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 Big “I” National News

P-C Trends
More Hurricanes on the Horizon
Revised hurricane forecasts predict increased storm activity.

The arrival of peak hurricane season, from August to October, has become abundantly clear as tropical storm Fay zigzags her way across the state of Florida. Already this year has produced six named storms, two hurricanes and one major hurricane, and forecasters are now predicting even more storms before the season ends on Nov. 30.

The National Oceanic and Atmospheric Administration (NOAA) has revised its 2008 hurricane season outlook, originally released in May, to include 14-18 possible tropical storms --- including seven to 10 hurricanes, three to six of which could be “major.” The revised outlook includes two more storms and hurricanes than originally predicted last spring.

NOAA’s revised outlook also estimates this season has an 85% probability of being “above-normal,” a 10% chance of being “near-normal” and a 5% chance of being “below-normal.”

“The conducive atmospheric and oceanic conditions predicted in our May outlook are now in place over the tropical Atlantic,” NOAA says. “These conditions, combined with strong early-season activity, yield increased confidence that the 2008 season will be above normal. We expect 2008 to be the tenth above-normal season since the current active hurricane era began in 1995.”

Hurricane forecasters at Colorado State University have also revised their Atlantic hurricane forecast for this season and are predicting nine hurricanes this year. The update includes one more than forecasters originally predicted in June. CSU also increased the number of potential “intense hurricanes” (storms with winds of at least 111 miles per hour) from four to five. The total forecast now includes 17 named tropical storms, compared to the 15 CSU predicted initially. 

Michelle Payne (michelle.payne@iiaba.net) is IA’s managing editor.





P&C Trends
The Glass Half Full
Strong loss reserves provide hope for p-c industry.

Amidst rising price competition and declining earnings, the property-casualty industry is being challenged by a troublesome economy --- however, there is a silver lining in the strength of its loss reserves.

According to a recent report from Fitch Ratings, the industry’s loss reserve position benefited from the past hard market and has improved considerably from the significant deficiencies experienced earlier in the last decade. The report, “Property-Casualty Industry Reserve Adequacy,” examines the industry’s reserves at year-end 2007 and, more specifically, the core reserves from the most recent 10 accident years.

“Fitch believes that the industry has a modest reserve redundancy as of year-end 2007, but the redundancy is declining and will continue to do so going forward,” says the report. “The hard market accident years (2003-2006) still are likely to develop redundancy and the previously under-reserved soft market accident years (1998-2001) are largely paid out. However, Fitch estimates that the most recent 2007 accident year will experience a more modest redundancy over time.”

Fitch predicts that calendar-year earnings will continue to benefit from favorable reserve development from prior underwriting periods, but accident-year loss ratios are expected to increase materially from prior years as market conditions continue to erode.

“The industry is in a typical spot regarding loss reserves following a hard market as insurers tend to underestimate the impact of market improvements on incurred losses during periods of positive rate increases and other underwriting changes, which results in the development of a reserve cushion over time. This cushion then diminishes as the hard market accident years mature,” the report says.

Reserving challenges are expected to escalate in the short term as the market continues to soften, with more uncertainty in projecting underwriting results in a period of rate reductions, according to Fitch. Adding to the uncertainty is the possibility of increased inflation, which could make estimating loss costs more difficult.

Michelle Payne (michelle.payne@iiaba.net) is IA’s managing editor.





VIEW: Agency Management
Going for Gold at Your Agency
Lessons independent agents can learn from the Summer Olympics.

There’s a reason why society is so intrigued by the Olympics and athletic competition in general --- nothing is more captivating than seeing someone give everything they possibly have in pursuit of a goal.

So, what lessons can agents take away from the Summer Olympics? First, reflecting on the success of Michael Phelps, the focus on preparation and his determination coupled with a calm demeanor and great physical attributes were key ingredients for the recipe for becoming the greatest swimmer of all time. However, there is also a second lesson and it is one of team work. It’s important to note that five of Phelps’ gold medals in Beijing were from individual competition (a record in its own right). Yet, he could not achieved eight gold medals without his relay teammates, especially Jason Lezak, the oldest U.S. male swimmer in Beijing at age 32, who will be most remembered for his stirring anchor leg in the 4x100m free relay. Lezak came from behind to touch out Alain Bernard of France, who later went on to win individual gold in the 100 meters. Lezak’s split, 46.06 seconds, was the fastest in history. 

A lesson can also be learned from Dara Torres. The 41-year-old swam in her first Olympics back in 1984 proving age is not a limitation. She won three silver medals in Beijing after being away from competition for several years and taking time off to have a child two years ago. What’s most impressive in watching and listening to her is her infectious enthusiasm and passion for competing. Just missing a gold medal by .01 of a second, she nonetheless beamed a big smile after seeing the race results, almost laughing to herself that she lost the race by the narrowest of margins. However, she could take comfort in setting a new American record in the 50 meter freestyle sprint. She gave the best performance she could and someone just happened to edge her out giving their best performance. 

The Olympics is more than just about the athletes. Ultimately, it takes coaches, trainers, technology and a host of other factors to beat the best in the world. Does your agency provide the tools to have your employees compete and win? That means providing a culture that fosters success by emphasizing professional education, first class technology, commitment to hiring talented individuals, providing a strategic vision and constantly seeking for improvements based on feedback from employees and customers. A great example of molding talented individuals is evidenced by the U.S. Olympic basketball team coached by Mike Krzyzewski of Duke. No one doubts that the U.S. has the best individual talent, but despite the talent the U.S. team only took home the bronze medal in 2004. So far in Beijing, the U.S. has played brilliantly with aggressive defense, deft passing and teamwork that are a testament to Krzyzewski, his coaching staff and the players.

As the Olympics conclude in Beijing this week, independent agency principals should remember this quote from Vince Lombardi, “Individual commitment to a group effort --- that is what makes a team work, a company work, a society work, a civilization work.”

Dave Evans (dave.evans@iiaba.net) is a certified financial planner and IA l-h contributing editor.




Forms & Substance
Things that Go Bump in the Night
Creepy crawlers and critters can cause insurance woes.

Mice, roaches, snakes, bats and raccoons --- what do these critters have in common? They have all been cited as vermin in claim denials the Big “I” Virtual University has seen.

The VU recently received this inquiry from a state insurance department:

“The wind blew out a ‘plug’ at the end a roof vent and bats got inside causing considerable damage to the insulation. The insureds did not hear or see anything, however, eventually noticed a smell and finally found the cause. No one has a clue as to why the ‘plug’ blew out and the insurance company is not disputing that part of the claim.

“The insuring policy has an exclusion for losses caused by birds, vermin, rodents, insects or domestic animals. The company has made the determination that bats fall under the definition of vermin.

“In checking with a standard dictionary, vermin is defined as: ‘(1) any of various small animals or insects that are destructive, annoying, or injurious to health, such as cockroaches or rats. (2) Any of various animals that prey on game, as the fox or weasel.’

Additionally, the same dictionary defines a bat as an animal. We think the company has made the right call, but were wondering if your experts could offer more to go on, either in support of claim payment or the denial. Thanks for your time.”

Here’s a related question from an agent:

“Most policies exclude damage caused by ‘vermin,’ but I haven’t found a policy that contains a definition of ‘vermin.’ One of my companies takes the position that the definition of ‘vermin’ would include, amongst other things, rats, foxes, otters, badgers, weasels, minks, ferrets, muskrats and skunks. Is there any place I can go to get a scientific or at least informed definition of the word vermin? Something better than a dictionary definition.”

After reviewing more than a dozen similar questions, the opinion of the VU faculty is that a bat is not a vermin...nor is any other animal --- for insurance purposes. The faculty had this question come up many times in claims denied due to damage by raccoons, skunks, snakes, turtles and other critters --- each time on the basis of the exclusion for vermin. We’ve yet to find a court case (with the exception of damage caused by rodents, which is excluded anyway) that sided with the insurer.

Not all animals are vermin. In fact, since the policy excludes “domestic animals,” damage caused by any non-domestic animal is covered...unless that animal is a bird, rodent, insect or vermin. (Note: Unlike this older or proprietary HO policy, the current ISO HO-3 policy excludes “animals owned or kept by an ‘insured,’” not “domestic animals.”) So, the issue is what is a vermin? Since the term is not defined in the policy, we must look to other sources such as dictionary definitions and court cases.

Researching dictionary definitions dating back to at least 1828, dictionaries have included the following animals under the definition of vermin: rats, mice, squirrels, cockroaches, flies, lice, bedbugs, fleas, mites and their eggs, larvae and pupae, weasels, hawks, owls, polecats, badgers, otters, gophers, etc. In addition, many dictionaries define the word vermin to be a plural noun encompassing collectively a large number of usually small, noxious, parasitic animals. In other words, dictionaries cannot agree on what types of creatures the word vermin includes. Courts invariable conclude that, if a term has more than one reasonable meaning, then it’s ambiguous. If an exclusion is based on an ambiguous term, it usually cannot be used to deny coverage.

Of all the precedent-setting court cases the VU has seen that don’t involve rodents, every court that has reviewed this term has found it to be ambiguous. Recognizing this, the ISO commercial property forms no longer use the term vermin, relying instead on a general exclusion of “nesting or infestation, or discharge or release of waste products or secretions by insects, birds, rodents or other animals.” ISO indicates that they may follow this course in the upcoming Homeowners program revision scheduled for late 2007.

To read the entire article, including actual dictionary definitions and court case citations, click here.

Bill Wilson (bill.wilson@iiaba.net) is director of the Big “I” Virtual University.




Agency Management
Disaster Planning for Your Agency
Don’t be caught unprepared when a natural disaster strikes.

What have consumers not directly affected by Katrina and other past hurricanes learned about preparing for disasters? Apparently not much.

The results of a poll conducted for the Council for Excellence in Government and the American Red Cross before and during Hurricane Katrina (Aug. 26-31, 2005) and then replicated two months later (Oct. 26-30, 2005) showed 38% of Americans were not motivated at all by Hurricanes Katrina and Rita to prepare for an emergency. Only 12% said they had done a great deal to prepare for a natural disaster, terrorist attack or other major emergency. (To see the entire report, click here.)

A bigger question for the independent insurance constituency is what have agents learned about preparing for disasters? Has your agency done anything in response to Katrina or other well-publicized catastrophes? Does your agency have a formal, written disaster plan in place that your employees are familiar with and prepared to execute in the event of an emergency?

Natural disasters present a year-round problem for agents. Winter brings the potential for major snow and ice storms, spring and summer invite flooding and tornados and fall is once again hurricane season. And it is always in season for other natural disasters such as earthquakes and wildfires, not to mention man-made disasters such as transportation and industrial disasters and terrorist attacks.

As General Jimmy Doolittle once said, “The problem with Americans is that we’re fixers rather than preventers.” While we can’t prevent most natural disasters, we can prepare for them and take measures to minimize the damage that arises from them. Start today. Start right now.

The Big “I” Tennessee association has produced an outstanding disaster plan that includes information on earthquakes, inland storm systems and flooding, fire conflagrations, transportation and industrial accidents, terrorism and other types of disasters. The Tennessee disaster planning committee felt that most other plans they looked at were narrative in nature and told agents what they needed to do. The uniqueness of Tennessee’s plan is that it uses fill-in-the-blank templates that allow each agency to pick and choose which level of preparedness they want to put in place for themselves. If they just want to complete the basic information, then they can. If they want to maximize their readiness, they can complete all the templates, purchase and store all the supplies, re-wire the office to accept generator power, etc. The level of preparedness is left up to each individual agency.

Click here to read Tennessee’s disaster plan. In addition to this downloadable document, there are links to a similar plan from the Florida association and other resources from around the Internet. 

Bill Wilson (bill.wilson@iiaba.net) is director of the Big “I” Virtual University.