Today marks the 164th edition of the Cavalcade of Risk, a gathering of the most important and well-written posts within the blogosphere pertaining to risk and insurance. In this edition, industry bloggers have covered everything from workers comp to investing risk to disease management. And it’s all here for you:
Investment Risk: Investing in bonds is relatively safe, but Darnell Brown points out the investment risks inherent in any type of bond purchase, as well as traditional stock buying.
On-the-job Risk: Julie Ferguson of Workers’ Comp Insider writes about the less obvious risks that law enforcement and first responders face in her hard-hitting post that cites a recent South Carolina case in which a sheriff was denied workers comp benefits for mental distress after he fatally shot a suspect.
Measurement Risk: If you can’t believe the actuaries, who can you believe? Unfortunately when it comes to disease management and wellness, the industry is “rife with incompetent measurement of outcomes,” which leads to massive misallocation of funds, at least according to this podcast with David Williams and Al Lewis, president of the Disease Management Purchasing Consortium.
Liability Risk: Jason Shafrin tackles the question of who is financially liable for covering most American’s risk of falling ill? The answer is increasingly the federal government (i.e., taxpayers).
The Risk of Inadequate Coverage: Veteran insurance blogger Henry Stern writes about critical illness insurance policies — something all of us should be aware of, though few are.
The Risk of Working With Different Personalities: For life insurance risk managers, there is a type of buyer who wants to lead a more financially responsible life but often fails. Russell Hutchinson explores how you may be able to help them.
Over at Risk Management, we have a new article on some of the considerations corporate officers must consider before blowing the whistle on their own companies. With the new SEC Whistleblower Program, there are some new nuances but the core advice remains the same as common sense would suggest: officers should first try to report the problem internally but if that isn’t possible (for example, because the violations are occurring at the very top or the officer fears retribution) then they should by all means inform the SEC.
Here is more from article authors Lawrence A. Hamermesh and Jordan A. Thomas.
It is when the internal reporting system breaks down that the most serious problem for officers arises: the officer reports misconduct through the appropriate channels, but the report is ignored or the response is otherwise inadequate.
In that situation – and also when the officer has a reasonable belief that reporting internally will be inappropriate or futile — the officer must determine whether to report the matter to an outside party, such as the SEC or another law enforcement authority. It is here that the officer’s fiduciary duty of loyalty intersects with the potential for an SEC whistleblower award.
Would the officer’s duty of loyalty prohibit him or her from reporting the misconduct to the SEC, where such reporting is at least partly motivated by the hope of receiving a monetary award?
For several reasons, the most likely answer is “no.”
The duty of loyalty does not prohibit self-interested conduct by officers; it simply prohibits such conduct if it unfairly affects the corporation. Yet, in at least some cases, external reporting will actually be in the best interest of the corporation: while a whistleblower submission could lead to an eventual enforcement action against the corporation, it might result in substantially smaller sanctions and related private settlements than if the officer remained silent and the illegal conduct was allowed to continue and grow larger.
Related to that, adverse effects on the corporation’s reputation might be minimized by limiting the reach of corporate misconduct.
First it was the massive fraud committed at MF Global, where company trading losses were conveniently covered with client money — $1.6 billion to be exact — that will likely never be repaid. Then it was the Peregrine Financial Group debacle, the Madoff-like scandal that resulted in $200 million shortfall in customer accounts.
On the heels of these investment banking scandals, lawmakers are working to create an insurance fund for futures customers. Michael Dawley, chairman of the Futures Industry Association and managing director at Goldman Sachs’, has put his support behind the idea, claiming the Institute for Financial Markets should examine the plausibility of such a fund. Scott O’Malia, a Commodity Futures Trading Commission commissioner and chairman of the advisory committee has called the recent scandals a complete betrayal of public trust and called for “an immediate and comprehensive overhaul of customer protection safeguards.”
Speaking at a U.S. Senate committee hearing on MF Global and Peregrine’s collapse this month, CME Group President Terrence Duffy said raising money for such a fund might be too costly to the industry to be appealing.
And even if futures brokerages were willing to pitch in, customers might still be dissatisfied by the ultimate payback.
“Ask the folks that were investing with Mr. Madoff when he took $50 billion and SIPC gave them $2.5 billion in return,” he said, referring to infamous Ponzi schemer Bernard Madoff.
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“Ask those that lost money on MF Global or Peregrine if they wish they’d have had insurance.
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Of course they would,” he said in an email.
In essence, the futures insurance fund would protect customers’ money in the event of another MF Global or Peregrine event, acting similar to the Securities Investor Protection Corp, which guarantees securities investments up to $500,000 in the event a brokerage firm collapses. Just yesterday, leaders from the futures industry and futures customers gathered again to discuss the feasibility.
With no sign of the slowdown in banking scandals, it would make sense to create a safety net for customers. But it remains to be seen if all parties will agree to the cost of such an endeavor.
The summer of 2012 has been one a farmer would love to forget and one that weathermen never will. Daily temperature records were regularly shattered throughout the United States and historic drought conditions, which remain ongoing in many areas, caused crop yields to suffer. By July 19, after weeks of “unrelenting heat and a lack of rain continued the downward spiral of drought conditions,” according to National Climate Data Scientist Richard Heim, nearly 64% of the nation had officially entered drought, the highest percentage since 1950s.
Worst of all, some fear that this is less of an anomaly and more a sign of what’s to come in a warmer future. If that is the case, farmers, states and the nation at large will have to find new ways to ensure expected results can still be met. Regardless, the summer of 2012 will be notable, either for its harsh conditions or as the first in a line or extreme summers.
So here, we look back at a memorable season.
June 23
Wildfires burned in many areas of the western United States this summer, but a blaze in Colorado set historic state records. At least six were killed and some 600 homes were destroyed by a wildfire that devastated the Waldo section of Colorado Springs. The property damage has been estimated north of $500 million, some $350 million of which is insured, but the human toll looms even larger. A local resident, C.J. Moore told NPR that the fire was so hot her driveway exploded and, in the blaze, she lost much more than possessions. “One of the things I thought about the other day was the flag that was over my late husband’s casket,” Moore told NPR. “And I’m going, ‘I can’t replace that.’ I mean, yeah, I can get another flag, but it wouldn’t have served the same purpose. And you [think about it], and then tears well up.”
June 28
As a relentless heat wave blankets much of the country, and cities throughout the United States set temperature records, the nation’s capital sets a historic mark. June 28 to July 8 marks an 11-day stretch of 95-degree-or-hotter days in Washington, D.C., breaking the previous record set in 1930. The 105 Fahrenheit reached on July 7th becomes the second-hottest day in the city’s history. (Chart above, and data, via the Washington Post.)
July 17
The U.S. Department of Agriculture reports that 38% of the U.S. corn crop is rated as poor to very poor. “That 38% represents the highest amount of U.S. corn rated poor to very poor since the end of the 1988 growing season,” said USDA Meteorologist Brad Rippey. “We now see in 13 of the 18 major production states in the U.S., at least one quarter of the corn crop rated poor to very poor.” In Kentucky, Missouri and Indiana, more than 70% of the corn crop is rated as poor.
July 18
A Milliman report estimates that a dozen major corn and soybean-producing states could tally underwriting losses of $2.8 billion. The 12 states included were Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin, and Milliman notes that “other states, including Arkansas and many western states, are also experiencing an intense drought and could see high crop insurance indemnities as well.”
July 20
The U.S. drought monitor releases shocking findings: due to “unrelenting heat and lack of rain,” 63.5% of the United States is now officially suffering from drought. Mark Svoboda, climatologist for the U.S. drought monitor notes that the summer heat, on top of a dry winter and a warm spring, “Our soil moistures are depleted.”
July 25
In a summer full of them, the USDA extended yet another series of disaster proclamations for counties in several states, raising the number of counties where farmers were eligible for drought-related disaster assistance to 1,369. The department noted that this highlighted the need for Congressional action. “The urgency for Congress to pass a food, farm and jobs bill is greater than ever,” said Agriculture Secretary Tom Vilsack. “The hard-working Americans who produce our food and fiber, feed for livestock, and contribute to a home-grown energy policy—they need action now.” One week later, Agriculture Secretary Tom Vilsack would report that more than 50% of the nation’s counties were officially designated disaster zones, including more than three-quarters of U.S. cattle acreage. “It’s the most severe and expensive drought in 25 years,” said USDA economist Timothy Park.
August 2
The House of Representatives passes a $383 million drought-assistance package for farmers and livestock producers. The short-term care package is generally seen as a reasonable relief effort but also highlights Congress’s failure to pass a long-term farm bill. “My priority remains to get a five-year farm bill on the books and put those policies in place,” said House Agriculture Committee Chairman Frank Lucas (R-OK) in a statement, “but the most pressing business before us is to provide disaster assistance to those producers impacted by the drought conditions who are currently exposed.”
August 5
Outspoken NASA climate scientist James Hansen writes a Washington Post op-ed proclaiming that extreme weather such as the ongoing drought and recurring heat waves this summer are the direct result of man-made climate change. “Our analysis shows that it is no longer enough to say that global warming will increase the likelihood of extreme weather and to repeat the caveat that no individual weather event can be directly linked to climate change,” wrote Hansen. “To the contrary, our analysis shows that, for the extreme hot weather of the recent past, there is virtually no explanation other than climate change.”
The USDA updates its corn outlook to show that 51% of the corn in the 18 states that yield upwards of 90% of the U.S. crop yield are rated poor. 26% of that total is considered very poor. “This again shows that rains this week were too little, too late to stabilize the corn crop,” said DTN Analyst John Sanow.
