Category Archives: Business Risk

Terrorism Threat Map

Although the prospect of a major terrorist attack in a Western country is ever present, Aon’s 2009 Terrorism Threat Map shows a more settled outlook for North America, Europe and Australia. In a press release, Aon notes that while evidence of plots emerges from time to time, there is often a protracted timeframe between them. “We are unlikely to see the frequency of attacks in Western countries that we might have expected a few years ago. We attribute this to better counter-terrorism capability,† Aon said. However, it warned that the global recession could lead to a new generation of terrorists emerging from disaffected communities in a re-emergence of class-based politics. This raises the prospect of new terrorist groups forming in the developed world on the far right and left of the ideological spectrum. With the election of a more liberal President in the United States, uplift in activity from domestic far right and militia groups is possible, according to Aon. A shift in Islamist terrorist activity from the Middle East to South Asia is the primary feature of this year’s terrorism map. It shows a trend towards fewer terrorist attacks in the Middle East but increased activity in Pakistan, India and Afghanistan, with Thailand and Nepal also showing higher levels of activity. Check out I.I.I.  facts and stats  on terrorism.

ID Theft Rules: More Time to Comply

The Federal Trade Commission (FTC) has given financial institutions and creditors a further three months – until August 1, 2009 – to comply with the so-called “red flags rule† which requires them to develop and implement written identity theft programs. This is the second time the FTC has delayed enforcement of the new rules which were originally slated to take effect November 1, 2008. For entities that have a low risk of identity theft, such as businesses that know their customers personally, the FTC also said it will soon release a template to help them comply with the law. The red flags rule requires financial institutions and creditors with covered accounts to implement prevention programs to identify, detect and respond to patterns, practices or specific activities that could indicate ID theft. During 2007, the FTC received 813,899 consumer fraud and identity theft complaints, an increase of 21 percent over 2006. The new rules stem from the 2003 Fair and Accurate Credit Transactions Act. Check out I.I.I. info on ID Theft.  

Business Impact of Climate Change

Climate change will increase water scarcity, alter food production and dramatically change energy supply and migration patterns, according to a new report from Lloyd’s and the International Institute for Strategic Studies (IISS). The report, titled Climate Change and Security: Risks and Opportunities for Businesses, finds that businesses have a vital role to play in the mitigation of and adaptation to climate change. There are many ways that business can protect itself from the adverse effects of climate change and adapt to the new conditions, but business can also contribute to the goal of minimizing climate change. Boards should consider four key points: awareness and information; risk assessment and analysis of vulnerabilities; awareness of opportunities as well as risks; and spreading best practice. The report concludes that significant changes in the natural and political environment will place great stresses on businesses of every sort, but they will also create opportunities for the alert and nimble. Check out I.I.I. information on climate change and insurance.  

Trade Credit Risk

We glance across the pond today where the UK government announced in the Budget that it will offer a temporary top-up scheme for companies struggling to get trade credit insurance amid the economic downturn. According to latest reports, the scheme will provide up to  £5 billion ($7.2 billion) of additional trade credit insurance to businesses that have suffered reductions in their level of insurance cover. Trade credit insurance – which protects businesses against unexpected credit losses due to default or insolvency of their own customers (i.e. buyers) – is another key example of how insurers support the economy. The Association of British Insurers (ABI) just reported that the number of trade credit insurance claims in the UK rose to 8,366 in the fourth quarter of 2008, up 51 percent from 5,540 in the fourth quarter of 2007. The value of claims incurred in 2008 was  £360 million ($520 million), up from  £257 million ($371 million) in 2007. At the same time, the total value of turnover insured increased to  £302.5 billion ($438 billion), up from  £282 billion ($408 billion) in 2007. As the ABI noted, this demonstrates the commitment of trade credit insurers to support their clients when trading is difficult by providing them with as much cover as possible and carefully monitoring their risks. For more on how insurers support the U.S. economy, check out the I.I.I. online publication A Firm Foundation.  

EPA Issues CO2 Finding

Environmental risk management is among the many topics up for discussion at this week’s Risk and Insurance Management Society (RIMS) 2009 Annual Conference in Orlando, Florida. On Friday the Environmental Protection Agency (EPA) confirmed that greenhouse gases are air pollutants that may endanger public health or welfare. The proposed finding, which now moves to a public comment period, identified six greenhouse gases (carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride) that pose a potential threat. As an April 17 New York Times article notes, this basically sets in motion a process that will lead to regulation of greenhouse gases for the first time in the United States. It follows a landmark April 2007 U.S. Supreme Court decision that greenhouse gases fit well within the Clean Air Act’s definition of air pollutant and that the EPA has the authority to regulate emissions. Check out I.I.I. information on climate change and insurance.  

Man-Made Cats Above Average

Such is our focus on insured losses arising from natural catastrophes like hurricanes and tornadoes, it’s easy to skim over the losses arising from man-made catastrophes. A report from Guy Carpenter reminds us of their impact. It reports that man-made and technological catastrophes hit $7 billion in insured losses in 2008 – some 46 percent higher than the annual average of $4.8 billion, according to data from Swiss Re.  A total of 19 known events occurred in 11 countries resulting in insured losses of more than $50 million each. Nearly half of 2008’s man-made cat losses were caused by two events in Australia: an explosion and fire at an Apache Energy offshore gas plant ($1.8 billion) and BHP Billiton’s business interruption losses ($1.5 billion). Two events in the United States caused losses of more than $400 million each: an explosion at an Alon oil refinery ($525 million) and a fire at Universal Studios ($400 million-plus). The terrorist attacks in Mumbai, India, could trigger insurance claims of up to $600 million, according to Guy Carpenter. Check out I.I.I. facts and stats on global catastrophes.

Securities Class Action Settlements Decline: Reversal Expected

An absence of approved settlements in excess of $1 billion in 2008 contributed to a more than 50 percent decline in the average settlement value of federal securities class actions to $31.2 million in 2008, from $62.7 million in 2007. According to an annual report by Stanford Law School and Cornerstone Research, there have been nine settlements in excess of $1 billion over the previous 10 years and the third largest securities class action settlement in history (Tyco International) was reported in 2007. The report found that the total number of settlements also declined by a more modest 10 percent to 99 in 2008, from 110 in 2007. However, future damages are expected to rise as increased litigation activity arising from the financial crisis works its way through the judicial system. A key takeaway from the report is the discussion on settlements of pending actions against TARP recipients. As it explains, these will raise novel public policy issues: “Taxpayer dollars will, one way or another, fund these settlements. This simple fact could set off a debate about whether taxpayers should pay for these settlements, and about the effectiveness of the class action litigation mechanism altogether.† An interesting point.  

Wyeth Decision: Impact

Yesterday’s widely-anticipated decision by the U.S. Supreme Court in Wyeth v. Levine on the issue of federal preemption has huge significance for product liability litigation. In a 6-3 opinion, the Court decided that federal approval does not preempt consumer complaints in state courts, effectively opening the floodgates to a wave of potential product liability tort suits against pharmaceutical companies at the state level. We’re not lawyers, but a variety of commentaries by others hint at the significance of this decision for the broader business community, including insurers. Among many others, check out: the Wall Street Journal Law Blog, an editorial opinion in the New York Times, SCOTUSBLOG, and the BLT: the blog of Legal Times. Check out our earlier postings on preemption here and here.

Expanding Securities Litigation

Securities class actions are only one of a rapidly multiplying array of securities-related suits that are transforming the D&O insurance market, according to a new report from Advisen. Traditional securities class action suits accounted for less than half of new securities litigation in 2008, while suits alleging common law torts, breach of fiduciary duty and violation of previously rarely-cited securities laws have become more common. Advisen says a competitive and newly energized plaintiffs’ bar is testing the boundaries of securities suits with novel theories of liability and far more complex complaints. As a result defense costs are surging as plaintiffs’ lawyers concoct new strategies to avoid dismissals and to prevent suits from being consolidated. The report examines the legal, economic and political forces at work in securities litigation in 2008 and assesses their impact on the D&O insurance market in 2009 and beyond.  


Aviation Safety

As investigators begin the task of determining what caused the crash of a turboprop regional aircraft in a Buffalo, New York suburb late yesterday, it seems that weather conditions, rather than birds may have played a role. The plane, a Continental Connection flight operated by Colgan Air, was en route from Newark, New Jersey to Buffalo with 49 people on board when it crashed into a house in the Buffalo suburb of Clarence Center. According to latest reports, the total death toll from the crash is thought to be 50, including one person on the ground. The incident comes  just a  month after the emergency landing of a US Airways Airbus A-320 into New York City’s Hudson River in which 155 people escaped. Despite these two aviation accidents, it’s important to note the strong safety record of the U.S. commercial aviation industry. The number of commercial aviation accidents on scheduled flights with 10 or more seats, stood at less than one per 100,000 flight hours at year-end 2007, according to National Transportation Safety Board (NTSB) data. There were no fatalities on large scheduled commercial airlines in 2007, compared with 50 in 2006. Check out further I.I.I. facts on aviation.