TS Nicole Remnants: Flood and Tornado Hazards

As the remnants of Tropical Storm Nicole hit the Eastern Seaboard, flood and tornado watches and warnings are in effect in a number of East Coast states.

Check out the National Weather Service website for the latest warnings and forecasts.

What’s the difference between a watch and a warning?

According to the NWS’ Storm Prediction Center, a watch means severe weather is possible during the next few hours, while a warning means that severe weather has been observed, or is expected soon.

You can tweet your significant weather observations to the Weather Channel via Twitter #wxreport.

I.I.I. has information on flood insurance and tornadoes.

Job Bias Claims Highlight Importance of Loss Prevention

In today’s litigious environment employment practices liability (EPL) insurance has become a key coverage for businesses.

Earlier this year we reported that some 93,277 workplace discrimination charges were filed with the EEOC during fiscal year 2009 – the second highest level ever.

Economic conditions and employees’ greater awareness of their rights under the law were among the factors that contributed to the near historic level of total discrimination charge filings, the EEOC said.

Now the Wall Street Journal reports that the number of claims alleging job bias filed with the EEOC in 2010 has continued to increase amid the sagging economy.

For the six months that ended April 30, more than 70,000 people filed claims with the EEOC saying they had suffered job discrimination, a 60% increase in bias claims compared with the same period a year earlier. Not all of these complainants will sue, but plenty will.†

The Wall Street Journal Law blog takes the statistics a step further by advising new law school graduates: “Forget bankruptcy law. That’s so 2009. Employment litigation is where it’s at.†

Meanwhile, the Institute for Legal Reform (ILR) reports that employment litigation will continue to make headlines this fall as the U.S. Supreme Court considers whether to review the largest employment class action in history in Dukes v. Wal-Mart Stores, Inc.

To prevent employee lawsuits, I.I.I. recommends businesses take the following key steps to educate their managers and employees to minimize problems in the first place:

  • ï  ® Create effective hiring and screening programs to avoid discrimination in hiring.
  • ï  ® Post corporate policies throughout the workplace and place them in employee handbooks so policies are clear to everyone.
  • ï  ® Show employees what steps to take if they are the object of sexual harassment or discrimination by a supervisor. Make sure supervisors know where the company stands on what behaviors are not permissible.
  • ï  ® Document everything that occurs and the steps your company is taking to prevent and solve employee disputes.

Global Natural Catastrophes: Rising Tally

Floods in Central Europe, wildfires in Russia and flooding in Pakistan contributed to the second highest number of natural catastrophe events on record for the first nine months of the year since 1980, according to latest data from Munich Re.

A total of 725 weather-related events resulted in insured losses of $18 billion and overall losses of more than $65 billion in the period from January to September 2010, Munich Re said.

Some 21,000 people lost their lives, 1,760 in Pakistan alone, where up to one-fifth of the country was flooded for several weeks.

Munich Re makes the point that in the course of the last three decades there has been a marked increase in the number of weather-related events.

For example, its global database reveals there has been a more than threefold increase in loss-related floods since 1980 and more than double the number of windstorm natural catastrophes, with particularly heavy losses as a result of Atlantic hurricanes.

Note: despite producing 13 named storms, the 2010 Atlantic hurricane season has been relatively benign to date, thanks to the favorable courses pursued by the hurricanes.

In a press release, Munich Re says the rise in natural catastrophe losses is primarily due to socio-economic factors, but it also emphasizes to the probability of a link between weather extremes and climate change.

In many countries, populations are rising, and more and more people moving into exposed areas. At the same time, greater prosperity is leading to higher property values. Nevertheless, it would seem that the only plausible explanation for the rise in weather-related catastrophes is climate change.†

Still, an article in National Underwriter cites a recent report from the Institute for Environmental Studies at Vrije University in the Netherlands indicating that increases in economic and insured losses in recent decades can be tied to increasing exposures and value of capital at risk, rather than climate change.

For related information, check out I.I.I. facts and stats on global catastrophes  and an I.I.I. update on climate change and insurance issues.

Levee Failure in Wisconsin

As many as 100 homes could be affected by flood waters in Wisconsin due to the failure of a 120-year-old sand levee along the Wisconsin River, according to a CNN report.

The levee, which is located on the south side of the river in Portage, Wisconsin, about 25 miles north of Madison, began failing Sunday night.

The Wisconsin River crested Sunday at 20.4 feet – nearly 3.5 feet above flood level, according to the National Weather Service (NWS). Authorities have been working to evacuate residents from the areas in danger.

Earlier this morning the NWS Milwaukee/Sullivan office warned that once the levee completely fails, it is unknown how far south the flood waters of the Wisconsin River will travel.

An article in the Milwaukee Wisconsin Journal Sentinel has more on this story.

Over at Wunderblog Dr. Jeff Masters notes that the Wisconsin river was swollen last week by heavy rains of up to seven inches. Apparently the rains were generated by a plume of very moist air associated with what was Hurricane Karl.

This underscores the point that the weather systems associated with hurricanes can have an impact on the U.S. mainland and in states far from the coastline even if the storm itself does not make U.S. landfall.

The sixth hurricane of the 2010 Atlantic hurricane season, Hurricane Karl made landfall near Veracruz on the central Mexican Gulf coast as a major hurricane. As of September 23, some 22 deaths have been confirmed as a result of Karl, most in the state of Veracruz. Preliminary losses from the storm are also estimated at 50 billion MXN ($3.9 billion).

The weekend’s events in Wisconsin are a reminder of the importance of flood insurance. A February 2007 list from the Army Corps of Engineers revealed that 122 levees across the U.S. are at risk of failing.

Check out I.I.I. information on flood insurance.

Distracted Driving: An Epidemic?

Next time you’re driving and you take your hands off the steering wheel to reach for your coffee, or cell phone, or GPS unit, consider this: distracted driving-related crashes killed 5,474 people and injured another 448,000 across the United States in 2009.

The National Highway Traffic Safety Administration (NHTSA) report found that the proportion of overall traffic fatalities associated with driver distraction increased from 10 percent to 16 percent between 2005 and 2009, though the percentage remained unchanged between 2008 and 2009.

Of those people killed in distracted-driving-related crashes, 995 involved reports of a cell phone as a distraction (18 percent of fatalities). Of those injured in distraction-related crashes, 24,000 involved reports of a cell phone as a distraction (5 percent of injuries).

In a Sunday op-ed in the Orlando Sentinel published on the eve of the second Distracted Driving Summit, U.S. Transportation Secretary Ray LaHood said the numbers show that distracted driving remains an epidemic in America and, due to underreporting, are just the tip of the iceberg.

The news comes as overall traffic fatalities fell in 2009 to their lowest levels since 1950. Updated 2009 NHTSA figures show that 33,808 people died in motor vehicle crashes in 2009, down 9.7 percent from 37,423 in 2008.

The record-breaking decline in traffic fatalities occurred even while estimated vehicle miles traveled in 2009 increased by 0.2 percent over 2008 levels.

Meanwhile, debate continues on the best way to tackle the distracted driving problem, in particular cell phone use. Laws, effective enforcement, public education, crash avoidance technology, or a combination of all of these?

According to the DOT, distraction laws and enforcement are raising public awareness and changing behavior, resulting in major declines in distracted driving in certain areas of the country.

However, the Insurance Institute for Highway Safety (IIHS) points out that while bans on driver phone use reduce phoning, they don’t reduce crash risk. A better prescription for distracted driving might be crash avoidance features, the IIHS says.

Which brings us to personal responsibility. The findings of a just-released Chubb survey reveal an amazing disconnect between how people view the dangers associated with distracted driving and their own behavior behind the wheel.

It found that more than half of U.S. motorists say they have used a cell phone while driving, but 90 percent say it should be illegal to do so.

In a press release Raymond Crisci, vice president and worldwide automobile product manager for Chubb Personal Insurance, says:

We’re hopeful that as people continue to become more educated regarding the hazards associated with distracted driving, they’ll be less likely to engage in risky behavior.†

Good point. What do you think?

For related info, check out an I.I.I. issues paper on auto crashes and I.I.I. facts and stats on highway safety.

Growing Demand for Product Recall Insurance

Food recalls and product recalls in general can be an expensive business.

Just yesterday Abbott Laboratories announced that it will take a one-time charge in the third quarter 2010 for expenses related to its voluntary recall of five million cans of certain Similac powdered infant formula due to possible contamination by beetles.

The Food and Drug Administration (FDA) has determined that while the formula containing these beetles poses no immediate health risk, infants who drink it could experience symptoms of gastrointestinal discomfort that could cause them to refuse to eat. A Wall Street Journal article has more on this story.

(Note: Abbott said that parents and caregivers can go to www.similac.com/recall10Â  and call toll-free number: 1-800-986-8850 for more information)

The latest contamination event underscores the point that whether it’s eggs, toys, cars, peanut butter or pet food, product recall as a precautionary step or worse following actual injury or damage can be costly to a business and its reputation.

A just-released Aon study notes that the claims costs connected to the recent half billion egg recall will be unprecedented and include liabilities such as business interruption and reputation damage.

Aon also reports that the increasing frequency and severity of food recalls is prompting greater awareness among food system, agribusiness and beverage companies to insure against such events.

But it’s not all about insurance.

According to Aon,  the best strategies to improve an organization’s chances of recovery from a major contamination or recall incident include:

Pre-incident planning: every company should have a well-documented and practiced product recall or retrieval plan, with a clear chain of command and communication. No amount of insurance can replace customer confidence lost due to poor planning and/or execution of a crisis or recall.


Crisis management planning: an appropriate crisis program goes beyond the pre-incident plan to coordinate all activities associated with a crisis. Team members may include the CEO, general counsel, risk manager and other company reps.

A recent paper by Lockton Companies has more on the innovative coverages developed by insurers to respond to product recall and contamination events.

Airline Insurance Market: Losses Threaten Stability

Conditions in the airline insurance market have been getting calmer throughout 2010 and the market appears to be stabilizing, according to Aon’s Airline Insurance Market Indicators 2010/11 report.

While lead hull and liability prices continue to rise, the increases are tending to be lower than exposure growth, Aon says. This means that in real terms, the cost of airline insurance is falling.

At this point, it seems that there is the prospect of a stable or even soft insurance market for the rest of 2010 and into 2011, which will be welcome news after the difficulties that the airline industry has endured over the last couple of years.†

Aon reports that between January and July 2010, average lead hull and liability premium rose by 7 percent, average fleet values grew 9 percent and average passenger forecasts grew by 13 percent.

Nevertheless, the airline insurance market is perilously close to suffering a fourth consecutive year without return. Why?

A string of major losses since May has now put the 2010 claims level well above the long term average. Aon notes that total claims so far this year excluding minor losses are $996 million, compared to a long term average of $612 million.

If there are no more major losses during 2010, Aon estimates total losses for the year including minor losses will be in the region of $1.8 billion, while total lead hull and liability premium for the year will be just over $2 billion.

Taking fixed costs into account, this means that there is a very real possibility that the airline insurance market will make a loss for a fourth consecutive year.†

If this is the case Aon suggests that commitment to the sector may fall in 2011 and prices could rise as a result.

Check out I.I.I. aviation facts and stats.

Medical Mills Drive up Rates

Sad, but true. When claim costs rise due to fraud, policyholders are forced to pay for it through higher premiums.

A good example is New York State’s no-fault auto insurance fraud crisis. New data shows that the problem of excessive billings by medical mills in the Empire State is growing.

During the first six months of 2010, questionable liability insurance claims involving excessive medical treatment in New York surged 42 percent to 431, up from 304 in the first half of 2009, according to the New York Alliance Against Insurance Fraud (NYAAIF).

Many of these questionable liability claims referred by insurance companies to the National Insurance Crime Bureau (NICB) for investigation involved no-fault auto insurance claims submitted by medical mills, NYAAIF reports.

These fraudulent claims submitted to auto insurers are for treatment that was either excessive or not necessary, and in some instances the treatments are never even performed.

Fraud and abuse pushes up the total cost of claims and in turn the cost of insurance. Insurance Information Institute (I.I.I.) analysis shows that fraud in the New York no-fault system accounts for roughly 20 percent of every no-fault claim paid – or about $1,561 per claim.

As a result, in 2009 policyholders paid the equivalent of a $229 million tax on their auto insurance policies due to these unethical and often fraudulent activities, I.I.I. estimates.

For more information, check out an I.I.I. backgrounder  on no-fault auto insurance  and an I.I.I. presentation on the issue of no-fault insurance fraud.

Women and Insurance

Women, in particular young women, are becoming a rarity among the ranks of workers in the U.S. finance industry, according to an article in the Wall Street Journal today.

Its analysis of data from the Bureau of Labor Statistics (BLS) shows that in the past 10 years (2000 to 2009), the ranks of female finance workers declined by 2.6 percent, while the ranks of male workers grew by 9.6 percent in the same period.

The WSJ reports that the shift runs counter to changes in the U.S. labor market as a whole, where the number of women grew by 4.1 percent in the past decade, compared to a 0.5 percent increase in male workers.

The numbers appear to be more pronounced among young workers (ages 20-35). The WSJ analysis finds that since 2000, the number of young women working in finance has dropped by 16.5 percent, while the number of men in the same age range grew by 7.3 percent.

While the recession is partly to blame, the WSJ suggests that other factors are having an impact, such as the growing use of technology replacing some of the  jobs traditionally filled by women.

Regardless of gender, this may be a good time to mention that the insurance industry is a major U.S. employer.

I.I.I. research shows the industry provides some 2.3 million jobs that encompass a wide variety of careers, from human resource administrators to public relations managers to financial analysts.

Some jobs, such as claims adjusters, actuaries and insurance underwriters, are unique to the insurance industry.

Check out I.I.I.’s September 2010 report on insurance industry employment trends.

For more information about the diverse career opportunities in the insurance industry, check out the Bureau of Labor Statistics’ Career Guide to Industries.

The Association of Professional Insurance Women (APIW) and the National Association of Insurance Women (NAIW) are two established industry associations that provide women with opportunities for networking and professional development.

First Half Results: Growth in 2011?

There was some good news and the prospect of more in the property/casualty (P/C) insurance industry’s first half 2010 results, announced yesterday.

A couple of takeaways: profits are recovering, industry capacity (policyholders’ surplus) is rebounding, and premium growth may be on the horizon.

The industry’s net income after taxes (profit) rose to $16.5 billion in the first half, up from $6 billion in the first half of 2009. This pushed the industry’s annualized statutory rate of return on average surplus to 6.3 percent during the first half, compared to 2.6 percent in the first half of 2009.

In his commentary on the results, I.I.I. president and economist Dr. Robert Hartwig says:

The first half figures are a welcome beginning to the year after several years of tough first halves. The results also bode well for the full year. During calendar year 2009 and 2008, the industry’s full year returns were 5.8 percent and 0.6 percent, respectively.†

Another piece of good news is that the industry’s claims-paying capacity (as measured by policyholders’ surplus) remains at near all-time record highs. Policyholders’ surplus increased by $19.1 billion or 3.7 percent to $530.5 billion, up from $511.4 billion at the end of 2009. Dr. Hartwig observes:

The bottom line is that the industry is extremely well capitalized and financially prepared to pay very large scale losses, if necessary.†

Dr. Hartwig  notes that while net written premiums were flat during the first half of 2010 – the combination of a 1.3 percent decline during the first quarter and a 1.3 percent increase in the second – the second quarter’s gain snapped a 12-quarter losing streak during which premiums written had declined every quarter dating back to the second quarter of 2007.

Sequentially smaller declines in premium growth since mid-2009 combined with positive premium growth in the second quarter suggest that the free fall in premiums that began three years ago is now over. Moreover continued growth during the second half of 2010 would lock in positive premium growth for full-year 2010 and place the industry on a trajectory for positive premium growth in 2011.†

The industry has not recorded positive premium growth on an annual basis since 2006.

Check out I.I.I. information on the industry’s financial results and market conditions.