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Aug. P&C Rate Holds at Minus 1%; Auto, Transportation Up

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The U.S. property and casualty composite rate for August was stable at minus 1%, the same as July, MarketScout reported. By industry classification, manufacturing, habitational and energy each moderated 1% , while all otherBarometer industry classifications remained unchanged.

“While the month to month composite rate is stable, there is clear movement in commercial auto and transportation accounts with each showing a year over year rate increase of plus 3%,” said Richard Kerr, CEO of MarketScout. “Insurers have decided it is time for commercial auto and transportation accounts to start paying up.”

By coverage, commercial property, workers compensation and professional liability each moderated 1% in August—to minus 1% for property, minus 1% for workers compensation and flat for professional liability. Commercial auto rates went up to plus 3%, while all other coverages remained unchanged, MarketScout said.

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By account size the only adjustment was for accounts with more than $1 million premium, which adjusted from down 3% in July to down 2% in August.

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Chipotle Provides Yet More Reminders of D&O and Food Safety Risks

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If the average food safety crisis or product recall forces companies to weather a storm, Chipotle has spent the past year trying to weather a category 4 hurricane. Now months into their recovery effort, it seems they are still seeing significant storm surges.
Last week, a group of Chipotle shareholders filed a federal lawsuit accusing executives of “failing to establish quality-control and emergency-response measures to prevent and then stop food-borne illnesses that sickened customers across the country and proved costly to the company,” the Denver Post reported. The suit accuses executives, the board of directors, and managers of unjust enrichment and seeks compensation from Chipotle’s co-CEOs, while also asking for corporate-governance reforms and changes to internal procedures to comply with laws and protect shareholders.

Sales remain significantly impacted by the series of six foodborne illness outbreaks last year.

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The company reported in July that same-store sales fell another 23.6% in Q2, marking the third straight quarter of declines for performance even lower than analysts had predicted. The company’s stock remains drastically impacted, currently trading at about 4 compared to a high of 9 before the outbreaks came to light a year ago.

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In addition to the most recent shareholder lawsuit, the bad news for directors and officers specifically has also been further compounded recently.

Shareholder lawsuits were filed earlier this year alleging the company had misled investors about its food safety measures, made “materially false and misleading statements,” and did not disclose that its “quality controls were not in compliance with applicable consumer and workplace safety regulations.” In June, a group of shareholders sued a number of top executives for allegedly violating their fiduciary responsibilities and engaging in insider trading.

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Relying on insider knowledge about insufficient food safety protocols, the suit alleges that the executives sold hundreds of thousands of shares in the first half of 2015 before the food poisoning scandal was made public.

Check out previous coverage of the Chipotle crisis in the Risk Management March cover story “Dia de la Crisis: The Chipotle Outbreaks Highlight Supply Chain Risks.”

Terrorism Incidents Down, Disruption Up in 2015

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A number of high-profile terrorism attacks worldwide have raised people’s fears this year, but the reality is that the number of attacks and deaths from such attacks actually decreased in 2015, according to Marsh’s 2016 Terrorism Risk Insurance Report.
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The report summarizes terrorism risk insurance trends, benchmarks terrorism insurance take-up rates and pricing, and offers risk management solutions for terrorism exposures.

The more current attacks, often perpetrated by a single individual or small group, are different from those carried out in the 1990s and 2000s when high profile locations were targeted. Individuals carrying out the more recent attacks may have no direct contact with a known terrorist organization, but could be drawn to them through writings and video, particularly on the internet, Marsh said.

These events can be very disruptive to operations in some companies. In the travel industry, for example:

  • About 10% of American travelers canceled booked trips due to the recent attacks in Egypt, France, Lebanon and Mali, which impacted $8.2 billion in travel spending, according to a survey by YouGov.
  • Booking losses for Air France were estimated to be €50 million ($56 million), the company said in a statement.
  • Airlines, hotel chains and travel websites experienced drops in their stock prices after this year’s airport bombing in Brussels.

In the United States, the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA) offers businesses a federal backstop against terrorism-related losses. While the overall take-up rate for TRIPRA coverage in the U.S. increased slightly in 2015, it has remained in the 60% range since 2009, Marsh said.

Managing terrorism risk requires a combination of strategies that protect people, property and finances. On the financial side, the choice is whether to retain or transfer the risk with insurance. But the changing pattern of terrorism risk has some companies asking if they are adequately insured for business interruption and related losses. They also wonder how to prepare for potential losses from cyber terrorism and other events.

Other key takeaways from the report include:

  • As small group and “lone wolf” terrorist attacks appear to be the changing face of terrorism, many organizations are assessing their coverage for indirect losses stemming from business interruption risks.
  • Following the 2015 passage of the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), take-up rates in the US edged up for TRIPRA terrorism coverage embedded in property programs.
  • Among industry sectors, media organizations had the highest take-up rate for terrorism insurance in 2015.
  • Workers’ compensation markets for terrorism risks generally stabilized.
  • The number of Marsh-managed captives accessing TRIPRA increased by 17% from 2014 to 2015, but many captives that could offer a terrorism program do not.
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July P&C Composite Rate Steady, Transportation Increases

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The property and casualty composite rate for July was the same as June’s rate, which was minus 1%, MarketScout reported today, adding that insurers are working to stop the downward trend.

“While insurers continue to grant minor rating concessions, many are pushing for an end to any further rate reductions,” Richard Kerr, CEO of MarketScout said in a statement. In the transportation sector, however, pricing is increasing “on all but the very best accounts. The poor loss experience in transportation has prompted underwriters to demand rate increases and restrict underwriting appetite.” Insureds that are unable to convinceBarometer underwriters they can control losses are left with few options “and ultimately end up paying a much higher rate/premium which impacts their profit margins,” he said.

Kerr continued that insurance buyers in the transportation industry are complaining about the lack of cooperation they are seeing from insurers as they try to manage their risk portfolio. “Business owners and corporate CEOs are concerned their insurance premiums will be larger than what was budgeted therefore negatively impacting net profits,” he said.

He advised these insureds to “allocate capital towards implementing loss control and companywide safety programs. That is how they will get cooperation from their insurers.”

A comparison of June 2016 to July 2016 rates by coverage classification reveals that workers compensation and property coverages were the most aggressively priced at minus 2%. Business interruption, business owners policies (BOP), fiduciary and directors & officers all moderated by moving rates from minus 1% to flat, or no increase. Professional liability rates moved from down 2% to down 1%. Rates for all other coverages were unchanged.
Rates-coverage class

There were no rate adjustments by account size from June to July.
Account size

By industry classification, rates for public entities moved up from minus 1% in June to flat or no increase in July. Transportation accounts were assessed at the largest rate increases from up 1% in June to up 3% in July, according to MarketScout.
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