As a second major snow storm in less than a week hits the Northeast, the National Weather Service has issued blizzard warnings that extend into New York City, where it says  10 to 16 inches of snow can be expected. As of 4am EST, winter storm warnings and winter weather advisories were in effect across a region stretching from near Chicago through the Ohio Valley all the way into southern New England. Snowfall totals late Tuesday and into early Wednesday at Baltimore, MD, Washington, DC and Wilmington, DE from this most recent storm have made the winter of 2009-2010 the snowiest on record for these cities, according to the National Weather Service. This severe weather map from Weather Underground (wunderground.com) shows the extent of the winter weather (areas in white)  across the Northeast.


Winter storms can be costly for insurers. Insurance Information Institute (I.I.I.) research shows that winter storms result in about $1 billion in insured losses annually and are the third largest cause of catastrophe losses, behind hurricanes and tornadoes. Melting snow can inflict significant damage to property. From 1999-2008 winter storms resulted in more than $7 billion in insured losses. Winter storms also account for a large proportion of homeowners claims each year. In 2007, water damage and freezing accounted for approximately 22 percent of all homeowners claims in the country. Check out I.I.I. info on insurance coverage for winter-related damage.

Challenging Times for Tort Reform

In a decision that legal experts see as part of a national trend by the plaintiffs’ bar to overturn damage caps, the Illinois Supreme Court last Thursday struck down a state law capping noneconomic damages in medical malpractice cases. Similar to laws in other states, the 2005 law had capped pain-and-suffering damages in medical malpractice cases at $500,000 against doctors and $1 million against hospitals. The Wall Street Journal Law Blog notes that many state supreme courts have upheld the constitutionality of damage limits, but the issue is currently being weighed by high courts in Georgia, Kansas, and Missouri. It quotes Mark Behrens, a lawyer with Shook, Hardy & Bacon, saying that the other courts opposed to caps may cite the decision as support, but “I doubt it will change many minds.† A February 8 op-ed in the Chicago Tribune by blogger, writer and consultant Dennis Byrne observes that the Illinois Supreme Court decision sets bad public policy. Byrne says the law was effective, helping reduce medical costs and stemming the departure of Illinois health care providers because of excessively high malpractice insurance costs. A recent study by the American Tort Reform Association (ATRA) reported on the coordinated efforts of personal injury lawyers to increase litigation and repeal or chip away at existing tort reform statutes.  Evidence suggests that over the course of decades tort reform has had a beneficial impact on the U.S. economy, spurring growth. According to the Pacific Research Institute (PRI), states with a fair, predictable tort system have stronger revenue outlooks, better job growth and more favorable prospects for economic growth. Check out I.I.I. information on medical malpractice. Check out a recent I.I.I. paper on The Tort Threat.

Guaranty Fund System: Key Role

We’re sometimes asked questions about what happens in the unlikely event an insurance company becomes insolvent. The answer is that the insurance guaranty fund system in place for the last 40 years continues to provide a safety net to ensure that the needs of policyholders can be met if an insurance company fails. Not surprisingly people tend to have more questions on insurer solvency during a period of financial and economic volatility. The National Conference of Insurance Guaranty Funds (NCIGF) has just released its annual Insolvency Trends – 2010. In the paper NCIGF cites a recent A.M. Best article indicating that insurance company impairments for both life/health and property/casualty writers were up by at least 30 percent in 2009 compared with 2008. At least 20 insurers became impaired in 2009, up from 15 in 2008 and 14 in 2007. A.M. Best says it can be difficult to track impairments because regulators sometimes take a financially troubled company under confidential supervision in an effort to save it. NCIGF notes that an “impairment† would not necessarily trigger a property/casualty guaranty fund to undertake claim payments. However, the property/casualty guaranty funds did see their share of new activity in 2009. By the way, deficient loss reserves and inadequate pricing are the leading cause of U.S. p/c insurer impairments, according to A.M. Best data. In contrast, investment problems and catastrophe losses play a much smaller role. Check out further I.I.I. information on insolvencies and guaranty funds.

Super Bowl XLIV: a Toss-Up

It’s Super Bowl weekend and whether you’re a Colts or a Saints fan, before you place your bets you might want to take a look at the prediction of sports statistician John Dewan. In his Stat of the Week, the owner of Baseball Info Solutions and co-publisher of ACTA Sports, says: “All the betting lines favor the Colts right now by five or six points, but in my book it’s a toss-up. If I were a betting man, I’d take the Saints and the points. But if you do that, don’t blame me if you lose. It’s that close.† Dewan’s Super Bowl prediction system comprises 12 different statistical indicators: five defensive, four offensive and three based on overall stats. The strongest indicators overall are the defensive ones and each one taken by itself predicts the Super Bowl winner 56 percent to 69 percent of the time. Taken collectively, the indicators have an even better track record. The system favors the team that wins the most indicators and it has predicted 15 of the last 19 Super Bowl winners. Not bad odds! By the way, if you’re throwing a Super Bowl party, check out I.I.I. tips for being a responsible host.

Anti-Obesity Initiative

Next week sees the official launch of First Lady Michelle Obama’s initiative tackling the problem of childhood obesity. According to reports, the plan will focus on four core areas: increasing the number of healthy schools; increasing physical activity for children; improving access to healthy food options; and empowering consumers to make better eating choices. Politico.com reports on the bipartisan group of Cabinet members and Congressional lawmakers brought together by the first lady at the White House Tuesday to discuss the national campaign. Obesity is a serious health concern for children and adolescents. According to the Centers for Disease Control and Prevention (CDC), latest data from the National Health and Nutrition Examination Survey (NHANES) show that some 33 percent of children aged 6-11 years and 34 percent of those aged 12-19 years are overweight. The prevalence of obesity in children aged 2 to 19 has also increased, according to the CDC, and studies show that obese children and adolescents are more likely to become obese as adults. A couple years ago, we  posted an item on  a study in the American Journal of Clinical Nutrition that found a child’s risk of becoming overweight is down to nature, rather than nurture. Researchers concluded that the idea that genetic influence is such a strong factor in childhood obesity meant that targeting the family may be vital for obesity prevention in the earliest years. Check out I.I.I. information on obesity, liability and insurance.

Terrorism Risk and Budget Cuts

By now you’ll have read the headlines that the Obama Administration’s 2011 budget plan includes a proposal to scale back federal support for the terrorism risk insurance program (see pg. 90). Its justification is that this would “encourage the private sector to better mitigate terrorism risk through other means, such as developing alternative reinsurance options and building safer buildings.” The proposal projects savings of $249 million in the course of the next 10 years as a result of the reduction in federal support. It comes just eight years after Congress established the terrorism risk insurance program by passing the Terrorism Risk Insurance Act of 2002 (TRIA). The program – which is triggered in the event of a major terrorist attack – was renewed for two years in 2005 and again for another seven years to 2014 in 2007. A couple of articles in Business Insurance here and here quote industry observers saying that attempts to modify the program would have a detrimental effect on the availability and affordability of terrorism insurance – problems that the program was designed to end. Indeed, a 2009 study by Aon estimated that some 70 percent to 80 percent of the commercial property insurance market would revert to absolute exclusions for terrorism, if TRIA is changed. Check out further I.I.I. information on terrorism risk and insurance.

Insurance Fraud Hall of Shame

The Coalition Against Insurance Fraud recently released its annual Insurance Fraud Hall of Shame, highlighting America’s most brazen, klutzy or vicious convicted schemers of the year. A murderous agent, a child-poisoning shakedown artist and a bungling home burner are among the seven swindlers elected to the No-Class of 2009. All were convicted or had other legal closure during the past year. According to the Coalition, insurance fraud is an $80 billion-a-year crime, yet its research shows that consumer tolerance for insurance fraud has risen in recent years. Many view fraud as a harmless prank, but these culprits put a human face on insurance fraud. As the Coalition says: “They remind us that fraud is far more than a victimless prank. People suffer, and sometimes die. Families are broken. Children feel pain and cry. Trusting seniors lose their life savings. Everyone’s insurance premiums rise.† Check out I.I.I. information on insurance fraud.

Toyota and Reputational Risk

As auto manufacturer Toyota begins a publicity offensive in response to two separate but related recalls of around nine million autos worldwide, a couple of reports make the important point that the long-term damage to the company’s reputation could be much more costly than the immediate financial fallout. The recalls and sales stoppages announced by Toyota come after floor mat or accelerator pedal problems in a number of its vehicles and several crashes. An article in the Wall Street Journal observes that if Toyota’s problems escalate, it could cause irreparable damage to its brand identity, requiring the company to spend billions of dollars in advertising, sales incentives, legal bills and, possibly, interest payments. Meanwhile, an article in Business Insurance cites various analysts saying that the damage to Toyota’s reputation for quality and safety could be extremely costly. What action a business should take to limit this damage and the topic of recall insurance are also discussed. There’s no doubt that product recall as a precautionary step or following actual injury or damage can be costly to a business and its reputation. As we’ve  said before, just one example is the 1990 worldwide recall by Perrier when traces of benzene found in the water eventually led to the recall of 160 million bottles of Perrier. There have been other notable examples, but the bottom line is that product safety in any business is paramount.