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Increasing Concentrations of Property Values and Catastrophe Risk in the US

April 24, 2015 Comments off

Increasing Concentrations of Property Values and Catastrophe Risk in the US (PDF)
Source: Karen Clark & Company

Residential, commercial, and industrial property values in the US continue to increase faster than GDP growth and the general rate of inflation. According to KCC estimates, insured property values increased by nine percent from 2012 to 2014.

In aggregate, building values now exceed $40 trillion, and when contents and time element exposures are added in, estimated insured property values swell to over $90 trillion. Along with increasing values, there are highly concentrated pockets of exposure, particularly in regions vulnerable to natural catastrophes.

For example, tier one counties along the Gulf and Atlantic coasts account for over 17 percent of total exposure at $16 trillion. Six counties have over $1 trillion of exposure each and on a combined basis, account for more than 12 percent of the US total. One county—Los Angeles—accounts for over three percent of exposed property values.

One implication of increasing concentrations of property value is the higher probability of megacatastrophe losses. A major storm or earthquake has not occurred in a densely populated metropolitan area such as Galveston-Houston, Miami, or Los Angeles for decades.

This study shows that when a large magnitude event occurs in specific concentrated areas, the losses will be multiples of the PMLs (Probable Maximum Losses) the insurance industry has been using to manage risk and rating agencies and regulators have been using to monitor solvency. Insurers typically manage their potential catastrophe losses to the 100 year PMLs, but because of increasingly concentrated property values in several major metropolitan areas, the losses insurers will suffer from the 100 year event will greatly exceed their estimated 100 year PMLs.

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Insurers risk being sidelined by internet-savvy consumer generation

April 8, 2015 Comments off

Insurers risk being sidelined by internet-savvy consumer generation
Source: Towers Watson

Scarred by the financial crisis, price conscious buyers aged under 30 are driving a fundamental shift in how insurance is bought, according to Towers Watson. A survey of over 7,000 consumers across Europe’s largest and fastest-growing markets – including the UK, France, Germany and Turkey – found the advance of technology increasingly distancing the millennial generation of buyers from traditional purchase channels and sources of advice and influence.

The survey, The shifting balance of power, also found many under-25s to be far more risk aware and interested in financial security than previously thought, underlining the need for insurers to find new methods of engaging with these younger buyers.

Terrorism Risk Insurance Program: Renewed and Restructured

April 6, 2015 Comments off

Terrorism Risk Insurance Program: Renewed and Restructured
Source: Insurance Information Institute
From blog post:

The April 2013 Boston bombing may have marked the first successful terrorist attack on U.S. soil since the September 11, 2001 tragedy, but terrorism on a global scale is increasing.

Yesterday’s attack by the Al-Shabaab terror group at a university in Kenya and a recent attack by gunmen targeting foreign tourists at the Bardo museum in Tunisia point to the persistent nature of the terrorist threat.

Groups connected with Al Qaeda and the Islamic State committed close to 200 attacks per year between 2007 and 2010, a number that grew by more than 200 percent, to about 600 attacks in 2013, according to the Global Terrorism Database at the University of Maryland.

Latest threats to U.S. targets include calls by Al-Shabaab for attacks on shopping malls.

And a recent intelligence assessment circulated by the Department of Homeland Security focused on the domestic terror threat from right-wing sovereign citizen extremists.

On January 12, 2015, President Obama signed into law the Terrorism Risk Insurance Program Reauthorization Act of 2015.

A new I.I.I. white paper, Terrorism Risk Insurance Program: Renewed and Restructured, takes us through each of more than eight distinct layers of taxpayer protection provided under TRIA’s renewed structure.

Insured losses from disasters below average in 2014 despite record number of natural catastrophe events, says Swiss Re sigma study

April 3, 2015 Comments off

Insured losses from disasters below average in 2014 despite record number of natural catastrophe events, says Swiss Re sigma study
Source: Swiss Re

  • Total global economic losses from natural catastrophes and man-made disasters were around USD 110 billion in 2014
  • This compares to global insured losses of about USD 35 billion in 2014, below the USD 64 billion-average of the last 10 years
  • There were 189 natural catastrophes worldwide last year, the highest on sigma records
  • Disasters claimed more than 12 700 lives in 2014, one of the lowest ever in a single year
  • Severe thunderstorm losses are trending upward – details in the special chapter of this sigma

The Insurance Value of Medical Innovation

March 26, 2015 Comments off

The Insurance Value of Medical Innovation (PDF)
Source: National Bureau of Economic Research (via University of Chicago)

Economists think of medical innovation as a valuable but risky good, producing health benefits but increasing financial risk. This perspective overlooks how innovation can lower physical risks borne by healthy patients facing the prospect of future disease. We present an alternative framework that accounts for all these aspects of value and links them to the value of health insurance. We show that any innovation worth buying reduces overall risk, thereby generating positive insurance value on its own. We conduct two empirical exercises to assess the significance of our insights. First, we calculate that conventional methods underestimate the value of historical health gains by 30-80%. Second, we examine a large set of medical technologies and calculate that insurance value on average adds 100% to the conventional valuation of those treatments. Moreover, we find that the physical risk-reduction value of these technologies is ten times greater than the financial risk they pose and the corresponding value of health insurance that insures this financial risk. Our analysis also suggests standard methods disproportionately undervalue treatments for the most severe illnesses, where physical risk to consumers is most costly.

UK cyber security: the role of insurance

March 24, 2015 Comments off

UK cyber security: the role of insurance
Source: Cabinet Office, Department for Business, Innovation & Skills and UK Trade & Investment
From press release:

Last year 81% of large UK businesses and 60% of small companies suffered a cyber security breach. A report published on 23 March by HM Government and Marsh, one of the UK’s leading insurance brokers and risk advisors, announces new joint initiatives between government and the insurance sector to help firms get to grips with cyber risk; to establish cyber insurance as part of firms’ cyber toolkits and cement London as the global centre for cyber risk management.

The report, ‘UK cyber security: the role of insurance in managing and mitigating the risk’, has been produced in collaboration with the UK’s insurance market and a number of top UK companies. It aims to make the UK a world centre for cyber security insurance. In particular, it highlights the exposure of firms to cyber attacks among their suppliers with a key agreement that participating insurers will include the government’s Cyber Essentials certification as part of their risk assessment for small and medium businesses.

Cyber threats are estimated to cost the UK economy billions of pounds each year with the cost of cyber attacks nearly doubling between 2013 and 2014.

Forensic Risk Assessment: A Beginner’s Guide

March 23, 2015 Comments off

Forensic Risk Assessment: A Beginner’s Guide (PDF)
Source: Archives of Forensic Psychology

Forensic risk assessment refers to the attempt to predict the likelihood of future offending in order to identify individuals in need of intervention. Risk assessment protocols have been implemented in mental health and criminal justice settings around the globe to prioritize risk reduction strategies for those most at need. Helping to allocate scarce resources more effectively and efficiently while protecting our communities, forensic risk assessment has come to be a cornerstone of forensic practice in many jurisdictions. The present article is intended to provide practitioners and policymakers with a general introduction to this fast-growing field of research. The process of identifying those static and dynamic risk and protective factors that are incorporated into the risk assessment process is examined. Thereafter, strengths and weaknesses of the three most common approaches to risk assessment are described and requirements under Tarasoff liability are discussed.

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