Monthly Archives: December 2011

Hackers cruise too close to CAS web site

Well, that’s my takeaway from this email from the organization:

All registered users of the CAS Web Site are being asked to update the passwords for account access.

The CAS Web Site is hosted by an outside vendor, which also hosts the web site of the International Association of Chiefs of Police (IACP). The hacker group Anonymous, which is associated with the Occupy Wall Street movement, targeted the IACP and other law enforcement-related web sites and gained unauthorized access to the IACP web site and the vendor’s intranet. During the attack, the hackers had access to a prior version of the CAS membership database that included member passwords for access to members only content on the CAS Web Site. The CAS has not seen evidence of misuse of this data, however, as a precautionary measure CAS has been advised to take the prudent step of requiring users to update their passwords.

So I got me a new password!

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The Week in a Minute, December 16, 2011

  • Industry losses from catastrophes hit $108B in 2011, Swiss Re tells us. (Only 2005 had more – $123B.)
  • Coincidence: Their CEO, Stefan Lippe, will retire.
  • P&C profits will rise in 2012, Fitch says. Not a surprise, given $108B in cats this year.
  • Old news: New Madrid earthquake was 200 years ago.
  • NTSB calls for ban of cellphone use while behind the wheel. Good luck with that.
  • CAS announces syllabus and exam schedule for the new ERM credential.
  • Commercial insurance prices keep climbing, Towers Watson reports.

Bad stats

*Heavy sigh* to the Wall Street Journal’s driving blog. It spotlights “conflicting data” on cell phone use in cars.

An NTSB study indicates that “5% of drivers were holding a cell phone behind the wheel.” About 1% were texting.

To the blogger, this contradicts a study by State Farm, in which 58% of people said they talked while driving.

Maybe I’m dim today – it has happened before – but I think if 5% of drivers are on the phone at any given moment, that could easily mean that 58% have been on the phone at some point. Heck, I’ve been on a cell while driving at least once. But I’m not doing that now – I’m typing a blog post!

 

Claim of the Week: The meteor made me do it.

Via L.A. Times: Man drives off cliff while watching a meteor shower.

A man trying to catch a glimpse of the Geminid meteor shower ending up driving his Mustang off a cliff in the Angeles National Forest, officials said Wednesday.

Fortunately, minor injuries.

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Towers survey: Yup, it’s a hard market

Rates up 2% in the latest CLIPS survey.

Q3 increases were bigger than Q2 increases in standard lines (property, GL, comp), suggesting the trend is accelerating. Professional liability rates remain soft, especially in D&O.

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Continuing Ed

Completed my continuing education requirements last night, listening to a CAS Webcast from the 2010 Casualty Loss Reserve Seminar.

The Casualty Actuarial Society this year started to require members who perform actuarial services to annually attest that they have fulfilled the continuing ed requirements of a major actuarial organization. (Standards differ by country and, in the U.S., within the country.) More here.

The CAS standard, for example, calls for 60 hours spread over two years, including six hours of professionalism.

I had plenty of hours, more than 45. My work takes me to most of the CAS meetings, and I generally hit the June CAGNY meeting. But this year I had only logged 5+ hours of professionalism. And I lost last year’s records.

Through 2009, I logged my hours on my Yahoo account, in a little cranny called Notepad. But for some reason, I never logged 2010 activity. And I lost my record of activity from that year’s CLRS.

I found myself just short of being able to honestly attest to the requirement. It sounds like a lot of people were. Last week’s meeting of the Casualty Actuaries of Greater New York was sold out, I’m told, with lots of people cramming in the last few hours they needed. (I couldn’t go.)

Fortunately for me, attending a meeting lets you view a free webcast at the University of CAS. Unfortunately, the pickin’s are slim for professionalism – only about two or three from the four meetings I’ve attended in the past 14 months. But there was a piece on how to handle difficult situations when rendering an opinion. It was pretty interesting, and got me my credits. Or so I thought.

Most seminar sessions are 90 minutes (1.8 credit hours). But at the end of this one, for some reason, it said I should credit 0.75 CE. This left me at 5.95 hours, or 0.05 credit hours short of the CAS standard.

So I re-reviewed the standard. Turns out the CAS standard is an alternative standard, sort of a backup if you log a lot of hours one year, but not the next. The American Academy of Actuaries has its own standard – 30 hours a year, with three hours of professionalism. And as far as I can tell, you can meet either standard.

I already met the AAA standard, well before I rooted around the University of CAS. But it took me about 15 minutes to figure that out from the various pubs and FAQs I had to sort through. Then I figured what the hell and gave myself 0.25 CE for that time.

So now I meet both standards.

The Week in a Minute, Dec. 9, 2011

  • Thai floods continue to be a big, big deal. Aon estimates insured losses will hit $10B, which looks like it would put it into the top 10 all time. Swiss Re estimates its losses at $600M, while Munich punches in closer to $700M. Wikipedia’s disaster coverage, which I’ve generally found quite good even in real time, is here.
  • Rates continue to climb, MarketScout says, with November’s 1% increase the first on its watch since 2005. In analyst presentations, AIG said rates have been rising through the year, while Travelers said the trend is accelerating, according to a WSJ write-up. Expect more increases ahead, says Credit Suisse. But Willis remains skeptical.
  • The Senate passed another extention of national flood insurance. I summarized the situation covering the CAS Annual Meeting, which press release ended up in Insurance Journal.
  • P&C carriers reduced employment by 900 nationwide in October, III reports.
  • Enormous fine resulting from last year’s explosion at a WV mine – $209M.

Auto insurers vs. auto repairers

From USA Today:

Auto repair shops are stepping up their efforts against insurance companies, which they argue are controlling their prices by steering customers toward preferred businesses that do their bidding. Auto body trade groups are promoting bills in state legislatures from Massachusetts to Iowa to try to change the rules of the game.

At issue is who gets to decide prices for auto body repair — shops or insurance companies. Laws and prices vary by state, but repair shops say if they don’t charge what insurance companies decide are fair prices, they lose business, sometimes to shops that use substandard parts.

I’ll steer past the charged language — “steering customers toward preferred businesses that do their bidding” — to point out that insurers are attempting to operate in classic free-market fashion. Negotiating with vendors and awarding business to the ones that provide the best combination of price and service.

The body shops want legislators to prefer one party – the body shop – over others. That might be appropriate for public policy reasons – the article cites a single customer out $25 – but I think it’s important to say what’s happening.

Last year, my family had to wrangle with this, after a neighbor’s car backed into ours. The insurer wasn’t much of a problem. Our struggle was with the neighbor, who wanted to handle the claim without an insurance claim. Once it became clear that wasn’t happening, things went smoothly.

(BTW, we had no issue with “substandard parts.”)

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Actuaries – the eternal optimists

Update: An earlier version suggested that every accident year was inadequate. Reader GB points out that the article I cite almost certainly refers to the adequacy of the loss reserve on the balance sheet each year end. My misunderstanding also led me to wonder why the article dwelt on asbestos and environmental reserves, but with GB’s insight, the reasons for that become clearer now.

I’ve edited throughout to correct and clarify. Sorry.

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Frustrated at my lack of posting lately, but work has taken one of those turns. I wanted to devote more time to this fine Contingencies article than I will be able to.

Every year the p/c industry estimates its loss reserves on the Annual Statement. And for every year since 1994, that estimate has proved too low, according to Milliman’s Susan Forray. (She doesn’t have data before 1994.) This is surprising, since in recent years, calendar year development – what we usually read about in the trade press – has been favorable. But CY development is a mix of movements on all previous accident years. Favorable movements on recent accident years have more than offset unfavorable movements in older years.

The chart tells the story. It uses accident year data to re-estimate what the industry should have posted each year. (The color coding distinguishes the movement in the first, second and third development year, etc.) The years for which we have complete development (10 years, cause that’s what you can get from the annual statement) end with 2001.

Only subsequent years show favorable development overall, and, well, the jury is still out on those. Notice that 1995, 1996 and 1997 started out favorably, too, and those didn’t end so well.

This contradicts the conventional wisdom, which tells us that the industry overestimates some years and underestimates others. The CW is true for calendar years.

Forray points to two causes. One is medical inflation and its impact on workers comp. (<Wonky> I’d be curious if the runoff of WC tabular discounts affect this, but I don’t have time to check. </Wonky>) The other is development on asbestos and environmental reserves, which have been the bane of actuaries for more than two decades now.

Harkening back to the headline, though: Reserve estimates are the most public work that actuaries undertake. (Reserves are ultimately an executive management decision, but actuaries play a big role.) I think it’s interesting that actuaries – whom most execs will paint as seeing the glass half-empty – appear to have consistently underestimated losses.

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The nurseryman’s solution

Via Kevin Drum, a consultant’s tale of workers comp risk management. I pass along it reluctantly, for the same reason the storyteller is remorseful:

Back in the late 90s, my team was hired by a large nursery to help them get their workers compensation claims under control. For those that have never worked in the industry, injuries at nurseries are not uncommon. In addition to all of the sharp hand tools used, there is a fair amount of bending and lifting throughout the day. The nursery that hired us was one of the 100 largest in the state, so it was reasonable for them to have a certain amount of employee injuries – but not at the level of frequency or severity that they had been experiencing for a few years. It was really bad; we had been hired because the company’s founder’s sons that now ran the operation recognized that rising insurance costs were about to drive them out of business.

. . . [snip] . . .

We laid out a simple, three-pronged plan. There would need to be some minor capital investments in equipment, there would need to be training on proper lifting technique, and shifts should start with a mandatory 5-minute group stretch. (Remember, they were about to go under with rising insurance costs and we were trying to appease underwriters as well as reduce claims.) For the entire meeting up to that point, our ideas were met with nodding heads and verbal commitments by each brother to change the very culture of safety in their family business.

As we were wrapping up, as an aside, we noted that one of their larger ongoing back injury claimants was an illegal alien. We could close that claim out quickly, we told them, by letting the injured worker know that we would have light duty work for him were he able to legally work for the nursery. Since he wasn’t able, he could be terminated and all future indemnity costs would disappear. As soon as we explained this, the brothers began looking at each other, wide eyed and smiling. I cringed inwardly. I knew we had just made a mistake.

The updated equipment was never purchased, of course. And taking the time to train or stretch was seen as a waste of the company’s time and money. The claims continued to flood in, but now with each claim came notification from the employer that they had “reason to suspect” the claimant was an illegal worker, along with a request to send the light-duty letter so we could avoid making indemnity payments. Over the course of the next year the number of employee injuries increased 20%. But without indemnity costs their annual claims cost decreased 55% — and their insurance premiums went down as a result. They were able to terminate our services the next year with a glowing letter of recommendation.

Today they have moved from being one of a top-100 nursery to being a top-15, and by all accounts are going strong.

The rest of the story, on immigration issues, is also worth a look.

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