ID Theft Rules Deadline Extended

The Federal Trade Commission (FTC) has given financial institutions and creditors an extra six months, until May 1, 2009, to comply with the so-called “red flags rule† which requires them to develop and implement written identity theft prevention programs. Apparently some industries and entities within the FTC’s jurisdiction had expressed confusion and uncertainty about their coverage under the rule. Just to be clear, the FTC said the extension does not affect compliance with the original November 1, 2008 deadline for institutions subject to oversight of other federal agencies. Those of you who read our posting a year ago will already be aware that under the red flags rule, financial institutions and creditors with covered accounts must  implement prevention programs to identify, detect, and respond to patterns, practices, or specific activities that could indicate ID theft. As we’ve said before, financial institutions are prime targets of ID theft, so new rules requiring them to take preventive measures could increase their potential liability. Check out further I.I.I. facts and stats on ID theft.

Animal Strike Claims and Fatalities Increase

New analysis of insurance claims and federal crash data indicate rising levels of insurance claims for animal collisions. The Highway Loss Data Institute (HLDI) and its affiliate the Insurance Institute for Highway Safety (IIHS) also report that while most vehicle-animal collisions aren’t severe enough to injure people, crash deaths are increasing. The number of people to die in crashes involving animals more than doubled from 101 in 1993 to 223 in 2007. Between 1993 and 2007, the states with the largest number of total deaths were: Texas with 227 deaths; Wisconsin with 123; and Pennsylvania with 112. As with other types of crashes, seat belts and motorcycle helmets are major factors in preventing fatalities.

The study also reveals that insurance claims for animal collisions are nearly three times higher during November than during January to September. For example, for every 1,000 insured vehicles 14 claims were filed in November 2007, compared with an average of five claims per 1,000 during January-September. Insurance claims usually don’t specify the animal involved, but other data show that deer are the main ones. The study follows State Farm’s recent study of annual deer claims (see our October 13 posting). Check out I.I.I. facts and stats on highway safety.  


Winter Arrives Early

As the first snowstorm of the season hits the Northeast it’s a timely reminder of the significant potential damage that winter weather can cause. Winter storms result in about $1 billion in insured losses annually and are the third largest cause of catastrophe losses, after tropical cyclones and tornadoes. Melting snow can inflict significant damage to property. From 1988 to 2007, winter storms resulted in $24.4 billion in insured losses. As to what to plan for this winter, the Farmers Almanac is forecasting a colder winter than usual. It predicts temperatures will be below average throughout much of the nation. Heavy snowfall is expected from southern New England southwestward into the Ozarks. Brrrr! Check out I.I.I. facts & stats on winter storms.  

Reinsurance Market Turning

It seems like just yesterday we blogged on the round of reinsurance market commentaries released to coincide with the Monte Carlo September Rendezvous (see our September 10 posting). Back then many reinsurers were reticent to speak of actual price increases. More than six weeks on, and the word on the street is that reinsurance executives gathered at the Baden-Baden 2008 Reinsurance Symposium are more forthright. The impact of the financial crisis is increasing both the demand for and price of reinsurance. In a press release issued at Baden-Baden, Munich Re noted that since Monte Carlo the world’s 10 biggest insurers in terms of market capitalization have lost more than a quarter of their market value. This is increasing the significance of reinsurance as a direct capital substitute. In view of the increased cost of capital, growing demand and the changed risk environment, Munich Re said it expects significantly higher prices, with increases definitely in the double-digit range. For more on this story check out today’s Reuters article by Jonathan Gould and Arno Schuetze. Check out further I.I.I. information on reinsurance.  

Q3 Catastrophe Losses

Hot off the press, ISO’s Property Claim Services (PCS) unit has reported that U.S. property/casualty insurers are expected to pay out $11.5 billion for third-quarter property losses resulting from a total of 11 catastrophes in 22 states – the fourth-largest insured property loss in a third quarter since 1998. PCS estimates the 11 catastrophes of Q3 2008 generated 1.7 million claims. Five of the 11 catastrophes were caused by tropical systems and six by severe weather (wind, hail, tornadoes, and flooding). The 22 affected states ranged from New Mexico to North Dakota to Virginia. To-date the five states with the greatest insured losses are Texas ($6.4 billion), Louisiana ($1.9 billion), Ohio ($1.2 billion), Kentucky ($0.4 billion), and Illinois ($0.37 billion). A fact often overlooked  but reflected in these figures is that tropical systems can reach well inland and inflict extensive property damage, according to Gary Kerney, assistance vice president, PCS. Through the first three quarters of 2008, insured catastrophe losses reached $22.1 billion from 36 catastrophes. Check out further I.I.I. facts and stats on U.S. catastrophes.  Ã‚  


Women and Finance

Farmers Insurance has launched a new Web site for women called Take Away the Worry. The site recognizes women’s growing influence in financial matters. Nine out of 10 women participate in or direct the financial decisions that affect households and the site is designed to provide easy-to-use financial information and fiscal insights. Organized around five life-stage categories – Singles, Single Parents, Couples with Kids, Couples without Kids, and Empty Nest and Beyond – the site offers numerous topics appropriate to each life stage. For example, Couples with Kids includes career planning, college planning, financial issues, home and auto, raising a family, and retirement. The site also includes a resource center with additional online links providing further information. Check out today’s online article at Insurance Journal for more details on this initiative.

Market Begins to Stabilize

Despite a continuing drop in commercial p/c premiums in the third quarter, the latest market index survey by the Council of Insurance Agents & Brokers (CIAB) indicates that the market decline may have leveled off – at least for small and mid-sized accounts. The CIAB said that 69 percent of commercial agents and brokers responding to the survey reported that premiums for their small account renewals were down only slightly – 10 percent or less – compared with similar renewals during the second quarter, including 20 percent who reported no change. Some 53 percent of respondents also said their medium account premiums were down 10 percent or less compared with second quarter renewals, including 7 percent reporting no change. The CIAB noted that the fourth quarter may tell a different story because the survey was taken at the beginning of October and did not reflect the full impact of the financial crisis. Premiums for large accounts were still dropping in the third quarter, according to the survey. Some 35 percent said their large account renewal premiums were down 10-20 percent compared with the second quarter, while 18 percent said premiums were down 20-30 percent, and 29 percent that premiums were down up to 10 percent.  

Surplus Declining Amid Financial Crisis

The financial cushion that protects policyholders is declining. Towers Perrin has warned that the U.S. property/casualty industry’s reported surplus (a measure of claims-paying capacity or capital) could decline by as much as $80 billion or 15 percent by year-end if the stock market doesn’t recover from steep losses precipitated by the continuing financial crisis. Towers Perrin estimates that the industry’s reported statutory  surplus for the third quarter is projected to decline as much as $42 billion, or 8 percent, from the beginning of the year. Towers Perrin attributes the decline to a clash in equity and credit-related losses on insurer asset portfolios, catastrophe losses resulting from an active hurricane season and an anticipated spike in directors and officers liability (D&O) claims. I.I.I. president Dr. Robert Hartwig in  his commentary on the industry’s half-year 2008 results recently noted that U.S. policyholders’ surplus declined 2.5 percent to $505.0 billion as of June 30, 2008, from $517.9 billion at year-end 2007. A trend to monitor.

Homeowners ROE Outlook Down

Strong competition and efforts by state regulators to hold down homeowners insurance rates have driven a slight decline in the prospective return on equity in the homeowners line of insurance for 2008, with this year’s prospective ROE at 6.5 percent versus 7 percent in 2007, according to an annual analysis by Aon Re Global. The study also found the expected assessment of residual market facilities is weighing down the countrywide ROE by 0.3 percent. (Residual property plans provide insurance to high risk policyholders who may have difficulty obtaining coverage from the standard market and have seen explosive growth in the course of the last four decades according to I.I.I. analysis.)

Aon said prospective ROE in hurricane-exposed states (Texas to Maine) is 6.0 percent and 7.1 percent in non-hurricane states. To improve returns on equity to 14 percent, rates in hurricane-exposed states would need to rise an estimated 35.3 percent, while rates in non-hurricane states would need to be increased by 12.9 percent. Aon’s take is that insurers in hurricane-exposed states need more capital to protect against catastrophic loss  and that  means more rate increases will be needed to provide attractive return on capital requirements.  A well-designed reinsurance program may reduce a company’s rate level needs.

New View of U.S. Earthquake Risk

Tomorrow 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. Meanwhile, Willis has just released a report on seismic hazard in the United States. The report highlights the results of two recent academic research papers: the 2008 National Seismic Hazard Maps and the 2007 Uniform California Earthquake Rupture Forecast. It focuses on the impact these new studies could have on catastrophe risk managers and how catastrophe models may change in the U.S. as a result of these findings. Check out I.I.I. information on earthquakes.