Political Risk Higher

Elevated political risk levels will continue in 2010, as political and financial instability remain a feature of the business landscape as a result of the recession, according to the 17th annual political risk map produced by Aon. In its ranking of the political risk in 209 countries and territories, Aon said the following 18 countries have seen conditions worsen in the past year leading to a downgrade: Algeria, Argentina, El Salvador, Equatorial Guinea, Ghana, Honduras, Kazakhstan, Latvia, Madagascar, Mauritania, Philippines, Puerto Rico, Seychelles, Sudan, United Arab Emirates, Ukraine, Venezuela and Yemen. Meanwhile, Sudan, Venezuela and Yemen have been added to the very high category, joining Afghanistan, Congo DRC, Iran, Iraq, North Korea, Somalia and Zimbabwe. On a more positive note, eight countries/territories have been upgraded to a lower risk level. Aon said overall rising risk levels in 2009 have led to a significant volume of credit and political risk claims in international insurance markets. It pointed to non-payment of sovereign and sub-sovereign debt obligations as a major issue for underwriters insuring risks in Ghana. Insurers also continue to experience a multitude of claims stemming from payment defaults by private sector banks in Ukraine. The map measures the risk of currency inconvertibility and transfer; strikes; riots and civil commotion; terrorism; sovereign non-payment; political interference; supply chain interruption; legal and regulatory risk. The 2010 risk   map introduces new indices looking at food, agricultural commodity and water supplies. Check out I.I.I. information on terrorism risk and insurance.

SEC Votes on Climate Risk Disclosure

The Securities and Exchange Commission (SEC) yesterday voted to provide public companies, including insurers, with interpretive guidance on existing disclosure requirements as they apply to business or legal developments relating to the issue of climate change. In doing so, the SEC made clear it is neither weighing in on the global warming debate nor considering amending well-defined rules concerning public company reporting obligations. “These rules and interpretations have served investors well for decades, and provide both the framework and flexibility necessary to apply to changing facts and circumstances. If something has a material impact on a company then it is something that needs to be disclosed – that has always been the case,† said SEC chairman Mary Schapiro. Nevertheless, articles in the Wall Street Journal and the New York Times noted this is the first time the SEC has said that public companies should warn investors of any serious risks that global warming might pose to their businesses. In recent months there had been growing expectation that the SEC would act to require all public companies, including insurers, to disclose their climate change risks. However, the SEC guidance does not appear to  create new legal requirements, nor modify existing ones. Check out I.I.I. information on climate change and insurance.

Federal Texting Ban for Commercial Truck Drivers

In the latest in a series of actions to curb distracted driving, the U.S. Department of Transportation (DOT) has announced it is prohibiting truck and bus drivers from sending text messages while operating commercial vehicles. The ban, which is effective immediately, means that truck and bus drivers who text while driving commercial vehicles may be subject to civil or criminal penalties of up to $2,750, the DOT said. “Our regulations will help prevent unsafe activity within the cab,† said Anne Ferro, Administrator for the Federal Motor Carrier Safety Administration (FMCSA). “We want to make it crystal clear to operators and their employers that texting while driving is the type of unsafe activity that these regulations are intended to prohibit.† The DOT’s blog Fast Lane has more on this story. As of December 30, 2009, federal employees have been banned from texting while driving government-owned vehicles or with government-owned equipment following an executive order signed by President Obama. At its Distracted Driving Summit last September, the DOT said it would pursue regulatory action as well as rulemakings to reduce the risks posed by distracted driving. The New York Times Bits blog notes that research from the Virginia Tech Transportation Institute shows that truckers who text are 23 times more likely to get into a crash or near-crash than truckers not texting. Insurers are monitoring this emerging issue. I.I.I. president Dr. Robert Hartwig  recently observed that the problem of distraction is not confined to cars, but part of a greater problem associated with “distracted equipment operation†. This is leading to an epidemic of occupational injuries and workers compensation claims, he warned. Check out I.I.I. information on cellphones and driving.

Low Demand and Competition Drive Ongoing Soft Market

Latest rate surveys from the Council of Insurance Agents and Brokers (CIAB) and online insurance exchange MarketScout suggest that the weak commercial pricing environment continues. The CIAB’s latest quarterly Commercial P/C Market Index Survey indicates that rates on average fell by about 6 percent in the fourth quarter 2009, about the same rate as in the third quarter. Low demand continued to put pressure on rates as carriers competed for new business, the CIAB said. “Tough competition for new business was the name of the game last quarter as carriers chased market share in a still weak economy. Added pressure came from clients putting the squeeze on carriers to get the best terms and rates,† said Council president Ken Crerar. An overwhelming 74 percent of the brokers responding to the survey said that demand for insurance products did not improve in the fourth quarter. On average, rates for small, medium and large accounts declined slightly less than in the previous quarter. Meanwhile, MarketScout reported the average property/casualty rate decrease was 4 percent in December 2009, ending a year of slowly moderating declines. The year started with composite rate reductions of 9 percent. “Reinsurance rates were favorable for insurers renegotiating their January 1, 2010 treaties. These favorable reinsurance terms will help insurers continue their aggressive pricing strategies; however, in 2010 we do expect continued moderation in rate decreases. By the end of 2010, insurers will begin increasing rates in almost all lines of business,† said Richard Kerr, chairman and CEO of MarketScout. Check out I.I.I. information on the industry’s financial results and market conditions.

Aviation Loss: Terrorism Unlikely

In a recent post we discussed how aviation losses outweighed premiums in 2009, despite a relatively safe year for the airline industry last year. With the crash of Ethiopian Airlines  flight 409  early this morning into the Mediterranean Sea off Lebanon’s south coast aviation insurers appear to have been hit with their first major loss of 2010. The Boeing 737-800, en route to Addis Ababa, crashed shortly after take-off from Beirut after losing contact with airport control amid stormy weather. According to media reports, a total of 90 passengers and crew were on board, including Marla Pietton, wife of the French ambassador to Lebanon. As of yet, no survivors have been found. While it is too soon to speculate on the cause of the crash, several reports quote Lebanese President Michel Suleiman saying a terrorist attack is unlikely. “Sabotage is ruled out as of now,† he said. Others report on the stormy weather conditions in Lebanon at the time, including thunder, lightning and heavy rain. Global Reinsurance has a story on the crash, including some information on the insurance implications. It reports that 54 of those on board were Lebanese. Others on board were citizens of  various countries including Ethiopia, Britain, Canada, Russia, France, Iraq and Syria. Check out I.I.I. aviation facts and stats.

The Future of Healthcare Reform

It’s been quite a week for politics and it would be remiss of us to end it without addressing the Democratic party’s loss of a Senate seat in the election in Massachusetts and the impact on healthcare reform. A January 21 article in the Wall Street Journal by Janet Adamy and Naftali Bendavid reports that Congressional Democrats are working to scale down their healthcare bill to widen support and are focusing on increased regulation of health insurers. It cites House Speaker Nancy Pelosi saying Congress must prevent insurers from denying policies to people with pre-existing health conditions or dropping people’s coverage once they become sick. Pelosi is also calling for a repeal of the industry’s anti-trust exemption and for the imposition of new caps on health insurers that limit their profits. Both these provisions are part of health bills already passed by the House and Senate, according to the WSJ. Meanwhile over at Managed Care Matters blog, Joe Paduda takes a grim look at the prospects for healthcare reform in two aptly named posts. In An epitaph for health reform, Paduda opens: “Ten months of effort was blown away yesterday by an unprecedented electoral upset, a most unlikely end to health reform.† And in the second post, Why health reform is dead, Paduda concludes: “No, reform won’t happen this year, and isn’t likely in 2011. What does this mean for you? Family insurance premiums of $30,000 in ten years.† Something to think about.

Nat Cat Year in Review Webinar

Munich Re and the Insurance Information Institute (I.I.I.) jointly present an overview of natural catastrophe activity in the 2009 Natural Catastrophe Year in Review webinar at 11:00am today. Speakers will cover a range of topics including an overview of both U.S. and global catastrophe activity. I.I.I. president Dr. Robert Hartwig will also discuss the economic implications of the U.S. natural catastrophes that occurred in 2009. A commentary on the Haiti earthquake including potential insurance claims implications will also be provided by Ernst Rauch of Munich Re. To register for the webinar, click here. Munich Re recently reported that natural catastrophe losses were far lower in 2009 than in 2008 due to the absence on the whole of major catastrophes and a very benign North Atlantic hurricane season. However, the total number of destructive natural hazard events, at 850, was above the long-term average. Check out further I.I.I.  facts and stats  on global catastrophes  and U.S. catastrophes.

Top Jury Verdicts Rise Again in 2009

After a dramatic rise in 2008 reversing years of decline, the size of the top 10 jury awards rose again in 2009. According to Lawyers USA, the sum of the top 10 jury awards increased to $1.5 billion in 2009, from $1.3 billion in 2008 and $615 million in 2007. The average award for 2009 increased to nearly $145 million from $112 million the previous year. While the top award was slightly lower in 2009 – $370 million vs. $388 million – two other awards in the $300 million range, along with five verdicts of $70 million or more, helped push the average appreciably higher than last year. In the year’s top verdict a Los Angeles jury awarded a record defamation verdict of $370 million, including $25 million in punitive damages, to five former employees of Guess Jeans mogul Georges Marciano. Seven of this year’s top 10 verdicts stemmed from personal injury cases, including two drunk driving accidents, one $300 million tobacco verdict and one verdict in the ongoing Prempro litigation against Wyeth Pharmaceuticals. We note that this year’s top 10 list also includes two medical malpractice awards. Lawyers USA compiles the Top 10 Jury Verdicts each year applying certain ground rules. Verdicts must be to an individual plaintiff, defined as a single person, family or small group of individuals injured in a single incident who had their claims tried in one case before the same jury. The list does not include business-against-business suits, class actions or consolidated suits. Cases must have been defended and default verdicts and suits against incarcerated individuals are not included. Check out I.I.I. info on the liability system.

Accessing Coverage Through Microinsurance

A segment on rebuilding Haiti on NPR’s Marketplace show Friday and featuring I.I.I. president Bob Hartwig, discussed the reasons why the private insurance market in Haiti is very small. It also raised the important question of what insurers are doing to provide private-sector insurance coverage to poorer nations. The answer is microinsurance. A growing number of insurers are tapping into markets in developing countries through microinsurance projects which provide low cost insurance to individuals generally not covered by traditional insurance or government programs. Microinsurance products tend to be much less costly than traditional products and thus extend protection to a much wider market. Speaking on the NPR show, Michael McCord, president of the Microinsurance Centre, noted that the potential market for microinsurance comprises individuals living on just $1 to $2 a day. While coverage is often geared to protection from natural disasters, it can also provide coverage for property and life/health risks. Insurers operating in the microinsurance arena include Swiss Re, Munich Re and Zurich Financial Services. In November 2010, the sixth International Microinsurance Conference will take place in Manila, Philippines. The event is hosted by the Microinsurance Network and the Munich Re Foundation. Just last October microinsurance was the main theme for the annual conference of the International Association of Insurance Supervisors (IAIS). Check out I.I.I. facts and stats on microinsurance.

Donate to Haiti Relief

Insurance industry professionals seeking to make a donation to the Haiti relief effort are being encouraged to do so via two organizations – the International Rescue Committee (IRC) and World Cares Center – both of which are supported by the Insurance Industry Charitable Foundation (IICF). The IRC, with 75 years of expertise in emergency response, has sent a team of experts to Haiti to provide relief to the devastated country. World Cares Center, an organization that supports local community members as resilient first responders, is partnering with other groups to provide assistance to Haiti community groups and also support to those in the U.S. with family and friends in Haiti. “IICF is encouraging our member companies to give as generously as they can to the IRC, World Cares Center, or to other reputable relief organizations,† said Elizabeth Myatt, New York Executive Director of the IICF. IICF is also interested in learning about all industry support for Haiti relief. Please keep the IICF informed of any Haiti relief contribution made through your organization by email to contact@iicf.com