Going Green

Increasing numbers of insurers are offering new coverages to tackle climate change and rising weather losses. That’s the upshot of From Risk to Opportunity:  Insurer Responses to Climate Change,  a recent report from Ceres. The report identifies more than 600 climate-related products and services now being offered by insurers in the United States and abroad – a 50 percent increase on 2007. Insurance coverage for wind and solar production shortfalls, premium discounts for building efficiency renovations, directors’ and officers’ (D&O) liability protection against climate-related lawsuits, carbon capture and storage insurance, and coverage for humanitarian emergencies prompted by drought are among the newest insurance products and services available. However, the report also notes that insurer climate-related activities go far beyond offering new products. Examples include integration of climate change impacts and trends such as warmer ocean temperatures and recent flooding data into traditional catastrophic modeling, and $11 billion in direct investments in businesses that are developing or offering low- and no-carbon technologies. Despite more creative offerings, the report states that progress by the insurance industry as a whole is still in its infancy. Check out I.I.I. information on climate change and insurance.  

Data Breach Wake Up Call

Some 285 million records were compromised in 90 data breaches in 2008 – more than in any other single year and more than in the previous four years combined, according to the 2009 Verizon Business Data Breach Investigations Report. The record numbers in 2008 were due to a few very large breaches, with the top five breaches accounting for 93 percent of total records compromised. The mean number of records per breach was approximately 4.5 million, while the median was 37,847, according to Verizon Business. Payment card data breaches accounted for 81 percent of the total, far outnumbering other data types, while personal information (an individual’s name, identification number etc) was the second-most compromised data type (36 percent). Other key takeaways from the report include: 91 percent of all compromised records were attributed to organized criminal groups; 74 percent resulted from external sources while 32 percent implicated business partners; 67 percent were aided by significant errors while 64 percent resulted from hacking; and the majority of breaches (69 percent) are discovered by a third party. Investigators concluded that 87 percent of breaches could have been avoided through the implementation of simple or intermediate security controls. The study findings underscore the potentially enormous liability facing businesses when a data breach occurs. Check out further I.I.I. info on data breaches and identity theft.  

Auto Theft Decline Continues

The National Insurance Crime Bureau (NICB) yesterday reported that 2008 marked the fifth consecutive year of declining vehicle thefts in the United States. Its annual Hot Spots study said preliminary crime data from the FBI indicates that 2008 will post a double-digit decline (-12.6 percent) in vehicle theft when final numbers are released in the fall. If the preliminary figure holds, it will be the largest single year percent drop in thefts since 1999. Despite the overall decline in vehicle theft, NICB described this year’s findings as a “mixed bag† of good and bad news. Why? Although most areas experienced a reduction in vehicle theft in 2008, NICB said there were several noteworthy exceptions in states that border Mexico. The Texas Metropolitan Statistical Areas (MSAs) of El Paso, Laredo and San Antonio along with Las Cruces in New Mexico each saw an increase in vehicle theft in 2008. California remains a hot spot, ranking number one in total thefts. Check out further I.I.I. info on auto theft.  

Tornado Threat: Rising Frequency and Severity

P/C insurers face the prospect of another tornado season in which single devastating thunderstorms and tornado outbreaks result in losses of $1 billion or more, according to a new report from A.M. Best. It notes that annual tornado activity in 2008 was the worst on record. Of the 29 severe thunderstorm catastrophes in 2008 costing insurers an estimated $10.5 billion, two events each resulted in insured losses of $1 billion or more and another four severe weather events generated losses of $715 million or more, according to ISO/PCS. Not only was 2008 the worst year for catastrophe losses from tornadoes and related weather events, it was among the worst years on record for the number of tornadoes. Preliminary figures show 1,691 tornadoes in 2008 – second only to 2004, when about 1,820 tornadoes touched down in the U.S., according to the National Oceanic and Atmospheric Administration (NOAA). While hurricanes and earthquakes tend to generate higher losses per event, A.M. Best notes that tornadoes and related weather events have caused nearly 57 percent on average of all U.S. insured catastrophe losses in any given year since 1953. Check out further I.I.I. facts and stats on tornadoes.

P/C Insurers Show Superior Risk Management

The  property/casualty (P/C)  insurance industry’s full year 2008 results released yesterday brought the industry’s  worst financial performance since 2001. The industry’s annualized statutory rate of return on average surplus fell to 0.5 percent in 2008, down sharply from the 12.4 percent return recorded in 2007. In his commentary on the results I.I.I. president Dr. Robert Hartwig notes that the sharp decline in profitability was primarily due to poor investment market performance, some $26 billion in catastrophe losses, persistent soft market conditions and a spillover of the housing and credit bubble collapse into the mortgage and financial guarantee segments of the P/C insurance industry. The toll: a 96.2 percent plunge in profits and a 12 percent drop in capacity (policyholders’ surplus). Yet, in the final analysis, the  P/C insurance industry once again demonstrated its resilience, as it has for centuries. Dr. Hartwig notes: “In stark contrast to banks and investment banks, the fundamental business of insurance continues uninterrupted. Indeed, more than 40 banks have failed since the crisis began, yet not a single insurance claim has gone unpaid because of the crisis.† An important point to take into the  remaining three quarters of 2009. The industry results were released by ISO and the Property Casualty Insurers Association of America (PCI).

Rate Moderation Continues

Online insurance exchange MarketScout said the average property/casualty rate decrease was 7 percent in March 2009, compared to a double-digit rate decrease of 12 percent a year ago and an 8 percent rate decrease in February. While underwriters received a better net rate for each risk they wrote in March, their gross premiums probably decreased due to the impact of the current recession on almost all types of exposures, such as payrolls, gross receipts and property values. “The moderation in rate reductions will yield more premiums but declining exposures will more than offset the improved rate,† said Richard Kerr, founder and CEO of MarketScout. Commercial property and general liability experienced the largest rate decreases at 8 percent. The line experiencing the smallest rate decrease was surety (down 4 percent). Large accounts ($250,000-$1 million premium) saw an average rate reduction of 8 percent while small accounts (up to $25,000 premium) were down 7 percent, according to MarketScout. Check out I.I.I. information on the industry’s financial outlook.

Average Hurricane Season Forecast

Consensus among U.S. hurricane forecasters appears to be that the 2009 Atlantic hurricane season will be about average. Colorado State University’s Tropical Meteorology Project team yesterday said the probability of a major hurricane making landfall along the U.S. coastline this year is 54 percent, compared with the last-century average of 52 percent. The team now expects 12 named storms — down from its December forecast of 14 named storms — including six hurricanes, two of which are expected to be major (Category 3-4-5) hurricanes. There is a 32 percent chance that a major hurricane will make landfall on the U.S. East coast, including the Florida Peninsula, and a 31 percent chance of a Gulf Coast landfall, from the Florida Panhandle west to Brownsville. The team also predicted an average major hurricane landfall risk in the Caribbean. Similarly, an early hurricane forecast for 2009 released last week by AccuWeather.com calls for fewer landfalls in the U.S., as well as a lower overall number of named storms. However, London-based consortium Tropical Storm Risk (TSR) continues to predict an active Atlantic hurricane season in 2009. TSR predicts that Atlantic basin and U.S. landfalling activity will be about 35 percent above the long-term (1950-2008) norm and that there is a 63 percent chance that activity will be in the top one-third of years historically. Check out further I.I.I. facts and stats on hurricanes.

L’Aquila Earthquake

Latest reports suggest at least 200 people have been killed, about 1,500 injured and 17,000 left homeless in yesterday’s magnitude 6.3 earthquake that struck central Italy some 60 miles northeast of Rome. Thousands of buildings are reported destroyed and damaged  in mountain towns in the Abruzzo region. An update from Guy Carpenter said a total of 26 cities and towns have been damaged in the earthquake, citing officials. Italy has a long history of seismic activity. The central Apennine region has experienced several significant earthquakes in recorded history. The United States Geological Survey (USGS) reports that in 1997, a significant magnitude 6.0 earthquake occurred some 50 miles north-northwest of the April 6, 2009 event killing 11, injuring over 100 and destroying approximately 80,000 homes in the Marche and Umbria regions. Catastrophe modeler Risk Management Solutions notes that one of the most damaging earthquakes in Italy’s recent history was the 1980 Irpinia earthquake (magnitude 6.9) that caused estimated total damages of $10 billion (1980 values). Check out I.I.I. facts and stats on earthquakes.  

Motor Vehicle Crash Data

A positive start to the week with the news that U.S. highway deaths in 2008 fell to their lowest level since 1961. Preliminary figures from the National Highway Traffic Safety Administration (NHTSA) estimate that 37,313 people died in motor vehicle crashes in 2008, down 9.1 percent from 41,059 fatalities in 2007. The fatality rate (the number of deaths per 100 million vehicle miles traveled) also dropped to 1.28 in 2008 from 1.36 in 2007. NHTSA cited improved state seat belt use as a key factor, while other reports noted that as people drive less in a recession so the number of fatalities decline. Survey results showed 16 states and territories achieved seat belt use rates of 90 percent or higher. In contrast was the news from California on Friday that a woman who crashed into a line of stopped vehicles in 2007 while text-messaging on her cell phone has been sentenced to six years in prison for killing a woman in one of the vehicles. Since last July, drivers have been prohibited from using a hand-held wireless telephone while operating a motor vehicle in California unless they are an adult using a hands-free device. Similar laws are also in effect in Connecticut, New Jersey, New York and Washington D.C. Check out I.I.I. info on highway safety and cellphones and driving.  

Safer Cars = Claims Benefit

The steady incorporation of vehicle safety features like front and side airbags into motor vehicles has had a beneficial impact on auto injury insurance claims costs, according to a new study from the Insurance Research Council (IRC). The report found a rapid transition from seatbelts only to front and side airbags as model years advanced within a sample of vehicles involved in 2007 personal injury protection (PIP) claims. The presence of front and side airbags was associated with less significant injuries and lower claim costs. Claimants injured in vehicles with front and side airbags were less likely than those in vehicles with seatbelts only or seatbelts and front airbags only to have serious injuries, to receive hospital treatment, or to experience a period of disability or fatality. As a result airbags were associated with markedly lower injury claims costs, the IRC said. The average PIP payment for claims from vehicles with seatbelts but without airbags was $6,994, 57 percent higher than the $4,457 average for vehicles with both front and side airbags and 32 percent higher than the $5,308 average for vehicles with front airbags. According to the IRC, favorable trends in motor vehicle safety have helped offset some of the pressure on claims caused by the accelerating cost of medical treatment for auto injuries. Some 22 insurers representing 57 percent of the U.S. private passenger auto insurance market in 2006 participated in the IRC study. Check out I.I.I. facts and stats on auto insurance  and highway safety.