Data Breach Risk Still Top for Financial Services

Data breaches continue to occur within all types of organizations, some more than others, according to a just-released report from Verizon Business and the U.S. Secret Service.

The 2010 Verizon Data Breach Investigation Report found that financial services, hospitality and retail still comprise the “big three† of industries affected (33 percent, 23 percent and 15 percent respectively) by data breaches.

A growing percentage of cases and an astounding 94 percent of all compromised records in 2009 were attributable to financial services, the report revealed.

For companies trying to manage this risk, the good news is that the overall number of data breaches declined in 2009.

According to the report, some 143 million records were compromised in breaches investigated in 2009, a 50 percent drop from over 360 million compromised records in 2008.

As was the case in the previous year, most of the losses in 2009 came from only a few breaches. The average number of records lost per breach was 1,381,183, the median a scant 1,082, according to the report.

Payment card data was still the most commonly breached data type, but accounted for 54 percent of cases in 2009, down from 81 percent of cases in 2008. Personal information and bank account data were the second and third-most compromised data types.

The study also found that data breaches last year involved more insider threats, greater use of social engineering and the continued strong involvement of organized criminal groups.

Organized criminal groups were responsible for 85 percent of all stolen data last year, the report said.

The findings underscore the potentially enormous liability facing businesses when a data breach occurs. Specialized cyber risk coverage is a key purchase to help businesses manage this risk.

Deepwater Horizon Loss: Not A Market Changer

The explosion of the Deepwater Horizon rig has had dramatic consequences in terms of loss of life and pollution, but is not a market changing event for offshore energy insurers, according to a new report by Marsh.

In its latest Energy Market Monitor, Marsh says the most recent market moving event was Hurricanes Katrina and Rita when rates in the Gulf of Mexico went from the ranges of 0.4 percent to 3.5 percent and limits dropped by 75 percent.

In contrast, while energy insurers have been unsettled by the Deepwater Horizon losses, capacity has not constricted and price increases are likely to be modest unless further major losses occur. Marsh explains:

The market is getting rises on offshore renewals but not large rises. There isn’t a lack of capacity and, as things stand, no one looks as though they are ‘leaving the party’. Until that happens, the offshore market will continue to drift unless the reinsurers inflict ‘market moving’ reinsurance prices.†

Nevertheless, Marsh reports that many firms involved in offshore activities are reviewing their current insurance programs and are seeking to top up their cover.  A press release cites  Jim Pierce, chairman of Marsh’s Global Energy Practice:

Some insurers have been capitalizing on their clients’ concerns and have been hiking up their prices for higher limits and deepwater drilling wells, regardless of where they are located.†

For more on this story, check out a Wall Street Journal online article. Check out the I.I.I. presentation on the Deepwater Horizon event and primer on offshore energy facilities and insurance considerations.

Decline in Credit Crisis-Related Lawsuits

The number of federal securities class action filings continued to decline in the first half of 2010 due in part to a decrease in credit crisis-related litigation, according to two just-released reports.

A report prepared by the Stanford Law School Securities Class Action Clearinghouse and Cornerstone Research found a total of 71 federal securities class actions were filed in the first half of 2010, a 15.5 percent decline from the 84 filings in each half of 2009.

Credit crisis-related litigation accounted for only eight filings in the first half of 2010, compared with 37 filings in the first half of 2009 and 16 filings in the second half of 2009.

Stanford law school professor Joseph Grundfest said:

The securities fraud litigation wave stimulated by the credit crisis now appears to be history. We have an inventory of cases waiting to be dismissed, settled, or tried, but to borrow a phrase from the current Gulf oil spill crisis, it seems that this flow has largely been capped.†

If the filing rate for the first six months of the year continues, there will be a total of 143 filings in 2010, the second lowest annual number of filings since 1997.

A second report by NERA Economic Consulting similarly noted that a decline in cases related to the global credit crisis was a key factor in the decline in securities class action filings.

However, these declines were partially offset by an increase in the frequency of other types of filings, including cases related to the Gulf of Mexico oil spill.

NERA observed that the number of complaints filed alleging product and operational defects has risen and occurred with greater frequency than any other complaints filed in the first half of 2010:

Despite the attention devoted to financial product-related litigation, the growth in the product and operational defects category mostly reflects traditional non-financial product and operational defect allegations, such as those relating to the oil spill in the Gulf of Mexico or vehicle recalls issued by Toyota.†

Another trend in allegations in the first half of 2010 was an upturn in cases alleging breach of fiduciary duty.

Check out the D&O Diary blog for  further analysis of both reports.

Food for Thought

An op-ed by author Eric Schlosser in Saturday’s New York Times focused on the issue of food-borne illness and called on the U.S. Senate to pass food safety legislation.

Estimates from the Centers for Disease Control and Prevention (CDC) quoted by Schlosser indicate the scale of the problem:

Every day, about 200,000 Americans are sickened by contaminated food. Every year, about 325,000 are hospitalized by a food-borne illness. And the number who are killed annually by something they ate is roughly the same as the number of Americans who’ve been killed in Iraq and Afghanistan since 2003.†

Schlosser went on to observe that while the elderly and people with compromised immune systems face an elevated risk from food borne pathogens like listeria, campylobacter and salmonella, by far the most vulnerable group are children under the age of four.

The economic cost of the problem is also huge. A recent study sponsored by Pew Charitable Trusts puts the total annual health-related cost of food-borne illness in the U.S. at about $152 billion.

Schlosser notes that legislation in the Senate would give the Food and Drug Administration (FDA) the power to order the recall of contaminated foods and punish companies that knowingly sell them. It would also improve the FDA’s ability to trace outbreaks back to their source.

It’s not the first time our attention has been drawn to food-borne illness this summer.

CDC research issued a few weeks ago found that contaminated salsa or guacamole were responsible for nearly 1 in every 25 food-borne illness outbreaks linked to food in restaurants between 1998 and 2008.

This was more than double the rate during the previous decade.

This brings us to the insurance angle. Food service businesses face a range of risks, but any business that serves food carries the risk that its product could cause food poisoning or transmit a communicable disease.

Check out I.I.I. information on insurance for food service businesses.

Learning from Lohan

I regularly tell friends there’s always an insurance angle, no matter the event. And so it is with Lindsay Lohan’s latest fall from grace.

As Lohan’s jail time continues to fuel the news headlines, our colleagues at the Insurance Information Network of California (IINC) remind us that we can learn from Lohan’s mistakes, at least from the insurance perspective.

As reported by Insurance Journal, IINC has determined the average insurance premium difference Lohan could pay for auto insurance because of her risky behavior based on her profile, ZIP code, vehicle model and current record of two DUIs and an at-fault car accident.

A single, 24-year-old female who lives in the Beverly Hills ZIP code of 90210 (Lohan lives in a condo in West Hollywood) and drives a 2009 Mercedes SL550 convertible would have access to 100 percent of the insurers offering auto coverage in California, according to IINC.

With a clean driving record, Lohan would pay approximately $2,075 every six months for a full coverage policy. But with an at-fault accident and two DUIs on her driving record, the six month premium would more than triple to $7,408.90.

That’s an annual premium of nearly $15,000.

Lohan would also only have access to less than 10 percent of the companies in California offering auto coverage, because most of the major insurers in the state would consider her too great a risk. IINC says it’s likely she would have to purchase coverage for bad drivers through the Department of Insurance.

I.I.I. research indicates the average American driver spends about $850 a year on auto insurance. The better your driving record, the lower your premium.

IINC’s Pete Moraga sums up the situation:

“If we take risks and make bad decisions, our insurance will be much more expensive.”

Check out this I.I.I. video offering five tips on saving money on auto insurance.

Leaner Budgets All Round

Dire fiscal conditions have forced many states to cut back programs, increase taxes and put a freeze on hiring in 2010 and these actions continue to impact public infrastructure spending and related insurance exposures.

Insurance regulators are also affected.

In the wake of landmark financial services reform signed into law this week that retains the state-based regulatory framework for insurance, SNL Financial reports that many state governments continue to cut back on the resources those regulators have to do their jobs.

In  a timely analysis of data reported in the NAIC’s recently released 2009 Insurance Department Resources Report, SNL reports:

Projections offered by insurance regulators from the 50 U.S. states, the District of Columbia and the Commonwealth of Puerto Rico show their departments expect to spend a combined $1.77 billion in 2011, or 0.7% less than the roughly $1.79 billion they are spending in 2010. The report projects budget cuts for 20 state insurance departments in 2011, while budgets were left flat in five others.

That comes after 25 states reported cuts in their 2010 budgets from 2009 levels and seven others kept insurance department budget flats.†

SNL observes that the budget cuts come despite increased demands on insurance regulators from both the financial crisis and new healthcare reforms.

According to SNL’s analysis, regulators in 14 states – including such major insurance markets as Michigan, Pennsylvania, Georgia and New Jersey – have smaller budgets in 2010 than they did in 2006, before the start of the financial crisis.

Even where state insurance departments have not yet cut budgets, they have already been cutting staff.

SNL says NAIC data shows staffing by state insurance departments fell for the third straight year in 2009.

The state suffering the deepest cuts was hurricane-prone Florida with its staff down 64.1 percent to 1,010.5 positions in 2009 from 2,813 in 2006. Other states seeing big reductions in staffing levels during the past three years include Pennsylvania and Arizona, SNL says.

Check out the I.I.I. online publication “A Firm Foundation† to see the myriad ways in which insurers support state and national economies.

Deepwater Horizon: Worker Health Claims

In our PowerPoint report on the Deepwater Horizon disaster we note that one of the many likely legal avenues to be pursued in post-spill litigation includes health claims by workers assisting in the cleanup.

Given the sheer scale of the cleanup, the use of chemical dispersants and the numbers of workers involved in the Deepwater Horizon response, the potential for some type of work-related injury or illness claim appears inevitable. At last count, BP said approximately 43,100 personnel were involved in the response effort.

Now the Wall Street Journal law blog reports on a lawsuit filed by a Louisiana fisherman against BP calling for a court-supervised health monitoring program for volunteers and workers who say they have been exposed to the oil, fumes and other chemicals while cleaning up the spill.

According to the WSJ law blog, the fisherman filing suit (who apparently was hospitalized in late May for illnesses caused by the use of chemical dispersants) says that he and others now suffer new risks of contracting lung cancer, esophageal cancer and leukemia because they didn’t have proper respiratory protection during the cleanup.

Whatever the merits of this individual case, this is an emerging issue to watch.

The latest Deepwater Horizon Response BP injury and illness data report showed a total of 1602 incidents to-date  and earlier this week the Louisiana Department of Health and Hospitals said to-date some 290 oil spill exposure-related cases have been reported.

In its seventh surveillance report released Monday, the Louisiana DHH said that 216 of those cases involved workers on oil rigs or workers involved in the cleanup efforts, while 74 were reported by the general public.

A NIOSH report of BP illness and injury data issued July 12 did not reveal unrecognized or unreported occupational illness, however.

Buyers’ Market Continues

Excess  capacity  chasing market share  kept commercial property/casualty rates down in the second quarter of 2010, according to the latest Commercial P/C Market Index survey from the Council of Insurance Agents & Brokers (CIAB).

Renewal rates on average dropped by about 6 percent in the second quarter, the CIAB said, compared to a 5 percent decrease in the first quarter. Council President Ken Crerar observed:

It’s like someone forgot to turn off the spigot. No one seems to know when the reservoir will dry up, but in the meantime, it’s definitely a buyers’ market.†

Commercial renewal pricing for small, medium and large business accounts continued to decline in the second quarter. Large account rate declines were again slightly more than the other accounts, but pricing for all account sizes was soft, according to the Council’s survey data.

All individual commercial lines included in the survey experienced rate decreases, compared with the previous quarter.

Brokers across the country reported that capacity was plentiful for all lines. New carriers continued to enter the marketplace, further driving rates down and buyers found good deals not just on pricing, but on terms and conditions, according to survey comments.

There was no notable change in customer demand for insurance in the second quarter. Only 26 percent of survey respondents said demand was up – about the same response as in the first quarter. Check out I.I.I. information on the industry’s financial outlook.

Financial Services Reform: Just the Beginning

President Obama is expected to sign landmark financial services reform legislation into law this week after the U.S. Senate passed the bill by a 60-39 vote last Thursday.

Insurance Journal  and National Underwriter have informative pieces on how the Dodd-Frank financial reform package  affects the insurance industry and surplus lines, including reactions from trade associations.

Over at the D&O Diary, Kevin LaCroix reminds us that while the 2,319-page bill is headed to the President’s desk, this is not the end, it’s the beginning.

A statement responding to passage of the bill from the American Insurance Association (AIA) explains why. Leigh Ann Pusey, president and CEO of the AIA, observes:

With some 250 new regulations to be implemented by 11 different federal agencies, the stage is now set for an intense rulemaking process that will be AIA’s top priority. As was the case during the legislative process, AIA’s focus will remain on identifying how the nature of insurance is different than that of the banking sector and emphasizing those unique differences with the appropriate rulemaking authorities.†

Something tells us to expect more stories on the impact of financial services reform on the insurance industry in the coming weeks.

The Financial Services Roundtable has a summary of the bill and a rulemaking chart here. Check out I.I.I. information on regulation modernization.

Gallup: Waning Interest in Disaster Relief and Oil Spill

Latest news that BP has finally managed to cap the well that has spilled millions of gallons of oil into the Gulf of Mexico comes as the latest Gallup poll says the spill is fading as an issue for the American public, as reported by the Washington Post’s The Fix blog.

Just 7 percent of respondents in the July Gallup poll mentioned “natural disaster response/relief† as the most important problem facing the country, a significant drop from 18 percent in June (in May just 1 percent said natural disaster relief was the top problem).

Frank Newport, editor-in-chief of the Gallup Poll observes:

Americans’ reduced likelihood to see the spill as the top problem could reflect the reality that the spill is no longer “new† news or perhaps that Americans are becoming more confident that the spill will be fixed.†

  The Fix blog puts its money on the former, observing that “the wall-to-wall coverage of the spill (as symbolized by the ever-present “spill cam†) has effectively dulled the public’s outrage about the spill.†

It’s an interesting point. Is our attention span in the wake of the worst environmental disaster in U.S. history this short?

As tweeted by I.I.I., a post on social media blog Mashable recently noted that interest in the oil spill was on the decline, at least according to its review of Internet search and discussion topics.

Yet while discussion of the oil spill on Twitter, Google, blogs and YouTube overall has dropped off, Mashable did find that local residents are still searching for information about the disaster.

Not surprisingly, Louisiana residents are still searching for “oil spill† on Google, as are the residents of many other Gulf Coast areas. New Orleans-area Google users are by far the largest geographical group still looking for information.

We’d hazard a guess that a major hurricane in the Gulf of Mexico could reawaken interest in the oil spill.

For insurers’ part, I.I.I. has a number of resources available on the Gulf oil spill. Check out our presentation on the Deepwater Horizon event and primer on offshore energy facilities and insurance considerations.