New Zealand earthquake could be biggest insured disaster since 2008

New Zealand’s second earthquake in five months is a human tragedy – with more than 100 confirmed dead so far, and more than 200 missing. It could also be the worst insurance catastrophe since Hurricane Ike hit Texas in 2008.

nz quake footprintGuy Carpenter published the attached map showing the epicenter and shake zone from this week’s earthquake.

The cat modeling firm AIR estimates insured losses between US$3.5 billion and US$8 billion. JP Morgan estimates $12 billion.

In comparison, Ike cost $12.6 billion in the U.S. alone, and $20 billion including all Caribbean basin countries, with all numbers updated for inflation. Last year’s earthquake in Chile totaled about $8 billion in insured losses.

This week’s earthquake was technically an aftershock from a September earthquake, though all parties appear to be treating them as separate events in terms of insurance coverage. AIR’s original estimate for that event was $2 billion to $4.5 billion. Actual industry losses have come in at the top of that range.

It’s important to note AIR’s estimates exclude demand surge – the phenomenon in which construction costs soar because of shortages in labor and raw materials.

This week’s earthquake was considerably smaller than September’s – magnitude 6.3, vs. 7.1, according to the U.S. Geological Survey, which monitors worldwide seismic activity. But the recent event’s epicenter was just three miles from Christchurch, a city of 400,000 and was relatively shallow, just 2.5 miles beneath the earth’s surface.

New Zealand insures earthquake and other natural disasters through a government-related Earthquake Commission, according to a I.I.I. press release. In existence since 1945, it has built up assets of more than $4 billion in U.S. dollars. It also purchases reinsurance in the private worldwide market, New Zealand Prime Minister John Key told that country’s National Business Review.

A I.I.I. list of the largest natural catastrophes worldwide can be found here.

Lights! Camera! Risk control!

Oscar night creeps ever closer – it’s Sunday – so the drama builds for the magic moment when the envelope opens and we find out which movie is Best Picture.

In the insurance version, though, the drama is over – Fireman’s Fund earlier this month named Salt the riskiest movie of 2010. The Fund insures 80 percent of Hollywood productions, notes the Wall Street Journal, so can be considered an authority on the topic.

Salt tells the story of a CIA agent -Angelina Jolie – who goes on the run after being accused of being a Russian spy. But this is Hollywood, so when she goes on the run, she does a lot more than run – lots of chases, crashes, fights and general femme fatale-ing.

And here’s why it was so risky: Ms. Jolie, reportedly paid more than $20 million for the role, did her own stunts. To get an idea, here’s the action-packed trailer:

So what you see the character Salt do, Ms. Jolie, a daredevil mother of six, actually did:

  • She jumps off a highway overpass! (at 1:19 of the trailer)
  • She leaps from a moving subway! (1:28)
  • She dyes her own hair! (1:25)

And had she, say, broken a leg, it would have been a bigger deal than your typical workers comp claim. Production itself could slow down or stop, but production costs would roll on.

Companies insure against actors’ injuries by purchasing cast coverage, which basically pays for production costs if an important artist is hurt or killed. Other typical coverages protect against loss of props, damage to property while on location, and – my favorite – negative coverage, which involves faulty filming materials, not tabloid stories.

The riskiest scene – not in the trailer – involved filming the actress on a building ledge on a gloomy, windy day. The Fund’s Paul Holehouse (a senior risk specialist) told us: The wire work and climbing outside of the New York building required a massive rigging effort to protect the historical buildings and create a safe catch area with proper flying harnesses.

For fights and scenes with weapons, extra care has to be taken to protect the actor’s face. One unducked punch could close up shop.

On tricky shoots, underwriters work with the creative types to minimize risk while achieving the director’s artistic vision.

Companies seek stronger shelter from D&O storm

Concerned about potential litigation and regulatory investigations, a growing number of companies are seeking more directors and officers (D&O) coverage, according to a Towers Watson survey released today.

D&O insurance protects the directors and officers of an organization against losses in case they are sued for their actions overseeing the organization. According to the survey, 21% of respondents are increasing policy limits, vs. 12% in the prior survey, in 2008. Meanwhile, only 3% seek lower limits.

“Clearly, companies are reacting to the fact that D&O liability exposures facing directors and officers are arguably at an all-time high,† said Larry Racioppo of the executive liability group in Towers Watson’s brokerage business. “Insurance buyers continue to be threatened by an ever-expanding litigation environment and have an increased awareness over regulatory issues they might encounter.†

Here’s what might be on their minds:

Three separate surveys follow class actions and similar filings as a way to benchmark D&O trends – Advisen, NERA Economic Consulting and Stanford Law School/Cornerstone Research. (We touched on NERA’s results a couple of months ago.) They all have their own methodologies, so while the numbers don’t synch up, the overall trends do. They show:

  1. The number of federal securities class actions increased slightly in 2010. NERA estimated an 8 percent increase, while Stanford/Cornerstone pegged it at 5 percent. (Advisen’s counting method makes an apples-to-apples comparison difficult.)
  2. Settlement values are rising. NERA, for example, set the median settlement at $109 million, passing the previous record of $80 million in 2006.
  3. The number of filings in the second half of the year accelerated. Stanford/Cornerstone, for example, counted 104 filings in the second half of the year, 44 percent more than the first half.
  4. Filings related to the credit crisis fell. Filings related to mergers and acquisitions rose, as did shareholder derivative lawsuits (actions brought against the board by shareholders, on behalf of the company). Advisen counts 335 M&A lawsuits last year, vs. 107 in 2006. Two years before that, there were 18.

Plaintiff attorneys also are aggressively pursuing M&A cases, recognizing that “companies often are willing to quickly settle suits that threaten to hold up a deal,† Advisen said in a separate analysis of the M&A phenomenon.

Stanford Law Professor Joseph Grundfest looks at Cornerstone’s M&A numbers and added : “Plaintiff lawyers are scrambling for new business as traditional fraud cases seem to be on the decline. There is little reason to believe that this trend will reverse or slow down; if anything, plaintiff lawyers may well bring an increasing percentage of these claims in federal court in an effort to control the litigation and to share in any fees that might result.†

The studies also report that securities litigation has been rising outside the United States in recent years. That may help explain why, in Towers’ survey, nearly half (47%) of the international companies surveyed purchased a local D&O policy in a foreign jurisdiction. Two years earlier, only 2% had.

The larger the company, the more likely they were to buy.

As always, the go-to site for D&O developments is Kevin LaCroix’s D & O Diary. His analysis of last year’s numbers appears here.

Spring Break

A change is as good as a rest, or so the saying goes. After four years blogging on a near-daily basis I’ll be taking a short break.

To my loyal readers, the good news is that while I’m out Terms + Conditions blog will continue under the able penmanship of Jim Lynch.

Jim is an actuary AND a writer, so follow what he has to say closely and know that he has the numbers to back up his words.

We have a lot to look forward to when I return to the blog in April. By then the 2011 Atlantic hurricane season will be just two months away, and by all accounts it’s shaping up to be another busy one.

For now, take a minute to  watch  a recap of  the 2010 hurricane season in this YouTube video, courtesy of Discovery. See you in a few weeks!

The Science Of Sidewalk Rage

A story on sidewalk rage is all the rage right now, thanks to the Wall Street Journal.

Do you get impatient in a crowded area? Bump into others, or act in a hostile manner by staring or giving them a mean face when they walk too slowly? Have you ever thought about punching slow walking people in the back of the head?

If so, you could be suffering from Pedestrian Aggressiveness Syndrome, otherwise known as “sidewalk rage†.

There’s even a Facebook group called “I Secretly Want To Punch Slow Walking People in the Back of the Head† with more than 15,000 members. The “I Secretly Want To Trip Fast Walking People† Facebook group has only 62 members, however.

At its most extreme sidewalk rage can signal a psychiatric condition known as “intermittent explosive disorder,† the Wall Street Journal reports.

Researchers are now looking into what triggers such rage and what that experience is like according to a scientist at Colorado State University quoted in the story who studies anger and road rage.

But what about distracted pedestrians?

I think we can all relate to the challenges of sharing the sidewalk with cell phone talkers or text and walkers.

Finally, the WSJ notes that people slow down when distracted by other activities too. It cites a 2006 study by the City of New York and the NYC Department of City Planning that showed smokers walk 2.3 percent slower than the average walker’s 4.27 feet per second, while cell phone talkers walk 1.6 percent slower.

A recent New York Times article looked at the growing dangers of distracted pedestrians.

The problem has prompted lawmakers in several states to introduce legislation that would ban the use of cell phones, iPods or other electronic devices by people running or walking on the street or sidewalk.

Maybe it’s not just anger management, but electronic gadget management – on the roads and sidewalks – that we all need.

Check out I.I.I. information on distracted driving.

Chevron: Landmark Environmental Decision

The news wires are buzzing with reaction to a landmark environmental case in which an Ecuador court ordered U.S. oil giant Chevron Corp. to pay $8.6 billion to clean up oil pollution in Ecuador’s rain forest.

The award is believed to be the largest ever imposed for environmental contamination and could double if Chevron does not publicly apologize for the oil pollution within the next 15 days, as ordered by the judge.

Today an article in the New York Times follows up with the news that representatives for Ecuadorean villagers say they plan to pursue Chevron in more than a dozen countries where it operates in a bid to force the company to pay.

The case has been the subject of proceedings in courts in Ecuador and the U.S. for nearly 20 years.

Residents of Ecuador’s Amazon forest, who are plaintiffs in the case, are attempting to hold Chevron liable for environmental damage they claim resulted from the operations of Texaco Inc. in the region from 1965 to 1992. Chevron inherited the suit when it acquired Texaco in 2001.

An editorial in the Wall Street Journal observes:

The Ecuador suit is a form of global forum shopping, with U.S. trial lawyers and NGOs trying to hold American companies hostage in the world’s least accountable and transparent legal systems. If the plaintiffs prevail, the result could be a global free-for-all against U.S. multinationals in foreign jurisdictions.†

The LA Times quotes John van Schaik, oil analyst at Medley Global Advisors in New York, saying:

The appeals could go on for many years. But the fact that the Lago Agrio court ruled in favor of the plaintiffs sends a signal to oil companies that, more than ever, they need to be good corporate citizens.†

Meanwhile, the president of the U.S. Chamber of Commerce said the ruling against Chevron “runs contrary to the fundamental rule of law.”

The case is being watched closely by other multinational corporations.

Check out the Huffington Post for more on this story.

“Friendly Fraud” On the Rise

Identity fraud incidents declined significantly in the United States in 2010, but now is not the time to let your guard down.

So-called “friendly fraud” is “ fraud perpetrated by people known to the victim, such as a relative or roommate” grew seven percent last year, according to Javelin Research & Strategy’s recently released 2011 Identity Fraud Survey Report.

People in the 25-34 age group are most likely to be victims of friendly fraud, mostly by having their Social Security number (SSN) stolen (41 percent).

The increase in friendly fraud is also contributing to a significant rise in consumer out-of-pocket costs.

While overall fraud declined in 2010, the mean consumer out-of-pocket cost due to identity fraud increased 63 percent from $387 in 2009 to $631 per incident in 2010, Javelin said.

The findings give us pause for thought.

Javelin’s advice? Keep personal data private and don’t overshare on social networks.

In 2010, 14 percent of all identity fraud crimes were committed by someone previously known to the victim when the method was known.

People also like to connect with friends and acquaintances on social networks, but sometimes they share too much information.

Javelin research found that 36 percent of people aged 65+ do not use the privacy settings on their network potentially exposing crucial information to fraudsters. (The good news is that 89 percent of 25-34 year olds were actively using the privacy settings on social network sites.)

As for overall fraud trends, in 2010 the number of identity fraud victims declined by 28 percent to 8.1 million adults in the U.S., three million fewer victims than the prior year. Total annual fraud dropped to $37 billion from $56 billion – the smallest amount in the eight years of the study.

Stepped-up prevention efforts by businesses, increased security measures and economic conditions contributed to the year-over-year decline, Javelin said.

Check out I.I.I. info on ID theft.

Beware Romantic Distractions

It’s Valentine’s Day, and maybe you’re planning on driving your sweetheart to dinner. Before you do, consider this: romantic distractions while driving can be dangerous year round  Ã¢â‚¬“ not just on Valentine’s Day, according to a poll conducted for

The poll found nearly one-third of American drivers are smooching or engaging in other romantic contact while they’re behind the wheel.

Some 29 percent of drivers surveyed acknowledge they’ve been amorous behind the wheel throughout the year – not just on Valentine’s Day.

That number climbs to 39 percent for highly educated drivers (at least a bachelor’s degree) and high-income drivers (at least $75,000 in annual earnings).

Over to John Egan, managing editor of

Sixteen percent of fatal crashes in 2009 were attributed to distracted driving, according to the National Highway Traffic Safety Administration. Given that statistic, it’s wise to keep your eyes on the road, rather than on your sweetheart.†

Check out further I.I.I. information on distracted driving.

Hat tip to Insurance Journal for more on this story.

Winter Storms And Commercial Insurance Coverage

A good portion of the damage from severe winter storms in the U.S. the first week of February 2011 was the result of wet, heavy snow, which caused collapses to roofs, porches, awnings, carports and outbuildings.

The Hartford Courant has an interactive map of recent reported roof collapses in Connecticut. In and around Boston, MA, there have been over 70 reports of roof collapses  Ã¢â‚¬“ mostly flat-roofed commercial structures, according to catastrophe modeler AIR Worldwide.

AIRÂ  also reports that the storm prompted more than 30 auto plants and facilities across the Midwest to temporarily shut down production. Many power plants were disrupted by the severe weather and record electricity demand overwhelmed the system, resulting in widespread blackouts.

For businesses that do not have the right type and amount of insurance, such losses could wreak havoc to their bottom line.

Last week in Indiana, for example, the roof of a business that makes steel products collapsed under the weight of more than a foot of snow, while in Connecticut, the top of an auto repair and towing business caved in.

Meanwhile, the Adirondack Sports Complex in upstate Queensbury, New York, was temporarily closed because its roof partially collapsed, due to weight of snow and ice.

Roof and building collapse from snow is covered under a standard businessowners policy. Businesses that are stricken with a power outage can also utilize property insurance or coverage for their machinery to recover some losses.

Check out further  Insurance Information Institute (I.I.I.) information on how business owners need to be prepared with the right commercial insurance coverage.

Guidelines from the Institute for Business and Home Safety (IBHS) can help you to determine how much snow and ice may be too much for a roof to handle.

Florida Drivers Paying For Auto Fraud

Florida is a hotbed for auto insurance fraud and the problem is growing worse, according to a new study from the Insurance Research Council (IRC).

The IRC findings confirm recent Insurance Information Institute (I.I.I.) analysis that staged accidents, excessive or unnecessary medical treatment and inflated or questionable claims are driving up the cost of auto insurance for Florida drivers.

Elements of fraud appeared in 10 percent of all Florida no-fault auto insurance claims – known as personal injury protection (PIP) claims – closed in 2007, according to the IRC.

Almost one in every three no-fault auto insurance claims closed in Florida in 2007 appeared to involve the exaggeration of an injury or to be inflated by unnecessary or excessive medical treatment. The IRC sums up the problem:

The apparent amount of fraud and excessive billing by some health care providers in Florida is growing rapidly. Although these findings describe conditions of more than three years ago, indications are that the situation has continued to deteriorate.†

The IRC found that average no-fault claim losses per insured vehicle grew 55 percent in just the last two years, from $100 in 2008 to $155 in 2010. Claim fraud and abuse were major factors in that growth.

Some 30 percent of Florida claims appear to involve either overbilling or excessive utilization of medical services, known as claims buildup.

I.I.I. analysis recently found that no-fault fraud has already cost Florida vehicle owners and their insurers an estimated $853 million since 2008. The cumulative costs from 2009 through 2011 could exceed $1.5 billion if current trends continue.

I.I.I. Florida representative Lynne McChristian has more on this story in her Straight Talk blog.

Check out the I.I.I. white paper No-Fault Auto Insurance In Florida.

Check out further I.I.I. information on insurance fraud.