Marketplace

CLAIMS

Insured losses for catastrophes reached $1.5 billion last year

Canadian insurers saw total insured losses due to catastrophes soar to $1.5 billion in 2011.

The total is substantially higher than the $860 million in 2010, Joel Baker, president and CEO of MSA Research Inc., told attendees at CIP Society Symposium 2012 in Toronto on Apr. 26.

Catastrophes in Canada numbered seven in 2011, up from five in year-over-year comparisons. In 2010, 88,250 claims produced an estimated insurance payment of $815 million while 99,550 claims in 2011 led to an estimated $1.58 billion payment, Baker said.

Sawmill explosion in B.C. hits beleaguered industry

An explosion and fire at the Lakeland Mills sawmill in Prince George, B.C. on Apr. 23 was the second such incident in four months and will contribute to an already difficult insurance market for lumber operators in the province.

The explosion killed one and injured 24 workers. No damage estimates were available at press time. The blast was similar to one that claimed the lives of two people and gutted a sawmill in Burns Lake, B.C. in January.

These incidents will bring more challenges to a sector already hit hard by fire losses, reduced insurance capacity and higher rates. The sawmill and wood product manufacturing industry has a combined ratio of 150% and has already seen two major insurers exit the business — ACE INA in April 2011 and Lumberman’s Underwriting Alliance (LUA) in November 2011, reports to Larry Grant, vice president of the forest practice division at Hub International.

“There are only a small number of insurance companies (or markets) that have any interest in this class of business,” Grant noted in a recent issue of Logging & Sawmilling Journal.

Carelessness with work data a major source of data breach liability

‘Hacktivists’ randomly exposing millions of dollars worth of personal and corporate information may grab media headlines, but more common forms of data breaches relate to everyday carelessness with non-encrypted work data, according to a panel of experts discussing the topic on Apr. 11.

The Chartis-sponsored event, Data Breaches, Coming to a Network Near You, was held in Toronto on Apr. 11. Panelists at the event said companies need to do a better job of creating a “climate of security” regarding the everyday handling of sensitive work information that includes employee and client records.

In a presentation, Jason Straight, managing director of risk consulting company Kroll Inc., observed that companies are still too casual about dealing with their sensitive information, unnecessarily exposing them to potential data breaches.

“I cannot tell you the sheer volume of the cases that we have of laptops that have been left at a supermarket parking lot,” he said. “We had one guy, he worked for the IT department of a major company, he left a laptop in his car when he went into the supermarket. It was stolen. And of course the data was not encrypted. “You’d be amazed how many times that situation plays out.”

RISK MANAGEMENT

Risk managers cautioned to prepare for possibility of hard market

Risk managers should start preparing for a hard market insurance cycle that they haven’t seen for a while, a panel of senior U.S. insurance company and broker executives told delegates of the 2012 Risk and Insurance Management Society (RIMS) Annual Conference & Exhibition in Philadelphia on Apr. 17.

Panelists agreed the insurance marketplace is not a “classic” hard market stage yet. Hard insurance markets typically feature higher insurance prices and a lack of capacity to underwrite risks, leading to issues of insurance availability.

The current market seems to be in a transitional state, with pricing firming up in some lines and not in others, and capacity still available to underwrite current risks.

Still, based on current trends, it’s conceivable that the market could start entering a hard market phase in three years’ time, suggested John Lupica, president of ACE U.S.A. And if this turns out to be the case, then are risk managers ready?

“The reality is, if the market gets more challenging over the next 12 months… no one will be budgeting more money for insurance,” said Eric Andersen, CEO of the Americas for Aon Risk Solutions. “And if the prices are going up, you’ve got to figure out: Where do you need it? Where do you like it? And where can you do without?”

CANADIAN MARKET

Sales tax on insurance will hit Manitoba consumers: IBC

A new 7% retail sales tax on home, business and auto insurance is an unfair burden on Manitoba consumers, according to Insurance Bureau of Canada (IBC).

The tax, introduced in the Manitoba provincial budget Apr. 17, will be added to “embedded” premium taxes and the fire tax of 4.25%, creating an effective tax rate of 11.5% on insurance premiums, IBC reports. The bureau estimates the additional tax will cost provincial residents an extra $48 million.

“IBC is very disappointed by this tax decision, which will make insurance — an essential product — less affordable for consumers like homeowners, tenants and business owners,” says Lindsay Olson, IBC’s vice president for Manitoba.

The sales tax will take effect July 1, 2012, but it will not apply to Manitoba Public Insurance’s Autopac policies.

REINSURANCE

Earthquake models show “blind spots” on tsunami and CBI losses

Earthquake models generally did a good job estimating the property and building damage due to the seismic shocks arising from earthquakes in 2010-2011, but “blind spots” included loss estimates related to tsunamis and contingent business interruption.

Erdem Karaca, vice president and earthquake specialist at Swiss Re, assessed the performance of catastrophe models at the Insurance Bureau of Canada (IBC)’s 2012 Financial Affairs Symposium in Toronto on Apr. 18. His presentation evaluated how the models performed following earthquakes in Japan, New Zealand and Chile.

In his presentation, Karaca observed that the effects of the tsunami after the March 2011 Tohoku earthquake in Japan were far worse than the damage caused by the actual ground shaking in the country’s coastal zones.

He said tsunamis were a key driver of losses following earthquakes occurring in Japan, Chile, Peru and the Pacific Northwest. Each of the earthquake events of Magnitude 9 or higher since 1900 have created a damaging tsunami, including Chile’s Magnitude 8.8 earthquake in 2010.

And yet, “none of the commercially available cat models actually model tsunami [damage],” he said.

Similarly, contingent business interruption losses arising from the Japan and Chile earthquakes were not explicitly captured in the models, and their exposure is not fully understood, Karaca added