Stabilizing Signs

More signs of market stability are indicated in the latest commercial lines insurance pricing and profitability trends survey (CLIPS) from Towers Perrin. The survey found that commercial insurance prices declined just 3 percent during the fourth quarter of 2008 — their smallest reduction in the past eight quarters. According to Towers Perrin, product lines and market segments experiencing the greatest reductions in pricing over the last two years, such as workers compensation, property and large accounts, may have begun to stabilize. A press release cites Jeanne Hollister, Towers Perrin managing principal and property/casualty insurance practice leader for the Americas: “Although the property/casualty industry remains strongly capitalized in the aggregate, we expect that the surplus declines in 2008 will result in increased conservatism in companies’ risk appetite and that this, in turn, will cause general price firming to occur in 2009.† The survey comes just a week after online insurance exchange MarketScout reported an average property/casualty rate decrease of 8 percent in February 2009, compared to a double-digit rate decrease of 14 percent a year ago. Check out latest I.I.I. information on the industry’s financial outlook.  

Insurance Regulators Meet

Something to keep an eye on is the National Association of Insurance Commissioners’ (NAIC) Spring National meeting held in San Diego, California the first half of this week. One key matter up for consideration is the NAIC’s revised climate risk disclosure survey proposal. The draft survey requires insurers to answer generalized questions about the risks posed by climate change and the actions they are taking in response to their understanding of climate change risks. It is designed to help regulators measure the impact of climate change on policyholders and insurer operations. We understand the latest revised draft would no longer require that disclosure of climate change risks be included as part of an insurer’s Financial Annual Statement (FAS) due to industry concerns about public disclosure requirements and potential litigation exposure. If the survey is adopted at the meeting it would be effective in 2010 for the 2009 reporting year. Check out I.I.I. information on climate change and insurance.  

General Liability Losses and Expenses to Rise

Just how the recession will affect different lines of insurance is a common topic of discussion these days. A new study by Conning Research and Consulting suggests that the general liability line of insurance will see accelerating growth in losses and expenses in the next couple of years due in part to the recession. According to Conning, the general liability insurance line has produced industry-wide combined ratios below 100 percent for the past two years, but this profitable underwriting performance is unlikely to continue. While premium reduction is expected to moderate and even see a modest increase by 2010, Conning says losses and expenses are forecast to grow more quickly, with combined ratios expected to reach 107 percent by 2010. A press release quotes Stephan Christiansen, director of insurance research at Conning: “History has shown us a cyclical increase in general liability losses in periods following recessions. At the same time, longer term secular trends point to an increase in both smaller claims and larger mega risks.† To meet the challenges to profitability Conning suggests insurers will need to monitor trends in costs – particularly losses – and demand. Longer term, the best prospects for general liability insurers may come from an expanding specialist focus. Check out I.I.I. facts and stats on litigiousness.

Securities Class Action Settlements Decline: Reversal Expected

An absence of approved settlements in excess of $1 billion in 2008 contributed to a more than 50 percent decline in the average settlement value of federal securities class actions to $31.2 million in 2008, from $62.7 million in 2007. According to an annual report by Stanford Law School and Cornerstone Research, there have been nine settlements in excess of $1 billion over the previous 10 years and the third largest securities class action settlement in history (Tyco International) was reported in 2007. The report found that the total number of settlements also declined by a more modest 10 percent to 99 in 2008, from 110 in 2007. However, future damages are expected to rise as increased litigation activity arising from the financial crisis works its way through the judicial system. A key takeaway from the report is the discussion on settlements of pending actions against TARP recipients. As it explains, these will raise novel public policy issues: “Taxpayer dollars will, one way or another, fund these settlements. This simple fact could set off a debate about whether taxpayers should pay for these settlements, and about the effectiveness of the class action litigation mechanism altogether.† An interesting point.  

Top Insurance Complaints 2008

Delays (19.1 percent), denial of claims (18.4 percent) and unsatisfactory settlement offers (14.2 percent) were once again the top three reasons consumers filed formal complaints against their insurance companies in 2008, according to data just released by the National Association of Insurance Commissioners (NAIC). Premium/insurance rating issues (4.7 percent) and policy cancellations (4.0 percent) rounded out the top five, regulators said. By type of coverage, the top three complaints in 2008 were: accident & health (36.9 percent); auto (36.7 percent); and homeowners (11.8 percent). The good news is that the total number of complaints declined for the fifth consecutive year in 2008. A total of 195,669 confirmed consumer complaints on insurers were reported via the NAIC’s Complaint Database System (CDS) in the 2008 calendar year. States voluntarily report “closed† complaints via the CDS. A closed complaint is a complaint that has been investigated and resolved to the satisfaction of the state or jurisdiction in which it is filed.  Ã‚  

American Dream on Pause

While the American dream is still alive in 2009, sweeping changes in the economy have led to a reevaluation of priorities for most Americans. The third annual MetLife study finds that amid the economic crisis individuals are placing a premium on financial protection and stability. Across generations, eight in 10 say having a personal safety net will be more important this year than last. However, nearly 74 percent admit to not having an adequate safety net in place. MetLife found that Americans count auto insurance (60 percent), health insurance (57 percent), life insurance (46 percent), homeowners’ insurance (45 percent), a retirement savings plan such as a 401(k) (40 percent), and cash on hand for 3-6 months (35 percent) as the top six components of their safety net. Among those who do not feel they have adequate protection, nearly two-thirds (62 percent) desire cash on hand for 3-6 months as the product they would most like to have in their safety net. The MetLife study also reveals that some 84 percent of individuals believe the U.S. economy is heading in the wrong direction, up from 64 percent in November 2006. More than nine in 10 believe that it will take at least 12 months for the economy to recover. To help put your financial house in order, take an inventory of your financial situation with free software from the  I.I.I. Check it out at

Market Turn Led by Major Insurers

Online insurance exchange MarketScout said the average property/casualty rate decrease was 8 percent in February 2009, compared to a double-digit rate decrease of 14 percent a year ago. According to its analysis a slow moderation in rate decreases continues as insurers evaluate their 2008 results and the impact of a slowing economy in 2009. MarketScout founder and CEO Richard Kerr observed: “Four large insurance companies are drawing a line in the sand and demanding rate stabilization. If it sticks, we will see a further flattening of reductions very soon.† General liability and business owners policies (BOPs) experienced the largest rate decreases at 9 percent. The line experiencing the smallest rate decrease was D&O liability (down 4 percent). Large accounts ($250,000-$1 million premium) saw an average rate reduction of 9 percent while small accounts (up to $25,000 premium) were down 8 percent, according to MarketScout. Check out latest I.I.I. information on the industry’s financial outlook.  

Cheers to Lotto Win etc

It would be remiss of us to end the week without giving a resounding cheer to the 10 Chubb colleagues who hit the jackpot this week with a $216 million (or $140 million one-time payout) Mega Millions lottery win. Now what are the odds of that? The lucky 10 have been working in Chubb’s IT department in Whitehouse Station, New Jersey from seven to 30 years.  We’re happy for their win. And finally a blog update: those of you who read us regularly will be aware that you can now sign up to follow us on Twitter. Just click on the Twitter button on the lower right-hand side to begin tweeting. Another way to follow the blog is via my network on LinkedIn – again click on the button on the right to join my network.  

Wyeth Decision: Impact

Yesterday’s widely-anticipated decision by the U.S. Supreme Court in Wyeth v. Levine on the issue of federal preemption has huge significance for product liability litigation. In a 6-3 opinion, the Court decided that federal approval does not preempt consumer complaints in state courts, effectively opening the floodgates to a wave of potential product liability tort suits against pharmaceutical companies at the state level. We’re not lawyers, but a variety of commentaries by others hint at the significance of this decision for the broader business community, including insurers. Among many others, check out: the Wall Street Journal Law Blog, an editorial opinion in the New York Times, SCOTUSBLOG, and the BLT: the blog of Legal Times. Check out our earlier postings on preemption here and here.

Energy Market: Uncertain Times

Is Gulf of Mexico windstorm risk still an insoluble risk management problem? This is the question posed in the latest annual Energy Market Review from Willis. The report notes that fallout from a major Gulf of Mexico windstorm is once again casting a shadow over the energy insurance market in the wake of Hurricane Ike. A full consensus has yet to emerge as to the best way to offer the product, and in the meantime the market for Gulf of Mexico windstorm risk is more confused, volatile and expensive than ever before. Meanwhile, the energy industry is faced with a changing world, Willis says. The financial market meltdown and global economic recession have led to rapidly cooling commodity prices and left the energy industry now facing a very different challenge of maintaining profitability in the face of plummeting demand. As a result energy insurers must find new ways of making up for income shortfalls and sharp decreases in investment incomes in 2008. An increased focus on underwriting profitability is the inevitable result. However, any drive towards a harder market is being tempered by the fact that with little or no withdrawals from the market in January 2009, capacity levels for energy risks have actually increased by about 5 percent from last year, according to Willis. A big question mark therefore hangs over 2009: will competitive pressures take their toll on market discipline as the year progresses? Check out I.I.I. facts & stats on the 2007 and 2008 Atlantic  hurricane seasons.