The Federal Trade Commission (FTC) has given financial institutions and creditors an extra six months, until May 1, 2009, to comply with the so-called Ã¢â‚¬Å“red flags ruleÃ¢â‚¬ which requires them to develop and implement written identity theft prevention programs. Apparently some industries and entities within the FTCÃ¢â‚¬â„¢s jurisdiction had expressed confusion and uncertainty about their coverage under the rule. Just to be clear, the FTC said the extension does not affect compliance with the original November 1, 2008 deadline for institutions subject to oversight of other federal agencies. Those of you who read our posting a year ago will already be aware that under the red flags rule, financial institutions and creditors with covered accounts mustÃ‚ implement prevention programs to identify, detect, and respond to patterns, practices, or specific activities that could indicate ID theft. As weÃ¢â‚¬â„¢ve said before, financial institutions are prime targets of ID theft, so new rules requiring them to take preventive measures could increase their potential liability. Check out further I.I.I. facts and stats on ID theft.
Risk managers questioned for a new Economist Intelligence Unit survey point to regulatory risk as the most significant threat to their business, ahead of country risk, market and credit risk, IT and people risks, or terrorism and natural disasters. The reportÃ¢â‚¬â„¢s publication is timely given the widespread calls for increased global regulatory oversight in response to the financial crisis. While respondents to the surveyÃ‚ support the concept of regulation, they voiced strong concerns about the quantity and complexity of their compliance obligations, as well as the lack of regulatory harmonization between different jurisdictions. The findings form part of From Burden to Benefit: Making the Most of Regulatory Risk Management, a new Economist Intelligence Unit survey and report sponsored by ACE, KPMG, SAP and Towers Perrin. According to the results, audit and reporting regulations cause the biggest headaches, but other areas are also causing concern for many companies. In particular, respondents point to workforce and environmental legislation as areas that consume large amounts of resources and management time. Research for the report is based on an online survey of 320 global executives with responsibility for risk.
U.S. companies are preparing for a rise in litigation amid the economic downturn, according to the Fifth Annual Litigation Trends Survey from international law firm Fulbright & Jaworski. Despite two straight years of reporting declines in the numbers of new lawsuits and regulatory proceedings, this yearÃ¢â‚¬â„¢s survey reveals an important shift as to how U.S. corporate law departments view the litigation climate. Some 34 percent of in-house counsel at U.S. firms now expect to see an increase in the number of legal disputes faced by their company in the year ahead, while 25 percent expect anÃ‚ uptick in the number of regulatory proceedings on the horizon. Fulbright reports that billion-dollar firms were especially wary, with 43 percent anticipating more litigation versus 34 percent last year. Financial firms feel the most at risk, with 50 percent expecting more disputes, followed by education (43 percent predicting uptick), health care firms (40 percent), retailers (39 percent) and insurers (36 percent). We note that insurers were the number one target for new litigation in the past year Ã¢â‚¬“ two-thirds of insurers faced at least six new lawsuits, including 29 percent facing more than 50 new actions. Check out I.I.I. information on the liability system.Ã‚
Alternative risk financing and risk transfer has proven increasingly attractive to our industry over the years. Insurers and reinsurers have looked to the capital markets more and more to diversify their risks and expand capacity. So it’s not surprising that Allianz, Deloitte, State Farm, Swiss Re and Zurich Financial Services are among the co-sponsors of a new report published today by the World Economic Forum, titled Convergence of Insurance and Capital Markets. The report explores the growth of the market for insurance linked securities (ILS) and highlights potential next steps needed to continue its development and to further encourage investors’ strong appetite for catastrophe bonds and other forms of ILS products.
According to the report, the ILS market has seen strong growth since its inception in the mid 1990s. Issuance of ILS totaled $14.4 billion in 2007, up 40 percent from $10.3 billion in 2006. At the end of 2007, the notional value of outstanding ILS stood at $39 billion, a 50 percent increase from $26 billion at the end of 2006. Certain experts predict robust growth over the next several years. The report also notes that to accelerate the convergence of insurance with the capital markets, risk instruments must be made simpler and more attractive, and a wider investor audience must be courted. Check out background I.I.I. information on Captives and Other Risk Financing Options.Ã‚ Ã‚ Ã‚
The current financial crisis has senior finance executives more likely to be concerned about their firmsÃ¢â‚¬â„¢ risk management practices (72 percent) than they are about their access to capital. A CFO Research Services study in conjunction with Towers Perrin, found that respondents were less concerned about issues such as accessing long-term debt financing (65 percent) and short-term financing (61 percent), in comparison to risk management. The companies surveyed also acknowledged they will need to retool their risk management practices, with 55 percent saying their risk management practices are likely to change at either the board or employee level.
WhenÃ‚ asked which items contributed to the current financial crisis, respondents as a whole blame risk management practices at banks (62 percent), followed by the increased complexity of financial instruments (59 percent) and financial market speculators (57 percent). Additionally, 24 percentÃ‚ said that fair-value accounting requirements were a major contributor to the crisis.Ã‚ While the majority of respondents (62 percent) acknowledged that the financial crisis would dampen profit expectations and leave a potentially lasting dent on the world economy, onlyÃ‚ 4 percent said they feared a major negative impact on their financial results.
This weekÃ¢â‚¬â„¢s news that school teachers in a Texas school district will soon be allowed to carry guns in the classroom is understandably sparking debate across the nation. The Harrold school district (in north Texas) apparently changed its policy to allow district employees to carry concealed guns on school property for their protection due to concerns over the schoolÃ¢â‚¬â„¢s proximity to a state highway and its 30-minute distance from the nearest sheriffÃ¢â‚¬â„¢s office. Check out this August 18 article in the Dallas Morning News for more information. HarroldÃ‚ is reportedÃ‚ to be the first district with such a policy. Teachers and staff members would have to meet requirements such as: be licensed to carry a concealed handgun; be authorized to carry by the district; and receive training in crisis management and hostile situations. Pause for thought on what the liability and risk management implications of such a policy could be for educational establishments and their employees? Check out further I.I.I. info on the liability system.Ã‚
‘Lightning Ã¢â‚¬“ The Underrated Killer’ is the title of a recent risk control bulletin from Willis. According to its findings, an estimated 25 million lightning flashes occur each year in the U.S. and over the past 30 years, lightning killed an average of 62 people annually, tying the average of 62 deaths per year caused by tornadoes. Yet because lightning usually claims only one or two victims at a time and does not cause mass destruction of property, it is underrated as a risk. While documented lightning injuries in the U.S. average about 300 per year, undocumented injuries are likely much higher, Willis notes. Check out further I.I.I. facts and stats on lightning.Ã‚
National oil companies (NOCs) are facing a riskier business environment, yet there is a gap between the importance of the risks they face and how well they are managed. A new survey from Marsh found the overall level of risk facing the industry remains high, with the NOC Risk Index score rising to 4.51 out of a possible 6 in 2008. By contrast, the Risk Management Effectiveness Index score was just 3.8. The top five risks in 2008 ranked by participants are: availability of oil and gas resources; recruitment and retention of a qualified workforce; energy price volatility; environmental impact of operations; and political/regulatory risk issues. Availability of oil and gas resources as a risk issue was rated 5.3 out of a possible 6. It was also the top-ranked risk in 2007 but with a rating of 4.9.
A new survey of financial executives representing the largest corporations in North America reveals that almost all companies are exposed to natural disasters, yet many of those firms are ill-prepared for such catastrophes. FM Global said the gap between levels of natural catastrophe exposure and levels of preparedness is concerning.Ã‚ The 2008 Natural Disaster Business Risk Study found that while 96 percent of financial executives said their companies have operations exposed to hurricanes, floods and earthquakes, less than 20 percent indicated that their firms were very concerned about such disasters negatively affecting their bottom line. For example, while 80 percent of companies have North America operations located in hurricane-exposed regions, nearly 50 percent reported they are not well-prepared for a hurricane. Nearly 80 percent are not overly concerned that a hurricane/typhoon or tropical cyclone could negatively impact their companyÃ¢â‚¬â„¢s bottom line. FM Global said the findings suggest companies should also consider the impact a disaster could have on maintaining competitiveness, market share and corporate reputation. Check out I.I.I. facts and stats on U.S. catastrophes.
Medical malpractice continues to be the dominant line of business for U.S. captives. The performance of this line therefore can have a significant impact on the overall captive insurance market. A new report by ratings agency A.M. Best notes that medical malpractice net premiums written fell 26 percent in 2007, leading to a 15 percent drop in net premiums written for a composite of 177 captive insurance companies. However, captives overall benefited from favorable underwriting trends. Solid underwriting results in medical malpractice helped the captive compositeÃ¢â‚¬â„¢s loss ratio to improve substantially in 2007 to 61.9, for example. Looking ahead, A.M. Best predicts that in spite of the soft market, the outlook for the captive industry is stable. Captive formations continue even as the commercial market softens and new domiciles have entered the market. A key advantage for captive insurers is also their ability to compete not just on price, but on customized services for their insureds. Check out I.I.I. updates on captives andÃ‚ other riskÃ‚ financing options and on medical malpractice.Ã‚