Author Archives: Emily Holbrook

About Emily Holbrook

Emily Holbrook is a former editor of the Risk Management Monitor and Risk Management magazine. You can read more of her writing at EmilyHolbrook.com.
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Insurance Forecast 2009

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I was fortunate enough to attend the Conning Research Insurance Industry Outlook and Forecast 2009 at St. John’s University yesterday. The lecture covered the economic forecast, the outlook on property/casualty, along with forecasts for the life and health insurance industry.

Stephan Christiansen, director of research at the firm, forecasted the following growth in economic drivers:

Annual Data 2008 2009 2010
GDP Growth 1.1% -2.8% 1.8%
CPI 3.8% -0.8% 1.2%
Nom. GDP 4.9% -3.6% 3.0%
Fed. Funds 0.25% 0.25% 1.00%
5-year T-Note 1.6% 2.5% 3.2%
10-Year T-Note 2.3% 3.4% 4.0%

Christiansen pointed to inflation as a key cost-driver and that the time between premium collection and loss payout is susceptible to inflation, meaning that premiums will stay the same while losses increase.

As far as the P/C industry is concerned, Christiansen stated that, although the sector has experienced a recent history of strong ROE and falling combined ratios, the outlook is negative due to the forecasted continued deterioration of the economy and thus, exposure drivers. The research also suggests that, as far as commercial lines go, premium growth remains weaker than that of personal lines, but should recover by 2011 with rates firming in conjunction with the economic recovery. Christiansen also stated:

Looking beyond this year, an expected slow economic recovery in 2010 and a return to more robust growth in 2011 lead to an increase in both premium and loss exposures, but also may include the start of an acceleration in inflationary factors that drive loss severity. We see indications of price firming in personal lines, but continued mixed conditions in commercial lines. Capital conditions remain strong, particularly in commercial lines, and it is likely that further stresses will have to occur before any significant broad-based change in pricing will emerge.

According to Conning Research & Consulting, the recovery of not only the economy, but also the P/C sector, will begin in 2011 — barring any unforseen natural catastrophes or even more unprecedented chaos within the financial sector.

Agree?

SEC Proposes Disclosure of Risk Management Practices

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Back on July 1, the Securities and Exchange Commission voted 3-2 in favor of proposed changes for compensation and board risk management disclosures. The report was released July 10 and comments on the proposals are due Sept. 15, with the commissioners planning to move swiftly to implement these new measures beginning 2010.

Among the proposed changes within the 137-page report is a rule that would force public corporations to disclose the board’s role in overseeing the management of inherent operational and financial risks.

Disclosures of the board’s role in the risk management process may also benefit investors. Expanded disclosure of the board’s role in risk management may enable investors to better evaluate whether the board is exercising appropriate oversight of risk management.

The report goes on to state that the proposed amendments should, among other things, increase the efficiency and competitiveness of the U.S. capital markets by providing investors with additional information on risk incentives and corporate risk management practices.

The key recommendation? A change in short-term incentives for employees:

Indeed, one of the many contributing factors cited as a basis for the current market turmoil is that at a number of large financial institutions the short-term incentives created by their compensation policies were misaligned with the long-term well being of the companies. By contrast, well-designed compensation policies may enhance a company’s business interests by encouraging innovation and appropriate levels of risk taking.

The proposed amendments to disclosure are likely to be implemented in hopes of preventing a future financial crisis like the one we’ve seen and are currently recovering from, albeit slowly. This proposed SEC rule proves that risk management will continue to be at the forefront of every action and decision a public company will make.

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How is your company preparing to spread the role of risk management and implement SEC rule 33-9052?

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Smoke Damage: The Aftermath of a Fire

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According to the U.S. Fire Administration, in 2007 alone, there were an estimated 530,500 structure fires in the United States, resulting in a direct loss of more than $10.5 million.

Fire-related damage and loss can leave a family homeless or a business bankrupt if insurance coverage is not obtained. Even with complete fire insurance coverage, however, smoke damage can put a huge dent in out-of-pocket expenses.

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According to Shay Kalmanovich, CEO of 911 Restoration, a certified mold, water and smoke damage restoration company:

Smoke often finds its way through plumbing systems, using holes around pipes, ventilation systems and heating and cooling systems, to move from floor to floor, damaging the equipment throughout a home or building. Items salvaged after a fire have the potential to be more damaged from the smoke rather than the fire.

After contacting your insurance agency following a fire, Kalmanovich recommends families and business owners keep the following in mind:

  • Adjusters should come within one week to take photographs and assign a restoration company by the second week.
  • It is very important to take your own photos of everything.
  • There are two types of fires in the insurance world, “in-house” and “disaster.
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    ” In-house fires are usually limited to a single home or business while disasters affect many. Find out what kind of fire coverage is appropriate to your situation and then make sure your insurance company or a government agency will cover the costs of your damage.

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  • Your insurance coverage should include coverage for both the structure — walls, carpet, cabinets, fixtures, air conditioner (anything you can’t pick up and take with you) — and personal property (all of your personal belongings).

The Institute for Business and Home Safety has a very informative and continuously updated Disaster Safety Blog, which not only provides pertinent information on fire safety and insurance issues, but other natural and not-so-natural disasters as well.

fire damage

Storm Summary #2

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Welcome to the second “Storm Summary” post of the hurricane season.

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 Each Friday from now until the official end of the season (November 30) I will post an update on past and present storms, like the following:

NAME PEAK STATUS DATE LOCATION DAMAGE
Ana TD 28-May Mid Atlantic None
Blanca TS 7/6 to 7/8 East Pacific None
Carlos Cat. 2 7/10 to 7/16 East Pacific None
Dolores TS 7/15 to 7/17 East Pacific None

In another interesting development, the National Oceanic and Atmospheric Administration has announced the arrival of El Niño, which is “the periodic warming of central and eastern tropical Pacific waters [that] occurs on average every two to five years and typically lasts about 12 months.” Although most people think of this phenomenon in negative terms for the damage it can spur on the West Coast, it is actually beneficial to the East Coast/Gulf Coast in the sense that warmer waters in the Pacific usually create conditions that suppress Atlantic hurricanes.

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Why exactly this occurs is not something I’m qualified to explain but, as I recall, it has something to do with warm and cool air mixing in a different way and creating a “wind shear” that helps prevent storms from developing. The International Research Institute for Climate and Society can probably explain it better.

NOAA breaks down some other benefits.

El Niño’s impacts depend on a variety of factors, such as intensity and extent of ocean warming, and the time of year.

Contrary to popular belief, not all effects are negative. On the positive side, El Niño can help to suppress Atlantic hurricane activity. In the United States, it typically brings beneficial winter precipitation to the arid Southwest, less wintry weather across the North, and a reduced risk of Florida wildfires.

El Niño’s negative impacts have included damaging winter storms in California and increased storminess across the southern United States. Some past El Niños have also produced severe flooding and mudslides in Central and South America, and drought in Indonesia.

Hopefully this will help keep the 2009 Atlantic hurricane season mild.

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For constant, up-to-date storm information, visit NOAA. And for breaking information on the insured losses the storms create, check out the Insurance Information Institute and the Insurance Services Office.

Most importantly, don’t forget to check back next Friday for our second “Storm Summary” installment.