Google has already approached a number of car insurance underwriters for input on the company's driverless technology. Initial feedback was positive, according to Google higher-ups. For one, insurers are confident that Google will not release the technology to the public until it is proved to be safe. And, of course, the technology will not hit the consumer market for a couple of years, so insurers have some time to figure out the liability issues.
]]> The cars rely on different types of technology to drive themselves. Computers, of course, have controlled auto systems for a while now. With the help of sensors, video cameras, lasers and a compendium of information gathered from manually driven vehicles, the driverless vehicle analyzes the driving environment more quickly -- and with more care -- than a human would. Lawmakers say that human error causes most car accidents; without the human, the risk is lower.One of the challenges faced by insurers comes with the "manual override" feature. The human driver can shut the automatic driver off and take manual control of the car. Given the human error factor, insurers must decide what kind of rate structure and coverage options to apply. Policyholders could end up with two different tiers of coverage, one for when the car drives itself and the other for when the insured drives the car.
We will continue this in our next post.
Sources:
Florida House of Representatives, Final Bill Analysis: Bill #CS/HB 1207, accessed May 14, 2012
Business Insurance, "Google queries insurers on coverage for driverless cars," April 27, 2012
]]>In its latest move, Citizens was thinking about testing state laws by increasing rates for all clients that signed on with them after Jan. 1 of next year. The proposal was met by fairly sharp words from state Chief Financial Officer Jeff Atwater and a state senator who strongly cautioned the controlling board at the insurance company to rethink its plans. Atwater said it would create two different sets of rates for Citizens policyholders and that could make matters confusing.
]]> The plan could have been problematic to many around Florida, considering that Citizens is the largest property insurer in the state. Even though the company has attempted to get rid of a lot of policies to avoid risk, their list of policyholders has exploded to about 1.5 million. In the last 28 months alone, Citizens has picked up 443,000 policyholders.The non-profit was created by the state government in 2002 to help those that live in high-risk areas and therefore are considered uninsurable by private companies. Florida residents are responsible to make up for losses in the company via a statewide assessment.
Citizens employ 900 individuals, and its offices are located in Jacksonville, Tallahassee and Tampa.
Source: Insurance Journal, "Citizens Delays Rate Hike for New Business," Brent Kallestad, April 30, 2012
]]>Granted, marine insurance works a little differently, but the risk assessment is the same. And, like risk managers, jurors will look at the choices companies made in the ships' design and, now, the cruise line's corporate culture. For the Titanic, for example, the decision was between speed and safety or luxury and safety.
]]> For the Costa Concordia and other modern cruise ships, the decisions could have been between technology and manpower; modern cruise ships have more systems run by technology than most of us can imagine, so the companies cut back on crew. Fewer crewmembers means compromised passenger safety in emergency situations.We were talking last time about the Apollo One fire and the Senate hearings that followed. The investigation laid the blame at no one person's feet. The problem was that many people did not recognize the risk. It was more than human error; it was a failure to anticipate human error. At the hearings, astronaut Frank Borman said the accident was caused by "a failure of imagination."
In our May 3 post, we talked about a risk specialist at a major insurance company's take on his job: His job is to consider the unthinkable. In some ways, that makes sense. When an insurance company gives a homeowner an estimate for property insurance, the dollar amount is the result of risk managers and underwriters putting their thinking caps on, comparing that house to similar homes, weighing the chances of a major storm and other types of perils -- in essence, considering the likely, the possible and the unthinkable.
It may not always work that way. It may be that the insurance company has thought of all of the possibilities but not shared the information with the homeowner. That wouldn't make sense, really, because the company wants to keep the premiums and not pay any benefits; it's in the insurer's interest to help a homeowner minimize his loss -- and that can only happen if everyone recognizes the risks.
That can only happen if there is no failure of imagination.
Source: PropertyCasualty360.com, "Leveraging Hindsight into Foresight: Lessons from the Titanic," Anya Khalamayzer, Laura Mazzuca Toops, April 11, 2012
]]>When you think about how strange the Concordia accident was, it's hard not to think there was no way the shipbuilder, the cruise line or the insurance company could anticipate the wreck. The same goes for the Titanic: Who could possibly guess that everything that could go wrong would go wrong? The confluence of the iceberg, the not-so-watertight compartments, the lack of binoculars for spotters, the crew's response of turning the ship instead of ramming the berg head-on -- who could anticipate that?
]]> In 1967, a fire that lasted less than one-half minute took the lives of three astronauts. The Apollo 1 fire was a turning point for the space program, the race to the moon of the 1960s. The magnitude of the tragedy, among other things, led to a full investigation by NASA and the U.S. Senate. A year after the fire, the report was done.In the preface, the second paragraph reads: "No single person bears all of the responsibility for the Apollo 204 accident. It happened because many people made the mistake of failing to recognize a hazardous situation."
It hadn't occurred to a phalanx of scientists that the Velcro would create a spark that would ignite the pure oxygen cabin atmosphere. They had done tests that way many, many times without incident. What could go wrong?
We'll finish this up in our next post.
Source: PropertyCasualty360.com, "Leveraging Hindsight into Foresight: Lessons from the Titanic," Anya Khalamayzer, Laura Mazzuca Toops, April 11, 2012
]]>The Costa Concordia accident earned a few headlines this winter, as did the Titanic 100 years ago. In some cases, the newspapers reporting the estimates and the insurers making the estimates may share a motive. They may want to point out the safety problems or faulty construction trends or even the corporate culture that contributed to the losses. They may want the public to wonder why no one thought about the risk before, say, the ship went down.
]]> In our last post, we were talking about safety standards for ships. According to one risk professional, the safest vessels on international waters are oil tankers. Why? Two words: Exxon Valdez. After the tanker spilled 11 million gallons of crude oil into Prince William Sound, Congress decided that tankers needed double hulls. Anything built after the Oil Pollution Act of 1990 took effect had to have a double hull. Anything already afloat would have to be retrofitted in the next 20 years.Cruise lines had to make changes to ship design after the Titanic, too. Double hulls were already common, but only the bottoms were double-hulled. After Titanic, ships had double hulls up the sides, past the water line. Bulkheads were extended, too -- the Titanic's went just 10 feet above the water line, another decision explained by the White Star Line's need for speed. The higher bulkheads would have added significantly to the weight of the ship, and that would have meant slower crossings.
Another risk specialist who works with marine insurance says that risk managers at oil companies or cruise lines or any other kind of business have to take one thing into account: the unthinkable.
We'll finish this up in our next post.
Source: PropertyCasualty360.com, "Leveraging Hindsight into Foresight: Lessons from the Titanic," Anya Khalamayzer, Laura Mazzuca Toops, April 11, 2012
]]>As we mentioned in our last post, the general marine regulatory scheme changed around 1990. Regulators still wanted to make sure that the ship itself was sound, but they decided that corporate culture and internal policies and procedures were just as important. Insurance companies took the new regulations into consideration as they weighed the risk that came every time a liner weighed anchor.
]]> When an insurance company is writing a policy for a trucking company, the underwriter looks at the different states the trucking company operates in. There are certainly federal regulations, but Florida and every other state has its own rules, too. Strict or loose, the regulatory environment in each state has an effect on rates and coverage for that company.The same is true in the cruise industry. The difference, of course, is that ships travel in national and international waters. The regulatory scheme is exponentially more complicated.
In the United States, the U.S. Coast Guard is responsible for safety standards. Ships flying the U.S. flag must comply with those rules. In international waters, the rules may change, depending on what the International Marine Organization says. The IMO is part of the United Nations. Both the Coast Guard and the IMO have taken their safety cues from maritime disasters.
More to come.
Source: PropertyCasualty360.com, "Leveraging Hindsight into Foresight: Lessons from the Titanic," Anya Khalamayzer, Laura Mazzuca Toops, April 11, 2012
]]>According to early reports, the ship carried total coverage of $513 million. When all is said and done, the claims could total as much as $1 billion. That would mean a bad hit to the insurance carriers' bottom lines. And when insurance companies lose money, they start to look for ways to do things differently.
So industry analysts are busy trying to figure out what kind of impact the Concordia disaster will have on both insurers and the cruise industry. After all, a lot changed after 1912, when the Titanic went down.
]]> Generally, the insurance market takes its cues from regulators. Remember, insurance is about risk, and if regulators tighten up the rules for passenger ships, insurers will adjust accordingly. For example, as one risk professional points out, regulators decided about 20 years ago that the ships themselves (the "hulls") were not the only element of a cruise line that deserved attention. The rules expanded to include people factors, like company policies and personnel hiring and training. Shipboard and "shoreside" operations showed up on state and federal agencies' radar.The culture at the Concordia's parent company, headquartered in Florida, has come under fire since the accident. Critics also say that crew training was wanting; it explains the delay and confusion in getting passengers to lifeboats.
Strangely enough, the same was true 100 years ago, when the Titanic sank. The White Star Line's need for speed meant the sacrifice of passenger safety. Titanic hadn't been taken on a dry run, and there hadn't been a lifeboat drill; the crew was woefully unprepared for the emergency.
We'll continue this in our next post.
Source: PropertyCasualty360.com, "Leveraging Hindsight into Foresight: Lessons from the Titanic," Anya Khalamayzer, Laura Mazzuca Toops, April 11, 2012
]]>However much they may not want to know, Florida homeowners still pay close attention to annual hurricane predictions. This year, meteorologists say the season will be below average. The hurricane season begins June 1.
]]> There are a number of reasons for the mild forecast. First, the Atlantic Ocean's waters are cooler than usual this year, but parts of the Gulf of Mexico and the Caribbean are warmer. The warmer surface temperature may sap the ocean's energy to fuel storms -- water temperature is a significant factor in the strength of storms. With conditions as they are, there may be storms, but they will not be as intense.The U.S. is coming out of last fall's La Niña, the weather pattern most often associated with mild winters. As the pattern exits, an El Niño will take its place in June or July. If the El Niño is true to form, wind shear will increase across the tropical Atlantic, suppressing the development of any tropical storms. These and other factors lead the meteorologists to predict fewer and milder storms this year.
Last year, four major hurricanes, seven hurricanes and 19 named storms occurred. This year, we should expect only two major hurricanes with winds reaching more than 110 mph; four typical hurricanes; and 10 named storms. On average, two major hurricanes, six hurricanes and 11 named storms occur.
Still, a prediction of fewer storms should not lull anyone into a false sense of security. Those of us who remember Hurricane Andrew in 1992 know only too well that it takes just one storm to level South Florida, to take 65 lives and to cause $26 billion dollars in damage.
Source: EarthSky, "2012 Atlantic hurricane season outlook," Matt Daniel, April 09, 2012
]]>If the sinking left everyone in shock, at least the insurance claim process seems to have gone smoothly. As we discussed in our last post, passengers, property owners and the White Star Line were fortunate that the "year and a day" rule was no longer the norm.
]]> We discussed life insurance claims and some of the problems faced by beneficiaries in our April 14 post. The property insurance claim process was different.Before the claims process could begin, the insurance companies needed proof that the ship had foundered. In 1912, when a ship was lost at sea, the surviving crew signed an "official protest." The protest was a document that briefly described the circumstances of the ship's loss and what part of the hull and cargo were gone. In the case of Titanic, everything was lost.
Anyone making a property insurance claim then presented a copy of the protest, the insurance policy and proof of the value of the goods. The proof of value was most often a bill of lading, a copy of the ship's manifest that proved the goods were on the ship and, finally, the invoice from the country of origin certified by the U.S. Consul at the port where the cargo was loaded.
One thing on the claimants' side was that the loss of Titanic was common knowledge. Most insurers did not insist on seeing the protest. And, the fact that the Titanic was a total loss made it easier to collect the insurance proceeds. Had the cargo been damaged but recovered, the insurance company would have had to determine the difference in value, and that was no easier in 1912 than it is today.
Source: New York Times, "Titanic insurance claims quickly met," April 28, 1912
]]>Those first insurance underwriters were gambling on shipping, a very risky business in 1688. It would be decades before John Harrison came up with a method to measure longitude accurately. Without that measure, ships foundered on reefs and along coasts with alarming regularity. Vessels, cargo and human lives -- the losses were staggering. The situation had improved dramatically by 1912, when Titanic went down: Only about one ship out of every 100 was lost. (Now, it's about one in 670.)
]]> In the days before steam and the telegraph, insurance companies were reluctant just to take someone's word for it that a ship had gone down. The rule in the age of sail was "a year and a day" -- that is, no one could file a claim until the ship was a year and a day overdue. In most instances, though not in the U.S., it was up to Lloyd's to decide that a ship was lost.By the time Titanic went down, the system had evolved. Advances in technology saved lives, and survivors could attest to the loss of the ship and its contents.
In our next post, we'll discuss the claims process for Titanic.
Source: New York Times, "Titanic insurance claims quickly met," April 28, 1912
]]>In our last post, we mentioned that the life insurance claims were complicated for the victims of Titanic. One issue, of course, was that not all of the bodies were recovered. The bodies of Astor and Straus were among the 330 found over the next few weeks, but almost 100 of those were never identified. Guggenheim and Mrs. Straus were lost.
]]> A bigger problem was matching the names of the missing passengers to the names of the policyholders. The New York Times reported that 119 life insurers and 48 accident insurers were involved, each with lists of policyholders with identical names. Handed lists of passengers whose bodies were never recovered, they had to match the passenger John Doe, for example, to the insured John Doe. Remember, this was a paper process.Initial estimates two weeks after the disaster were that life insurance payouts totaled around $2.1 million, and accident insurance payouts came to a little more than $1.5 million. The industry estimated that life insurance losses would end up at $4 million, accident insurance losses at $2 million.
Life insurance companies needed proof that a passenger was an insured and that a passenger had died. The task took some time. According to Encyclopedia-Titanica.org, the very first life insurance claim settled around May 11, 1912.
The body of the insured, a jeweler, had not been recovered. The news article about the payout closes with a comment from the insurance company president: "There were no undertaker's of doctor's certificates of death and the company had to strain several points in allowing the claim."
Sources:
New York Times, "Titanic insurance claims quickly met," April 28, 1912
www.Encyclopedia-Titanica.org, Victims of the Titanic Disaster, accessed April 14, 2012
]]>A century ago, when the RMS Titanic went down, things were a little different -- simpler in some ways, more difficult in others. The shipping and passenger cruise industries have changed a great deal since, and in a large part because of the loss of Titanic.
]]> We'll discuss some of the risk management developments in a future post; in this post, we want to focus on the insurance claims. It's interesting to note, though, that Titanic was the biggest maritime insurance loss to date in 1912, and experts estimate that Concordia will be the biggest maritime loss in history.The circumstances were different from the Costa Concordia. Titanic was not just a passenger ship; she was carrying cargo. And, she was gone; recovery of personal property and cargo was not a possibility. Similar to the Concordia, though, not all bodies of the passengers and crew members who died could be recovered.
An article in the New York Times from April 28, 1912 -- less than two weeks after the ship went down -- talks about insurance issues and claims processing for Titanic. What is most startling is that almost every insurance obligation tied to the disaster had been met. Two weeks after the Concordia accident, insurance professionals were still guessing at the total losses.
According to the article, property losses came to $9.42 million: $8 million for the ship, $420,000 for cargo and $1 million for personal property. Coverage limits applied, of course, reducing the payout to $6 million in all. Cargo policies covered almost the total loss (95 percent): Payout was $400,000. Personal effects were covered at 60 percent ($600,000). The White Star Line took a serious loss: Payout for Titanic herself was $3 million, a little more than 35 percent of her value.
Life insurance was more complicated than property insurance, because of the number of lives lost (1,635) and the number of insurance companies involved (almost 120). We'll go into that in our next post.
Sources:
Reuters, "Costa Concordia likely worst maritime insurance loss," Myles Neligan and Ben Berkowitz, Jan. 16, 2012
New York Times, "Titanic insurance claims quickly met," April 28, 1912
]]>The shooting last month of Florida teen Trayvon Martin inspired marches around the state. One group, the National Christian League of Councils, planned a march on the Capitol in Tallahassee to protest the "stand your ground" law invoked by the shooter to justify his actions. The NCLC, however, ran into some trouble.
]]> The city of Tallahassee requires a $1 million liability policy for events like the one planned by the NCLC. The organization could not find an insurance company willing to cover the march -- 12 insurers said no. It was simply too controversial a subject and too much of a security risk for them to take on. The only option left was to self-insure.Self-insuring is tricky for a nonprofit. Many nonprofits simply don't have the financial wherewithal to self-insure. The NCLC would have to set aside enough money to cover any damages, but the march posed such an enormous risk that big-name insurance companies wouldn't take it on.
The city finally waived the insurance requirement. City officials reasoned that barring the NCLC from marching would be denying the marchers their First Amendment rights to free speech. The waiver did not take the NCLC off the hook in the event of a claim, though; the city merely allowed the march to go forward without proof of insurance.
About 100 people marched peacefully to the Capitol. The march had been postponed from an earlier date while the insurance issue was settled. The NCLC settled on April 4 for the rescheduled march, because it was the 44th anniversary of the assassination of the Rev. Martin Luther King Jr.
Source: Insurance Journal, "Trayvon Martin March to Happen After Tallahassee Waives Insurance Requirement," Michael Adams, April 4, 2012
]]>The claims against Washington Mutual, Inc. grow out of an incident on Sept. 28, 2008 in which a number of directors and officers of the company ordered a "downstream capital contribution" of half a billion dollars to its bank unit, Washington Mutual Bank. That bank, however, was seized by thrift regulators just 15 days later.
]]> Unsecured creditors of Washington Mutual Inc. sent a notice of claim to the insurer, which in turn notified the 12 issuers of its directors' and officers' insurance of the need for coverage. The claims were subsequently denied, with the dozen insurers pointing to four exclusions in the policies.These exclusions included an insured versus insured exclusion, an exclusion for interrelated wrongful acts, a prior notice exclusion and a specified claims exclusion. Washington Mutual asserts that the 12 insurers really just sought to evade their obligation in bad faith, leaving the directors and officers of Washington Mutual without adequate insurance coverage for the significant claims involved.
Washington Mutual argues that the insurers tried to force the directors and officers at risk to seek coverage and payment from already exhausted insurance policies covering the 2007-2008 time period. The insurers named include XL Specialty, Washington Mutual's primary insurer, and 11 other companies that acted as excess insurers.
Washington Mutual has recently completed a Chapter 11 bankruptcy reorganization.
Source: Business Insurance, "Washington Mutual sues directors and officers insurers over coverage denials," Judy Greenwald, March 22, 2012
]]>Further still, some Floridians are looking at getting their own home in the near future. For these groups, a decision by Fannie Mae to investigate and change their "force-placed insurance" policies so that they are less expensive is welcome news.
]]> When a prospective homeowner looks to obtain a mortgage, there is often a requirement that they secure homeowners insurance first. Usually the homeowner does not get to select which provider will be covering them nor do they get a say in terms, conditions or price of the policy.This is called "forced-place insurance," and these policies routinely have higher prices than normal policies because they are agreed to by the insurance provider and the lender. It can place a homeowner in a precarious situation where they are unable to keep up with their insurance bills or mortgage payments and more likely to enter foreclosure.
Fannie Mae recently announced that they will investigate the practice of "force-placed insurance" and look to change the gouging prices normally associated with the specialized policy. "Our goal is to reduce costs for Fannie Mae and thereby taxpayers, and to reduce a barrier for homeowners becoming current on their loans," said a company spokesman.
Even with the announcement, officials from the Department of Financial Services in New York are still going to investigate the use of "force-placed insurance."
Source: Reuters, "Fannie Mae changing 'forced-place insurance' rules," Ben Berkowitz, Karen Freifeld and Margaret Chadbourn, Mar. 7, 2012
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