Deer-Vehicle Collision Frequency Jumps

The number of vehicles on U.S. roadways has grown by 7 percent over the last five years, but the number of times those vehicles have collided with deer has jumped by 18.3 percent. In its latest study of annual deer claims, State Farm estimates 2.4 million collisions between deer and vehicles occurred in the U.S. during the two-year period between July 1, 2007 and June 30, 2009. Among the 35 states where at least 7,000 deer-vehicle collisions occur per year, New Jersey and Nebraska posted the largest increases of 54 percent. Deer-vehicle collisions also jumped by 41 percent in Kansas, by 38 percent in Florida, Mississippi and Arkansas, by 34 percent in Oklahoma and by 33 percent in West Virginia, North Carolina and Texas. For the third year in a row, West Virginia tops the list of those states where a collision with a deer is most likely. State Farm puts the chance of a West Virginia vehicle colliding with a deer in the next 12 months at 1 in 39. Michigan (1 in 78) remains second on that list followed by Pennsylvania (1 in 94), Iowa (1 in 104) and Montana (1 in 104). The state in which deer-vehicle collisions are least likely is still Hawaii (1 in 9,931). The average property damage cost of these incidents was $3,050, up 3.4 percent from a year ago. Check out I.I.I. tips on avoiding deer-vehicle collisions.

P/C Industry Profitability: In Recovery But Still Inadequate

The first evidence of a rebound in profitability for property/casualty insurers in the wake of the financial crisis that began in mid-2007 is apparent in the first-half 2009 results just released by ISO and the Property Casualty Insurers Association of America. The industry’s annualized statutory rate of return on average surplus of positive 2.5 percent during the first half of 2009 was down from 5.5 percent for the first half of 2008, but up from the negative 1.2 percent during the first quarter of 2009 and positive 0.5 percent for all of 2008. In his commentary on the results, I.I.I. president Dr. Robert Hartwig notes that the industry’s profitability was pulled back into positive territory primarily by a 60 percent reduction in realized capital losses, which shrank to $3.2 billion in the second quarter from $8.0 billion in the first, reflecting improved stock and bond market conditions. Secondary factors included improved underwriting conditions, with the second quarter combined ratio falling to 99.5 from 102.2 in the first quarter, leaving the first half combined ratio at 100.9. In another sign of recovery, capacity in the industry (as measured by policyholders’ surplus) rebounded for the first time in two years. Policyholders’ surplus increased by $25.9 billion or 5.9 percent to $463.0 billion during the second quarter from $437.1 billion at the end of the first quarter. Hartwig observes that this reversal is notable and important given that p/c insurance industry capacity had plunged by an alarming $84.7 billion or 16.2 percent over the previous five quarters from the pre-crisis peak of $521.8 billion at the end of the second quarter of 2007. The return to profitability and rising capacity during the first half are primarily attributed to improved investment market performance. At the same time, persistent soft market conditions and a deep recession have severely impacted the p/c insurance industry’s growth. While insurers remain cautious about the economy and financial market conditions, there is guarded optimism that both will continue to improve as the industry moves toward 2010.

Distracted Driving Summit

The U.S. Department of Transportation has announced the schedule for its two-day distracted driving summit that takes place Wednesday and Thursday of this week. Panelists will discuss a range of issues including: the extent of driver distraction; research results on the nature of the distracted driver problem; how technology is both contributing to and can prevent the consequences of distraction; proposed legislative and regulatory approaches to address distracted driving; and initiatives to increase public awareness of safety issues. Participants include Adrian Lund, president of the Insurance Institute for Highway Safety. One of the issues to be discussed is how proposed federal legislation would address cell phone use by bus and truck drivers. According to an article in today’s New York Times by Matt Richtel, the trucking industry says on-board computers that hundreds of thousands of truckers on U.S. roads use for directions and to stay in contact with dispatchers can be used safely and are less distracting than Blackberrys and iPhones, and truckers should be exempt from laws prohibiting texting while driving. However, research by the Virginia Tech Transportation Institute cited in the article found that those truckers who use on-board computers faced a 10 times greater risk of crashing, nearly crashing or wandering from their lane than truckers who did not use the devices. Check out I.I.I. information on cell phones and driving.

Public Nuisance and Global Warming Litigation

A decision by the 2nd U.S. Circuit Court of Appeals in New York earlier this week would enable public nuisance claims to proceed against businesses for their contributions to global warming. In Connecticut v. American Electric Power, the 2nd Circuit reversed the district court’s decision, effectively giving the green light to a public nuisance lawsuit filed by eight state attorneys general, New York City and three land trusts against six electric power companies based on greenhouse gas emissions. Public nuisance is a common law tort that imposes liability on an individual or entity that interferes with a public right – to health and safety, for example. The 2nd Circuit decision would effectively reverse the judicial trend on the public nuisance theory.  We recall that in July 2008, the Rhode Island Supreme Court overturned a landmark case against three former lead paint manufacturers, refusing to allow the expansion of the public nuisance law to environmental and product liability cases. For more on Monday’s ruling, check out an online article at Business Insurance by Joanne Wojcik. Check out I.I.I. info on climate change and insurance issues.

Barriers to Economic Recovery

Insurance executives see continued unemployment and increasing regulatory intervention as the largest barriers to economic recovery, according to an annual survey conducted by KPMG. The scarcity and high cost of capital was cited as the third largest barrier to overall economic recovery, even though nearly one third (31 percent) of executives indicate they don’t anticipate their company will need to access additional capital over the next 18 months. In the event their company did decide to access additional capital over the next 18 months, 22 percent said the most likely source would be equity while 17 percent said it would be debt. Despite the challenges surrounding access to capital, 73 percent of executives say they expect an increase in mergers and acquisitions when compared to the last 12 months. Asked to identify the most significant challenges they face in the next three to five years, 30 percent of respondents cited pricing risk, while 23 percent cited credit risk. Still, nearly half (48 percent) of the 271 executives surveyed at KPMG’s 21st annual Insurance Industry Conference, expect their company to perform ahead of expectations in the year ahead, compared to just 22 percent last year. Despite the optimism, executives continue to indicate that underwriting profit may be elusive in the next three years, with 64 percent seeing only a moderate ability to increase underwriting profit and more than a quarter (27 percent) describing the chance of increased profit as “weak.† Check out further I.I.I. information on financial results and market conditions.

Spotlight on Rating Agencies

The role of rating agencies in state insurance regulation will come under the spotlight at a public hearing to be held by the National Association of Insurance Commissioners (NAIC) tomorrow. The public hearing comes on the same day as a Congressional hearing before the House Committee on Oversight and Government Reform titled “Credit Rating Agencies and the Next Financial Crisis.† The Congressional hearing follows growing scrutiny of rating agencies in the fallout from the financial crisis. Three state attorney generals are also reported to have begun investigations into major credit rating agencies to discover among other things, whether they acted improperly by assigning triple-A ratings to mortgage-backed securities that later proved highly risky or in some cases worthless. As part of the process of ensuring solvency of regulated insurance companies, the NAIC and the states use ratings to determine the risk-based capital charge for rated bonds, as well as setting many limits for insurance company risk exposures. The economic crisis has resulted in steep rating downgrades and drops in asset values and the NAIC’s Rating Agency Working Group will determine what changes, if any, are warranted in how insurance regulators use the ratings. Representatives from the major credit rating agencies including A.M. Best, DBRS, Fitch Ratings, Moody’s Investors Services, and Standard & Poor’s are expected to participate in the hearing, in addition to a representative from the Securities and Exchange Commission (SEC). Just last week the SEC  voted in favor of  new measures to strengthen oversight of credit rating agencies by enhancing disclosure and improving the quality of ratings. For more on the NAIC hearing, check out an online article at National Underwriter by Daniel Hays.

Catastrophe Risk Funding Challenges

Catastrophe insurers and reinsurers will need to develop more secure channels for accessing capital that reflect the potential for future capital market disruptions and implement new risk management measures reflecting the lessons of the current economic crisis and the evolving regulatory response, according to a report by I.I.I. president Dr. Robert Hartwig. The report notes that while financial crises have always posed severe challenges, the capital intensive nature of catastrophe risk funding amplifies those challenges. The global economic crisis that began in the U.S. subprime mortgage sector in mid-2007 spread with remarkable speed and ferocity to challenge the operations of every segment of the global financial services industry, including insurance.   Although the basic function of nonlife insurance—the transfer of risk from client to insurer (and insurer to reinsurer)—continued uninterrupted, the capital intensive nature of catastrophe risk funding has been disrupted more than is generally appreciated. Hartwig notes that primary and reinsurer capacity in the United States and Europe fell by 15 to 17 percent within the first year of the crisis and most measures of capital adequacy continued to deteriorate through early 2009.   Though not presently viewed as solvency threatening, the industry’s ability to quickly attract and retain capital at reasonable cost following a major capital event has clearly been impacted. The report was presented at a conference sponsored by Aon Benfield Australia Limited on the theme of probable maximum loss, frequency vs. severity.

Climate Change Summit

World leaders gather at the United Nations HQ in New York City this week for what is being billed as the highest-level conference yet on climate change. According to the UN this is the largest gathering to-date of heads of state and government on climate change. The meeting comes ahead of the UN climate change conference in Copenhagen in December at which leaders are expected to reach a new global agreement to address climate change.   A recent survey by the Carbon Disclosure Project indicated that despite the economic downturn, climate change remains high on the agenda of the world’s largest 500 companies. Some 82 percent of companies responded to the survey this year – the highest response rate ever from global 500 corporations – up from 77 percent last year. The report also showed significant improvements in the key areas of disclosure of greenhouse gas emissions data and targets to reduce emissions. Check out I.I.I. information on climate change and insurance issues.

McCarran-Ferguson: The Facts

The property/casualty insurance industry has faced several attempts to repeal its limited antitrust exemption which has been in place for 64 years under the McCarran-Ferguson Act. In the latest move, Senator Patrick Leahy (D-Vt), chairman of the Senate Judiciary Committee, has introduced legislation (The Health Insurance Industry Antitrust Enforcement Act) seeking a tailored repeal of the exemption for medical malpractice insurers, in addition to health insurers. The development comes as the Senate prepares to consider comprehensive healthcare reform legislation and just two years since Sen. Leahy, along with then Sen. Trent Lott sought a much broader repeal of the McCarran-Ferguson Act. Before the proposed legislation goes any further, it’s important to note a few facts about the McCarran-Ferguson Act. Firstly, McCarran-Ferguson does not include a blanket exemption from antitrust laws, but a targeted exemption for certain limited insurance activities. This narrow antitrust exemption allows insurers to pool historic loss information so that they are better able to project future losses and charge an actuarially based price for their products. The act does not exempt insurers from state antitrust laws, which explicitly prohibit insurers (and all businesses), from conspiring to fix prices or otherwise restrict competition. Research supports the view that repeal of McCarran Ferguson would likely reduce competition, increase the cost of insurance and reduce availability for some high-risk coverages because the threat of antitrust litigation would make insurers unwilling to engage in efficiency-enhancing cooperative activities. Check out further I.I.I. information on the McCarran Ferguson Act  and on the medical malpractice market.

Corporate Equality Index

Despite the serious economic downturn, some 305 businesses – including a number of insurers – have earned the top rating in the 2010 edition of the annual Corporate Equality Index published by the Human Rights Campaign Foundation (HRC). The Index rates employers on a scale from 0 to 100 percent based on lesbian, gay, bisexual and transgender (LGBT) workplace policies and benefits. Ratings are based on factors including nondiscrimination policies, diversity training, and healthcare partner benefits. As an industry, insurance scored an average 88 percent rating this year. We tip our hat to Pacific Life Insurance Co and TIAA-CREF for receiving the 100 percent rating for the first time. Other insurers receiving the 100 percent rating include: Allianz Life, Allstate, Chubb, CNA, Esurance, The Hartford, MetLife, Nationwide, New York Life Insurance Co, and Progressive. Aon, Deloitte and Marsh & McLennan were among other insurance-related businesses to earn the top rating. At 305, the number of top-rated businesses is up 17 percent from 260 last year. Collectively these businesses employ more than 9 million full-time employees.