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Hurricane Andrew and Insurance: The Enduring Impact of an Historic Storm

August 10, 2012 Comments off

Hurricane Andrew and Insurance: The Enduring Impact of an Historic Storm
Source: Insurance Information Institute

Hurricane Andrew struck Florida on August 24, 1992, and the tumult it created for the property insurance market in the state has not ceased in the 20 years since, according to an analysis by the Insurance Information Institute (.I.I.). The I.I.I. white paper outlines six key insurance market changes attributed to the costliest Florida disaster. Insurance claims payouts for Andrew totaled $15.5 billion at the time ($25 billion in 2011 dollars), and it remains the second costliest U.S. natural disaster, after Hurricane Katrina, which hit in 2005. Hurricane Andrew forced individuals, insurers, legislators, insurance regulators and state governments to come to grips with the necessity of preparing both financially and physically for unprecedented natural disaster.

Residual Market Property Plans: From Markets of Last Resort to Markets of First Choice – 2012

July 11, 2012 Comments off

Residual Market Property Plans: From Markets of Last Resort to Markets of First Choice – 2012
Source: Insurance Information Institute

This report by Robert Hartwig, president of the Insurance Information Institute, and Claire Wilkinson analyzes the changes taking place within the residual property market, which consists of a myriad of different programs in place across the United States to provide insurance to high-risk policyholders who may have difficulty obtaining coverage from the standard market. So called residual, shared or involuntary market programs make basic insurance coverage more readily available. The report notes the still-burgeoning growth of the market, which now has a massive total exposure to loss that is approaching $900 billion. Despite attempts by certain states to reduce the size of their plans the fact of the matter is that this market of last resort remains the market of first choice for many vulnerable, high-risk coastal properties. The report focuses on the plans in Alabama, Florida, Louisiana, Massachusetts, Mississippi, New York, North and South Carolina, and Texas.

Social Media, Liability and Insurance

April 2, 2012 Comments off

Social Media, Liability and Insurance
Source: Insurance Information Institute

Hundreds of millions of people interact on social networks like Facebook, Twitter, YouTube, MySpace and LinkedIn every day. Like any other new technology, social media brings enormous opportunities and benefits. The ability to communicate and interact instantaneously on a global scale 24/7 enables businesses to reach their customers directly and individuals to voice opinions on any topic they see fit.

Yet as the opportunity to tweet, message, share and “like” grows, so do the risks. As businesses and individuals navigate this shifting online risk landscape, they face a range of evolving social media related liabilities including privacy, security, intellectual property and employment practices liability.

Meanwhile, amid a rising number of high profile data breaches, government is stepping up its scrutiny of cyber security. This is leading to increased calls for legislation and regulation, placing the burden on companies to demonstrate that the information provided by customers and clients is properly safeguarded online.

Despite the fact that cyber risks and cyber security are widely acknowledged to be a serious threat, a majority of companies today still do not purchase cyber liability insurance. However, research indicates that this is changing. Insurance has a key role to play as companies and individuals look to better manage and reduce their potential financial losses from social media and cyber risks in future.

+ Full Document (PDF)

Flood Insurance (Updated)

January 2, 2012 Comments off

Flood Insurance
Source: Insurance Information Institute

Because of frequent flooding of the Mississippi River during the 1960s and the rising cost of taxpayer funded disaster relief for flood victims, in 1968 Congress created the National Flood Insurance Program (NFIP). It has three mandates: to provide residential and commercial insurance coverage for flood damage, to improve floodplain management and to develop maps of flood hazard zones. Flood damage to vehicles is covered under the comprehensive section of an auto insurance policy but there is no coverage for flooding in standard homeowners, renters or in most commercial property insurance policies. Coverage is available in a separate policy from the NFIP and from a few private insurers. Despite efforts to publicize this, many people exposed to the risk of floods still fail to purchase flood insurance.

The widespread flooding associated with Hurricane Katrina in 2005 set in motion a debate about how to improve the federal program. Likewise, the Mississippi floods of 2011 and Hurricane Irene, both of which caused widespread physical and economic damage, much of it uninsured, are prompting a reexamination of how the risk of flooding is handled, from the building of levees and other artificial barriers to the federal flood insurance program, including the possibility of some form of privatization. Meanwhile, the last Congress balked at significant change, choosing instead frequent short-term reauthorizations in lieu of long-term reform. Efforts to revamp the program are continuing.

Residual Market Property Plans: From Markets of Last Resort to Markets of First Choice – 2011

July 16, 2011 Comments off

Residual Market Property Plans: From Markets of Last Resort to Markets of First Choice – 2011
Source: Insurance Information Institute

A myriad of different programs in place across the United States provide insurance to high-risk policyholders who may have difficulty obtaining coverage from the standard market. So called residual, shared or involuntary market programs make basic insurance coverage more readily available. This updated report examines the property insurance coverage provided by Fair Access to Insurance Requirements (FAIR) Plans, Beach and Windstorm Plans and two state run insurance companies in Florida and Louisiana: Florida Citizens Property Insurance Company (CPIC) and Louisiana Citizens Property Insurance Corporation (Louisiana Citizens). Also discussed in detail are the plans in Alabama, Massachusetts, Mississippi, North Carolina, South Carolina and Texas. This year’s report, like the reports of the last four years, records the ongoing growth in the exposure base of the residual market property insurers along with the still-precarious financial condition of some plans. In the course of the last four decades FAIR and Beach Plans have experienced explosive growth both in terms of policy count and exposure value. Total policies in force (both habitational and commercial) in the nation’s FAIR and Beach and Windstorm Plans combined practically tripled from 931,550 in 1990 to 2.8 million in 2010 – a record high. Total exposure to loss in the plans surged from $54.7 billion in 1990 to $757.9 billion in 2010—an increase of 1,286 percent.

+ Full Report (PDF)

Terrorism Risk: A Reemergent Threat – 2011

April 25, 2011 Comments off

Terrorism Risk: A Reemergent Threat – 2011
Source: Insurance Information Institute

This updated paper notes that in the countdown to the 10-year anniversary of September 11 the threat of terrorism continues to evolve. Recent incidents such as the January 24, 2011 suicide bombing at Moscow’s Domodevo airport, last year’s attempted car bomb attack in New York City’s Times Square and the thwarted plan by Najibullah Zazi to bomb the New York subway system are propelling terrorism into the headlines once more. Unrest in more than a dozen countries across the Middle East and North Africa, triggered by an uprising in Tunisia that began in December 2010, has also increased political and social tensions in a potentially volatile region in recent months. The paper includes sections focusing on how insurers treat terrorism risk today; estimating potential terrorism losses; the nuclear, biological, chemical and radiological (NBCR) threat; aviation insurance for terrorism risks; and liability issues. The report also provides an explanation of the structure and coverages of the Terrorism Risk Insurance Act of 2002 (TRIA), which was extended through December 2014 under the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA).

+ Full Paper (PDF)

Property and Casualty Insurance — 2010 Year End Results

April 25, 2011 Comments off

Property and Casualty Insurance — 2010 Year End Results
Source: Insurance Information Institute

The property/casualty (P/C) insurance industry reported an annualized statutory rate of return on average surplus of 6.5 percent for 2010. The year’s result compares favorably with 2009’s rate of return of 5.8 percent and the recession battered 0.6 percent rate of return in 2008. Overall net income after taxes (profits) for the year increased by $6.0 billion to $34.7 billion from $28.7 billion in 2009. Positive premium growth for the year—at 0.9 percent—is the first since 2006 and confirms that the era of mass exposure destruction in the property/casualty insurance industry is finally over, with demand for insurance now beginning to stabilize and recover in the aftermath of the “Great Recession.” While underwriting losses deteriorated marginally, the industry is still operating on a close to “breakeven” basis with a combined ratio of 100.8, after excluding mortgage and financial guaranty insurers. As has been the case since mid-2009, virtually all of the improvement in the industry’s financial performance came from a massive reversal in asset values, which allowed the industry to realize $5.7 billion in capital gains during 2010 compared to a $7.9 billion realized capital loss a year earlier. Looking ahead to 2011, the U.S. P/C insurance industry will remain very strong financially despite enormous catastrophe losses abroad, the vast majority of which will be borne by foreign insurers and international reinsurers. The industry results were released by ISO and the Property Casualty Insurers Association of America (PCI).

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