Market Barometer

Yesterday we took the temperature of the aviation insurance market. Today we bring you the latest gauge on the condition of the U.S. commercial property-casualty market from online insurance exchange MarketScout. Its data indicates a continuing soft market, with an average property-casualty rate decrease of 15 percent in October, compared with a year ago. According to MarketScout, the market is likely to remain extremely competitive through the remainder of 2007 and well into mid-2008. By line of coverage, general liability led the pack with a rate decline of 17 percent in October. Commercial property, business interruption, umbrella/excess, professional liability, and D&O liability experienced the second largest drop in rates of 16 percent. Surety saw the smallest rate decline of 7 percent. Check out the I.I.I.’s latest industry outlook.

Airline Insurance Review

As aviation aficionados know, the last quarter of the year traditionally is when many of the world’s major airlines renew their insurance programs. Broker Aon has just published its Airline Insurance Market Pre-Renewal Season Review 2007 which offers a good barometer of the market and where it is headed. According to Aon, average hull and liability premium prices have fallen by 15 percent in 2007 so far, yet at the same time exposures continue to grow as new larger aircraft come off production lines ready to fly ever increasing numbers of passengers. From the safety standpoint, so far 2007 also stands out in terms of the high number of fatalities, hull losses and liabilities. Aon notes that compared to the same time last year: there have been nearly 80 percent more fatalities; the value of hull losses ($420.7 million) is 18 percent higher; and the value of liability losses ($406.7 million) has doubled. Aon’s airline risk management survey also throws out some interesting results. While attitude to risk and risk priorities remain broadly unchanged, future risk requirements reflect a growing focus among airlines on corporate social responsibility. Environmental pollution has become the highest future risk requirement, jumping from sixth place in the 2005/06 survey. This change knocked computer crime insurance into second place, while business interruption climbed to become the third highest additional risk that organizations will be looking to insure against in the next three years. Check out further I.I.I. facts & stats on aviation.  

Agency Best Practices

Insurers increasingly use multiple distribution channels to sell their products, so an annual best practices study just released by the Independent Insurance Agents & Brokers of America (IIABA) is worth reading. The 2007 study shows that overall agencies are doing much more with fewer people and show an organic growth rate that is much stronger than expected. The new crop of best practices agencies were asked to what they attributed their success and overwhelmingly, regardless of agency size, they noted “the quality of our people.† According to IIABA, this quality is defined as a strong work ethic, expert knowledge in agency products and services, as well as high ethical standards and dedication. These factors along with advanced proficiencies with agency technologies allowed the 2007 Best Practices Agencies to push productivity levels higher than ever. The 2007 study names 195 new agencies in six agency revenue categories ranging from under $1.25 million to over $25 million. It includes a new statistic, known as the “Rule of 20†, which provides a quick means of calculating whether or not an agency creates value for its shareholders. The leading agencies must be nominated for participation in the study. Check out further I.I.I. info on distribution.  

ID Theft Rules for Financial Institutions

Financial institutions are prime targets of identity theft because they hold their customers money and store large quantities of personal data, so rules issued by Federal regulators on steps these companies must take to prevent ID theft could increase their potential liability. Under the final rules issued by the Federal Trade Commission (FTC) and other Federal regulatory agencies, all financial institutions will be required to develop and implement a program to prevent identity theft on new and existing consumer accounts. The program must include reasonable policies and procedures for detecting, preventing, and mitigating ID theft and enable a financial institution or creditor to: identify relevant patterns, practices, and specific forms of activity that are “red flags† signaling possible identity theft and incorporate those red flags into the program; detect red flags that have been incorporated into the program; respond appropriately to any red flags that are detected to prevent and mitigate ID theft; and ensure the program is updated periodically to reflect changes in risks from ID theft. The rules, which implement sections of the Fair and Accurate Credit Transactions Act of 2003, take effect January 1, 2008. Covered financial institutions and creditors have until November 1, 2008, to comply. Check out further I.I.I. facts & stats on ID theft.

Happy Halloween

The extension of daylight savings time means that it will get dark later this Halloween, helping to make for a safer holiday. Still, parents need to keep in mind steps to minimize the risks as their kids go trick-or-treating. I.I.I. advises parents to accompany small children around the neighborhood and to make sure children old enough to explore the neighborhood on their own visit homes where they know they’ll be welcome. Once darkness does fall a well-lit porch is a signal that kids are welcome. Motorists need to remember that kids may be distracted by all the costumes and candy. Parents should also warn children to stay on the sidewalks and to cross the streets carefully. Reflective tape on costumes and trick-or-treat bags is a good idea, as is arranging for youngsters to go out in groups rather than alone. Further I.I.I. safety tips include: make sure costumes fit properly as loose-fitting costumes can cause a child to trip and fall; use make-up instead of masks as some masks can obstruct vision; make sure all costumes are made of non-flammable materials; keep lighted jack-o’-lanterns and candles away from children and flammable materials; inspect all treats before allowing children to eat them. Have a safe and happy Halloween!  

Psychological Impact of Wildfires

As California residents displaced by  last week’s  wildfires begin the recovery process a reissued RAND study is a reminder of the potential impact of the event on their mental health. The study, conducted after the October 2003 California firestorm, surveyed 357 people who sought assistance from the American Red Cross and government relief centers. Within days of the mandatory evacuation participants completed baseline self-administered questionnaires assessing demographic characteristics, initial subjective reactions and degree of fire exposure. A follow-up mail-in survey three months later measured symptoms of posttraumatic stress disorder (PTSD) and major depression. The results found that 33 percent showed evidence of probable major depression, while 24 percent exhibited probable PTSD. Check out latest I.I.I. information on the wildfires.  

Top States For Deer/Vehicle Collisions

Cars and deer can be a lethal combination, particularly during deer migration and mating season which generally runs from October through December. A State Farm study of annual deer claims data from 2006 to 2007 and motor vehicle registration counts by state from the Federal Highway Administration, highlights the growing frequency and cost of deer/vehicle collisions. The upshot is that West Virginia is the leading state by frequency. State Farm estimates the chance of a West Virginia vehicle colliding with a deer in the next 12 months at 1 in 57. That’s three times more likely than one estimate of the possibility that a person will be audited by the Internal Revenue Service in 2008 and 5,000 times more likely than the chance that an individual will be struck by lightning in the next year, according to State Farm. Michigan (1 in 86) is second on the list of states where deer/vehicle collisions are most frequent, followed by Wisconsin (1 in 99), Pennsylvania (1 in 100) and Iowa (1 in 109). State Farm’s data also shows that the total number of deer/vehicle collisions in the U.S. has increased 6.3 percent over a year ago. The average property damage cost of these incidents also increased by 3 percent to just under $2,900.  

Market Common Sense

It’s amazing how just days after a disaster, some will jump to wild conclusions about the potential impact on premium rates. Those of us in the industry know that many forces affect the price and availability of insurance. The insurance industry is cyclical and rates and profits fluctuate depending on the phase of that cycle. While it’s true that the property/casualty industry’s profits may still be reasonably strong, it’s also true that profitable years are needed to offset years where profits are minimal or the industry suffers a loss, as all too recent history shows us. For example, in 2005 losses from Hurricanes Katrina, Rita and Wilma wiped out the profits of some insurers and forced others to raise additional capital. Further, insurers cannot arbitrarily raise rates to make up for past losses. So as the full impact of the California wildfires becomes clearer, I.I.I.’s issues update on financial and market conditions may be a helpful information tool.  

CA Wildfires Latest

Warnings of increased wildfire risk for the West this year (see our June 25 posting) sadly appear to have become reality as the worst wildfires in years continue to burn in California. In a preliminary estimate, the I.I.I. and the Insurance Information Network of California (IINC) expect that insured losses will exceed $500 million. This figure includes damaged and destroyed homes, as well as payments for additional living expenses and losses to businesses. For California wildfire statistics, check out the I.I.I. disaster Web site. Further information is also available from IINC.

Detailing ID Thieves

Identity theft continues to be the top consumer fraud complaint, according to the Federal Trade Commission (FTC), so a study of Secret Service cases released yesterday makes for interesting reading and highlights the multitude of ways in which ID theft can occur. Surprisingly, in half of the cases surveyed by the Center for Identity Management and Information Protection at Utica College, no use was made of the Internet or technology in the commission of the crime. Within this half, the most frequently used non-technological methods were change of address and dumpster diving. Despite ID theft’s impact on individuals, financial industry organizations made up the largest percentage of victims in this study (37.1 percent), closely followed by individuals (34.3 percent) and retail businesses (21.3 percent). Meanwhile, only one-third of cases involved ID theft through employment, with retail (including stores, gas stations, casinos, hospitals, doctors offices) being the most frequent type of business from which personal identifying information or documents were stolen (43.8 percent). Private corporations were vulnerable to insider ID theft in about 20 percent of those cases. In terms of losses incurred by ID theft victims, the median loss was $31,356, and in general the more offenders involved in the case the higher that figure. Check out further I.I.I. facts & stats on ID theft.

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