Perilocity

Telemedicine Risk

Speciality Insurance blog points out that while remote medical practice can bring efficiency and cost savings (to which I would add better quality medical care to remote locations), it can increase liability. Malpractice insurance is merely the first step in risk management for telemedicine, since local laws may be different on each end of the link. And not only local laws, but local expectations, so you need to make sure all participants have appropriate expectations and monitor both those expectations and what actually happens.

Insurance Online (Finally)

When that most stodgy of businesses, insurance, moves online, the Internet will truly have woven itself into the fabric of everyday life.

Insurance is moving online one step at a time. Despite privacy continuing to concern users of the internet, consumers and businesses are putting more of their insurance buying process onto the internet. And Safeco recently announced their intention of having a significant online presence that will not include agents (see here), a move which has not been met with insurance agent enthusiasm.

Internet Use & Insurance Specialty Insurance Blog, July 18, 2006

Mega-Cats: What is Insurable?

Interesting post in Specialty Insurance Blog about mega-cats, i.e., catastrophes so large the insurance industry can't insure them, at least not without losing many small insurance companies.

There have been and will continue to be large scale disasters that the insurance industry is entirely capable of absorbing, including significant levels of terrorism and hurricane losses, as has been demonstrated with the events of 9/11 and the most recent hurricanes. What needs to be the focus of the discussions is the level of exposure that is above the insurance industry’s capacity, such as the mega-cat hurricanes (see here) hitting the most exposed areas that the experts are concerned about. There has not been much distinction between these exceedingly rare events and other catastrophes that the insurance industry can absorb - but may not want to.

Hurricanes Insurable? 8 June 2006

And of course there's the question of whether mega-cats will remain exceedingly rare or whether with climate change they will become more frequent.

-jsq

Long Island Perils

No, not a baseball team. The Long Island perils are what insurers think they are facing:

Allstate says it won't write any new homeowners policies in New York City, Long Island or Westchester County. Although Long Island hasn't been struck by a major hurricane since 1938, "The probability exists for New York to be hit," says Trevino. MetLife also is cutting back on new homeowners policies near the coast. New York's legislature is considering a bill to create a permanent, state-run insurer of last resort to provide wind and fire insurance for coastal homes.

Strapped insurers flee coastal areas By Marilyn Adams, USA TODAY, Updated 4/26/2006 12:27 PM ET

The same thing is happening in Florida and along the Texas coast. Some people may find it surprising that insurers also don't want to cover New York and Massachusetts coastal areas. Who would have thunk it?

MLK and Insurance

Today is Martin Luther King Day in the U.S. So far as I know he never used the Internet, considering that even the ARPANET hadn't been implemented yet. But he did occasionally talk about insurance:

But not only that, we've got to strengthen black institutions. I call upon you to take your money out of the banks downtown and deposit your money in Tri-State Bank-we want a "bank-in" movement in Memphis. So go by the savings and loan association. I'm not asking you something we don't do ourselves at SCLC. Judge Hooks and others will tell you that we have an account here in the savings and loan association from the Southern Christian Leadership Conference. We're telling you to follow what we're doing. Put your money there. You have six or seven black insurance companies in the city of Memphis. Take out your insurance there. We want to have an "insurance-in."

--"I've Been to the Mountaintop" Martin Luther King Jr., Memphis, Tennessee, April 3, 1968.

So it would appear that those particular S&Ls and insurance companies had additional priorities beyond making money for the shareholders. And that larger companies failing to address issues of interest to part of their potential customer base led to those customers addressing those issues otherwise. Or, paying too much attention to the bottom line to the exclusion of social issues can eventually adversely affect the bottom line. That seems like a risk to me.

What does this have to do with the Internet? Handing the Internet in the U.S. over to the control of a few large telcos, as could happen in the near future, seems like a pretty big risk.

-jsq

Hedged Cats

It seems catastrophe bonds aren't the only way to hedge a cat. According to BusinessWeek, hedge funds are directly insuring catastrophes:

Collectively, though, hedge funds have huge sums available for catastrophe protection. That means much more hedge money is likely to flood in if rates remain high. Among the funds that have already entered the sector are Kenneth C. Griffin's Citadel Investment Group in Chicago, George Soros' Soros Fund Management, HBK Investments in Dallas, and Louis M. Bacon's Moore Capital Management.

How Hedge Funds Are Taking On Mother Nature, by Peter Coy, BusinessWeek, 16 January 2006

This is partly a result of Hurricane Katrina in 2005. The article says it is different than what happened after Hurricane Andrew, the previous most costly hurricane, in 1992.

Why do hedge funds do this?

Katrina Side Effects

Of the half a million people displaced by Katrina, about half don't want to go back, even though Mayor Nagin went to Atlanta and tried to persuade many evacuees there to come back. That leaves about 250,000 people displaced, and several states holding the bag for integrating them into new locations. The state with the most evacuees is not Louisiana: it's Texas. Side effects ripple much farther out than that. While I was in New Zealand recently, a common topic was Katrina: how sorry everyone was that it happened, and how NZ people expected their insurance rates to go up because their insurers had been telling them they would. This makes sense, since insurers for the affected areas will probably have to call on their reinsurers, causing the reinsurers, which are typically worldwide, to raise their rates, affecting insurers globally.

So the side effects of lack of preparation for a known risk include not only more than a thousand people dead and more than a hundred billion U.S. dollars in economic damages, but also a quarter million people displaced and higher insurance rates in countries on the far side of the world. A stitch in time (or better levee foundations) would have saved nine.

-jsq

NOLA Levees Not Deep Enough

It turns out the situation with the levees in New Orleans was even worse than previously reported:

The documents indicated that the steel reinforcements in the levee, known as sheet piling, went to a depth of 17.5 feet below sea level. Sonar tests indicated the pilings went only to 10 feet below sea level, meaning the flood wall would have been much weaker than intended.

The LSU team is working on a report for the state that will say there were serious, fundamental design and construction flaws at both the 17th Street and London Avenue canals. Both broke during Hurricane Katrina, flooding much of the city.
Engineers confirm LSU levee study CNN.com Thursday, December 1, 2005; Posted: 11:23 a.m. EST (16:23 GMT)

Tsunami Stilts

Te Papa, the National Museum of New Zealand, took five years to build, partly because its location was somewhat controversial, being on Wellington's waterfront. Wellington has a fine natural harbor that would probably protect it from the worst of tsunami breakers, but not from storm surge. So they built it on stilts, without making it obvious: the entire ground floor is essentially empty, with everything of value upstairs.

Sometimes you can work above a peril.

-jsq

Cat Bonds Continue

Catastrophe bonds continue to be floated, apparently about one a month. For example, in August, Swiss Re and RMS were involved in issuing a bond to protect Zurich American Insurance Corporation against hurricanes and certain earthquakes. The earthquakes in question are on the New Madrid fault, named for New Madrid Missouri, which last shook in the winter of 1811-1812 with three magnitude 8 (that's right magnitude eight; more on that later) quakes, that rang church bells in Charleston, S.C.

This cat bond, like most, has a high trigger: $1 billion in losses from a single hurricane or earthquake. With the current population of the to-be-affected area, a New Madrid quake could trigger it.

-jsq