Category Archives: Property/Casualty

Auto Insurance Fraud On the Rise

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According to the National Insurance Crime Bureau (NICB), 2009 will mark the sixth consecutive year that car theft rates have gone down. Unfortunately for auto insurers (and anyone who wants to buy an inexpensive car insurance policy), it seems that criminals have moved on to bigger and better things. Auto insurance fraud incidents, or what the NICB refers to as “staged accident questionable claims,” have gone up 46% from 2007 to 2009.

“Across the country we’re seeing an alarming number of what we call staged accidents,” said Joe Wehrle, NICB president and chief executive officer.

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“These are crashes that are made to look like accidents, but in reality are carefully orchestrated scenarios aimed at collecting medical and vehicle damage payments from insurers.

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The simple truth is they are expensive and dangerous.”

So while claims have gone down as a whole (probably due to declining auto sales and fewer drivers on the road as a result of the recession), the ratio of fraudulent to legitimate claims has gone up, costing the insurance companies millions. And you know who eventually ends up paying the difference.

The top five states for questionable claims are Florida, New York, California, Texas and Illinois, while New York City leads the pack for cities, followed by Tampa, Miami, Orlando and Houston.

The NICB has also posted a series of videos showing how some common staged accidents work. A single accident could end up with a price tag reaching into six figures, but more importantly, could result in real injuries or worse for innocent drivers caught up in the scheme. As the saying goes, “Forewarned is forearmed.

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It’s Raining Bonds

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You remember the 2005 hurricane season, right? Of course — how could you forget Hurricanes Katrina, Dennis, Emily, Wilma and Rita — five of the seven hurricanes that year that were responsible for 3,865 deaths and $130 billion in damage?

Well, in trying to recover some of the $5.7 billion in claims payouts from the most active Atlantic hurricane season in recorded history, the Florida Hurricane Catastrophe Fund Finance Corp. is selling $693 million in tax-exempt revenue bonds.

The fund’s credit score was boosted one level this week by Fitch Ratings to AA, the third-highest, from AA-. The sale should be helped as investors seek safety from market turmoil stemming from a $1 trillion rescue of heavily indebted European nations, said Philip Villaluz, a New York-based municipal analyst at Advisors Asset Management Inc. of Monument, Colorado.

Fitch says the bonds are secured by emergency assessments levied on almost all P&C insurance policies in Florida — what the ratings agency calls “a very stable source of revenue.”

With the 2010 hurricane season predicted to be above average, it’s imperative that insurers replenish their coffers. The next major hurricane season could be just a few weeks away. And here, courtesy of the Insurance Information Institute, are the 15 most costly hurricanes in the United States (in millions).

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Contingencies, Transparency and Doing the Right Thing

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Against a transparent backdrop fashioned as a giant web page, Willis drew the RIMS 2010 Boston press corps to its booth shortly after the Exhibition Floor opened.

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The reason? For Don Baily, CEO, Willis North America, and Joe Plumeri, Chairman and CEO of Willis Group, to reiterate their staunch opposition to contingent commissions. But more importantly, they were launching ClientsBeforeContingents.com, a new website dedicated to hosting a 24/7 global conversation about contingencies.

Bailey noted that contingencies amounted to having a “second master” which led to inherent conflicts of interest. But Plumeri put an even finer point on the topic when he attacked the notion that contingencies needed only transparent disclosure to avoid a conflict of interest. “Just because you’re transparent,” Plumeri said,” does that mean it’s okay for you to do these things?”

Plumeri and Bailey’s position on contingencies has not changed in the five years since this became a hot button issue for risk managers and their insurance industry counterparts. but what today’s announcement does is show that Willis is no longer willing to comment on the issue only when it arises in the media.it intends to make this a nonstop topic of conversation to anybody who is willing to listen. And if Willis has its way, there will be plenty more people listening and thinking about this in the near future.

For RIMS, which also opposes contingencies, Willis’ new websites adds a welcome resource to the body of literature and communication on this issue.

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And as Plumeri has shown, he and Willis is not going to let this topic go away any time soon.

“You have to have principles,” Plumeri said. “And in this particular case, these prinicples are not negotiable.

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Plumeri noted that Willis does charge higher standard commissions to make up for revenue it loses were it to accept contingencies. He went on to say that certain structural problems that lead to possible conflicts of interest — such as the reality that any one insurance company client is likely to be more valued to a broker than any one end consumer of insurance — Plumeri said that so long as the insurance intermediary does its business in a fully transparent way and always does what is in its client’s best interests, those structural problems tend to settle themselves.

Plumeri himself noted that ClientsBeforeContingents.com was unlikely to overturn the New York insurance office’s recent overturning of a ban on contingent fees. Nor was it likely to spur other states to outlaw the practice.

But what he did hope it would do is cut through a widespread public apathy on the topic, fueled by ignorance on how contingences are structured, how they came into being, and what they really mean to the insurance buyer. By providing third party whitepapers, an opportunity for the public to comment, and frequent content updates from Willis itself, Willis is banking on crowdsourcing public opinion on a matter that has failed to find a convincing legislative or regulatory remedy.

“We have a responsibility to do it honestly, fairly and transparently,” Plumeri said of insurance broking. “Because without community there is no insurance, and without insurance there is no community, and I think we have a responsibility to do the right thing.”

You can read more about the website here.

Reinsurance Rates on the Decline . . . Still

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We heard it in January — reinsurance rates across most lines of the property/casualty business around the world was declining, and according to Guy Carpenter & Company, that decline is continuing.

In the report, “April 1 Reinsurance Renewals: Rates Lower; Returns Under Pressure,” the risk and reinsurance company covers regional developments as well as key issues and trends, which includes:

JAPAN
•    Rates at the April 1 renewal showed a declining trend in most classes.  Specific changes varied by line of business, and there were occasional exceptions on problematic lines, such as marine hull proportional treaties.
•    Total capacity sought by buyers for their major catastrophe exposures was similar to the expiring year, with reductions by some cedents and increases by others.
•    The effect of the Chilean earthquake was limited, though it is possible that timing may have played a part, as many of the major placements were quoted, priced and, in some cases, completed before the effects of this loss could be fully realized.
•    Overall, the renewal in Japan was smooth and perhaps easier for buyers than in many previous years, reflecting a generally softer market.  With few major issues or changes to terms and conditions, renewals were completed within similar timetables as compared to prior years.
US PROPERTY CATASTROPHE
•    Pricing for U.S. property catastrophe reinsurance at April 1 saw the continuation of the decreasing pricing trend in evidence at January 1.  Capacity continued to be plentiful – a critical element in companies’ ability to secure favorable terms and conditions.  Individual renewals vary significantly, based on each company’s own experience and positioning.
•    U.S. catastrophe pricing for nationwide companies decreased 8 percent when not factoring in the impact of the catastrophe model changes, and by 13 percent on average when adjusted for these changes.
LATIN AMERICA
•    Although not a significant source of April 1 renewals, the Latin American region provides an early indication of the implications of the Chilean earthquake for pricing and terms and conditions.  Preliminary estimates of the aggregate loss arising from the earthquake vary widely. The market may continue to evolve going into the July 1 renewals.  Overall terms and conditions in the region as a whole appear to be only modestly affected and, in some cases, unchanged by the earthquake. However, pricing varies by country.
REPUBLIC OF KOREA
•    In the property catastrophe segment, price changes ranged from decreases of 7.5 percent to increases of 2.5 percent, reflecting the variety of changes and experiences that included increased aggregates, deductibles and, in some cases, limits.
•    Korea’s property risk segment was affected by the Samsung loss of late March 2009, which occurred too late to be reflected in the April 1, 2009 renewal.  There was a second large loss in November 2009. Both losses were factored into the April 1, 2010 renewal, and loss affected treaties sustained increases of 10 to 15 percent. For loss-free treaties, rates were down by 5 to 10 percent.
•    Pricing was down by 10 to 20 percent in the liability market.  Loss experience has been light, making the business more attractive to underwriters.

JAPAN

  • Rates at the April 1 renewal showed a declining trend in most classes.  Specific changes varied by line of business, and there were occasional exceptions on problematic lines, such as marine hull proportional treaties.
  • Total capacity sought by buyers for their major catastrophe exposures was similar to the expiring year, with reductions by some cedents and increases by others.
  • The effect of the Chilean earthquake was limited, though it is possible that timing may have played a part, as many of the major placements were quoted, priced and, in some cases, completed before the effects of this loss could be fully realized.

US PROPERTY CATASTROPHE

  • Pricing for U.S. property catastrophe reinsurance at April 1 saw the continuation of the decreasing pricing trend in evidence at January 1.  Capacity continued to be plentiful – a critical element in companies’ ability to secure favorable terms and conditions.  Individual renewals vary significantly, based on each company’s own experience and positioning.
  • U.S. catastrophe pricing for nationwide companies decreased 8 percent when not factoring in the impact of the catastrophe model changes, and by 13 percent on average when adjusted for these changes.

LATIN AMERICA

  • Although not a significant source of April 1 renewals, the Latin American region provides an early indication of the implications of the Chilean earthquake for pricing and terms and conditions.  Preliminary estimates of the aggregate loss arising from the earthquake vary widely. The market may continue to evolve going into the July 1 renewals.  Overall terms and conditions in the region as a whole appear to be only modestly affected and, in some cases, unchanged by the earthquake. However, pricing varies by country.

REPUBLIC OF KOREA

  • In the property catastrophe segment, price changes ranged from decreases of 7.5 percent to increases of 2.5 percent, reflecting the variety of changes and experiences that included increased aggregates, deductibles and, in some cases, limits.
  • Korea’s property risk segment was affected by the Samsung loss of late March 2009, which occurred too late to be reflected in the April 1, 2009 renewal.  There was a second large loss in November 2009. Both losses were factored into the April 1, 2010 renewal, and loss affected treaties sustained increases of 10 to 15 percent. For loss-free treaties, rates were down by 5 to 10 percent.
  • Pricing was down by 10 to 20 percent in the liability market.  Loss experience has been light, making the business more attractive to underwriters.

As Chris Klein, global head of business intelligence at Guy Carpenter said, “There are several significant renewals at April 1 in the U.S. that did not show signs of impact from the recent global loss activity. There was some evidence of price tightening in parts of Latin America. The Chile situation remains uncertain, and earthquake losses generally develop more slowly than wind events.  Up to half of catastrophe loss ratio budgets were consumed, causing reduced headroom for a larger catastrophe later in the year.  This scenario, along with buoyant balance sheets, lower investment yields and thinner reserve releases, will put pressure on returns — sustaining active capital management and perhaps, in time, stabilizing the market.”

We will keep an eye on this potential stabilizing of reinsurance rates for the P/C market — stay tuned.