Risk

Reston, Va. - The National Association for Variable Annuities (NAVA) announced an industry-backed initiative to establish a comprehensive set of standards for simplifying and improving the electronic annuity purchasing process for consumers and insurers.

Washington - "The considerable size and cost of catastrophes present unique challenges to participants in the insurance market. Namely, it makes management of potential liability by any single insurance company nearly impossible. In some cases, even the assets of the entire insurance industry are inadequate to reduce potential liability to commercially acceptable level." This statement comes from "An Analysis of Catastrophic Risk Insurance Proposals," a report published by The Council of Insurance Agents & Brokers, produced by Georgetown Economic Services LLC and financed by the Foundation for Agency Management Excellence (FAME)—all based in Washington. The report analyzes the various legislative proposals have been advanced to deal with the problem of insuring catastrophic risk, from natural disasters to acts of terrorism.

Newark, Calif. – In light of recent dire news about global warming, Risk Management Solutions (RMS) has hired a climate scientist, will pursue initiatives to enhance catastrophe modeling, and will undertake focused case studies to assess the economic implications of climate change for communities and for business. The Newark, Calif. provider of products and services for the management of catastrophe risk announced the first of such initiatives: the appointment of Dr. Celine Herweijer to the position of Principal Scientist, Future Climate. The newly designated role reflects a commitment by the company to explore the evaluation of future climate risk for today's economic, business, and political decisions, says the company. Herweijer is a climate scientist, recognized for her work on modeling drought and the impact of oceans on climate. In her new role, Herweijer will lead RMS work around the wide-ranging implications of future climate risk. Based on accumulating evidence, there is a resounding consensus among scientists that the Earth's climate is changing in response to increases in greenhouse gas emissions from human activities. The global warming trend has accelerated since the 1970s, and 11 of the last 12 years have ranked in the top twelve warmest years since 1850. A warming climate leads to changes in the nature and occurrence of extremes - tropical and temperate windstorms, droughts, heatwaves, and wildfires, as well as floods of all kinds - and for some regions and perils, RMS expects increases in the severity and/or frequency of catastrophic events. RMS climate modelers are already investigating where and how such impacts should be incorporated in catastrophe models that assess current risk, and how to model changes in risk into the future. "For many regions and perils, hazard of the past is different from the hazard of today, which is in turn different from the hazard of the future," said Dr. Robert Muir-Wood, chief research officer at RMS. "Society is still coming to terms with the profound implications of this - in addition to concerns for the safety and welfare of residents of vulnerable communities, future risk and future value is already beginning to impact today's economic and political decisions, from investment in a ski resort, to development in a canal estate in the Caribbean." The examination of future climate risk is an important development that will help us to meet the needs of business and society, said Herweijer. "We have reached the stage where the economics of the consequences of climate change is going to become a principal motivation for taking action." Source: RMS

Pearl River, N.Y. & Atlanta, Ga. - Star Trek's William Shatner will kick off the 2007 ACORD LOMA Insurance Systems Forum at the Walt Disney World Dolphin in Lake Buena Vista, Fla., May 20-22, 2007, according to the two industry associations.

Despite dire warnings from health officials and risk experts, only a tiny percentage of the nation's insurance carriers have developed formal plans to keep their businesses running in the face of a deadly, long-term influenza pandemic.While 82% of carriers have prepared business continuity plans (BCP) for survival in the wake of natural disasters like hurricanes, tornadoes and floods, only 11% are ready for a pandemic, says Clare DeNicola, president and CEO of IVANS, a Stamford, Conn., company that provides communications services to insurance companies. IVANS surveyed CIOs and directors in May 2006.

ITIL, the IT Infrastructure Library, entered the North American consciousness just in time to help shift the focus from putting technology first to putting business first. It's a change that amounts to a seismic jolt to the culture of insurance company IT departments.The 30-odd volumes of ITIL, which are slated for an update next month, provide a common language for IT staffs and a framework for honing IT processes. For most insurers on these shores, the idea of ITIL gained significant momentum in 2004 and reached critical mass in 2005, IT people say.

There has been no end of bad press for the property and casualty insurance industry this month. Allegations of price gouging, faulty catastrophe models and calls for a congressional probe into post-Katrina hurricane claims flooded the news wires.Most of the negative press pointed a finger at an odd coincidence. First, the year after more than 993,000 homeowners' insurance claims were settled in the two states most affected by Katrina and, according to the Property Casualty Insurers Association, Des Plaines, Ill., the insurance industry paid $51+ billion in overall catastrophe-related claims. Then, the industry experienced a relatively catastrophe-quiet-and profitable-year.

Disposal represents one of the biggest points of failure in computer asset management because companies just don't know how many assets they have, where they are located, who's using them or what specific data resides on them, says Gartner analyst Frances O'Brien."Unless you know that information you're at risk from Day One," O'Brien says.

MODELS UNVEILED FOR NATIONWIDE HEALTH NETWORKPrototypes for a standards-based nationwide health information network (NHIN) were scheduled for presentation at a conference last month in Washington, according to the U.S. Department of Health and Human Services (HHS).

ADOBE EXPANDS ACROBATAdobe Systems Inc., San Jose, Calif., introduced Adobe Acrobat Connect software, a Web conference and collaboration product with "always-on" personal meeting rooms. It is designed to enable workers to connect online instantly with a Web browser and the ubiquitous Flash Player software. Together with Adobe Acrobat 8 software the expanded Acrobat family accelerates the flow of business by allowing people to work together in real-time, according to Adobe. The new, extended Acrobat family brings together the two critical components of knowledge work-documents and people. Acrobat Connect enables users to choose a Web address for their online personal meeting room, with unlimited use for up to 15 participants for one monthly fee.

CANAL SELECTS TRUMBULL FOR SUBROGATION MGT.Canal Insurance Co., Greenville, S.C., entered an agreement with Trumbull Services, Windsor, Conn., to use Trumbull's Subrooutsource, an internally developed, advanced system designed to enhance subrogation recovery activities for all lines of business nationwide. Trumbull, in conjunction with an experienced subrogation team, will manage the entire subrogation process, leveraging the system's abilities to increase recoveries through effective resource allocation, automated workflows and a continuous improvement model.

Passage of the Pension Protection Act in August 2006 has made siloed IT designs obsolete. Life, annuity and long-term care combinations are now acceptable from a tax and regulatory compliance perspective. Recent pension legislation allows combinations of long-term care policies and annuities. As a result, we can expect a frenzy of product introductions in the near future and beyond.What does this new set of possible combination contracts mean to the IT systems of insurance organizations? It means co-existence and configurability are now of paramount importance. That gives rise to the bigger question: Are carriers' software solutions ready to support the new hybrid product world?

Fayetteville, Ark. – The Gramm-Leach-Bliley Act (GLBA) has not created significant synergies between commercial banking, investment banking, merchant banking and insurance activities, according to a finance researcher at the University of Arkansas. It also had little effect on bank profitability and productivity.

Needham, Mass. - Carriers need to step up their technology preparedness to get ready for industry-altering regulatory issues poised to have major impact on the U.S. insurance industry in 2007, according to new research from TowerGroup. These issues include a national catastrophe fund, an extension of the Terrorist Risk Insurance Act, and an optional federal charter.

Atlanta - LOMA has released a new edition of Life and Health Insurance Underwriting, for the first time in downloadable PDF format, the life research and education association reports. The revised textbook introduces risk assessment principles applied to underwriting individual and group life and health insurance and provides a thorough introduction to underwriting terminology and concepts. The text is assigned reading for LOMA’s underwriting course, UND 386.

Indianapolis - In the latest move by the insurance industry to participate in reducing the effects of global warming, the National Association of Mutual Insurance Companies (NAMIC) unveiled a new Web site this week: www.climateandinsurance.org. The site is designed to help address the increasing concerns about climate change and its impact on the property/casualty insurance industry. "There has been considerable discussion of climate change and the insurance industry taking place within state, federal and international policy venues. Increasingly, climate change is discussed in the context of public policy in the areas of flood and other natural disaster insurance, emergency preparedness and response, and reinsurance, among others," explained Chuck Chamness, president and CEO of the Indianapolis-based organization. Chamness said the site will not advocate a position on the scientific controversy of the causes of the increase in natural disasters around the world. "Instead, it contains information and leading thought about how climate change impacts the insurance industry, and what insurers and reinsurers in the U. S. and Europe are doing with this issue," Chamness added. David Reddick, NAMIC's associate director of public policy and editor of the Web site, said podcasts, blogs, videocasts and other interactive features will be added to the site, depending on the needs of its users. Reddick said the site will also report on the status of the National Association of Insurance Commissioners (NAIC) Climate Change and Global Warming (EX) Task Force and other regulatory or legislative efforts. NAIC has long been active in promoting education for natural catastrophe and associated risk management. "As public policy begins to develop more fully on climate change, the industry's response will be a key feature of the site," Reddick said. "We're anxious to get feedback to help us make this a significant resource for those in the industry as well as other interested and involved parties, including other information sources, policymakers, the media and consumers." Insurance Networking News (INN) further reported on the industry's response in August 2006, citing several carriers that are stepping up their efforts to more fully engage the global warming topic. For example, Firemen's Fund Insurance is launching a first-of-its-kind 'green' coverage, including rate credits and other incentives, for commercial building owners who re-build damaged properties using green and LEED-certified (Leadership in Energy and Environmental Design) building practices. California-based Firemen's Fund will begin seeking state regulatory approvals this month so that the products can be offered in states around the country this fall. Marsh, the world's largest insurance broker, and AIG, the world's largest insurer, launched carbon emissions credit guarantees and other new renewable energy-related insurance products that are allowing more companies to participate in carbon offset projects and growing carbon emissions trading markets. The carbon trading market in the European Union alone is expected to hit $30 billion by the end of 2006. And Japanese insurer, Tokio Marine & Nichido Life, reforested more than 7,500 acres of angroves in Indonesia, Thailand and several other countries to minimize losses from rising cyclone-related risks. Yet for all the industry's efforts, it must do even more to address the growing impact of climate change-induced damages, according to a new report by World Wildlife Fund (WWF) and Munich-based global insurer Allianz Group. In October 2006 INN described a report, Climate Change and Insurance: An Agenda for Action in the United States, which examined the latest scientific findings about climate change, including the impacts of forest fires, storms and floods, and the potential impact on the insurance industry and its customers. According to the report, climate change has the potential to significantly alter and intensify destructive weather patterns in the United States, leading to increased flooding, forest fires and storm damage. The most direct risk to the U.S. will likely come from hurricanes, which are expected to become more frequent and powerful. Additionally, rising sea levels over the coming decades could inundate many US coastal cities and portions of some coastal states. Forest fires could become even more frequent and larger. These changes could make insurance unaffordable for customers in high-risk areas. In fact, insurance premiums in states vulnerable to hurricanes are already increasing, and in some cases, insurers are exiting these markets altogether. Allianz and Washington-based WWF intend to engage the insurance industry, governments, regulators and others to better manage the risks associated with climate change, said the organizations. Sources: NAMIC, Insurance Networking News Archives

Kansas City, Mo. - The National Association of Insurance Commissioners' (NAIC), a voluntary organization of the chief insurance regulatory officials of the 50 states, the District of Columbia and the five U.S. territories, reports that its Web site received more than 1 million visits in 2006, doubling the previous year's total. The domain, www.naic.org, logged a total of 1,150,632 visits from January through December 2006, marking a drastic increase from the 480,675 visits received in 2005. In addition to the rising number of Web visits, a 2006 analysis of the NAIC Web site showed the domain averaged 3,152 visits per day in 2006, up from 1,316 in 2005. The average visit to www.naic.org in 2006 lasted more than 18 minutes, a six-minute increase from 2005. A "visit" is tallied each time someone logs on to any page within the NAIC Web domain. NAIC Executive Vice President and CEO Catherine Weatherford attributed the increased Web activity to an "improved user experience" throughout the site, making it easier for visitors to navigate from page to page. "There have been a considerable amount of improvements made to the accessibility and organization of information within the NAIC site," Weatherford said. "The tools and options made available to our members, the insurance industry and consumers are second to none. The site is an all-encompassing, multi-media instrument that offers on-demand access to important NAIC data and information." Another reason for the spike in Web visits was the increased consumer awareness generated from Insure U, the NAIC's education-based consumer Web site. This effort included a series of public service announcements, which guided consumers to the NAIC Web site to learn more about their insurance needs. The NAIC site, which is updated daily, features an extensive amount of background on the association, including committee documents and updates, white papers, news releases, NAIC publications, consumer-oriented material, extensive databases, industry-based links, individual Web pages for the wide-range of systems available to NAIC members, links to the many divisions within the NAIC, and updated information on past and upcoming NAIC national meetings. "The NAIC is dedicated to offering a vast amount of regulatory information through its Web site," Weatherford said. "To have so many people interested in what our expansive site has to offer is a testament to the NAIC's mission of promoting the public interest and continuing to support and improve state-based insurance regulation." Source: The National Association of Insurance Commissioners

Geneva, Switzerland - There is a growing disconnect between the power of global risk to cause major systemic disruption and our ability to mitigate it. This is one of the main conclusions released today in the annual Global Risks report, published by the World Economic Forum in cooperation with Citigroup, Marsh & McLennan Companies, Swiss Re and the Wharton School Risk Center. The Global Risks 2007 report identifies 23 core global risks (see below), and suggests that many of these risks have worsened over the last 12 months, despite growing awareness of their potential impacts. The 23 Core Risks identified by the Global Risk Network include:* Technological: breakdown of critical information infrastructure; emergency of risks associated with nanotechnology.* Societal: pandemics; infection diseases in the developing world; chronic disease in the developed world, and liability regimes.* Geopolitical: international terrorism; proliferation of weapons of mass destruction; interstate and civil wars; failed and failing states; transnational crime; retrenchment from globalization; Middle East instability.* Environmental: climate change; loss of freshwater services; national catastrophes (tropical storms, earthquakes and inland flooding).* Economic: oil price shock/energy supply interruptions; U.S. current account deficit/fall in US$; Chinese economic hard landing; fiscal crises caused by demographic shift, and blow up in asset prices/excessive indebtedness. In addition to specific risk mitigation measures, which would require the utmost in global support, communication and technologies, the report suggests that institutional innovations may be needed to create effective responses to a complex risk landscape. The report identifies two such innovations: first, the appointment of Country Risk Officers - an analogy to chief risk officers in the corporate world -- that could provide a focal point in government for mitigating global risks across departments, learning from private-sector approaches and escaping a 'silo-based' approach. “Risks are often still viewed and dealt with in isolation,” says Jacques Aigrain, Chief Executive Officer of Swiss Re. “However, in today's world, global risks are tightly interwoven. To address our contemporary risk landscape, governments and enterprises need to take a holistic approach to overcome silo thinking and acting. We need to prioritize risks effectively, improve preparedness and strengthen public-private partnerships to mitigate risks and to finance economic losses. Finally, we propose to coordinate global risk mitigation efforts by creating the function of Country Risk Officers at governmental level who regularly meet on an international level." The second innovation would be the creation of flexible “coalitions of the willing" around specific global risk issues that can provide momentum to mitigation efforts. This would allow mitigation strategies to emerge from dynamic interplay between governments and business, achieving a balance between inclusiveness and decisiveness, says the report. In addition, the report recommends a number of key needs for addressing specific global risks, including: * Linking energy security with considerations on climate change * Urgently beginning work on a successor to the Kyoto agreement with three central principles: * Involvement of the United States and major developing countries (particularly China and India); * Differential responsibilities for future emissions' reduction dependent upon past emissions and stage of economic development; and, * Common overall responsibility for climate change * Renewing terrorism insurance schemes scheduled to sunset in 2007 in some form; improve framework for public-private arrangements in other countries, and * In order to prepare for a pandemic, governments should increase research into the identification of critical choke-points in the supply/value chain where skill sets are rare, interdependencies are greatest and the risk of triggering systemic failure is highest. "While risk mitigation is set to be a key theme at this year's meeting in Davos, there is continued evidence of a disconnect between risk and mitigation," said Mike Cherkasky, President and CEO of Marsh & McLennan Companies (MMC). "The focus of government and corporations must not only be on reacting to events but on utilizing effective enterprise risk management to set priorities, increase business focus, allocate resources and maximize efficiency. Catastrophic natural disasters in recent years have demonstrated that our ability to confront emerging risks depends more on the choices we make before a disruption than the actions we take during a crisis. Only a systematic planning approach will ensure that countries and companies are prepared for the risk environment we presently face." The topics identified in the report will be at the core of the agenda for the annual meeting of the World Economic Forum taking place later this month in Davos, Switzerland. "While opinion suggests that levels of risk are rising in almost all of the 23 risks on which the Global Risk Network has been focused over the last year, the mechanisms in place to manage and mitigate these risks are inadequate; world leaders must act now," says Thierry Malleret, Director, Head of Global Challenges Team of the World Economic Forum. "While the global economy has been expanding faster than at any time in history, it remains vulnerable." Compiled by the Global Risk Network of the World Economic Forum, Global Risks 2007 draws insights from leading domain experts engaged throughout 2006 and from partnership with Citigroup, Marsh & McLennan Companies (MMC), Swiss Re and the Wharton School Risk Center. In 2007, the Global Risk Network will build on this report in extending its global work. Sources: WebWire, World Economic Forum

Newark, Calif. - Risk Management Solutions (RMS) a provider of products and services for the quantification and management of catastrophe risks, scrambled to respond to charges leveled by the Tampa Tribune that its CAT models rely on "faulty science," and that insurance companies are using the models to justify huge rate increases in coastal areas. In a letter to Insurance Networking News, Dr. Robert Muir-Wood, chief research officer of RMS, Newark, Calif., disputed the January 7 article entitled "Insurance Risk Forecast Called Faulty," stating, "We at RMS were stunned by the article's inaccuracies and one-sidedness." Contributing to the dispute is a change made in March 2006 to the RMS model that takes a 'medium-term' (five-year) forward-looking view of risk for estimating potential catastrophe losses. To date, catastrophe model results have typically been based on a long-term historical average baseline. Jim Elsner, a professor of geography at Florida State University and one of four experts on a panel that provided input to the model's development, criticized the results, telling the Tampa Tribune that it contains assumptions that are "actually unscientific." In response, RMS confirmed convening two separate meetings one with Elsner and one in which Elsner, citing an affiliation with an RMS competitor, was absent. In the October 2005 meeting, RMS hosted a meeting of four hurricane climatologists to develop a consensus forecast of the overall level of U.S. hurricane activity expected over the next five years. "The consensus involved weighing the opinions of the four experts, having first provided them with detailed statistics on historical hurricane activity and landfalls. All four scientists, including Professor Elsner, gave their sign-off on the outcome of this process. RMS then took the results of this forecast and implemented them in its hurricane catastrophe model," Muir-Wood told INN. "RMS climatologists took responsibility for determining where the extra hurricanes would be expected to form, while preserving the overall target activity rates established by the expert panel," he said. "A press release and white paper were issued describing this work in detail. Again, all four experts were asked to review and approve both documents, to ensure that their involvement was appropriately represented. The RMS regional landfall rates were not challenged by any of the panelists. While it is now recognized that Professor Elsner has developed his own theories on how hurricane activity translates to regional landfall rates, he did not challenge the RMS landfall rates developed after the 2005 expert elicitation." As reported on March 23, 2006 in Insurance Networking News, RMS justified its updated five-year model, which predicted an increase in modeled annualized insurance losses by 40% on average across the Gulf Coast, Florida and the Southeast. Modeled annualized insurance losses in the Mid-Atlantic and Northeast coastal regions will increase by 25% to 30%, relative to those derived using long-term 1900-2005 historical average hurricane frequencies, INN reported. "This new view of risk is driven by an increase of more than 30% in the modele frequency of major (Saffir-Simpson Category 3-5) hurricanes making landfall in the U.S. to account for current elevated levels of hurricane activity in the Atlantic basin, which are expected to persist for at least the next five years. When compared with a pre-2004 historical baseline, as has been previously employed for quantifying insurance risk, the increases in modeled annualized losses are closer to 50% in the Gulf, Florida, and the Southeast," reported INN. Taking into account that eight storms have hit the area in the last two years, RMS stated that the increased frequency and intensity of hurricane activity in the Atlantic Ocean Basin, as observed since 1995, is driven by higher sea surface temperatures in the tropical North Atlantic and by associated changes in atmospheric circulation. These warmer temperatures are expected to translate into a continuation of high activity in the basin, leading to a greater potential for hurricanes to make landfall at higher intensities over the next five years. "Hurricane activity in the Atlantic basin has been running far above the historical average in 9 of 12 years since 1995," Muir-Wood told INN. "As one metric, the annual number of the most intense storms (Category 3-5) has been more than twice that of the average annual number between 1970 and 1995." In October 2006 RMS organized the second of these annual expert meetings on hurricane activity rates, inviting all four of the scientists involved in the first meeting, reports RMS. "Only Professor Elsner declined, citing that he was under contract with a company affiliated with our main competitor," Muir-Wood told INN. The second meeting involved a total of seven climatologists, and went into greater depth than the first meeting, employing the results of 20 different statistical and climatological forecasting methods, said Muir-Wood. "The activity rate forecast for the next five years that came out of this meeting was almost identical - within 1-2% - of the projection of the first year's meeting," Muir-Wood stated. Despite the charges leveled by Elsner, RMS will continue to run an annual hurricane climatology expert elicitation procedure to ensure that RMS hurricane models reflect the most current view of hurricane risk, said Muir-Wood. "The five year perspective, may in future years, be decreased if this is suggested by the best scientific and statistical evidence available at that time," he added. Since the January 7 Tampa Tribune article appeared, further coverage in the popular press has linked questions about the catastrophe models to the rate increases being employed by insurance companies. Yesterday, two Florida Cabinet officers asked for more information about "a dramatic change in hurricane damage forecasting used by the insurance industry." In the Tampa Tribune's January 9 edition, Gov. Charlie Crist and Chief Financial Officer Alex Sink challenged RMS to provide the background for their model creation. "All of the material produced at these [annual expert] meetings, as well as the details of how activity rates were implemented, have been documented and are in the process of being published in peer-reviewed scientific literature," Muir-Wood told INN. RMS is the official model for the Florida Hurricane Catastrophe Fund, which was created after Hurricane Andrew hit in 1993. The fund provides backup coverage for private insurance companies. "RMS has built its reputation on the principles of providing neutral and unbiased information on risk," concluded Muir-Wood. Sources: Tampa Tribune, The Kansas City Star, Risk Management Solutions, Insurance Networking News archives.

Washington – Insurance organizations quickly responded to charges of consumer gouging, leveled yesterday by the Consumer Federation of America (CFA), a Washington nonprofit group representing 300 consumer groups.The charges were given voice by J. Robert Hunter, CFA’s director of insurance. Hunter, an actuary, former state insurance commissioner, and former federal insurance administrator, authored a study that concluded that the P&C industry dramatically increased profits and surplus in recent years.