Monthly Archives: January 2012

Catastrophes, Legal Environment

Update On U.S. Tort Costs

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U.S. tort costs increased by 5.1 percent in 2010,  driven by  the April 2010 Deepwater Horizon drilling rig explosion and resulting oil spill in the Gulf of Mexico, Towers Watson reports.

In its 2011 Update on U.S. Tort Cost Trends, Towers Watson notes that absent the cost from this event, tort costs would have shown an overall decrease of 2.4 percent in 2010.

Looking ahead, Towers Watson expects tort costs to  decline by  4.4% in 2011 due to the lack of such an event during the year. Excluding the impact of the oil spill, Towers Watson forecasts tort costs in 2011 will show a modest increase relative to 2010, in the area of 3%.

The report finds:

The Deepwater Horizon spill was the single most important event affecting 2010 tort costs. In June 2010, BP established a $20 billion fund to compensate the spill’s victims. By November 1, 2011, BP had paid or approved for payment over $7.5 billion in claims related to the spill. While the ultimate tort costs associated with the spill remain uncertain, our estimate of tort costs from the spill was $19 billion.†

The increase in U.S. tort costs for 2010 – which confirms earlier estimates from Towers Watson – follows a more favorable year in which tort costs decreased by 2.7 percent in 2009.

The U.S. tort system cost $264.6 billion in 2010, which translates to $857 per person, versus $820 per person in 2009.

The weak U.S. economy continued to have an influence on costs in 2010, according to Towers Watson:

Due to a lower level of economic activity, opportunities for tort actions have also decreased over the last few years. The decline is most notable in the commercial auto line of business, perhaps the most economically sensitive coverage with a tort component. The line’s tort costs in 2010 were the lowest since 2000 and 19% lower than in 2004.†

Personal auto tort costs showed a 1.1% increase in 2010, and medical malpractice costs continued to be stable.

Overall economic growth in 2010 was 4.2%. As such, the ratio of tort costs to gross domestic product (GDP) rose in 2010 for the second consecutive year after five years of a decline in the ratio.

Since 1950, growth in tort costs has exceeded growth in GDP by an average of approximately two percentage points.

Towers Watson estimates growth in U.S. tort costs will range from 2% to 6% in 2012, with a midpoint of 4%. A similar increase is seen for 2013, with a midpoint of 4%.

Insurance Journal has more on this story.

Business Risk, Legal Environment, Specialty Coverage

EEOC: Another Record Year for Job Bias Claims

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As we first reported last November, job bias charges reported to the U.S. Equal Employment Opportunity Commission (EEOC) hit an all-time high of nearly 100,000 in fiscal year 2011 for the second year in a row.

This week the EEOC confirmed that it received a record 99,947 charges of employment discrimination in fiscal year 2011, up slightly from last year’s total, and monetary relief obtained for victims totaled $455.6 million, an increase of more than $51 million on the previous year.

Now for the details of the most frequently filed discrimination charges in FY 2011:

– Once again, charges alleging retaliation under all statutes enforced by the EEOC were the most frequently filed charge (37,334 charges received, or 37.4 percent of all charges), closely followed by race discrimination charges (35,395 charges or 35.4 percent).

– While the numbers of charges alleging race and sex discrimination declined from the previous year, charges alleging disability discrimination (25,742) and age discrimination (23,465) increased.

– Another takeaway: the number of charges alleging discrimination based on national origin rose by 5 percent, while the number of charges alleging discrimination based on religion were up 10 percent.

– And for the first full fiscal year of enforcement, the EEOC received 245 charges under the Genetic Information Nondiscrimination Act, which prohibits discrimination on the basis of genetic information, including family medical history. So far, none of these charges has proceeded to litigation.

Ongoing difficult economic conditions are likely responsible for the rise in EEOC charges, according to reports.

Yet again the EEOC numbers underscore the importance of employment practices liability insurance for businesses. Check out I.I.I. facts and statistics on  EPL insurance.

Legal Environment

Top Jury Verdicts Rise Again in 2011

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The size of the top 10 jury awards rose for a fourth consecutive year in 2011, according to a recent report from Lawyers USA.

The 10 largest jury verdicts in 2011 totaled $1.84 billion, an increase of 15 percent from $1.6 billion in 2010.

Lawyers USA noted that the average award for 2011 increased by $27 million, rising to just under $184 million from nearly $157 million the prior year.

While the top award was slightly lower in 2011 – $482 million versus $505.1 million in 2010 – the drop this year was much less steep to the #2 award of $322 million and the #3 award of $212 million.

Further, the lowest award in this year’s Top Ten was nearly $90 million, almost $10 million more than the #10 award in 2010.

Here are the key takeaways:

– In the year’s top verdict – a patent infringement case – a Texas jury awarded $482 million to a radiologist on his claim that a medical stent manufacturer willfully infringed his patent.

– This year’s #2 award – the largest single plaintiff’s asbestos verdict in U.S. history – went to a Mississippi man who sued two companies for failing to warn of the dangers of asbestos particles he claimed he inhaled at work. The award has since been vacated.

– Another asbestos case made this year’s #10 as an Illinois jury awarded $89.6 million ($80 million of it in punitives) against four defendants in a suit brought by a former pipefitter suffering from mesothelioma.

– And two of the Top Ten this year involved a rash of hepatitis C infections caused by contaminated vials of anesthetic at Las Vegas colonoscopy and endoscopy clinics, the same litigation that gave rise to the #1 verdict last year.

Lawyers USA compiles the Top 10 Jury Verdicts each year applying certain ground rules. Verdicts must be to an individual plaintiff, defined as a single person, family or small group of individuals injured in a single incident who had their claims tried in one case before the same jury.

The list does not include business-against-business suits, class actions or consolidated suits. Cases must have been defended and default verdicts and suits against incarcerated individuals are not included.

Check out I.I.I. info on the liability system.

Business Risk, Catastrophes

Supply Chain Disruption, Insurance, and Risk Management

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An article in the New York Times Saturday drew attention to the ongoing supply chain issues in the wake of last year’s flooding in Thailand.

In the Nava Nakom industrial zone located just north of Bangkok, only 15 percent of 227 factories operating in the zone have restarted production of electronics and computer parts, according to the NYT.

In particular, the production of hard drives has been impacted disrupting supply around the world. What this means is that consumers may face increased prices for hard drives for the next several months, the NYT reports.

Understandably future flood prevention in the country is a major concern among foreign investors.

Natural catastrophes in 2011, including the Japanese earthquake and tsunami, as well as  the flooding in Thailand, exposed the complexity and vulnerability of global supply chains like never before.

CEOs at the recent Property/Casualty Joint Industry Forum addressed the issues of whether global corporations were adequately protected against supply chain disruption.

Shivan S. Subramaniam, chairman & CEO, FM Global noted that there is no way an insurance company can meet the needs of its clients for all their supply chain issues because people have suppliers who have suppliers, who have suppliers:

It keeps on going and it doesn’t stop. This is one of the key things that we’ve learned through all of this and insurance is only part of the solution. Commercial clients are going to have to spend more time on risk management.†

He added:

Supply chain losses are starting to behave like casualty losses. They have a long tail. I suspect for another 18 months we’re going to continue to hear about losses coming out of Japan.†

Separately, Best’s News Service reports that Thailand’s Office of Insurance Commission is looking to set up a $1.6 billion catastrophe fund that would provide insurance coverage for floods, windstorms and earthquakes to households, small and medium enterprise and industrial factories.

More on this  development via InsuranceNewsNet.

Emerging Risks, Insurers and the Economy

WEF: Global Risks 2012

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Economic imbalances and social inequality risk reversing the gains of globalization, warns the World Economic Forum (WEF) in its just-released report Global Risks 2012.

Respondents to the survey worry that further economic shocks and social upheaval could roll back the progress globalization has brought, and that the world’s institutions are ill-equipped to cope with today’s interconnected, rapidly evolving risks.

Chronic fiscal imbalances and severe income disparity are the risks seen as most prevalent over the next 10 years, the WEF reports.

These risks in tandem threaten global growth as they are drivers of nationalism, populism and protectionism at a time when the world remains vulnerable to systemic financial shocks, as well as possible food and water crises.

Published in cooperation with Marsh & McLennan Cos, Swiss Re, the Wharton Center for Risk Management and Zurich, Global Risks 2012 draws on the insights of 469 experts and industry leaders around the world.

This year’s findings indicate a shift of concern from environmental risks to socioeconomic risks compared to a year ago.

Lee Howell, the WEF managing director responsible for the report says:

For the first time in generations, many people no longer believe that their children will grow up to enjoy a higher standard of living than theirs. This new malaise is particularly acute in the industrialized countries that historically have been a source of great confidence and bold ideas.†

The report analyzes three major risk cases: Seeds of Dystopia; Unsafe Safeguards and the Dark Side of Connectivity.

A special chapter also highlights key crisis management lessons from Japan’s earthquake, tsunami and nuclear disasters.

The report analyzes the top 10 risks in five categories – economic, environmental, geopolitical, societal and technological.

It also highlights “X Factor† risks, the wild card threats which warrant more research, including a volcanic winter, cyber neotribalism and epigenetics (the risk that the way we live could have harmful inheritable effects on our genes.

The three risk cases, Japan and X Factors are the focus of special sessions at the World Economic Forum Annual Meeting 2012 in Davos-Klosters, Switzerland, which begins January 25.

Business Insurance, Business Risk

Global Markets Play Key Role In Costa Concordia Loss

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Reports suggest that insured losses arising from the grounding and capsize of the Costa Concordia cruise ship off the west coast of Italy Friday night could make it the largest marine insurance loss in history.

So far, six are confirmed dead and 29 reported missing after the Costa Concordia, carrying over 4,000 passengers and crew, apparently deviated from its course and hit rocks near the island of Giglio. The ship is owned by Carnival Corp.

Concerns were growing yesterday that the ship  could break up and cause an environmental disaster if some of its roughly 2,300 tonnes of fuel leak.

A Reuters report cites one industry analyst estimating the insured loss from the Costa Concordia at between $500 million and $1 billion. Meanwhile, Bloomberg News cites another analyst saying the insured loss  could total as much as $800 million.  

Whatever the loss ultimately totals, global insurers and reinsurers will play a key role in covering claims related to the incident.  A special report by Guy Carpenter  has more on this.

In the world of marine insurance, damage to a vessel is typically covered by a hull and machinery policy, while marine liability insurance would cover property damage and injury to third parties at sea.

The Protection & Indemnity (P&I) market typically covers liability claims arising from large marine insurance claims.

The International Group of P&I Clubs comprises 13 mutual insurance associations (P&I clubs) that between them provide liability cover for approximately 90 percent of the world’s ocean-going tonnage.

Clubs cover a wide range of liabilities including personal injury to crew, passengers and others on board, cargo loss and damage, oil pollution, wreck removal and dock damage.

Under the Group’s pooling agreement by which the clubs reinsure each other, losses in excess of $8 million are shared between the clubs.

This claim-sharing agreement is underpinned by a very extensive market reinsurance program which the Group clubs arrange.

For more on this, check out the latest P&I market review from Willis.

 

Industry Financials, Insurers and the Economy

Back To Basics

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After a record year for natural catastrophes, a  tepid economic recovery and ongoing low interest rate environment, insurers are focusing firmly on underwriting discipline.

This was a key message communicated by insurer and reinsurer CEOs in a panel discussion at the 16th annual Property/Casualty Joint Industry Forum #JIF2012 earlier this week.

Industry CEOs representing small and large, public and private, agreed that with the still-challenging investment environment, underwriting discipline was more important than ever.

Lori Dickerson Fouchà ©, president & CEO, Fireman’s Fund, summed things up:

“Hope is not a strategy, as much as we would like it to be. It comes down to back to basics in terms of the business. We cannot rely on investment results. Underwriting discipline, operational effectiveness, and pricing  ­Ã¢â‚¬“ these are the basics of running an insurance company that we have to strengthen to improve results.†

A survey conducted by the Insurance Information Institute (I.I.I.) of P/C insurance industry leaders at the Forum revealed that most believe the worst of the financial crisis is over and that the industry is now in the early stages of a hard market.

Seventy-five percent expect an improvement in profitability in 2012; and in fact, 72 percent believe the industry is on the road to recovery.

The poll questions and full results are available here.

Insurance Industry

P/C Joint Industry Forum

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The 16th annual Property/Casualty Insurance Joint Industry Forum #JIF2012 will be held today at the Waldorf-Astoria Hotel in New York City.

The Forum, sponsored by 16 leading property/casualty insurance trade associations, was created to provide p/c insurance and reinsurance company leaders with an opportunity to meet and discuss topics of general interest.

Michael McRaith, director of the new Federal Insurance Office, will be the featured speaker at the event.

A panel of experts will first discuss the insurance industry from the perspective of those who regulate, analyze and write about the business.

This will be followed by the CEO panel where industry leaders will discuss general trends in industry services.

Check back later this week for coverage of the event. In the mean time, follow the Insurance Information Institute’s live Twitter feed.

Business Risk, Specialty Coverage

U.S.-Listed Chinese Companies and Securities Litigation Risk

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The Financial Times reports that the value of Chinese companies delisting from U.S. exchanges in 2011 exceeded the amount Chinese companies raised via initial public offerings in the U.S. amid fraud allegations and slowing growth.

There is an  interesting insurance angle behind this story.

Over at the D&O Diary, the tale of U.S.-listed Chinese companies hit with class action securities litigation made it to number two on the blog’s top ten D&O stories of 2011.

Kevin LaCroix writes:

Every year there seems to be one group or sector of companies that draws the unwanted attention of plaintiffs’ securities attorneys. During 2011, the hot sector was U.S.-listed Chinese companies.†

He goes on:

There were 39 different U.S.-listed Chinese companies hit with securities class action lawsuits during 2011, representing nearly one-fifth of all securities class action lawsuit filings during the year. Since January 1, 2010, there have been securities class action lawsuits filed against 49 different Chinese companies.†

D&O Diary says that the surge of litigation involving Chinese companies has arisen out of accounting scandals. It makes the point that not all of these cases are meritorious and indeed some have been dismissed:

Eventually the plaintiffs’ lawyers will simply run out of Chinese companies to sue, but for now the phenomenon shows no sign of letting up.†

According to recent commentary from Lockton, Chinese companies are named in nearly 25 percent of the securities class action suits filed so far in 2011, despite making up less than one percent of the total number of publicly traded companies in the U.S.:

The reasons for this, and the steps companies and their directors and officers must take to protect themselves, must be understood by companies that wish to avoid becoming part of this statistic.†

Lockton advises that a robust D&O insurance program is essential to transfer the financial risks that securities litigation and investigations create. However, it is also critical for companies to understand the terms of their D&OÂ  policies and anticipate insurers’ coverage positions:

The reality of being a public company in the U.S. is that a company faces the prospect of distracting and very expensive securities investigations and litigation. The risks associated with that can and must be managed well. The consequences of a failure to do so can be ruinous.†

D&O insurance protects the directors and officers of an organization against losses in case they are sued for their actions overseeing the organization.

Catastrophes, Winter Storms

Winter Has Arrived

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Winter has arrived, at least for the Eastern United States, NOAA’s National Weather Service declared yesterday:

Lake effect and mountain snow is impacting travel across the lower Great Lakes and center Appalachians. Further south, freeze warnings have been issued for all of Florida and along much of the Gulf coast. Temperatures will be at least 20 degrees below average, with brisk north winds making it feel even colder. The temperatures along much of the east coast are below average for this time of year.†

The Insurance Information Institute (I.I.I.)  reports  that winter storms are historically very expensive and are the third-largest cause of catastrophe losses, behind only hurricanes and tornadoes. From 1991 to 2010, winter storms resulted in about $26 billion in insured losses, according to ISO.

In the first six months of 2011, insured U.S. winter storm losses totaled $1.4 billion, according to Munich Re. That figure does not include losses arising in the second half of the year, for example from the October snowstorm which caused significant damage in the Northeast.

Full year  figures should be available in today’s 2011 Natural Catastrophe Year In Review Webinar, jointly presented by Munich Re and the I.I.I.

Insured U.S. winter storm losses in 2010 totaled $2.6 billion, the highest losses from this peril since 2003, as reported by Munich Re.

In its most recent annual winter outlook NOAA gave those of us living in the Northeast and Mid-Atlantic equal chances for above-, near-, or below- normal temperatures and precipitation.

Last year’s Groundhog Day blizzard (January 29-February 3, 2011) was among a record 12 weather disasters in 2011 that each caused $1 billion or more in damages, according to NOAA.

This large, sprawling winter storm impacted many central, eastern and northeastern states leaving at least 36 dead and causing insured losses greater than $1 billion.

The city of Chicago was brought to a virtual standstill as up to 2 feet of snow fell in the area.

As a result of that blizzard the city is now taking a more hi-tech approach in its snow-response. The New York Times reports that a new city web site ChicagoShovels.org includes among other things  a snowplow tracker  that maps  Chicago’s approximately 300 snowplows making their way in real time through the city.