P/C Industry Outlook: Cautious

The outlook for the U.S. property/casualty insurance industry for the remainder of the year is a cautious one, according to I.I.I. president Dr. Robert Hartwig.

Exceedingly high second-quarter catastrophe losses, the prospect of high underwriting losses associated with non-cat losses and more uncertainty in the investment markets are the main reasons for the cautious outlook.

The U.S. p/c industry reported an annualized statutory rate of return on average surplus of 5.6 percent during the first quarter of 2011, down from 6.8 percent in the year earlier quarter.

Commenting on the industry’s first quarter 2011 results, Dr. Hartwig observed:

“It is important to note that the decline in profitability had nothing to do with the recent devastating tornadoes impacting the Midwest and Southeast this spring, virtually all of which occurred during the second quarter. However, some $2 billion to $5 billion in loss and loss adjustment expense – almost certainly a record – did wind up on the books of U.S. insurers that cover, reinsure or otherwise assume risk from catastrophic events abroad, including the March 11 Japanese earthquake and tsunami, the February 22 New Zealand earthquake, and severe flooding in Australia in January and February.†

In the U.S., insured catastrophe losses totaled $1.9 billion during the first quarter of 2011. However, Dr. Hartwig noted that this figure will be dwarfed by some $15 billion or more in insured catastrophes for the second quarter, per recent PCS estimates.

The industry’s first quarter 2011 results were released by ISO and the Property Casualty Insurers Association of America (PCI).

Wal-Mart Ruling Brings Clarity On Class Actions

In a case closely watched by insurers, the U.S. Supreme Court on Monday dismissed a massive employment discrimination lawsuit against Wal-Mart – a ruling that legal experts say will raise the bar for what constitutes a class action lawsuit.

In a 5-4 decision, the court ruled that about 1.5 million women who worked or had worked for Wal-Mart had too little in common to constitute a single class of plaintiffs.

According to the Wall Street Journal:

“The decision is sure to reverberate in other employment class actions, with lower courts scrutinizing more carefully the factors that constitute a class for the purpose of bringing mass claims.†

And the New York Times observes:

“The court’s decision will not just make it harder to bring big, ambitious employment class-action cases asserting discrimination based on sex, race or other factors, legal experts said. In the majority opinion, the court set higher barriers for bringing several types of nationwide class actions against a large company with many branches.†

Over at the Consumer Class Actions Mass Tort Blog, Russell Jackson, a partner at law firm Skadden Arps, notes that the Wal-Mart v Dukes opinion will have far-reaching application in class action defense.

Over at the NYT Room for Debate blog legal experts discuss the impact of the decision.

Check out our previous post on the case here.

Pride Round-Up 2011

June is Pride month, so here’s a round-up of some of the latest news and developments affecting the lesbian, gay, bisexual and transgender (LGBT) community that piqued our interest:

Tying the knot: New York could become the sixth state in the nation to allow same sex marriage, pending a State Senate vote that  reports suggest  may happen  today. The NY State Assembly already voted in favor of the bill Wednesday. Same sex marriage is currently legal in five states (Massachusetts, Connecticut, Iowa, Vermont, and New Hampshire) and the District of Columbia. In addition, a number of states offer civil unions or domestic partnerships. Californians are still awaiting the outcome of a federal court case that will determine the constitutional validity of Proposition 8 (a constitutional amendment passed in California in November 2008 that restricts the definition of marriage to opposite sex couples).

Census snapshots: The Williams Institute at UCLA will be releasing snapshots of the 2010 Census throughout the summer, providing demographic and geographic information about same-sex couples and same-sex couples raising children for all 50 states, Washington D.C., and Puerto Rico. New this week: Alabama and Hawaii. The 2010 U.S. Census is the first to report counts of both same-sex partners and same-sex spouses.

Corporate equality: Insurers are among a growing  number of Fortune 500 companies that continue to break new ground in workplace protections and benefits for LGBT people, according to the Human Rights Campaign Foundation’s 2011 Corporate Equality Index (CEI). The CEI rates employers on a scale from 0 to 100 percent based on their LGBT workplace policies, benefits and practices, including non-discrimination policies and training, partner benefits, gender transition guidelines and LGBT resource groups. As an industry, insurance scored an average 91 percent rating in the latest survey, up from 88 percent the previous year. Check out our earlier post to see which insurers received a 100 percent rating.

Social media for a good cause: Direct auto insurer Esurance recently launched a charitable giving campaign on Facebook in support of The Trevor Project, the leading national organization providing crisis intervention and suicide prevention services to LGBT youth. For each new “Like† on its Facebook page, Esurance donated $10 to the organization, raising a total of $50,000. If you haven’t already, show your support and “Like† Esurance.

New Zealand Aftershocks Continue

September 2010, February 2011  and now June. Christchurch, New Zealand faces yet  another setback in its recovery  after a magnitude 6.0 earthquake struck on Monday, with a reported epicenter just six miles southeast of the city’s central business district.

According to catastrophe modeling firm  Eqecat, this latest event (technically an aftershock) is expected to cause an additional $3 to $5 billion in insured losses to the region and is affecting an area already significantly damaged by earlier earthquakes.

Eqecat notes that since the magnitude 7.0 earthquake that occurred last September 3, two magnitude 6.0 events have now occurred – one on February 21 and the other  on Monday (June 13). In addition, there have been 11 magnitude 5.0 events (add one more with yet another aftershock reported earlier Wednesday).

For those of you calculating the  insured loss impact  of this series of NZ earthquakes, here’s Eqecat’s estimated tally so far:

  • M7 Darfield earthquake in September 2010: $4 to $6 billion in insured losses.
  • M6 Christchurch earthquake in February: $8 to $12 billion in additional losses.
  • And now M6 Christchurch “aftershock” in June: $3 to $5 billion.

At the low range of  Eqecat’s estimate this could mean $15 billion in insured losses, at the top end $23 billion.

Put this in the global catastrophe  context  and the latest NZ numbers add to a first-half of the year that has seen record tornado losses in the United States, the Japanese earthquake and tsunami, major flooding events in Australia  as well as  Tropical Cyclone Yasi.

And all forecasts point to the likelihood of above average activity in the 2011 Atlantic hurricane season.

A  recent article in the New York Times cited  I.I.I. president Dr. Robert Hartwig on the U.S. catastrophe loss tally. Dr. Hartwig observed that just one “relatively minor† hurricane this year could push total U.S. private insurance catastrophe losses in 2011 above the $13.6 billion paid out in 2010.

Check out I.I.I. facts and stats on global catastrophes and U.S. catastrophes.

IMF, Citibank Cyber Attacks Highlight Exposure

The New York Times, among others, reports that the International Monetary Fund (IMF) has been hit by a large and sophisticated cyber attack.

News of the breach at the IMF comes  just days after it emerged  that a hacker attack at Citibank in May exposed customer account names, numbers and contact information of approximately 1 percent of Citibank’s 21 million users.  Ã‚  

According to the NYT, concern about the attack at the IMF was so significant that the World Bank cut the computer link that allows the two institutions to share information.

The NYT says:

Because the fund has been at the center of economic bailout programs for Portugal, Greece and Ireland — and possesses sensitive data on other countries that may be on the brink of crisis — its database contains potentially market-moving information. It also includes communications with national leaders as they negotiate, often behind the scenes, on the terms of international bailouts. Those agreements are, in the words of one fund official, “political dynamite in many countries.† It was unclear what information the attackers were able to access.”

In its recently published Global Risks Report 2011, the World Economic Forum (WEF) identified cyber-security as one of the top five risks to watch.

Businesses face a potentially enormous liability when a data breach occurs. An article by Rodd Zolkos at  Business Insurance notes that increasing legislation and regulation at the Federal and state levels related to data breaches is contributing to higher success rates  for cyber plaintiffs in court and  rising potential  costs for companies.

Specialized cyber risk insurance is critical to protect businesses from the growing  threat of cyber attacks, according to the Insurance Information Institute (I.I.I.).

Check out  further  I.I.I. facts and stats on  identity theft.

Thunderstorms And Lightning

The news  that 77  Air Force ROTC  cadets escaped injury after lightning struck a utility pole at their camp in Mississippi earlier this week reminds us not to overlook  this  dangerous hazard.

While seasonal severe thunderstorms  have rightly  put the focus on tornadoes, lightning is an underrated killer and cause of property damage.

I.I.I. facts + statistics on lightning show that in 2010 there were 29 lightning fatalities, five less than the 2009 total of 34 deaths and ten below the 10-year average of 39 fatalities.

Insured losses  from lightning-related claims  totaled just over $1 billion in 2010, up 30 percent from $798 million in 2009, according to the I.I.I.

The I.I.I. video below dispels some of the myths about lightning:

Shopping For Auto Insurance Goes Online

Auto insurance customers are increasingly looking to insurers’ websites in the early stages of the buying process, according to the J.D. Power and Associates 2011 U.S. Insurance Shopping Study.

The study found that for the first time, a majority of new buyers of auto insurance  Ã¢â‚¬“ more than 54 percent  Ã¢â‚¬“  initiated their policy purchase by applying for a rate quote online.

J.D. Power noted that the importance of an insurer’s website in generating new business among new buyers has been increasing steadily for the past five years, at the expense of more traditional local agency or call center channels.

Now in its fifth year, the study examines consumer shopping and purchasing behaviors and overall satisfaction among buyers who recently purchased from an auto insurer across three factors: distribution channel; policy offerings; and price.

Within the distribution channel category, the study found the website now accounts for more than one-fourth of the importance weight, second to the local agent.

A press release quotes Jeremy Bowler, senior director of the global insurance practice at J.D. Power and Associates:

This transition to websites as the dominant lead-generation channel is an important shift for insurers to recognize and address in their marketing and sales strategies.

While nearly one-half of all accepted Web quotes are closed either by an agent or call center representative, customers are clearly more often looking to insurers’ sites or third-party sites in the early stages of the shopping process.†

The study was based on responses from more than 15,500 shoppers who requested an auto insurance price quote from at least one competitive insurer in the past 12 months.

For related information, check out the I.I.I. backgrounder on buying insurance: evolving distribution channels.

Food Safety Focus

With stories about the E. coli outbreak in Europe dominating the news, this is a good time to reflect on food safety and contamination risks.

The  New York Times  reports that the cause of the  outbreak of a rare strain of E. coli known as 0104:H4  may have been sprouts grown on a farm in Germany.

What is being described as one of the most catastrophic food-borne illnesses in years,  so far  has left 22 dead and 2,153 people ill, more than 600 of them in intensive care, according to  the NYT article.

Here in the United States, the Centers for Disease Control and Prevention (CDC) is providing regular updates and monitoring the ongoing outbreak in Germany.

Meanwhile, TIME’s Ecocentric blog ponders the question of whether we’d do any better if a similar major foodborne illness outbreak occurred in the U.S.  given passage of the landmark Food Safety and Modernization Act (FSMA) last year.

It notes that America has struggled to control recent problems with contaminated food, including salmonella outbreaks that led to the recall of half a billion eggs last year.

Not until the passage of the Food Safety Bill did the Food and Drug Administration (FDA) have the ability to order a mandatory recall of contaminated food, it says.

Ecocentric also notes that the cost of foodborne illness in the U.S. is severe, with 48 million people becoming ill annually and hundreds of thousands of hospitalizations and thousands of deaths.

According to a  report from Aon published last year  (and discussed in a blog post here), the increasing frequency and severity of food recalls is prompting greater awareness among food system, agribusiness and beverage companies to insure against such events.

As well as  insurance, Aon  said pre-event planning and crisis management planning were  among the best strategies to improve an organization’s chances of recovery from a major contamination or recall incident.

Massachusetts And Tornadoes

Massachusetts has become the latest state to suffer tornado fatalities and damage.

Boston.com reports that at least four people were killed and numerous others injured when violent storms, including at least two tornadoes, swept across the state yesterday.

A state of emergency has been declared by Massachusetts Governor Deval Patrick and members of the National Guard activated to assist in debris removal and any search and rescue efforts.

The city of Springfield and town of Monson, appeared to be two of the hardest hit communities, according to Boston.com.

The New York Times reminds us that while tornadoes are relatively rare in New England, one that hit Worcester in 1953, known as the Worcester Twister, killed 94 people and injured more than 1,000.

This underscores the point that you don’t have to live in tornado alley to be vulnerable.

The 1953 Worcester tornado ranks as the 21st deadliest tornado in U.S. history, according to NOAA’s Storm Prediction Center (SPC).

Check out I.I.I. facts and stats on tornadoes for further information on the number of tornadoes and related deaths by state.

Tornadoes caused $97.8 billion in insured losses in the U.S. between 1990 and 2009, making these weather events second only to hurricanes ($152.4 billion) over this same time period as the costliest natural disasters.

Check out this raw video footage of the Springfield tornado via YouTube and courtesy of Associated Press: