Economic Downturn Dominates Risk Agenda

The economy is currently dominating the risk management agenda, according to a survey of 570 global business leaders by the Economist Intelligence Unit, commissioned by Lloyd’s. As a result, environmental and natural hazard risks are increasingly being seen as low priority. Among the top 10 global risk priorities identified in the survey, all of the risks are either directly or indirectly related to the economy. This raises the question of whether companies are sidelining other, vital risks in their efforts to navigate their businesses through the current economic downturn. Although respondents claim they are well prepared to manage environmental and natural hazard risks, their low priority suggests there may be gaps emerging in the ability of companies to withstand some longer term and tail risks. According to the survey, executives need to look beyond the headlines when assessing risk priorities and not focus entirely on short-term issues. “Risk management can too often focus on chasing the latest problem, rather than taking a more dispassionate view of risk over a longer time-frame that takes account of a broader set of potential threats, including tail risks,† the survey notes. Check out I.I.I. facts and stats on international insurance markets.

ID Theft Rules Deferred Again

The Federal Trade Commission (FTC) has given financial institutions and creditors a further temporary reprieve – until November 1, 2009 – to comply with the so-called “red flags rule† which requires them to develop and implement written identity theft programs. This is the third time the FTC has delayed enforcement of the new rules which were originally slated to take effect in 2008. The FTC said it will provide additional resources and guidance to clarify whether businesses are covered by the rule and what they must do to comply.  The FTC’s  Web site,, offers resources to help businesses determine if they are covered and, if they are, how to comply. The red flags rule requires financial institutions and creditors with covered accounts to implement prevention programs to identify, detect and respond to patterns, practices or specific activities that could indicate ID theft. A July 29 online article at Lawyers  USA by Kimberly Atkins reports that attorneys are seeking exemption from the rule. Check out I.I.I. facts and stats on identity theft.

Chinese Drywall: Federal Disaster Assistance?

U.S. Senators are pushing for more help for homeowners and businesses affected by tainted drywall imported from China. In a letter to President Obama citing the many federal programs that could assist affected homeowners, including the Department of Housing and Urban Development (HUD) and the Federal Emergency Management Agency (FEMA), Florida Senator Bill Nelson has asked the president for a one-stop federal drywall assistance center. Sen. Nelson along with Sen. Mary Landrieu of Louisiana and Virginia Sens. Jim Webb and Mark Warner have also written to the Small Business Administration, Treasury, and the HUD, to push these agencies for financial assistance and mortgage relief for homeowners who may be facing foreclosure because they are paying for two residences. As of July 2009, the Consumer Product Safety Commission had received more than 600 drywall-related complaints from 21 states and the District of Columbia. It has been suggested that defective drywall releases sulfuric gases that corrode metal, particularly air conditioning components, along with speculation about health risks. Already several class action lawsuits have been filed by homeowners in the southeast U.S. A Barclays Capital report recently noted that insurance coverage under general liability policies will largely depend upon whether pollution exclusions are upheld. Defense costs, which should be covered, could be several hundred million dollars, it noted.

Obesity Costs

The annual medical burden of obesity has increased to almost 10 percent of all medical spending and may be as high as $147 billion per year (in 2008 dollars), according to a new study from Research Triangle Institute and the Centers for Disease Control and Prevention (CDC). Amid the ongoing debate on health care reform, the report suggests real cost savings are more likely to be achieved through reducing obesity and related risk factors. Overall, people who are obese spent $1,429 or 42 percent more for medical care in 2006 than did normal weight people, the study said. The proportion of all annual medical costs that are due to obesity increased from 6.5 percent in 1998 to 9.1 percent in 2006. The costs attributable to obesity are almost entirely a result of costs generated from treating the diseases that obesity promotes, such as diabetes and heart disease. A person is considered obese if they have a body mass index (BMI) of 30 or above. BMI is calculated using height and weight measurements. Check out I.I.I. information on obesity.

Catastrophe Bond Activity Update

Despite a decline in the number of issuances the catastrophe bond market continues to advance helped by continued stabilization in the global financial markets, according to the latest review of the market from Guy Carpenter. It reveals that six catastrophe bond transactions were completed in the second quarter of 2009, down 25 percent from eight transactions in the second quarter of 2008, while risk principal issued was $808 million, off 54 percent from $1.75 billion issued during the year earlier period. This brings the tally for the first half of 2009 to nine catastrophe bonds issued, accounting for aggregate risk capital of $1.38 billion. Two quarters into 2009, total cat bond risk capital outstanding fell 7 percent to $11.2 billion, the second consecutive quarter in which total risk capital outstanding declined. However, Guy Carpenter says several factors may converge to make conditions more favorable to cat bond sponsors for the rest of the year, assuming no major catastrophes, including an improvement in broader capital market conditions as the general economy stabilizes and distance from last year’s financial crisis increases, and increased risk capacity as a result of reduction or restructuring in some traditional reinsurance programs. Check out further I.I.I. information on alternative risk-financing options.

Cash for Clunkers

Guidelines on how to meet the auto insurance requirements under President Obama’s Car Allowance Rebate System (CARS), also known as the “Cash for Clunkers† program are expected to be available today at Administered by the National Highway Traffic Safety Administration (NHTSA), the program helps people purchase a new, more fuel efficient vehicle when they trade in a less fuel efficient vehicle. Depending on the difference in fuel economy between the new vehicle and the trade-in vehicle, people will get a credit of between $3,500 and $4,000 to help pay for the new vehicle. An important feature of the program is that the trade-in vehicle must have been registered and continuously insured for the past year. Check out I.I.I. facts and stats on auto insurance.

No Hard Market In Sight

The economy remains the top most critical political issue facing the United States today, according to brokers responding to the latest Commercial P/C Market Index survey from the Council of Insurance Agents and Brokers (CIAB). Brokers also observed continuing fierce competition in the market, as pricing trends remained virtually unchanged from the first quarter to the second quarter. Average rates for commercial property/casualty premiums declined 4.9 percent in the second quarter of 2009, compared with a 5.1 percent decline in the first quarter, the CIAB said. Overall rate declines for small, medium and large accounts were fairly consistent with decreases in the first quarter of the year. On average, large accounts (>$100K Comm. and fees) declined 6.7 percent compared with the first quarter decline of 6.4 percent. Midsize accounts ($25K-$100K) dropped on average 5.7 percent, about the same decline as in the first quarter. The rate of decline for small accounts (<$25K) was 2.5 percent compared with 3.3 percent in the first part of the year. When asked if they saw any improvement in the market or the economy impacting their business in a positive way, an overwhelming 84 percent of brokers said “no.† Check out I.I.I. information on financial results and market conditions.

Health Care Reform: Employer Survey

As House and Senate Committees continue to work on drafting legislation to reform the nation’s health care system, a survey released by Aon Consulting indicates that the majority of employers oppose having a single-payer national health insurance plan or a so-called “pay-or-play† plan that would require them to either offer coverage or pay an assessment. However, some 53 percent of employers said they support a nationwide individual mandate that would require all U.S. citizens to obtain at least a minimum level of coverage. Some 81 percent of respondents oppose having a national health plan similar to Canada’s. Some 63 percent also oppose a “pay-or-play† plan requiring the employer to sponsor group health insurance for their workers or pay money into a government fund to cover uninsured individuals. The majority of employers also believe a government-run public plan would create an uneven playing field over group health plans. Some 58 percent of respondents said they are opposed to a Medicare-style public plan to compete with private health insurance plans while 56 percent of respondents are opposed to a public plan that could eventually be offered to larger employers through a Health Insurance Exchange. More than 1,100 employers from a wide range of industries responded to the June survey. Check out I.I.I. facts and stats on health insurance.

Securities Class Action Filings Decline

Securities class action filings declined by 22.3 percent in the first half of 2009 amid continuing litigation against financial services firms. According to the mid-year report from Stanford Law School and Cornerstone Research, a total of 87 federal securities class actions were filed in the first half of 2009, down from 112 filings in both halves of 2008. Only 35 filings were observed in the second quarter, the lowest quarterly total since the first quarter of 2007. Financial services firms are defendants in 66.7 percent of these filings, an increase over the 50 percent share of all filings in 2008. The report noted there were 15 filings related to Ponzi schemes so far in 2009, of which 11 filings were on behalf of investors in Madoff funds, with most suits targeting so-called feeder funds, hedge funds and others. A possible explanation for the decline in filings so far in 2009 may be the reduced stock market volatility, but fellow blogger Kevin LaCroix over at the D&O Diary suggests the decline may be more to do with the logjam facing plaintiffs’ lawyers overwhelmed with Madoff-related litigation and previously filed credit crisis cases. A new metric in the mid-year report measures the number of securities class action filings against defendant corporations headquartered outside the United States. It shows the number of lawsuits against foreign firms has been rising for more than a decade and reached 31 filings (13.8 percent of total filings) in 2008, with an average of 18 foreign firms (9.4 percent of total filings) sued in each year since 1997.

Distracted Drivers

A recent survey by Nationwide Insurance shows that driving while distracted (DWD) is quite prevalent among today’s drivers and more dangerous than you might think. As well as talking on a cell phone, the survey found that reading while driving, adjusting music, talking to someone else in the vehicle and eating are also considered dangerous distractions. On the latter distraction, auto insurance agency has just come up with a top 10 list of the most dangerous foods to eat while driving – a level of detail that may surprise hungry drivers. According to its press release here are the top foods to avoid while driving:

  1. Coffee: even with a travel lid, hot coffee can find its way out of the opening when you hit a bump.
  2. Hot soup: many people drink it like coffee and run the same risks.
  3. Tacos: any food that can disassemble itself will leave your car looking like a salad bar.
  4. Chili dogs: huge potential for drips and slops down the front of clothing.
  5. Hamburgers: from the grease to the toppings, it could end up on your hands and the steering wheel.
  6. Ribs and wings: what’s more distracting than licking your fingers?
  7. Fried chicken: more greasy hands. You’ve got to wipe them off while you’re driving.
  8. Jelly donuts: it’s not possible to eat one without watching the center ooze out.
  9. Soda: carbonation, fizz in the nose, lids that leak, disaster.
  10. Chocolate: try to clean melted chocolate off the steering wheel without swerving.

While an amusing read, this focuses attention on a serious problem. Some form of driver inattention was involved in almost 80 percent of crashes and 65 percent of near-crashes, according to a study conducted by Virginia Tech Transportation Institute and the National Highway Traffic Safety Administration (NHTSA). Check out I.I.I. facts and stats on auto crashes.