Long-Term Flood Insurance Extension Up for Debate

With forecasters predicting a very active Atlantic hurricane season, it’s timely that a long-term extension to the National Flood Insurance Program (NFIP) is up for debate on the House floor today.

HR 5114, the Flood Insurance Reform and Priorities Act of 2010, sponsored by Rep. Maxine Waters (D-CA) would reauthorize the NFIP through 2015.

The Property Casualty Insurers Association of America (PCI) notes that this year alone, Congress has allowed the NFIP to lapse three times.

During these lapses, new flood insurance policies could not be written, leaving homeowners vulnerable and delaying thousands of real estate transactions per day in flood-prone regions.

The latest extension, signed into law by President Obama just a few weeks ago extends the program through September 30.

As the debate continues on how to secure the long-term future of the NFIP, here’s a look at the program by some of the numbers (sourced from I.I.I. facts and stats, and the NFIP website):

  Ã¯  ® 1968: the year Congress created the NFIP.

  Ã¯  ® $2.6 billion: what the NFIP paid out in flood losses in 2008.

  Ã¯  ® $17.6 billion: the highest amount ever paid out by the NFIP in 2005 – including losses from hurricanes Katrina, Rita and Wilma.

ï  ® 5.7 million: the number of NFIP policies in force at the end of 2008, up from 4.7 million at the end of 2004.

ï  ® $542: the average flood insurance premium in 2008.

ï  ® $42,066: the average flood claim in 2008, up from $26,390 in 2007.

ï  ® $250,000: the maximum coverage provided by the NFIP for the structure of a home, and $100,000 for personal possessions.

ï  ® $119: starting price of NFIP coverage for homeowners in moderate-to-low risk areas.

ï  ® 30: the number of days it takes for an NFIP policy to take effect from the date of purchase.

Check out further I.I.I. facts and stats on flood insurance.

Reinsurance Tax Bill Under Spotlight

The very word tax usually sends shivers up one’s spine. But tax is an unavoidable part of our industry and the broader business community, so here goes.

A hearing on Capitol Hill today will address a long-running industry debate over whether reinsurance (insurance for insurers) is being used to shift profits from the United States to low-tax or no-tax jurisdictions, creating a competitive advantage for U.S. subsidiaries of foreign corporations.

Today’s hearing before the Select Revenue Measures Subcommittee of the House Ways and Means Committee concerns HR 3424, a bill sponsored by Rep. Richard E. Neal (D-MA).

Essentially the bill would limit the deduction taken by a U.S. property/casualty insurer for non-taxed reinsurance premiums paid to related foreign parties.

As with many issues in our industry this is one that elicits differing viewpoints among the industry’s many and diverse participants.

Insurance Journal reports that the Neal bill is backed by the Coalition for a Domestic Insurance Industry, headed by William Berkley, chairman of W.R. Berkley Corp. The coalition represents 13 major U.S.-based groups.

On the other side, the Coalition for Competitive Insurance Rates (CCIR) opposes the bill. The Coalition notes that nearly 40 independent experts, state government officials, business owners, and associations have publicly filed opposition letters to the proposed legislation.

An updated  study commissioned by the CCIR and prepared by the Brattle Group suggested that the enactment of HR 3424 would: cost consumers an additional $11 billion to $13 billion per year to maintain their current insurance coverage; significantly weaken competition; and reduce reinsurance capacity in the U.S. by 20 percent.

However, in an interview with National Underwriter online, Mr. Berkley disputed the study’s findings and noted that the Neal bill has a “very narrow focus† that would create a level playing field for both domestic and offshore insurers and reinsurers.

A recent post on reinsurance girl’s blog is worth checking out for more on this story, as is  GC Capital Ideas blog  for background info  on the Neal bill here. Also check out I.I.I. information on reinsurance.

Lower Total Cost of Risk Due To Falling Insurance Premiums

Lower insurance costs and lower risk management administrative costs led to a 3.1 percent drop in the average total cost of risk (TCOR) per $1,000 of revenue in 2009, according to a new report from the Risk and Insurance Management Society (RIMS).

The report also found that workers compensation insurance costs were down substantially in 2009. However, the average D&O premium per $1,000 of revenue increased sharply for banks.

A press release from RIMS quotes David Bradford, Advisen executive vice president and Editor-in-Chief of the survey:

Falling insurance premiums were the largest contributor to lower TCOR in 2009. Risk management administrative expenses also were lower. Both were likely influenced by the depressed economy.†

The 2010 RIMS Benchmark Survey – which presents data from three separate surveys in one book – is an annual guide to the cost of risk for commercial insureds in North America.

Its findings enable risk managers to compare their TCOR to similar organizations and benchmark their insurance program limits and retentions based on data collected on more than 1,400 companies in the U.S. and Canada.

Check out I.I.I. information on financial and market conditions.

Homeowners Claims: A Moment of Truth

Insurers that provide highly satisfying home insurance claim experiences are more likely to see increased customer retention and loyalty, according to a new study from J.D. Power and Associates.

Its 2010 U.S. Home Claims Satisfaction Study finds that among home insurers that provide highly satisfying claims experiences, 71 percent of their claimants indicate that they “definitely will† renew with their insurer and only 4 percent say they have switched insurers following their homeowners claim.

In comparison, among insurers with lower levels of satisfaction, only 53 percent of claimants say they plan to renew, while 10 percent say they have switched insurers. Fewer than one-half (48 percent) of these claimants say they “definitely will† recommend their insurer.

In a press release, Jeremy Bowler, senior director of the insurance practice at J.D. Power and Associates notes that suffering a property loss and filing a claim tends to be an emotionally charged experience – often more so than an auto claim.

As a result, the property claim represents a moment of truth for insurance claimants regarding their insurers, so it’s particularly important that the claims experience is handled in a a satisfying manner to ensure claimants remain with the insurer in the long run.†

The study finds that insurers performing key services, such as clearly explaining the claims process, giving claimants an expectation of how long the claim will take and ensuring claimants know who to contact with questions, may considerably improve satisfaction with the claims experience.

Among claimants who say that their insurer delivered on all of the top service practices, satisfaction averages 929 points, but drops to 650 among claimants whose insurers missed four or more of the top service practices

The study underscores an important point – insurers that clearly explain the claims process can make it easier and a lot less stressful for their customers.

To help demystify the claims-filing process, check out I.I.I. tips  on how to file a homeowners claim  and the I.I.I. video  Filing a Homeowners Insurance Claim: Six Steps.

Gun Litigation Follows Supreme Court Ruling

A lawsuit has already been filed in response to a new gun ownership ordinance approved by the Chicago City Council in the wake of last week’s U.S. Supreme Court ruling (McDonald v. Chicago) that limits local and state governments’ ability to ban handguns.

The Huffington Post has the lowdown on the lawsuit which was filed by the Illinois Association of Firearms Retailers and four Chicago residents against Chicago mayor Richard Daley and the City of Chicago, claiming the city’s gun ordinance violates their rights.

The responsible gun ownership ordinance was announced by Mayor Daley just three days after the U.S. Supreme court held that states must respect the federal right of an individual under the Second Amendment to keep and bear arms.

According to the Wall Street Journal Law Blog, the Chicago ordinance doesn’t mess around:

It bans gun shops in Chicago and prohibits gun owners from stepping outside their homes, even onto their porches or in their garages, with a handgun.

It also requires anyone who wants to keep a handgun at home to obtain a Chicago firearm permit, take firearms training and have no convictions for a violent crime, unlawful use of a firearm or two or more charges of driving under the influence of drugs or alcohol.

Each weapon must be registered, and owners can only register one weapon each month, according to the ordinance.†

The WSJ last week suggested that the Supreme Court ruling would likely trigger a flood of suits in states and cities with restrictive laws. This lawsuit appears to confirm that prediction.

Check out the latest annual I.I.I. report on Tort Inflation.

Top 50 Blog Nomination

We often link to other insurance blogs from this site, so it’s an honor for Terms + Conditions to receive a nomination to be considered one of the LexisNexis Insurance Law Community’s Top 50 Insurance Blogs for 2009. Announcing the awards nomination, ILC says:

As many of you know, there are blogs, and then there are blogs. When we consider a blog for membership in ILC’s annual Top 50, we look for frequent posts, timely topics, and quality writing. Only the best may gain admission. Our readers have come to expect nothing less, and we wouldn’t have it any other way.†

An initial list of nominees for ILC’s Top 50 includes such notables as Sam Friedman’s A View From the Press Box, Tim Dodge’s Ask Tim, Guy Carpenter’s GCCapitalIdeas, InsureReinsure published by Edwards, Angell, Palmer & Dodge, Joe Paduda’s Managed Care Matters,  and The D&O Diary published by Kevin LaCroix.

There are many more excellent insurance blogs on the list (in fact it’s a great resource on blogs in our industry). If you would like to back your favorite insurance blog or add to the list of nominees, the ILC asks that you comment at this link. The comment period for nominations will close this Friday July 9.

Flood Insurance Program Extended

President Obama Friday signed into law a measure that extends the National Flood Insurance Program (NFIP) through September 30.

The NFIP expired at midnight on May 31 – in time for the start of the Atlantic hurricane season – after Congress failed to act on legislation reauthorizing the program.

The latest extension is retroactive, so flood damage claims filed after May 31 will be covered by the program.

The National Association of Mutual Insurance Companies (NAMIC) makes the important point that hurricane season runs two months beyond the new September 30 expiration date. A press release quotes Jim Grande, NAMIC senior vice president of federal and political affairs, saying:

Congress must not let the program lapse again, but that’s just the minimum. The best thing they can do is take this time to pass legislation that would implement common sense reforms and help the NFIP make the first steps towards financial soundness.†

The Property Casualty Insurers Association of America (PCI)  echoes this point and  urges elected leaders to consider a long-term flood insurance solution.

Check out I.I.I. facts and stats on flood insurance.

Fourth of July Dangers

Turns out the Fourth of July holiday can be a dangerous one. Before you head out to enjoy the barbecues and fireworks, consider the following.

The Fourth of July is the most dangerous holiday for drivers, according to State Farm Mutual Automobile Insurance Company. The Hartford Courant’s Insurance Capital blog reports that over the past five years an average 6,031 collision claims have been made by State Farm policyholders nationwide on July 4.

By way of comparison,  New Year’s Day saw 5,403 collision claims and Memorial Day 5,321 claims over the same five-year period.

Similarly, the Insurance Institute for Highway Safety (IIHS) reports that July 4 is one of the days with the highest number of crash fatalities. From 2004 to 2008 there were about 148 crash deaths each July 4, compared with 114 on a typical day.

Check out I.I.I. facts and stats on highway safety for more information.

Have a safe and happy holiday!

Reinsurance Rate Erosion Continues – For Now

Despite significant catastrophe losses during the first half of 2010, including the Chilean earthquake, reinsurance rates continued to decline at the July 1, 2010Â  reinsurance renewal, according to a newly released report from Guy Carpenter.

The report found that U.S. property rates decreased by as much as 15 percent, with pricing for the year down 12 percent. Meanwhile, across the energy and casualty sectors, conditions were flat or down, though the Deepwater Horizon rig disaster has the potential to put upward pressure on rates.

Predictions of an active hurricane season have had only a slight impact on June and July renewals, with quoting behavior firmer than expected, but if the forecasts are right, there is a greater chance the marketplace will look very different at the January 1, 2011 renewal, Guy Carpenter said.

It went on to explain that while the Deepwater Horizon loss is potentially a market-changing event, it is geared principally towards energy and liability exposures. Reinsurers will be hard-pressed to justify rate increases for clients writing traditional marine  cargo/hull accounts, it suggested.

Reinsurers’ quotes on international placements were unaffected by the Deepwater Horizon loss, as accounts were underwritten separately based on specific account losses and exposures.

However, marine excess of loss pricing is expected to increase substantially for reinsurance buyers with energy exposures. Increases of greater than 10 percent were seen for deepwater drilling risks similar to those of the Deepwater Horizon, Guy Carpenter said.

Check out I.I.I. background  information on reinsurance.