P&C Composite Rate Up 2% in Fourth Quarter

Rate adjustments for property and casualty insurance in the United States for fourth quarter 2017 were plus 2% compared to plus 1% in the third quarter of 2017, with automobile and transportation seeing the largest increases, MarketScout reported.

Richard Kerr, MarketScout CEO commented that insurers were prepared for their losses. “Underwriters are rarely surprised by aggregate losses because they have so many pricing and modeling tools. Most insurers are assessing rate increases at a moderate pace. Automobile and transportation accounts incurred the largest rate increases at plus 5% over prior year pricing.”

In the reinsurance sector, William Hawkins, director of European insurance research at KBW made a similar observation of P&C Jan. 1, 2018 renewal pricing, stating in a podcast that, “the big four European reinsurers will have achieved 2% rate increases this [renewal] season.” He added that “the message from Monte Carlo, that the 2H 2017 natural catastrophes should draw a line under rate cuts across the board, has been delivered. But we think the upside for property catastrophe has been capped by the ongoing plentiful supply of capital.”

By coverage classification, MarketScount noted that all coverages except D&O, professional liability and auto had rate increases from the third quarter of 2017 to fourth quarter 2017. Property increased the most, from plus 1% to plus 3%.
On average, underwriters assessed rate increases for all industry groups except transportation and public entities. “Keep in mind, rates are calculated on a composite basis and represent exposures from businesses across the U.S. Insureds in catastrophe exposed areas incurred higher rates/premiums,” Kerr said.
MarketScout also noted that large accounts were seeing increases averaging 1%, while others saw 2% increases.

Get Ready for the ‘Weather Bomb’

In case you need another reason to dread getting to work this first week of 2018, several weather authorities are warning of a major storm that could affect a majority of the United States with freezing conditions. Storm advisories are being issued from New England states to southeastern winter getaways. Residents of South Carolina, Georgia and even northern Florida should be thinking about stocking up on ground salt, thermal pants and hand warmers.

Nancy Egan, Property Casualty Insurers Association of America’s (PCI) regional manager warned: “A dangerous combination of snow, sleet and freezing rain is on the horizon for the Southeast. Weather like this can cause auto accidents, and property damage, and leave thousands without power. Driving in these treacherous conditions can be tricky, so if you do venture out, make sure your vehicle has a winter storm kit in case you have an accident or get stuck and have to wait for help.”

PCI suggests that winter storm kits include a windshield scraper and small broom; flashlight with extra batteries; road salt, sand or cat litter for traction; booster cables; emergency flares and reflectors; snack food; blankets and a first aid kit.

These warnings are inspired by speculation that intensifying winds and cold will bring about a phenomenon known as “bombogenesis” from Thursday to Friday. In an online primer, Mashable delved into the relevant information that organizations need to know about the “weather bomb” or “bomb cyclone.”

[Bombogenesis] refers to a low pressure area whose minimum central air pressure plummets by at least 24 millibars in 24 hours. By feasting off of intense atmospheric disturbances as well as differences in air masses and ocean temperatures, including the moisture rich Gulf Stream waters, the upcoming tempest is projected to exceed that intensification rate by several more millibars in 24 hours. This intensification rate, if it comes to pass, would be astonishing.

The potential impact of the upcoming storm could equal that of a Category 3 hurricane, the same strength Hurricane Sandy reached at its peak in 2012. With this in mind, companies located anywhere along the projected path should be heeding the warnings and preparing.

This follows a cold snap that has so far killed at least 11 people in cold-related deaths in the U.S. since Tuesday morning, CNN reported. Some of the victims were located in Wisconsin, North Dakota, Missouri and Texas.

The Southeast has a history of being especially vulnerable to cold-weather conditions. On Jan. 29, 2014, the greater-Atlanta area was rendered nearly unnavigable due to about two inches of snow and ice. Although Georgia is the home of the Weather Channel, state officials failed to act on warnings of the precipitation and freezing conditions, and closed all schools mid-day—about the same time that businesses shuttered for the day. Between parents who were on the road to pick up their children and adults leaving their workplaces due to early closings, millions of cars ended up on roadways, causing a gridlock that prevented salt trucks from safely getting to and from storage areas.

The consequences were unprecedented for the area. Although no fatalities were recorded, the Peach State experienced thousands of traffic accidents, closures and even automobile abandonments on interstate highways.

To prevent such a disaster from reoccurring, Georgia’s Department of Transportation announced via Twitter this week that it has mobilized 13 trucks loaded with salt and gravel in anticipation of the storm. While no announcements have been distributed on the Florida Department of Transportation’s site, FloridaDisaster.org is keeping its visitors updated with news of “below average temperatures.” South Carolina has been posting updates on its DOT site, and reminding motorists to use particular caution and to “watch for slow moving SCDOT equipment applying deicing materials.”

Using ERM to Protect Your Business from The Equifax Fallout

As with many data breaches, the general conclusion of the Equifax attack is that personnel were not aware of the issue beforehand. This conclusion, however, is false.

In early September, I anticipated that a vulnerability in Equifax’s software was known ahead of time, and that this scandal was, therefore, entirely preventable. A month later, the NY Times reported that the Department of Homeland Security sent Equifax an alert about a critical vulnerability in their software. Equifax then sent out an internal email requesting its IT department to fix the software, but “an individual did not ensure communication got to the right person to manually patch the application.”

The Equifax data breach was a failure in risk management. As a credit bureau that deals with the personally identifiable information (PII) of 200 million U.S. customers, Equifax has a legal and moral responsibility to safeguard their customers’ security, and to adopt the proper systems to do so.

For instance, if Equifax had an enterprise risk management (ERM) system in place, the warning from Homeland Security would have been properly recorded and assigned out to the appropriate personnel. This system would have provided transparency over the status of the task in progress, and would have triggered reminders until the vulnerability was patched and verified by the right subject matter expert.

A Point of No Return

It’s my opinion that this scandal is a point of no return for risk management. While data breaches have abounded in recent years, there has never been one of this magnitude or one that provides every piece of information hackers need to steal our identities. Of course, lawsuits and penalties are piling up around the company’s negligence, but these financial losses are nothing compared to the reputational damages Equifax will suffer—shares fell by 18% following the breach and have yet to fully recover.

What makes this scandal so unique, and therefore a point of no return, is that these reputational damages reach far beyond Equifax. Consumers can’t always choose whether they’re a customer of Equifax, but they can choose whether to do business with the institutions that gave away their information to Equifax in the first place.

I also believe that consumers’ outrage with this scandal will cause them to shift their money, loyalty, and trust to institutions that can demonstrate effective risk management. CEOs and boards of every company will have to prove their organizations have adequate enterprise risk management systems in place. They’ll find that more effective risk management and governance programs are necessary to keep their market shares up and their reputation clean.

Where to Go from Here

While this breach may appear to be an event of the distant past, we are in the eye of the storm. Stolen information can lie dormant for months or years as criminals wait to make their move, and when they do, you’ll have either taken this period of calm as a chance to forget the scandal, finding yourself ill-prepared, or a chance to get to higher ground, finding yourself fully protected.

To protect themselves, businesses must:

  • First, to determine where to focus your security resources, recognize that people, processes, and procedures are now the biggest risks. Businesses need to perform risk assessments across all departments to determine who has access to sensitive information and authentication processes, and what the business impact would be if these employees were to be impersonated.
  • Next, to address these risks, businesses must rewrite their procedures for authenticating the people involved in sensitive requests and actions both verbally and electronically. With so much PII now in the public domain, it is no longer safe to rely on traditional authentication based on these pieces of information. For example, the security question “What was your first car?” is not effective because the answer is now easily accessible. A more effective question would be “Who was your best friend in elementary school?”
  • Finally, it is important to keep your third-party vendors in mind. Vendors often have access to sensitive information and processes, which could have an enormous impact on your company. It is crucial, therefore, to extend your internal authentication procedures out to your third parties so that they are authorizing sensitive requests and actions as securely as your own organization.

Our world, including the business world, is becoming increasingly transparent, meaning it’s up to you to act with integrity and protect your stakeholders. Keeping the Equifax data breach in mind, along with enacting these tactical steps, will help you stay ahead of the competition and out of glaring social media headlines.

Insurance Industry Responds to House Approval of NFIP Renewal

Insurance industry trade groups lauded the U.S. House of Representatives’ vote on Nov. 14, reauthorizing the National Flood Insurance Program (NFIP). The 21st Century Flood Reform Act (H.R. 2874) would reauthorize the program for five years and enact operational changes. Advocates from RIMS, the risk management society, the Property Casualty Insurers Association of America, and SmarterSafer.org also asked that the Senate waste no time in passing its version of the measure before its expiration on Dec. 8.

On Sept. 8, President Trump signed legislation passed by both houses to extend NFIP authorization until Dec. 8, which previously had been set to expire Sept. 30.

Dow Jones reports that the act’s reforms include:

  • Authorizing $1 billion to elevate, buy out or mitigate high-risk properties
  • Capping flood insurance premiums at $10,000 per year for homeowners
  • Removing hurdles to the private flood insurance market, which often offers better coverage at lower cost than the NFIP
  • Providing for community flood maps and a homeowner’s ability to appeal their flood designation
  • Better aligning NFIP rates to match a property’s true risk, particularly for in-land and lower-value properties
  • Improving the claims process for flood victims
  • Addressing repeatedly flooded properties, which account for 2% of NFIP policies but 25% of claim payments

While it applauded the U.S. House of Representatives for deciding to reauthorize the NFIP, RIMS, the risk management society, also urged the Senate to quickly follow-up before the program’s Dec. 8 expiration. Allowing the NFIP to expire would have “significant repercussions, impacting both corporate and residential property owners,” said RIMS Vice President Robert Cartwright Jr.

“Nearly five million American consumers rely on the NFIP to protect their homes, properties, and businesses,” said Nat Wienecke, senior vice president of federal government relations at the Property Casualty Insurers Association of America (PCI). “A long-term reauthorization is needed to provide consumers and markets with reliability and stability when it comes to flood insurance coverage.”

SmarterSafer.org, a coalition of taxpayer advocates, environmental groups, insurance interests, housing organizations and mitigation advocates, said in a statement that this year’s “historic hurricane season has pushed the nation’s debt-ridden flood insurance program past the point of bankruptcy once again, so we applaud the House for passing a legislative package that reforms the NFIP to ensure the program is financially sustainable for the future.” The organization also lauded the House for investing in recommended measures including “mapping and mitigation, addressing affordability and providing consumer choice in the flood insurance marketplace.”

The NFIP was created more than 50 years ago to provide affordable flood insurance as private insurers pulled out of the market. The program’s large debt led Congress to cancel $16 billion of its debt last month. NFIP now has about $6 billion to pay claims and $10 billion left that it can borrow from the Treasury Department, according to the Federal Emergency Management Agency, which manages the program.