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New From the GAO

November 20, 2014 Comments off

New GAO Reports
Source: Government Accountability Office

1. Ford-Class Aircraft Carrier: Congress Should Consider Revising Cost Cap Legislation to Include All Construction Costs. GAO-15-22, November 20.
http://www.gao.gov/products/GAO-15-22
Highlights – http://www.gao.gov/assets/670/667091.pdf

2. Climate Change: Better Management of Exposure to Potential Future Losses Is Needed for Federal Flood and Crop Insurance. GAO-15-28, October 29.
http://www.gao.gov/products/GAO-15-28
Highlights – http://www.gao.gov/assets/670/666697.pdf

3. Financial Stability Oversight Council: Further Actions Could Improve the Nonbank Designation Process. GAO-15-51, November 20.
http://www.gao.gov/products/GAO-15-51
Highlights – http://www.gao.gov/assets/670/667095.pdf

4. Bank Capital Reforms: Initial Effects of Basel III on Capital, Credit, and International Competitiveness. GAO-15-67, November 20.
http://www.gao.gov/products/GAO-15-67
Highlights – http://www.gao.gov/assets/670/667113.pdf

5. Small Business Innovation Research: Change in Program Eligibility Has Had Little Impact. GAO-15-68, November 20.
http://www.gao.gov/products/GAO-15-68
Highlights – http://www.gao.gov/assets/670/667099.pdf

6. Building Partner Capacity: State and DOD Need to Define Time Frames to Guide and Track Global Security Contingency Fund Projects. GAO-15-75, November 20.
http://www.gao.gov/products/GAO-15-75
Highlights – http://www.gao.gov/assets/670/667116.pdf

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Insurer Climate Risk Disclosure Survey Report & Scorecard: 2014 Findings & Recommendations

November 19, 2014 Comments off

Insurer Climate Risk Disclosure Survey Report & Scorecard: 2014 Findings & Recommendations
Source: Ceres

Amid growing evidence that climate change is having wide-ranging global impacts that will worsen in the years ahead, Insurer Climate Risk Disclosure Survey Report & Scorecard: 2014 Findings & Recommendations, ranks the nation’s 330 largest insurance companies on what they are saying and doing to respond to escalating climate risks. The report found strong leadership among fewer than a dozen companies but generally poor responses among the vast majority.

This report summarizes responses from insurance companies to a survey on climatechange risks developed by the National Association of Insurance Commissioners (NAIC). In 2013, insurance regulators in California, Connecticut, Minnesota, NewYork and Washington required insurers writing in excess of $100 million in direct written premiums, and licensed to operate in any of the five states, to disclose their climate- related risks using this survey.

The aim of the survey, and Ceres’ analysis of the responses, is to provide regulators,insurers, investors and other stakeholders with substantive information about the risks insurers face from climate change and the steps insurers are taking—or are not taking— to respond to those risks. Because virtually every large insurer operates in at least one of the mandatory climate risk disclosure states, this analysis effectively opens a window into the entire industry. The report distills key findings and industry trends, and includes company specific scores based on disclosed actions taken to manage climate risks. It also offers recommendations for insurers and regulators to improve the insurance sectors’ overall management of climate change risks.

Do Doctors Practice Defensive Medicine? Revisited

November 14, 2014 Comments off

Do Doctors Practice Defensive Medicine? Revisited
Source: Cato Institute

Tort reform that limits medical malpractice (“med mal”) suits can affect healthcare spending in two distinct ways. Tort reform can directly lower health care spending by lowering the cost of med mal insurance, which covers indemnity payouts on claims plus defense costs. However, these direct costs account for only about 0.3 percent of healthcare spending. Thus, any decline in med mal premiums will have a minor impact on overall spending.

Tort reform can also affect healthcare spending indirectly, by changing providers’ incentives. In particular, if med mal risk falls, providers might engage in less “defensive medicine” — the practice of ordering tests and other procedures that do not benefit patients (or lack sufficient benefit to justify their costs), to reduce the risk of a med mal lawsuit. If tort reform leads to fewer lawsuits, it may also lead to less defensive medicine. Policymakers have long seen the elimination of defensive medicine as a source of major savings in healthcare costs (e.g., more than a hundred billion dollars).

Drones: The Insurance Industry’s Next Game-Changer?

November 10, 2014 Comments off

Drones: The Insurance Industry’s Next Game-Changer? (PDF)
Source: Cognizant
The Association for Unmanned Vehicle Systems International predicts that within 10 years (from 2015 to 2025) drones will create approximately 100,000 new jobs and around US$82 billio1 in economic activity. Equipped with new capabilities such as integrated audio and text with real-time video feeds and the ability to overlay images over existing footage through augmented reality, next-generation drones could have significant commercial value for businesses across industry segments.

Commercial and personal-lines insurers that cover property risks are likely to be early adopters of drone technology. For example, a property adjuster or risk engineer could use a drone to capture details of a location or building, and obtain useful insights during claims processing or risk assessments. Drones could also be deployed to enable faster and more effective resolution of claims during catastrophes.

While challenges on the regulatory front, privacy concerns and a lack of certain capabilities could stall widespread use of drones in the near future, once these obstacles are overcome, drones could have a significant impact on the P&C insurance industry.

2014 global risk survey — Reputation@Risk

November 5, 2014 Comments off

2014 global risk survey — Reputation@Risk
Source: Deloitte

What’s your company’s reputation worth? If the more than 300 business executives who participated in our global study on reputation risk are correct, a company’s reputation should be managed like a priceless asset and protected as if it’s a matter of life and death, because from a business and career perspective, that’s exactly what it is. The Reputation@Risk survey report examines what organizations around the world are doing to get in front of this critical issue.

Terrorism Risk Insurance — Economic and Insurance Implications of TRIPRA’s Non-Renewal

November 5, 2014 Comments off

Economic and Insurance Implications of TRIPRA’s Non-Renewal
Source: Insurance Information Institute

The question of what happens if the federal Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) is not renewed by Congress is no longer a theoretical one.

Since insurance policies negotiated during 2014 extend beyond the imminent December 31 expiration date of the program, the negative consequences of non-renewal are already being experienced by businesses across America and their insurers.

The private sector simply does not have the capacity to provide insurance or reinsurance for terrorism risk to the extent currently provided by TRIPRA (Figure 1). As a result, in the absence of the act, terrorism risk insurance would be less available and less affordable.

Coverage for terrorist-caused economic damages also would likely be more costly or limited in scope if the federal government played no role in this market.

Insurance — Residual Market Property Plans: From Markets of Last Resort to Markets of First Choice – 2014

November 3, 2014 Comments off

Residual Market Property Plans: From Markets of Last Resort to Markets of First Choice – 2014
Source: Insurance Information Institute

Executive Summary

  • The exposure value of the residual property market in hurricane-exposed states has declined significantly from the peak levels seen in 2011. In fact between 2011 and 2013, total exposure to loss in the plans fell by almost 30 percent to $639 billion. Policy counts in 2013—at around 3.2 million—are also down from their 2011 highs.
  • While attempts by certain states to reduce the size of their plans appear to be paying off, the fact that many of the plans charge rates that are not actuarially sound and do not accurately reflect the risk of loss means that a major hurricane could expose residents in certain states to billions of dollars in post-storm assessments.
  • Increased appetite for these risks from the capital markets—highlighted by Florida Citizens Property Insurance Corp’s record-setting $1.5 billion catastrophe bond issued in 2014 (the largest single catastrophe bond issuance in history)—should not detract from the core concerns that this concentration of risk represents.
  • As long as the plans continue to grow and their coverage remains underpriced, state finances will remain under threat, while policyholders and ultimately taxpayers, many of whom live nowhere near the coast, will continue to face the prospect of increased assessments in the years ahead.
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