Batten down the hatches! Today marks the official launch of the Insurance Information InstituteÃ¢â‚¬â„¢s industry blog. An inauspicious start some might say, particularly following the upgraded forecast for the 2007 hurricane season from Colorado State UniversityÃ¢â‚¬â„¢s Tropical Meteorology Project. So what do we have to look forward to? In a nutshell: 17 named storms, 9 hurricanes, 5 of which will be intense (Category 3-4-5). The forecasters also put the probability of a major hurricane hitting the U.S. coastline at 74 percent; the probability of a major storm hitting the East Coast, including the Florida Peninsula at 50 percent; and the probability of the same at 49 percent for the Gulf Coast. We may have been spared in 2006, but flashback to April 2005 when the CSU team upped its forecast to 13 named storms, 7 hurricanes, 3 of them intense. Sound familiar? The 2005 season actually saw a record 26 named storms, 14 hurricanes, of which seven were intense. Check out the I.I.I.Ã¢â‚¬â„¢s catastrophe facts for more information.Ã‚
A landmark environmental decision out of the Supreme Court today may have significant potential implications for our industry over the long-term. In a 5-4 decision, the court said that greenhouse gases fit well within the Clean Air ActÃ¢â‚¬â„¢s definition of air pollutant and that the Act gives the Environmental Protection Agency (EPA) the authority to regulate emissions of carbon dioxide and other greenhouse gases from cars. The upshot of all this is that the federal government will now have to reconsider its refusal to regulate greenhouse gas emissions. While itÃ¢â‚¬â„¢s too soon to draw any conclusions, clearly for insurers this opinion raises the threat of increasing environmental exposures and liability-related claims going forward.
Much has been reported about the vulnerability of the Gulf coast states to hurricane risk, but with the start of the 2007 hurricane season just 62 days away, a new presentation from I.I.I. president and chief economist Dr. Robert Hartwig takes us to the Eastern seaboard, specifically South Carolina. The biggest hurricane to hit the state was Hurricane Hugo back in 1989. Since then, South Carolina has experienced enormous growth in coastal population and property. Latest available figures show the state has some $150 billion in insured coastal exposure, of whichÃ‚ about 56 percent is commercial and 44 percent residential. As Dr. Hartwig notes, a major storm could result in far higher commercial than residential losses,Ã‚ particularly if business interruption as well as property damage coverage is triggered.Ã‚
Today another company, this time in the retail sector, revealed details of a breach in data security that saw hackers access information from at least 45.7 million customer credit and debit cards. A further 455,000 customers who returned merchandise without receipts also had their personal data stolen, according to news reports. Indeed, a recent risk survey conducted by the Economist Intelligence Unit (EIU) and sponsored by ACE European Group (ACE) found that one in three global businesses see loss of data as a significant threat and the key issue to address in operational risk management planning. Some 43 percent of survey respondents identified reputational damage as the main threat arising from data loss. Yet only 19 percent of respondents saw loss of revenue as a concern. These latest developments are a reminder of the potentially enormous liability facing corporations, if and when a breach in data security occurs, and the apparentÃ‚ growth opportunity for insurers.
Whoever says insurance is a dull business that has trouble attracting talented human capital to its ranks may want to turn to the Forbes 2007 World Billionaires Survey as part of its marketing and recruitment campaign. By our count, this yearÃ¢â‚¬â„¢s list includes seven insurance industry billionaires with a combined net worth of $18.2 billion. The Ã¢â‚¬Å“magnificent sevenÃ¢â‚¬ include such well-known names as Maurice Greenberg and Rolf Gerling. Oh, and not included in the seven is Berkshire Hathaway chairman Warren Buffett, who again claims the number two spot with an impressive net worth of $52 billion. For more on employment in the industry, check out the Insurance Information InstituteÃ¢â‚¬â„¢s online publication Ã¢â‚¬Å“A Firm FoundationÃ¢â‚¬ .Ã‚
Over the years catastrophe models have been constantly updated and fine-tuned to incorporate the latest technologies, data, and research findings. Following the unprecedented frequency and severity of storms during the 2004 and 2005 hurricane seasons, the output of such models came under close scrutiny. In a recent innovation we can report that underwriters in the LloydÃ¢â‚¬â„¢s market are now using Google Earth to plot their exposure to hurricanes, earthquakes, terrorist attacks and other catastrophes on a 3D map. This is just the latest evidence that catastrophe models and theirÃ‚ application will continue to evolve amid the ever-changing risk landscape.Ã‚ Ã‚
Today is International WomenÃ¢â‚¬â„¢s Day (IWD), a day aimed at connecting women around the world and inspiring them to achieve their full potential. AÃ‚ review of the IWD siteÃ‚ reveals that among the top companies supporting women and IWD is insurer Aviva. Apparently, more than 50 percent of Aviva staff worldwide and approximately 17 percent of its senior management are women. This is encouraging news, particularly in light of a recent study by research and advisory group Catalyst that reveals a persistent shortage of women in corporate leadership positions. According to its findings, women held just 15.6 percent of Fortune 500 corporate officer positions in 2006, down from 16.4 percent in 2005. At the current rate of change, Catalyst estimates it could take women 47 years to reach parity with men as corporate officers of Fortune 500 companies. Food for thought.Ã‚
Industry eyes turn to Capitol Hill today, as a hearing before the House Financial Services Subcommittee on Oversight and Investigations gets underway to discuss the insurance claims payment processes in the Gulf coast after the 2005 hurricanes. Dr. Robert Hartwig, I.I.I. president and chief economist, will deliver testimony noting that insurance companies have settled, without dispute, nearly all of the 1.7 million claims totaling $40.6 billion from Hurricane Katrina, the most expensive disaster in the history of insurance. Insurers have also strengthened their catastrophe response capabilities to more quickly reach their customers following mega-catastrophes.Ã‚
ItÃ¢â‚¬â„¢s interesting to see that customer satisfaction in the finance and insurance sector apparently reached an all-time high in the fourth quarter of 2006. According to the latest University of Michigan American Customer Satisfaction Index, every industry except one in this sector improved its customer satisfaction ranking. The sector includes commercial banks and property and life and health insurance. In the aggregate, finance and insurance jumped 2.7 percent to 76, its highest score since 1994 (78.5). Improvements in quality and value drove customer satisfaction gains for life and health insurance. However, we note that property and casualty insurance was the odd one out with a customer satisfaction ranking of 78 — unchanged from the previous yearÃ¢â‚¬â„¢s ranking. The index measures customer expectations, perceived quality and perceived value of companies in various industries.Ã‚
As the issue of flood insurance continues to be in the news, we note that flood risk is also a hot topic across the pond in the U.K. The Association of British Insurers (ABI) has just announced that government spending on flood defenses needs to increase by 10 percent annually to approximately $1.5 billion by 2011 to counter an increased risk of flood. Nearly 600,000 U.K. homes are now estimated to be at risk of flood, compared to an estimated 220,000 homes back in 2002. One key difference: while standard homeowners policies in the U.S. do not cover flood damage, U.K. homeowners policies do. However, the ABI notes that U.K. insurers will only continue to be able to offer flood insurance if defenses are kept up to an adequate standard. Maintenance of levees and barriers is obviously important, but flood defenses can take many forms. Preservation of wetlands and saltmarshes is just as important a part of any flood risk management plan. Check out I.I.I.’s flood statistics for more information.