2013 Atlantic Hurricane Season Roundup

As the 2013 Atlantic hurricane season comes to a close, it may be easy to dismiss the significance of this year’s season.

While it’s true that this year had the fewest number of hurricanes since 1982, the 2013 hurricane season was only the third below-normal season in the last 19 years, since 1995, when the current high-activity era for Atlantic hurricanes began, according to forecasters.

A NOAA press release quotes Gerry Bell, lead seasonal hurricane forecaster at NOAA’s Climate Prediction Center, a division of the National Weather Service:

A combination of conditions acted to offset several climate patterns that historically have produced active hurricane seasons. As a result, we did not see the large numbers of hurricanes that typically accompany these climate patterns.†

A total of 13 named storms formed in the Atlantic basin this year, NOAA reports, but only two, Ingrid and Humberto, became hurricanes. Neither of these storms became a major hurricane (Category 3, winds of 111-129 mph and above).

Although the number of named storms was above the average of 12, the numbers of hurricanes and major hurricanes were well below their averages of six and three, respectively.

Meanwhile, the Insurance Information Institute (I.I.I.) and the Florida Insurance Council (FIC) remind us that while Florida has escaped hurricane damage for eight consecutive years, insurers are prepared for the state’s severe weather history to repeat itself.

Check out I.I.I. facts and statistics on hurricanes.

AIMU Calls on Marine Insurers to Leverage Cat Modeling

The insurance marketplace as a whole could benefit greatly if marine insurers would incorporate more catastrophe modeling in their pricing and profiling of risk accumulations, according to American Institute of Marine Underwriters (AIMU) chairman Roger F. Ablett.

Speaking at the 115th AIMU annual meeting held in New York City late last week, Ablett noted that in the aftermath of Superstorm Sandy there had been a call for marine underwriters to make greater use of cat modeling in their risk analysis.

Despite the shortcomings in modeling hull and cargo risks which are transient, as opposed to property risks which are static, Ablett told the gathering:

It is well known that the marketplace as a whole could benefit greatly if marine insurers would incorporate more modeling schemes in their pricing and the profiling of accumulations.†

Some 15 percent of Superstorm Sandy’s total estimated insured loss of $19 billion was marine-related.

The marine loss of $3 billion exceeded the total amount of U.S. marine insurance premiums collected last year, Ablett said.

The two marine lines most affected by Sandy were cargo and yachts.

Cargo recorded a combined ratio of 131 percent in 2012, up from 88 percent in 2011.

The combined ratio for yachts was 135 percent in 2012, some 40 points higher than the prior year.

AIMU’s annual survey of its members also reported direct written premiums of $2.2 billion in 2012, with a combined ratio of 115 percent.

That represents a slight drop in premiums from 2011, while the combined ratio deteriorated from just over 90 percent.

Growing Need for Businesses to Manage Social Media Risks

More and more companies are using social media and many recognize the potential risks, but few have an adequate plan in place to manage those risks.

Two separate surveys point to the fact that as social media becomes even more widely used in the corporate setting, businesses need to properly assess and monitor the risks involved.

Chubb’s just-published 2013 Private Company Survey found that 68 percent of companies are using social media – up from 39 percent in 2010 – but only 12 percent are concerned that they will be sued for allegedly making defamatory posts.

Further, only 49 percent have a written social media usage policy for their employees, Chubb found.

Executives at 450 U.S. for-profit private companies were interviewed for the Chubb survey.

An earlier report from Grant Thornton LLP and the Financial Executives Research Foundation (FERF), found that some 71 percent of public and private company executives are concerned about the potential risks involved in the use of social media, but they believe the risks can be mitigated or avoided.

More than half (59 percent) of executives surveyed said their companies do not perform a social media risk assessment.

Also, two-thirds (66 percent) of respondents see their company’s use of social media increasing during the next 12 months, but only a third of respondents (36 percent) reported that their company has social media training.

As the report says:

The evaluation and monitoring of risk needs to be a key component of any organization’s social media strategy, and its importance cannot be overstated.†

More than 100 senior-level executives from public and private companies participated in the 2013 Social Media Risks and Rewards survey, which was conducted during May and June of this year.

Check out the I.I.I. paper Social Media, Liability and Insurance.

Update on Super Typhoon Haiyan

More than a week since devastating Typhoon Haiyan hit the Philippines and greater clarity is starting to emerge on the numbers surrounding this disaster.

A November 18 report from the United Nations Office for the Coordination of Humanitarian Affairs notes that Typhoon Haiyan affected an estimated 13 million people in nine regions.

The latest government figures estimate that over 4 million people have been displaced, of whom 392,470 are living in 1,587 evacuation centers in six regions, mainly in Western and Eastern Visayas regions.

The Wall Street Journal reports that Typhoon Haiyan caused at least 3,982 fatalities, injuring 18,266 people. An additional 1,602 people are missing.

An updated report from Guy Carpenter notes that according to Joint Typhoon Warning Center (JTWC) advisories, Typhoon Haiyan meets or surpasses the intensity of the strongest landfalling tropical cyclone in recorded history: Hurricane Camille (1969) which made landfall on the U.S. Gulf Coast as a devastating 190 mph (305 km/h) hurricane.

Catastrophe modeler AIR Worldwide reports that the islands of Leyte, Samar, and northern Cebu are among the worst affected areas. Tacloban City, the capital and biggest city (population of 220,000) of Leyte province was particularly hard hit as storm surges as high as 4 meters destroyed every coastal home and left many inland neighborhoods inundated with floodwaters.

As for the cost to insurers, AIR Worldwide estimates industry-wide insured losses of between $300 million and $700 million.

Due to low insurance take-up, this is a small proportion of the total damage to residential, commercial and agricultural property which AIR Worldwide estimates at between $6.5 billion and $14.5 billion.

AIR Worldwide explains:

The wide range in the modeled ground-up and insured losses reflects uncertainty in the meteorological parameters associated with this event. For the insured loss estimation, there is additional uncertainty in the take-up rates (insurance penetration) for the Philippines.†

Higher Levels of Customer Satisfaction with Property Claims

Homeowners insurance customers are more satisfied with the property claims experience overall, according to the J.D. Power 2014 Property Claims Satisfaction Study – Wave 2.

Overall claimant satisfaction increased to 848 (on a 1,000-point scale) in Wave 2 of the study, up from 832 in Wave 1.

J.D. Power says the improvement is due to insurers providing accurate timelines of the claims process length and helping claimants avoid settlement negotiations.

In a press release, Jeremy Bowler, senior director of the global insurance practice at J.D. Power, said:

Insurers are doing a better job of setting claimant expectations of the time it will take to settle their claim, which is a significant contributor to overall satisfaction. Based on feedback from claimants, it is evident that insurers also are more consistently taking time to explain the settlement, which results in fewer claimants negotiating their settlement.†

Higher levels of satisfaction were buoyed by improvements in the handling of first-time claimants and non-catastrophic claims, the study found.

Satisfaction among first-time claimants improved by 17 points to 842 in Wave 2, from 825 in Wave 1, as more insurers provided an accurate timeline of the claims process length (76 percent in Wave 2, versus 72 percent in Wave 1) and a greater percentage of claimants avoided a settlement negotiation (75 percent did not have to negotiate the settlement in Wave 2, versus 71 percent in Wave 1).

Satisfaction with non-catastrophic damage claims also increased to 840 from 829 in the 2013 study, and 833 in the 2012 study. This was due to significantly higher scores in the estimation process, repair process and settlement factors, J.D. Power said.

Interestingly, satisfaction with agent first notice of loss dropped to 853, from 875 in Wave 1. Customer satisfaction when reporting claims via a call center, website or other electronic method increased, however (up to 855 in Wave 2 from 829 in Wave 1).

The study measures satisfaction with the property claims experience among insurance customers who filed a claim for damages covered under their homeowners policy by examining five factors: settlement; first notice of loss; estimation process; service interaction; and repair process.

Wave 2 of the study is based on responses from 1,740 homeowners insurance customers who filed a property claim after June 1, 2012. The current wave of the 2014 study was fielded in the third quarter of 2013.

Typhoon Haiyan: The Insurance Perspective

Amid the pictures and stories of destruction from Typhoon Haiyan come some facts that put the damage from this storm in perspective, at least in insurance terms.

Typhoon Haiyan hit the central Philippines as an extreme Category 5 storm, with winds of 195 miles per hour as well as  a massive storm surge on November 8. It then traveled across the South China Sea and made landfall on the north Vietnam coast as a Category 1 storm with 75 mile per hour winds on November 10.

Latest media reports put the death toll in the city of Tacloban alone at more than 10,000. While this figure seems high, the Capital Weather Gang blog notes that even if the death toll estimate holds up Haiyan would rank outside the top 35 deadliest tropical cyclones on record.

For comparison, the most deadly tropical cyclone on record was the Great Bhola Cyclone that claimed 300,000-500,000 lives in Bangladesh in November 1970.

According to Swiss Re sigma statistics, Haiyan may also fall outside the top 25 worst catastrophes in terms of victims (1970-2012).

Insurance industry experts predict that while the economic impact of Typhoon Haiyan will be significant, insured losses are likely to be low.

AIR Worldwide reports that the economic cost of the typhoon is expected to be the highest from a natural disaster in the Philippines’ history, although only a small portion of it is expected to be insured.

Officials suggest more than two million families (nearly 10 million people) have been affected by Haiyan in the Philippines, with more than 650,000 people displaced, AIR Worldwide adds.

Dr. Robert Hartwig, president of the Insurance Information Institute (I.I.I.) notes that the Philippines is a very small market for property/casualty insurance, with premiums written in 2012 of just $1.23 billion. On a per capita basis, this works out to just $12.70, compared with $1,223.90 in the United States.

Another reason why insured losses may be nominal, Dr. Hartwig says, is that the storm did not make a direct hit on Manila, the capital and largest city in the Philippines.

The I.I.I. reports that prior to Haiyan, the strongest storm to hit this region was Super Typhoon Megi in October 2010, which impacted the Luzon region. Insured losses for that storm were estimated at less than $150 million.

Check out this satellite image of Haiyan, as it moved over the central Philippines November 8,  courtesy of NASA:

Mobile Devices Becoming Important Tool in Search for Insurance Coverage

More insurance buyers are using mobile devices to begin their search for insurance coverage, though most complete their purchase offline, according to a study from Telmetrics conducted by Nielsen.

It reports that around half of insurance buyers begin the insurance research process on a mobile device, but 60 percent still use PCs in their purchase decision.

Ultimately, one out of four mobile insurance searches result in a conversion, and most (43 percent) make that conversion via a phone call to a local agent or to a company’s toll-free number.

The majority (80 percent) of insurance buyers using mobile devices search for auto insurance, followed by 38 percent for home insurance and 22 percent for health insurance.

A press release quotes Bill Dinan, president of Telmetrics:

Generating a 60-40 offline-online conversion split, insurance is a true multi-media engagement category that requires insurance marketers to meet a range of consumers’ search and conversion needs.

To aid mobile-driven conversions via calls, mobile insurance campaigns should prominently feature phone numbers and local agent office information for consumers to easily connect and make a purchase.†

The study also reveals that insurance buyers take a long time to consider their purchase and mobile is involved at every stage.

Nearly half of mobile insurance users take a month or longer to make a purchase and less than a quarter of insurance purchases happen within the day.

Hat tip to Insurance & Technology which reports on the findings here.

Cyber Insurance Becomes ‘Must Have’ Product

The percentage of companies buying cyber liability insurance is increasing substantially, according to an annual survey jointly produced by Advisen and Zurich.

For the first time in the three years that the survey has been administered, more than half of respondents claim to purchase cyber liability insurance.

In response to the question “Does your organization purchase cyber liability insurance?† some 52 percent responded yes, compared to 44 percent in 2012, and 35 percent in 2011.

Only 38 percent said their organization did not purchase this protection, down from 50 percent in 2012 and 60 percent in 2011.

Of those companies that do purchase coverage, some 72 percent have done so for more than three years. This represents a 10-point increase from 2012 suggesting that when organizations purchase the coverage they see enough value to renew it year after year.

Even those companies that have not bought cyber coverage are thinking about it.

Half (53 percent) of survey respondents that do not currently buy cyber insurance are considering purchasing it in the next year – a 28 percentage point increase from 2012.

Advisen notes:

This is an indication of the continued shift in the cyber insurance marketplace, from a product that was interesting but not a necessity to one that is becoming a must have.†

Check out a recent I.I.I. paper on cyber risks.

Adobe Data Breach Highlights Security Risk

The impact of a data breach at software maker Adobe appears to be worsening. When it first announced the breach on October 3, Adobe said that cyber attackers had compromised accounts and passwords of nearly 3 million users. Now that number has jumped to at least 38 million users.

What’s more a blog post at PCWorld indicates that a further 150 million usernames and hashed passwords were taken from Adobe. While Adobe says these could include inactive IDs, test accounts and IDs with invalid passwords, the company is still investigating.

PCWorld also reports that the hackers stole source code for flagship Adobe products such as Photoshop, Acrobat, and Reader.

It cites a blog post by Hold Security that suggests the source code theft could have far-reaching security implications.

Here’s the direct quote from the Hold Security blog post:

While we are not aware of specific use of data from the source code, we fear that disclosure of encryption algorithms, other security schemes, and software vulnerabilities can be used to bypass protections for individual and corporate data. Effectively, this breach may have opened a gateway for a new generation of viruses, malware, and exploits.†

Despite the major news headlines about cybercriminals, it’s worth remembering that mistakes made by people and systems actually cause the majority of data breaches.

The 2013 Cost of a Data Breach study by the Ponemon Institute and Symantec, found that negligence and system glitches together accounted for 64 percent of data breaches last year. Such incidents include employees mishandling information, violations of industry and government regulations, inadvertent data dumps, stolen laptops, and wrongful access.

However, U.S. companies represented in this study are apparently continuing to improve their preparation for and response to a data breach.

Both the organizational cost of data breach and the cost per lost or stolen record declined last year, with the organizational cost declining from $5.5 million to $5.4 million and the cost per record from $194 to $188.

Ponemon and Symantec attribute this to more organizations using data loss prevention technologies, fewer records being lost in the breaches and less customer churn.