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FacWorld Report - January/February 2002
FacWorld Report - January/February 2002
Welcome back to the first FacWorld Report of 2002. The insurance industry begins this year with a reinvigorated dedication to underwriting. We at the FacWorld Report hope that our readers will find the Report not only a useful resource for information, but also a springboard into further discussions that bring greater understanding of various underwriting issues to all parties.
Our
Standard Installments
this issue include overviews of Crane Risks and Construction Project Insurance, Large Casualty Losses, and Asbestos, as well as updates on Foot and Mouth Disease and Korean Product Liability. New to the Report this month is a
Special Section
called "
I've always wondered about...
" which debuts with an explanation of the differences among Policy Year, Accident Year, and Calendar Year.
Finally, in our
Website of Interest
section, we draw your attention to
NukeFix.org.
Standard Installments
With over 200,000 cranes in operation of varying size, capacity, and complexity, this article provides some insight into crane accidents, risk management and operation as well as exposure analysis. And while we're on the topic, also included is a brief piece on the unique aspects of construction project insurance coverage.
Crane Risks and Construction Projest Insurance
Clearing up my misconception that Foot and Mouth is the disease of people who say idiotic things at the wrong time, this piece touches on everything from what Foot and Mouth is and how it spreads to what kinds of businesses might face Foot and Mouth losses and what insurance needs arise.
Foot and Mouth Disease
Ever have trouble convincing an insured that yes, in fact really large losses can and do happen? Our latest issue of General Directions summarizes several casualty losses over $25,000,000 from many different US States, and can be easily printed out to discuss with insureds and brokers
Large Casualty Losses
This article discusses how new Korean legislation represents a philosophical shift in the burden of proof toward the defendants in product liability cases, and how this broadening shift, together with an increasingly litigious society, may have a sobering effect on the number and size of claims.
Korean Product Liability
General Re Chairman Ron Ferguson addresses the NAIC discussing the need for a comprehensive federal terrorism program that provides consumers and carriers with certainty, confidence, and consistency, and that without such a solution, the industry's need to maintain solvency must trump the mandates of regulators to provide less restrictive terrorism terms.
Ron Ferguson's statement to NAIC
In the
Next FacWorld Report, we'll take a special look at various toxic torts featuring new articles on Lead, Asbestos, and Mold as well as our continuously updated resource on pollution rulings.
To whet your appetite a bit, we suggest this article from Fortune which is an historical look at asbestos litigation, discussing how a spate of successful suits by marginally impaired asbestos plaintiffs could not only drive up the total cost of asbestos related claims, but also leave genuinely impaired parties standing when the music stops.
Asbestos: The $200 Billion Miscarriage of Justice
Special Section:
"I've always wondered about..."
What exactly are the differences among Policy Year, Accident Year, and Calendar Year?
Policy Year:
Refers to all claims and premiums that stem from a set of insurance policies issued over a twelve-month period. Assuming all policies have a one year policy period, a policy year may actually last two years. For example, the last policy of policy year 2001 was issued on 12/31/01 and would not expire until 12/31/02, a full two years after the first policy of policy year 2001 was issued on 1/1/01.
Accident Year:
Year of occurrence. Loss payments and reserves on losses are allocated to the year in which the loss has occurred (accident year). The development of loss payments and Loss Reserves for losses which have occurred in a given accident year are monitored in time intervals (e.g. monthly, quarterly, yearly) by development year statistics until all losses are finally settled. Thus, a given accident year's valuation often fluctuates over time. The losses allocated to a given accident year are measured against the earned premium income of the same annual period. Statistics on an accident year basis allow the development of losses to be monitored and are therefore particularly important for underwriting decisions.
Calendar Year:
All loss payments paid during one year and all movements in reserves (new reserves, increases and decreases) which take place during the same year are allocated to the calendar year irrespective of the year in which the losses have occurred, i.e. loss payments and reserves under one calendar year can relate to losses which have occurred in different accident years. Losses thus allocated to a given calendar year are measured against the earned premium income of the same annual period. Statistics on a calendar year basis are suitable only for financial considerations but, as to genuine assessment of treaty results, even for short-tail business, they can be highly misleading.
Example: Mary's Manufacturing Company purchases a general liability policy from Hypothetical Mutual Insurance Company that is effective from 7/1/00 to 7/1/01. On 4/1/01, a consumer is injured by one of ABC's products. On 4/1/02 suit is brought and Hypothetical's Claims department sets up a reserve of $100,000. On 2/1/03, the case is settled for $500,000.
Hypothetical Mutual would allocate this claim as follows:
Policy Year:
2000. The policy that responded to this claim was issued in 2000
Accident Year:
2001. The "occurrence" that triggered this loss took place in 2001. (Note that if Accident Year 2001 were valued as of 12/31/02, this loss would only be worth $100,000, but if valued on 12/31/03 it is worth $500,000. Thus accident year valuations fluctuate over time due to adverse development on claims or a reduction of reserves.)
Calendar Year:
2002 and 2003. The first $100,000 would be allocated to Calendar Year 2002 because a reserve in the amount of $100,000 was first put up in 2002. The remaining $400,000 would be allocated to Calendar Year 2003 as the $400,000 increase in reserve took place in 2003.
Website of Interest:
NukeFix.org
Much has been said recently about the possibility of additional terrorist attacks and the likelihood of weapons of mass destruction as vehicles of such attacks.
NukeFix.org
contains sophisticated modeling software, as well as voluminous information on the nature, impact, destruction capacity, and likelihood of the use of nuclear weapons. This is a sobering and thought provoking website, with respect to both the human element of such an event and its financial impact on the insurance industry.
NukeFix.org
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