For anyone who missed the news, the Terrorism Risk Insurance Revision and Extension Act of 2007 (H.R. 2761) passed the House yesterday afternoon, by a final vote of 312-110. Key elements of the House bill are that it would extend the program for an additional 15 years (until December 31, 2022), and expand coverage under the program to include domestic acts of terrorism, group life losses and chemical, nuclear, biological and radiological (CNBR) terrorism. We hasten to add that the general consensus among insurers that a continuing federal role is essential to ensuring that terrorism risk insurance remains available to businesses is not a view shared by all. Earlier this week the Administration said TRIA should be phased out in favor of a private market for terrorism insurance. That said, the Administration did say it is willing to work with Congress as the bill moves through the legislative process so that H.R. 2761 meets the critical elements of an acceptable extension. As the clock counts down to TRIA expiration on December 31, 2007, weÃ¢â‚¬â„¢ll be watching this issue closely, so let us know your views. Check out I.I.I. information on terrorism risk online.
Bird hazard may not be the first risk that comes to mind when stepping aboard an aircraft today, but bird strikes (i.e. aircraft collisions with birds and other wildlife) are a major risk exposure for airlines and their insurers. Consider the following: flying is an increasingly popular mode of transportation; air traffic worldwide is increasing and natural habitats around airports tend to be home to wildlife. According to the Federal Aviation Administration (FAA), some 72,526 strikes were reported to civil aircraft in the U.S. from 1990 to 2006. Birds were involved in 97.5 percent of the strikes, terrestrial mammals in 2.2 percent, bats in 0.2 percent, and reptiles in 0.1 percent. The number of strikes annually has quadrupled from 1,743 in 1990 to 7,089 in 2006. Further, the annual cost of wildlife strikes to the U.S. civil aviation industry is estimated at in excess of $603 million and experts say the risk is growing. The Bird Strike Committee annual meeting features a wide variety of presentations on how to mitigate the bird strike hazard. Check out further I.I.I. facts on aviation.Ã‚
The next step following the landmark February 2006 Rhode Island lawsuit against three former lead paint manufacturers unfolded Friday with the release of a state proposal detailing cleanup and related costs. In short, the RI Lead Nuisance Abatement Plan would require the paint manufacturers to pay out $2.4 billion to clean up 240,000 housing units. It is, however, subject to court approval. Wherever this plan takes the lead paint issue in RI, itÃ¢â‚¬â„¢s worth remembering that recent court decisions in other states, including New Jersey, Missouri and Ohio, have rejected the public nuisance legal theory on which the RI lead paint suit was based. Time will tell how future lead paint litigation will develop, but clearly this issue has emerging consequences for a number of industries, including ours. Check out more I.I.I. info on products liability emerging exposures.
We bring the week to a close by noting that a number of leading insurers and industry organizations (38 at last count) have signed on to a U.K. initiative aimed at addressing climate change. Known as the ClimateWise Principles, the initiative has been launched by the Association of British Insurers (ABI). It was developed following discussions between insurers and HRH the Prince of Wales. The principles commit insurers that sign up to: lead the way in analyzing and reducing risks; support climate awareness among their customers; incorporate climate change into their investment strategies; inform and engage in public policy debate; and reduce the environmental impact of their businesses. Specifically, insurers will be required to incorporate climate risk into their business strategy and planning, and to publish a statement as part of their annual report detailing the actions that have been taken in support of the principles. Check out more on this at: http://www.climatewise.org.uk/Ã‚
The annual gathering of the International Union of Marine Insurers (IUMI) took place in Copenhagen, Denmark this week. One of the featured speakers was I.I.I. president Dr. Robert Hartwig, who gave a presentation focused on issues relating to the global maritime industry. As well as marine insurance trends,Ã‚ such asÃ‚ premiums, pricing and underwriting performance, Dr. Hartwig spoke on the economic environment for marine insurers in the context of a relatively healthy global economy and a depreciating U.S. dollar. The important role China is likely to play as a trading partner in the 21st century was another focus of his discussion. Catastrophe loss activity, the energy market and terrorism and liability-related issues in the maritime sector were other topics of discussion. Access the full report on the I.I.I. Web site.Ã‚
On the sixth anniversary of September 11, we take a look at a timely new Marsh risk survey of Fortune 1000 companies. The survey findings offer us an insight into how board-level executives at these companies view international terrorism attacks among seven other risk scenarios, including natural disasters, rapidly rising oil prices and pandemics. While terrorism ranks second only to natural disasters in terms of the most likely crisis scenario to occur, just 38 percent of Fortune 1000 executives felt that international terrorist attacks were likely to occur in the next eight to 10 years. This compares with 65 percent who felt that natural disasters were the most likely to occur. At the same time, 39 percent said a terrorist attack would have a catastrophic impact on their business. When asked if they had taken steps to prepare, roughly four in 10 (44 percent) of those surveyed said their company has prepared for a terrorist attack, compared to 58 percent for natural disasters. On the flip side, very few executives believe it is likely that a housing market collapse, reduced access to water or a pandemic disease, will occur in the coming decade. Encouragingly, in the event of one or more of the eight crisis situations, 74 percent of those surveyed say their company has prepared a business continuity plan. Check out further I.I.I. terrorism risk informationÃ‚ online.
Reports that four of the largest microwave popcorn manufacturers in the U.S. are working to remove the butter flavoring chemical diacetyl from their products due to health risks to workers is good news for everybody it appears. ItÃ¢â‚¬â„¢s been acknowledged for some time that a potentially significant exposure arises from factories packaging butter-flavored popcorn. Already a number of lawsuits have been pursued by workers at these factories due to alleged exposure to diacetyl. Further, various federal agencies have said they believe the butter-flavored chemical may result in bronchiolitis obliterans, also known as Ã¢â‚¬Å“popcorn packers lung.Ã¢â‚¬ Now Dr. Cecile Rose, a pulmonary specialist at DenverÃ¢â‚¬â„¢s National Jewish Medical and Research CenterÃ‚ has written to federal agencies, saying that doctorsÃ‚ believe they have identifiedÃ‚ the first case of a consumer who developed lung disease from the fumes of microwaving popcorn several times a day for years. The letter was first published by fellow blogger David Michaels, of the George Washington University School of Public Health on his public health policy blog (http://thepumphandle.wordpress.com). An emerging products liability exposure to keep our eye on.Ã‚
This week online job search site Monster Worldwide announced that it would be boosting its security measures following a significant data breach earlier this month. Apparently Monster recently became aware of illegal downloads of personal information of at least 1.3 million job seekers with resumes posted on Monster.com, including names, addresses, phone numbers and email addresses. The delay between finding out about the breach and notifying those affected is still being explained by the company. Part of the answer may lie in the fact that it can take months for companies to uncoverÃ‚ data loss incidents.Ã‚ Many breaches also go unreported as companies try to limit the damage to their reputation. Meanwhile, we read that the Ohio Court of Claims has dismissed a lawsuit by two Ohio University graduates seeking to compel the school to pay for credit monitoring following a 2005 computer breach. The judge decided that the two original plaintiffs could not prove harm because they have not experienced identity theft. Needless to say, attorneys now plan on refiling the complaint with new plaintiffs who are victims of identity theft. Both stories highlight the continuing liability facing corporations when a breach in data security occurs. Insurance is one of the tools available to help corporations prepare and recover. Check out further I.I.I. info on this topic.Ã‚
I.I.I. president Dr. Robert Hartwig has sent a detailed rebuttal toÃ‚ the September 2007 Bloomberg Markets cover story that claimed that insurers use secret tactics to avoid paying claims. InÃ‚ I.I.I.’s response, Dr. Hartwig notes that the articleÃ¢â‚¬â„¢s premise and facts were unsound and that the insurance industry has an excellent claims-paying track record. Dr. Hartwig also notes that property/casualty insurers annually pay out hundreds of billions of dollars on tens of millions of claims. See the August 15 I.I.I. letter.
Yesterday we cited projections of increasing catastrophe losses in years to come along the Atlantic and Gulf Coasts, so today we turn our attention to the topic of how to finance catastrophic risk. Historically the capacity to finance such risk was limited to the traditional re/insurance markets, or to self-insurance and pooling. Now insurers can diversify their risk and expand the availability of insurance in cat-prone areas by tapping into the capital markets. An article by Michael Lewis in the New York Times magazine on Sunday August 26 focuses on this very topic and describes one well-known capital markets solution: catastrophe bonds. Catastrophe bonds developed in the wake of mega-cats Hurricanes Andrew and Iniki in 1992 and the Northridge earthquake in 1994. Since then, cat bonds have been used to cover a wide variety of exposures, with earthquakes (both U.S. and Japan) and U.S. hurricanes accounting for the majority of bond issues. Without question, the market for natural catastrophe bonds is growing. Guy Carpenter reports that annual issuance of cat bonds reached a record $4.69 billion in 2006, up 136 percent from $1.99 billion in 2005. The number of transactions completed also doubled to 20 in 2006, from 10 in 2005. However, despite recent gains, over the longer-term the dollar value and number of catastrophe securitization transactions is still modest in relation to global reinsurance capacity. Between 1997 and 2006, 89 catastrophe bondsÃ‚ were completed, representing $15.35 billion in catastrophe bond issuance, relative to $330 billion in global reinsurance capacity. What do you think? Check out further I.I.I. info on reinsurance and alternative risk financing options.