The average price of insurance for all U.S. businesses remained the same in April 2015 as it was in April 2014, according to the latest analysis from online insurance exchange MarketScout.

MarketScout CEO Richard Kerr noted that the market remained flat with a zero percent increase in April 2015, down from a 1.5 percent increase in October 2014, continuing the downward trend of the last eight months.

Kerr said:

It’s not dramatic but it is a trend. Coastal property may experience some slight rate increases since we are on the cusp of the wind season. Rates on all other exposures should continue to be quite competitive.”

By coverage classification, rates for business owners policies (BOP), professional liability and D&O coverages decreased in April 2015 by one percent as compared to March 2015, MarketScout reported.

However, commercial auto coverage actually saw a 2 percent increase, while rates for all other coverages remained the same.

By account size, rates remained the same for all except jumbo accounts (over $1 million in premium) which adjusted to a rate reduction of minus 2 percent in April 2015, compared with rates the previous month, MarketScout said.

I.I.I. provides commentary on the P/C insurance industry financial results here.

 

The Kentucky Derby is upon us and insurers are more than just spectators at this major sporting event.

Bloodstock and equestrian insurance is big business with underwriters who specialize in offering tailored protection for high value animals.

Consider the staggering values at stake. A BloombergBusiness article by Mason Levinson tells the tale of American thoroughbred racehorse Tapit.

Tapit began his stud career with an initial stallion fee of $15,000. That fee has soared 20-fold in the past decade and in 2015 Tapit will generate over $30 million for his owners.

Why?

Tapit’s offspring tend to win races.

As Bloomberg reports:

By 2009, his offspring’s racetrack earnings placed him 28th on a national ranking of stallions, according to data compiled by the Bloodhorse. He climbed to 12th the next year, then third in 2011 and first in 2014, a position he has maintained over the first four months of this year.”

One of Tapit’s sons, Frosted, is a top contender in Saturday’s Kentucky Derby.

Today, Tapit’s total value is estimated at about $120 million, the article reports.

Luckily, there’s insurance for that. Whether you own racehorses, stallions, broodmares, or showjumpers, insurers are able to tailor a policy that meets your needs.

A bloodstock insurance policy typically would cover a number of different risks.

For example, all risks mortality would cover the value of the animal if it dies as a result of accident, disease or illness. Theft can also be covered, as well as loss of use (covering financial loss) and public liability.

If you run an equine breeding program, permanent infertility insurance is another important coverage. Stallions are the “calling card” of a major farm and can be synonymous with the farm’s name and reputation.

If a stallion becomes permanently impotent, infertile, or incapable of serving mares, it can be a huge setback for the owner, breeder or shareholder. This important coverage protects one of their most valuable assets.

Perhaps one of the most high-profile equine insurance claims over the years involved the death of thoroughbred Alydar in 1990. Check out this Blood-Horse feature article by Tom Dixon, the Lloyd’s of London insurance adjuster who was first on the scene when Alydar was found in his stall at Calumet Farm with a broken leg.

As the death toll from Saturday’s devastating 7.8 magnitude earthquake in Nepal continues to rise, we’re reading about the health threat facing survivors.

In addition to the injured, an estimated 2.8 million people have been displaced by the earthquake as many are afraid to return to their homes.

The United Nations (UN) has launched an urgent appeal for $415 million to reach over 8 million people with life-saving assistance and protection over the next three months.

Its report offers insight into the scale of the unfolding humanitarian disaster:

According to initial estimations and based on the latest earthquake intensity mapping, over 8 million people are affected in 39 of Nepal’s 75 districts. Over 2 million people live in the 11 most critically hit districts.”

And:

The government estimates that over 70,000 houses have been destroyed, Over 3,000 schools are located in the 11 most severely affected districts. Up to 90 percent of health facilities in rural areas have been damaged. Hospitals in district capitals, including Kathmandu, are overcrowded and lack medical supplies and capacity.”

Strong tremors have damaged infrastructure, including bridges and roads and telecommunications systems. Transport of fresh water has been interrupted and fuel is running low in many areas.

The UN also reports that an estimated 3.5 million people are in need of food assistance, of which 1.4 million need priority assistance, while 4.2 million are urgently in need of water, sanitation and hygiene support.

While it’s far too early to know if these estimates will hold, clearly the Nepal earthquake is as catastrophe modeling firm RMS says: “shaping up to be the worst natural disaster this calendar year, particularly because Nepal is remote, economically challenged, and not resilient to an earthquake of this magnitude.”

Indeed, the earthquake is expected to inflict at least $5 billion in total economic losses – that’s more than 20 percent of Nepal’s gross domestic product – and could end up exceeding the country’s GDP.

Not surprisingly, insurance penetration in what is one of the world’s poorest nations is extremely low, as the I.I.I. explains here.

Information on the most deadly and the most costly world earthquakes is posted here.

Everyone wants to talk about autonomous vehicles, and for proof I.I.I. chief actuary Jim Lynch offers the AIPSO Residual Market Forum, at which he spoke in mid-April.

AIPSO manages most of the automobile residual market, where highest risk drivers get insurance. Each state has a separate plan for handling risky drivers and AIPSO services most of them in one way or another, acting as the linchpin in the $1.4 billion market, about 0.7% of all U.S. auto insurance written in 2013, according to Auto Insurance Report.

Though small, the residual market is important, but it’s not an area that would naturally lend itself to discussing the self-driving car. If cars could drive themselves, of course, there wouldn’t be much of a residual market.

Even so, I was one of three speakers at the forum’s panel exploring industry trends, and at AIPSO’s request, all three of us touched on autonomous cars.

Though he spoke last, Peter Drogan, chief actuary at AMICA Mutual Insurance, probably did the best job of laying out the future technology and some of its challenges. Particularly spooky was a 60 Minutes clip in which a hacker took over a car Lesley Stahl drove over a parking lot test course. She wasn’t driving fast, but she couldn’t stop after the hacker took over the brakes of her car.

Karen Furtado, a partner at Strategy Meets Action, a consultancy that helps insurers plan for the future, laid out the case for disruption. Autonomous vehicles will not only make vehicles safer, they will change driving habits. Fewer cars will be on the road, and more people will share them, summoning self-driving vehicles through ride-sharing apps, all of which could potentially shrink the $180 billion auto insurance market.

I’ve made my thoughts clear before, both in this blog and elsewhere: the technology will change driving forever, but it takes about three decades for auto technology to become common on roadways, giving insurers a lot of time to adjust. And some coverages, like comprehensive, will not be affected, as they protect cars when they aren’t in accidents.

A PowerPoint of my presentation is posted here.

The decision by Texas-based Blue Bell Creameries to recall all of its products after two samples of its ice cream tested positive for listeria is a timely reminder of the importance of product recall insurance.

Product recalls can be costly and logistically complex. In Blue Bell Creameries’ case the expanded voluntary recall announced Monday night includes ice cream, frozen yogurt, sherbet and frozen snacks distributed in 23 states and international locations.

Blue Bell said it was pulling its products “because they have the potential to be contaminated with listeria.”

The company had issued an earlier more limited recall last month after the U.S. Centers for Disease Control and Prevention (CDC) linked ice cream contaminated with listeria to three deaths in Kansas.

As of April 21, 2015, the CDC says a total of 10 people with listeriosis related to this outbreak have been confirmed from four states.

A 2014 report by Aon notes that the number of product recalls in the United States and Canada for both food products and nonfood products continues to grow year over year.

Each year, hundreds of products are recalled in the U.S. Some historically significant recall events have included such well-known brands as Tylenol, Perrier, Firestone Tires, Pepsi and Coca-Cola.

The Insurance Information Institute (I.I.I.) reminds us that product recalls can be financially devastating and potentially put a company out of business. No organization is immune to the risk of a product recall—even those with the best safety records, operational controls and manufacturing oversight.

In a post in the Wall Street Journal’s Morning Risk Report, crisis management experts note that how well a company succeeds at regaining customer trust following a product recall will likely determine whether it recovers from the negative hit to its reputation and bottom line.

True. Insurance can also help defray the financial hit on a company.

Product recall insurance helps cover a wide range of costs including advertising and promotional expenses to launch a recall, as well as the costs related to product destruction and disposal, business interruption and repairing a damaged reputation, the I.I.I. says.

Another coverage worth considering is product contamination insurance, which protects a company’s bottom line in the event its product is accidentally or maliciously contaminated.

It’s always heartening to read about insurance being made available to a market or sector that for whatever reason has not been able to benefit from risk transfer in the face of natural disaster.

So the news that countries of Central America will now be able to access affordable catastrophe cover by joining the former Caribbean Catastrophe Risk Insurance Facility—now the CCRIF SPC—is a positive.

A memorandum of understanding signed by the Council of Ministers of Finance of Central America, Panama and the Dominican Republic (COSEFIN) and CCRIF SPC will allow Central American countries to join the sovereign catastrophe risk insurance pool.

Nicaragua has signed a participation agreement to become the first Central American country to join the pool. Other member nations of COSEFIN are expected to join later this year and in 2016.

A press release puts some context around the need:

Nine countries in Central America and the Caribbean experienced at least one disaster with an economic impact of more than 50 percent of their annual gross domestic product (GDP) since 1980.

The impact of Haiti’s earthquake was estimated at 120 percent of GDP. That same year, tropical cyclone Agatha, in Guatemala, had devastating consequences and poverty rates increased by 5.5 percent.

Climate change also represents a significant development challenge, with average economic losses due to weather-related disasters amounting to 1 percent or more of GDP in 10 Caribbean countries and four Central American nations, including Nicaragua.”

As Artemis blog reports here, some 16 Caribbean countries are now members of the 2007-established CCRIF SPC, benefiting from parametric insurance products covering tropical storm and hurricane risks, earthquake risks or excess rainfall risks.

The risk pooling facility helps its members to access post-event risk financing, based on the actual event parameters, with a rapid payout and disbursement of as little as two weeks possible. This enables countries to access financing for recovery from natural catastrophes, while benefiting from cheaper premiums due to the risk pooling nature.”

The newly-expanded 23-nation partnership is a win-win for both existing and new CCRIF members, providing low prices due to more efficient use of capital and insurance market instruments. New members will be able to take advantage of CCRIF’s low premium costs and existing members could realize premium reductions due to the increased size of the CCRIF portfolio.

Consider this example: the CCRIF made a $7.75 million payout to the Haitian government some two weeks after the January 2010 earthquake hit close to Port-au-Prince. The value represented approximately 20 times the premium of $385,500 based on Haiti’s catastrophe insurance policy for earthquakes for the 2009/2010 policy year.

Actuaries have the top-rated job in America, which gives I.I.I. chief actuary James Lynch a chance to crow.

Actuaries – the number crunchers of the insurance industry – have the best jobs in the United States, according to the latest annual analysis by CareerCast.com. Newspaper reporters have the worst.

This has a personal resonance, because I am an actuary and I used to be a newspaper reporter. I wrote personal finance stories for the Miami Herald in the late 1980s. Before that I was a general assignment reporter for the Washington Missourian.

I think I’m the only person who can make this claim, and the fact continually sparks conversations, the most recent being April 14 after I spoke at the AIPSO Residual Market Forum in Warwick, Rhode Island.

This time the questioner was Karen Furtado, a partner at Strategy Meets Action, a Boston consultant to insurers. She asked: “That’s such an interesting change of careers. How did that happen?”

My response is a practiced tale:

I worked nearly a decade in journalism and had many reasons for leaving. You have to have lots of reasons to change careers. If there’s only one thing wrong with your job, that’s a good job and you shouldn’t leave it.

Before I left, I made some lists, as career guides urge. One list was of the things I wanted to do but never found time to do, because of the constraints of my career. One item on the list was “Take Math Classes.” (I had always gotten good math grades.)

So I quit my job and enrolled at Florida International University, near where I lived then. This was about three months before my wedding. I was 29.

At first I wanted to become a computer programmer because I had enjoyed writing the code that generated charts in the newspaper.

I quickly learned that programming is an art governed by a muse, and much of a programmer’s job is to stare at a screen until the muse whispers the correct code to write. This muse might alight in an hour, or in a week or maybe three weeks. In the meantime you faced a blinking cursor and ate Snickers.

That was not the career for me.

I had loved my math classes, though, and decided to change my major. I walked into the math department offices, and – serendipity! – the admin handed me a brand new brochure touting the university’s brand new certificate program in actuarial science.

You need to be curious about a lot of subjects: mathematics, statistics, economics, law. You need to be able to explain complex ideas in a simple way. Actuaries surely need those skills – but reporters need them, too.

This I can do, I thought. I got the university’s first certificate in actuarial science and picked up a bachelor’s in statistics along the way. After a mere decade of brutal exams, I was a fellow of the Casualty Actuarial Society (CAS).

My I.I.I. job combines my two careers. I work closely with the CAS, for which I write press releases and the occasional article. And I write research papers for the I.I.I., like this one on alternative capital, or the occasional magazine article, like this one on autonomous vehicles.

In fairness, I’ve never thought newspaper reporter was the worst job in the world, even back when I was so disenchanted a quarter century ago. Much of its poor rating today comes from future of newspapers, more bleak today than when I worked for one.

And the job that one person hates another may love. The journalist who can barely add (I’ve met them) would be an unhappy actuary, as would the actuary who struggles to write.

I feel lucky to have a job that blends my unique skills, and I always hope that others can find their own way as well.

I.I.I. chief actuary Jim Lynch brings us some surprising numbers on America’s addiction to opioids:

Americans are grossly misinformed about the dangers of opioid drugs, according to a recent survey by the National Safety Council (NSC).

Opioids are commonly prescribed painkillers like Vicodin, OxyContin and Percocet. The drugs are meant to mimic the nervous system actions of heroin and morphine and all too often lead to similar levels of addiction and suffering. More than 170,000 Americans have died from opioid overdoses this century, nearly triple the number of U.S. military deaths in Vietnam (see my earlier post).

I wrote about the epidemic in Contingencies magazine, focusing on the toll the drugs have taken in the workers compensation system.

Too few Americans are aware of this risk, according to the survey of 1,014 adults, reported in the March 24 edition of Workers’ Compensation Report. Just one in five considered opioids to be a serious safety threat. Only 12 percent said addiction was a concern; two-thirds were unconcerned about any side effects from the drugs.

Education is part of the problem. Only 29 percent of respondents said they had taken or been prescribed an opioid in the past three years, though the number jumped to 42 percent once they were provided with a list of common opioids.

Nearly 60 percent of users had at least one addiction risk factor. Common risk factors include alcoholism, depression, use of psychiatric medication or being the victim of physical, mental or sexual abuse.

Users held opioids in high esteem. For example, 78 percent said they were the fastest method of pain relief, 74 percent said they were stronger pain relievers than alternative prescriptions, and 71 percent said they were the best way to relieve pain.

They underestimate the risk. Though 16,235 people died from prescription drug overdoses in 2013, just 19 percent of survey respondents said they had major concerns about the risk of injury or death from the drugs.

That’s less concern than they had about injury or death from severe weather or a natural disaster, from which 586 people died in 2013, and about the same level of concern as riding in a commercial airliner in the U.S., an activity that in 2013 killed eight, roughly 0.5 percent as many as opioids.

Details on the NSC survey can be found here.

A major hurricane or earthquake hitting a densely populated metropolitan area like Miami or Los Angeles will leave insurers facing losses that far exceed their estimated 100 year probable maximum loss (PML) due to highly concentrated property values, a new report suggests.

In its analysis, Karen Clark & Company (KCC) notes that the PMLs that the insurance industry has been using to manage risk and rating agencies and regulators have been using to monitor solvency can give a false sense of security.

For example, it says the 100 year hurricane making a direct hit on downtown Miami will cause over $250 billion insured losses today, twice the estimated 100 year PML.

Insurers typically manage their potential catastrophe losses to the 100 year PMLs, but because of increasingly concentrated property values in several major metropolitan areas, the losses insurers will suffer from the 100 year event will greatly exceed their estimated 100 year PMLs.”

Instead, the report suggests new risk metrics—Characteristic Events (CEs)—could help insurers better understand their catastrophe loss potential and avoid surprise solvency-impairing events.

The CE approach defines the probabilities of a mega-catastrophe event based on the hazard rather than the loss and gives a more complete picture of catastrophe loss potential.

Rather than simulating many thousands of random events, the CE approach creates events using all of the scientific knowledge about the events in specific regions.

This information is then used to develop events with characteristics reflecting various return periods of interest, such as 100 and 250 year, which are then floated to estimate losses at specific locations.

To protect against solvency-impairing events, the report suggests insurers should monitor their exposure concentrations with additional metrics, such as the CEs and the CE to PML ratio.

KCC estimates that overall U.S. insured property values increased by 9 percent from 2012 to 2014, faster than the general economy.

The state with the most property value is California, followed by New York and Texas. The top 10 states account for over 50 percent of the U.S. total.

U.S. vulnerability to hurricanes and other coastal hazards continues to rise because of increasing concentrations of property values along the coast.

Of the $90 trillion in total U.S. property exposure, over $16 trillion is in the first tier of Gulf and Atlantic coastal counties, up from $14.5 trillion in 2012, KCC estimates.

 

Nearly 37 percent of the United States and more than 98 percent of the state of California is in some form of drought, according to the latest U.S. Drought Monitor.

Its weekly update shows that more than 44 percent of California is now in a state of exceptional drought, with little relief in sight.

The report says:

Continued dryness resulted in an expansion of Exceptional Drought (D4) in northwest California. Statewide snowpack remains at 5 percent as of April 6, 2015.”

Here’s the visual on that:

20150407_usdm_home

What could this mean for wildfire season?

The April 1 Outlook issued by the National Interagency Fire Center warned that parts of California will likely see increased wildfire activity earlier than usual thanks to the effects of the long-term drought.

Here’s what the significant wildfire potential looks like by June and July:

extended_outlook

Meanwhile, the National Oceanic and Atmospheric Administration’s (NOAA) recently issued Spring Outlook calls for drought conditions to persist in California, Nevada and Oregon through June with the onset of the dry season in April.

In its Outlook, NOAA said:

If the drought persists as predicted in the Far West, it will likely result in an active wildfire season, continued stress on crops due to low reservoir levels, and an expansion of water conservation measures.”

I.I.I. facts and statistics on wildfires and insurance are available here.

 

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