Category Archives: Insurance

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Competition Steady Despite Disasters, Fitch Says

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In its newest annual outlook report for property and casualty insurers, Fitch Ratings noted that while the 2018 rating outlook for insurers is stable, the fundamental forecast remains negative. Underwriting results deteriorated in the second half of 2017 following events including Hurricanes Harvey, Irma and Maria, along with fourth quarter California wildfires. As a result, Fitch projected that industry-estimated statutory net profits would fall by about 50% in 2017, projecting a market combined ratio of 104.4% for the year compared to 100.7% in 2016.

Fitch said that even with the substantial catastrophe-related losses, U.S. property and casualty insurers’ operating performance appears to be on the rebound. The agency estimates that the industry combined ratio will approach break-even levels in 2018 if natural catastrophe-related losses revert towards long-term averages.

How does all this affect the market for insurance buyers? James Auden, managing director at Fitch Ratings, Inc. told the Risk Management Monitor that from a pricing standpoint, while there is some deterioration in results, especially in property, there is plenty of capacity for coverage in just about every segment.

“We haven’t seen a reduction in capital in the broader market, so how much these losses will carry over and make changes in another segment is a question,” he said. “And there are some segments that have been suffering in their own right, such as commercial and personal auto rates, which have been going up tremendously. We’ve seen a lot of turnaround, but there is still a need for rate hikes there. You’ll probably see that continue.”

Property
Markets affected by catastrophe losses should see some large rate increases in property, which could carry over geographically, he said. Commercial property lines, which have been very soft for a while, should see broader increases. Other factors include companies’ loss history and the types of perils they face.

“I think we’ll see more rate increases geographically throughout the market next year,” Auden explained. “They will be higher in areas hit by hurricanes, but we will see them elsewhere as well. In Houston, the losses were much more commercial than residential in nature. In Florida the losses were more skewed to residential, but there were plenty of commercial losses there, too.” How far rates will rise may be dampened by the amount of capacity that still exists. “If you go back historically, when we’ve had true hard markets, it’s been tied to capacity shortages,” he said.

Auden added, “We are not seeing companies withdrawing from the market right now. We did see that in areas like commercial auto over the last couple of years, especially in long-haul trucking. In commercial property, however, I don’t think there is a big withdrawal of capacity. Companies are seeing an opportunity to improve the economics of their business and relieve pressure around pricing.”

M&A
In the area of mergers and acquisitions, there have not been many with the magnitude of last year’s Chubb-Ace deal. “We have had a few things, like Liberty Mutual’s purchase of Ironshore,” he said, adding that “There is always potential for M&As, but one thing that could restrict them is that with the stock market up so much, insurance markets have benefitted, so evaluations are a bit richer and that may limit interest from a value standpoint.”

Lloyd’s
The Lloyd’s market, which has been affected by competitive pricing over several years now, is on negative outlook. “There have been more exposures in the catastrophe piece and a weaker performance, so that has been driving our opinion there,” he said. “And there definitely are a lot of losses at Lloyd’s from the catastrophes this year.”

Competition
Despite the huge losses being seen, however, competition is still going on. “It’s relentless. There are plenty of underwriters out there trying to write the same business and to differentiate themselves on things like service,” Auden said, adding that he believes turnover will remain steady because insurance buyers typically shop their coverage frequently. “I don’t think there will be more turnover than usual.”

He concluded that in the area of property, while that there will be positive rate actions, making response to the losses more substantial, this may not be sustainable. “Do we see multiple carriers with rate increases? We think it’s likely that is not sustainable, unless we have a really bad year next year in terms of catastrophes,” Auden said.

State of Privacy in 2018: Q&A With Richard Purcell

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Jan. 28 marks the annual Data Privacy Day (DPD), which was adopted in North America to bring together businesses and private citizens in an effort to share strategies for protecting consumers’ private information. Richard Purcell, DPD advisory board member and CEO of the Corporate Privacy Group spoke to Risk Management Monitor about the current state of privacy.

Risk Management Monitor: How do you view privacy?
Richard Purcell: The concept of privacy is really complex and layered. I like to think of it as being grounded by two basic behaviors—respect and discretion.

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 The idea of privacy is not the same as secrecy. Secrets are not shared and are kept hidden as unknown ideas or thoughts, whereas privacy is the act of sharing information, trusting that the recipient will not share it any further.

RMM: How has technology redefined privacy?

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RP: Over the last several years, we’ve heard from individuals who believe that their privacy has been assailed. Upon examination, we might find some reasons that are relevant to our emerging technology use:

There are many instances in which people have lacked respect for their own information, sharing personal information with others and commercial interests without restraint. A simple review of Twitter, Facebook, Instagram, Flicker, Tumblr and other social media sites confirms this. Just as often, commercial players have shown a lack of respect for the personal information entrusted to them by individuals. Examples include banks that have used customer information to open accounts without providing notice or asking for consent. This is a distinct showing of disrespect for the information.

Information has become the basis for commercial activity, so using and sharing personal information is quickly becoming how companies make money—Facebook is a social media site, but makes more than 90% of its revenues by selling users’ data to advertisers—credit bureaus make their money solely be collecting financial info, not from people, but from other companies, in order to calculate risk and sell reports (for example, credit reporting has a long history regarding privacy thru FICRA, FACTA, and OECD FIPs.).

RMM: In 2000 you were named Microsoft’s first corporate privacy officer. How has the privacy landscape changed since then?
RP: Privacy and data protection are beginning to be better and more closely integrated into security practices. It’s taken a long time to get them better integrated.

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Security practices have strong levels of discipline without much of a human factor. Privacy practices have strong moral bases, which security is getting more in tune with, so they are sharing their traits in ways that are helpful.

We are not there yet, though, because security is a binary condition. You either have the security practices or you don’t. Privacy is harder to define because practices are more behaviorally based. We still find privacy issues are driven by human failings, errors or miscalculations as opposed to technologies.

Privacy professionals have gained more of a voice and authority over time in their organizations. They are not just advisers anymore, saying ‘Watch out for this,’ or ‘We can’t do that.’ They have become people with decision-making authority, which is only increasing. The position analyzes conditions and bases those recommendations on risk profiles and the challenges they present. Companies are then free to choose whether they take the risk or mitigate it.

RMM: What developments will impact your work in 2018?
RP: Regulatory changes matter a lot and apply to industrial sectors in the United States. External regulations are much more broadly applicable.

EU GDPR. Any company doing business in the EU has to adjust its governance program to comply with the GDPR by late May 2018. That means taking a broader definition of personal data; documenting its data processing activities; strengthening its user consent provisions; developing support for data erasure, portability and rectification; enhancing oversight and data breach responsiveness; and generally paying more attention to data protection.

EU ePrivacy. Broadband providers in the U.S. may celebrate the FCC dropping of the net neutrality/privacy rules, but they still have to deal with the EU ePrivacy Directive.

Australia, Korea, Japan and even China are strengthening their data protection programs. China announced its displeasure with the practices of Ant Financial (an Alibaba affiliate), Baidu (search organization) and Jinri Toutiao (newsfeed organization) for lacking adequate policies and practices in collecting, using and sharing personal information. You know something important is happening when China begins enforcing stronger privacy regulations.

P&C Composite Rate Up 2% in Fourth Quarter

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Rate adjustments for property and casualty insurance in the United States for fourth quarter 2017 were plus 2% compared to plus 1% in the third quarter of 2017, with automobile and transportation seeing the largest increases, MarketScout reported.

Richard Kerr, MarketScout CEO commented that insurers were prepared for their losses. “Underwriters are rarely surprised by aggregate losses because they have so many pricing and modeling tools. Most insurers are assessing rate increases at a moderate pace. Automobile and transportation accounts incurred the largest rate increases at plus 5% over prior year pricing.”

In the reinsurance sector, William Hawkins, director of European insurance research at KBW made a similar observation of P&C Jan. 1, 2018 renewal pricing, stating in a podcast that, “the big four European reinsurers will have achieved 2% rate increases this [renewal] season.” He added that “the message from Monte Carlo, that the 2H 2017 natural catastrophes should draw a line under rate cuts across the board, has been delivered. But we think the upside for property catastrophe has been capped by the ongoing plentiful supply of capital.”

By coverage classification, MarketScount noted that all coverages except D&O, professional liability and auto had rate increases from the third quarter of 2017 to fourth quarter 2017. Property increased the most, from plus 1% to plus 3%.
On average, underwriters assessed rate increases for all industry groups except transportation and public entities. “Keep in mind, rates are calculated on a composite basis and represent exposures from businesses across the U.S. Insureds in catastrophe exposed areas incurred higher rates/premiums,” Kerr said.
MarketScout also noted that large accounts were seeing increases averaging 1%, while others saw 2% increases.

Get Ready for the ‘Weather Bomb’

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In case you need another reason to dread getting to work this first week of 2018, several weather authorities are warning of a major storm that could affect a majority of the United States with freezing conditions. Storm advisories are being issued from New England states to southeastern winter getaways. Residents of South Carolina, Georgia and even northern Florida should be thinking about stocking up on ground salt, thermal pants and hand warmers.

Nancy Egan, Property Casualty Insurers Association of America’s (PCI) regional manager warned: “A dangerous combination of snow, sleet and freezing rain is on the horizon for the Southeast. Weather like this can cause auto accidents, and property damage, and leave thousands without power. Driving in these treacherous conditions can be tricky, so if you do venture out, make sure your vehicle has a winter storm kit in case you have an accident or get stuck and have to wait for help.”

PCI suggests that winter storm kits include a windshield scraper and small broom; flashlight with extra batteries; road salt, sand or cat litter for traction; booster cables; emergency flares and reflectors; snack food; blankets and a first aid kit.

These warnings are inspired by speculation that intensifying winds and cold will bring about a phenomenon known as “bombogenesis” from Thursday to Friday. In an online primer, Mashable delved into the relevant information that organizations need to know about the “weather bomb” or “bomb cyclone.”

[Bombogenesis] refers to a low pressure area whose minimum central air pressure plummets by at least 24 millibars in 24 hours. By feasting off of intense atmospheric disturbances as well as differences in air masses and ocean temperatures, including the moisture rich Gulf Stream waters, the upcoming tempest is projected to exceed that intensification rate by several more millibars in 24 hours. This intensification rate, if it comes to pass, would be astonishing.

The potential impact of the upcoming storm could equal that of a Category 3 hurricane, the same strength Hurricane Sandy reached at its peak in 2012. With this in mind, companies located anywhere along the projected path should be heeding the warnings and preparing.

This follows a cold snap that has so far killed at least 11 people in cold-related deaths in the U.S. since Tuesday morning, CNN reported. Some of the victims were located in Wisconsin, North Dakota, Missouri and Texas.

The Southeast has a history of being especially vulnerable to cold-weather conditions. On Jan. 29, 2014, the greater-Atlanta area was rendered nearly unnavigable due to about two inches of snow and ice. Although Georgia is the home of the Weather Channel, state officials failed to act on warnings of the precipitation and freezing conditions, and closed all schools mid-day—about the same time that businesses shuttered for the day. Between parents who were on the road to pick up their children and adults leaving their workplaces due to early closings, millions of cars ended up on roadways, causing a gridlock that prevented salt trucks from safely getting to and from storage areas.

The consequences were unprecedented for the area. Although no fatalities were recorded, the Peach State experienced thousands of traffic accidents, closures and even automobile abandonments on interstate highways.

To prevent such a disaster from reoccurring, Georgia’s Department of Transportation announced via Twitter this week that it has mobilized 13 trucks loaded with salt and gravel in anticipation of the storm. While no announcements have been distributed on the Florida Department of Transportation’s site, FloridaDisaster.org is keeping its visitors updated with news of “below average temperatures.” South Carolina has been posting updates on its DOT site, and reminding motorists to use particular caution and to “watch for slow moving SCDOT equipment applying deicing materials.”