs. By law, the rates charged by insurers may not be excessive, inadequate or unfairly discriminatory. The use of computer technology in the underwriting process is not new and catastrophe models are just one of the many tools that help insurers, reinsurers and risk managers more accurately analyze, write and price for catastrophe risk. Check out today’s posting by Felix Salmon of finance blog Market Movers at Portolio.com for a different viewpoint. Check out further I.I.I.  research on catastrophe modeling.