Category Archives: Property/Casualty

No Storms But More Losses for Florida Insurers

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Central and South Florida have seen four straight hurricane-free years. With that in mind, you would think insurance companies would be operating deep in the black — raking in premiums during these storm-free times.

According to insurers’ 2009 annual reports, however, “50 out of 70 Florida-based companies posted losses on their insurance business for the year; 31 of the companies reported a drop in reserves — the money insurers set aside to pay claims.”

hese Florida-based companies, many of them small, write about 52 percent of the residential homeowners insurance in the state. The rest is written by Citizens Property Insurance, the state-run company; State Farm Florida Insurance, the largest private carrier; and several dozen companies based outside of Florida.
The dreary financial reports coincide with a push in Tallahassee to pass legislation that would free up insurance companies to raise their rates at will — as much as 5 percent initially and as much as 15 percent in the future. Right now, any rate increase requires state approval.

These Florida-based companies, many of them small, write about 52 percent of the residential homeowners insurance in the state. The rest is written by Citizens Property Insurance, the state-run company; State Farm Florida Insurance, the largest private carrier; and several dozen companies based outside of Florida.

The dreary financial reports coincide with a push in Tallahassee to pass legislation that would free up insurance companies to raise their rates at will — as much as 5 percent initially and as much as 15 percent in the future. Right now, any rate increase requires state approval.

It’s obviously a bit puzzling when you try to make sense of so many insurance companies losing money when they’re only bringing in premiums and not paying out claims. Alex Sink, the state’s chief financial officer is asking for answers from Insurance Commissioner Kevin McCarty. The status report is due Wednesday.

Florida insurers say they have been left vulnerable by a number of factors, including:

  • The state’s determination to hit the brakes on rate increases. Numerous rate hike requests have been whittled down or rejected.
  • The rise in the cost of “reinsurance” — backup insurance that companies buy to limit their exposure in the event of a disaster.
  • The state’s schedule of wind mitigation discounts, which grants major rate cuts to homeowners who buy shutters and pay for other improvements to make their homes more hurricane-ready. Companies complain the discounts are overly generous.
  • The reopening of Hurricane Wilma claims as policyholders put in for additional losses — often at the insistence of public adjusters, who represent homeowners.
  • As in the case of Southern Oak, the payment of overly generous commissions to affiliated companies that drain revenue from the insurer and leave it with little income or sometimes even losses.

As we approach the start of the 2010 hurricane season, it’s scary to think what would happen if a hurricane does in fact strike Central or South Florida. How would these insurers pay out claims?

Moves are being made in Tallahassee to remedy this problem. One such remedy is a proposed bill that would require each property insurer operating in the sunshine state to boost its reserves to $15 million — a sizable hike from the current requirement of just $4 million.

This, along with other proposed changes, will hopefully change the current state of affairs for Florida insurers. If not, the next hurricane to strike the area could leave many property owners in the dust, literally and figuratively.

Chilean Earthquake Insured Losses Could Top $8B

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DailyFinance.com is projecting that the recent 8.8 magnitude earthquake in Chile could cause insured losses anywhere from billion to more than billion.

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The quake struck February 27th and is now believed to be one of the top 10 most powerful earthquakes ever.

Catastrophe modeling company EQECAT Inc. said insured damages from the quake could range from $3 billion to $8 billion, with economic losses ranging from $15 billion to $30 billion. Economic losses will continue to be updated as the ongoing assessment of infrastructure damage is confirmed. The company also said the speed of restoration of the transportation and utility networks will also determine the total amount of business interruption losses claimed.

Effects of the earthquake stretched from 115 miles north of the industrial city of Concepcion to the capital of Santiago — more than 325 miles away from the epicenter.

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“AIR Worldwide estimates that the value of insurable buildings in the quake zone is $275 billion, but very few of the structures are likely to have been insured. The company said that as little as 10% of residential buildings are believed to have been insured and about 60% of the commercial structures were insured.”

The Haitian earthquake and Chilean earthquake differ drastically in terms of insurance. Though the earthquake that struck Chile was approximately 500 times as powerful as the one that struck Haiti, Chile will recover more quickly because of it’s highly developed insurance market. In an article release today, Robert Hartwig, president of the Insurance Information Institute (I.I.I.) said that “in addition to a number of Chilean insurers, many large international insurers and reinsurers—mainly American and European—compete for business in that country, and will provide the financial resources for Chile’s reconstruction.” He contrasted the situation to that in Haiti, an area that Hartwig said has almost no private insurance market.

The I.I.I. shows the following table, titled the “10 most costly U.S. earthquakes (in millions).”

Picture 2a

In the March issue of Risk Management, our editor, Jared Wade, takes an in-depth look at the catastrophe in Haiti and the future of natural disasters. A good read, I must say.

Super Bowl Risk

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All major sporting events pose some sort of risk — whether it’s unruly fans, unsafe venues, lack of security or all of the above. But there are a few sporting events that pose more risk than others — namely the Olympics, the World Cup and, of course, the Super Bowl. I was fortunate enough to get some feedback on Super Bowl risk from Chris Rogers, director of risk control for National Entertainment Group, a part of Aon Risk Services and Lori Shaw, managing director of sports/leisure for Aon Entertainment Group.

Of all the potential risks facing such a large event as the Super Bowl, what do you feel is the number one biggest risk on February 7th?
Without a doubt, the biggest risk by far is the “lone wolf” with explosives knowledge. It is the very quiet ones, without support from any organization at the time that presents the greatest challenge, simply because there is so little possibility for detection prior to their arrival on the scene. Plus, if they have the ability to put together an IED, this combination could be very catastrophic.
Do you feel there is more potential for risk before, during or after the game?
The highest risk would be during the game, primarily due to the fact that this is when there are the most people present and there is so much going on all over the stadium. The close second would be just prior to the start of the game when there are large crowds lining up waiting to get inside.
Lori Shaw, Managing Director – Sports/Leisure, Aon Entertainment Group
How are corporate sponsors and marketers managing the financial risks related to prizes and promotions?
Many corporations look to events such as the Super Bowl as a way to create impressions with consumers. Besides basic TV, advertising many look to specialized promotions and prize offerings to attract interest and support their marketing goals. This may mean offering product couponing and redemptions offers to drive consumers to their brands, arranging prize trips for consumers, and often times, offering the potential to win large cash prizes such as what Dorito’s is doing with its Dorito’s “Crash the Super Bowl” promotion. Often times, corporations will look to the Contingency Insurance market to provide unique and customized insurance products to protect their balance sheets from the volatility that these promotions can bring. Products such as overredemtion insurance, sponsorship liability, marketers liability, special event and travel accident coverage and prize indemnity policies can be crafted to appropriate transfer this type of potential risk.
How does the Super Bowl manage challenges such as professional liability? What types of insurance can the Super Bowl event managers and organizers obtain to protect themselves from the many potential risks that can occur during such a large event?
Planning for large events, such as the Super Bowl, start way before the “kick off” of the game. Local organizing committees have been working months, sometimes years, ahead of a large event to make all the necessary arrangements. Insurance coverages that are contemplated may include: General Liability, Auto Liability, Property, Directors & Officers, Terrorism, Event Cancellation (which can include weather related perils, communicable disease, and threats of Terrorism), Media Liability, Broadcast and Professional Liability for things like police, EMT’s, physicians, etc.

RMM: Of all the potential risks facing an event as large as the Super Bowl, what do you feel is the number one threat on February 7?

Chris Rogers: Without a doubt, the biggest risk by far is the “lone wolf” with explosives knowledge. It is the very quiet ones, without support from any organization at the time that presents the greatest challenge, simply because there is so little possibility for detection prior to their arrival on the scene. Plus, if they have the ability to put together an IED, this combination could be very catastrophic.

RMM: Do you feel there is more potential for risk before, during or after the game?

Rogers: The highest risk would be during the game, primarily due to the fact that this is when there are the most people present and there is so much going on all over the stadium. The close second would be just prior to the start of the game when there are large crowds lining up waiting to get inside.

RMM: How are corporate sponsors and marketers managing the financial risks related to prizes and promotions?

Lori Shaw: Many corporations look to events such as the Super Bowl as a way to create impressions with consumers. Besides basic TV advertising, many look to specialized promotions and prize offerings to attract interest and support their marketing goals. This may mean offering product couponing and redemption offers to drive consumers to their brands, arranging prize trips for consumers, and oftentimes, offering the potential to win large cash prizes such as what Doritos is doing with its Doritos “Crash the Super Bowl” promotion. Oftentimes, corporations will look to the Contingency Insurance market to provide unique and customized insurance products to protect their balance sheets from the volatility that these promotions can bring. Products such as overredemtion insurance, sponsorship liability, marketer’s liability, special event and travel accident coverage and prize indemnity policies can be crafted to appropriately transfer this type of potential risk.

RMM: How does the Super Bowl manage challenges such as professional liability? What types of insurance can the Super Bowl event managers and organizers obtain to protect themselves from the many potential risks that can occur during such a large event?

Shaw: Planning for large events, such as the Super Bowl, start way before the “kick off” of the game. Local organizing committees have been working months, sometimes years, ahead of a large event to make all the necessary arrangements. Insurance coverages that are contemplated may include: general liability, auto liability, property, directors and officers, terrorism, event cancellation (which can include weather related perils, communicable disease and threats of terrorism), media liability, broadcast and professional liability for things like police, EMTs, physicians, etc.

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Recap of the P/C Insurance Joint Industry Forum

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A group of notable industry insiders gathered Tuesday to participate in the “View From the Inside Looking Out,” the panel discussion at the 14th annual Property/Casualty Joint Industry Forum. I was lucky enough to attend this event, held at the Waldorf-Astoria hotel in Midtown Manhattan. It seemed as though every major insurance/reinsurance group was represented, along with financial corporations and regulating organizations.

The topic of conversation focused mostly on the performance of the P/C market during the financial downturn and the future of industry regulation.

“The worst of the financial crisis is over, but we still need to avoid inflation,” said Jay Gelb, director of senior equity research at Barclays Capital. “I don’t think the P/C industry is going to see positive growth anytime soon, however.”

Jay added, “The U.S. P/C industry is probably overcapitalized by 20% and we see underwriting losses continuing to rise.”

Joseph Guastella, head of Deloitte’s Global Insurance Practice, agreed. “I think it will start to trend up in 2011, but still a moderate growth at that time. The industry as a whole is going to be a pretty flat market for a while.”

In terms of regulation, both for the insurance and financial industry, the panelists had much to say about the reform they see emerging.

“We need some kind of mechanism for looking cross-sectorally for systemic risk,” said Therese Vaughn, CEO of the National Association of Insurance Commissioners. “What’s going on in DC is less likely to impact regulation than what’s going on globally. International standards are going to become more and more important.”

“I think a systemic risk regime is a bad idea,” said Scott Harrington, professor of health care management and insurance and risk management at Wharton School of Business. “It’s probably the single most destructive idea.”

“What we think will actually evolve is probably less sweeping than we thought six months ago,” said Joseph Guastella.

Though many of the panelists agreed that the P/C sector performed relatively well in the midst of an economic downturn, they all agreed that they should not be overly confident and that the future of the industry requires cautious optimism.

For more on the coverage of this event, check out the P&C National Underwriter website and the Insurance Information Institute’s website.