Fla. pols to lobby Washington for national catastrophe fund

After the Florida Legislature passed a bill that lawmakers say will address the state's insurance problems, Gov. Charlie Crist and legislative leaders said their attention will be on pushing for a national catastrophe fund.

Crist plans to lobby his peers from around the country at the National Governors' Association meeting in Washington next month, while House Speaker Marco Rubio and Senate President Ken Pruitt are organizing a state/federal summit which will have the issue on the agenda.

Other coastal states are experiencing similar insurance problems, if not to the same degree as Florida, said Pruitt. "North Carolina, South Carolina, New York, Texas -- they have the same challenges we have," he said. "You just take those states around the coast of our country and there's enough congressional members there to make anything that needs to happen happen."

On top of that, Rubio said the effort to move up Florida's presidential primary so the state is more influential in the outcome could put pressure on candidates to address the issue. "You don't have to answer those questions now in Iowa and New Hampshire, but you'll have to answer that in Florida. And now California is looking to move up their primary, and you'll have to answer it there as well," said Rubio.

California Gov. Arnold Schwarzenegger has already written to Crist to express interest in working together on insurance.

Share disaster risk

Florida's congressmen and Sens. Mel Martinez, a Republican, and Bill Nelson, a Democrat, also favor the idea of a national catastrophe fund. Policy holders around the country would share the risk in the event of a major disaster no matter where it occurs -- an earthquake in California, a hurricane striking Texas, a tornado in Kansas or a flood along the Mississippi River.

But members of Florida's congressional delegation point out that it's going to be a hard sell in states like Montana. While the House may have a large number of votes in California, Texas and Florida to counter those from states where disasters aren't a problem, all votes are equal in the Senate. "If you are a senator from Montana or Colorado, no amount of persuasive speeches are going to make you essentially tax your constituents to subsidize the hurricane risk in Florida," said U.S. Rep. Tom Feeney, a Republican from the Orlando.

"Anyone that is trying to convince Florida's homeowners that a resolution at the federal level is right around the corner is being overly optimistic," Feeney said.

Still, freshman U.S. Rep. Ron Klein is optimistic. He said House Financial Services Committee chairman, Rep. Barney Frank, D-Mass., is supportive. "He has personally said to me 'I want to help you get something moving on this,'" Klein said.

Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Sales of flood insurance up sharply

Sales of federal flood insurance rose sharply last year. From November 2005 to November of last year, the number of federal policies jumped more than 13 percent, far more than normal.

Sales in coastal and other vulnerable areas spiked dramatically. In Mississippi, sales jumped 61 percent, for example.

The Federal Emergency Management Agency said the strong increases were in northeastern and western states as well. Idaho had a 24 percent increase, and Rhode Island 21 percent.

"I would have to believe that very few people think their regular insurance program covers flood. You'd have to be living under a rock to still think that," said Ted Kinney, of the Alabama Independent Agents Association. "People in the past ... thought that the government would come in and bail them out, and now they're realizing that the government won't do that."

The numbers are a welcome trend for the federal government, which has struggled to gain more participation in the National Flood Insurance Program. The increase of 700,000 new policies will help spread the program's costs around the country and leave more people protected instead of scrambling for taxpayer relief in the aftermath, officials said.

It also will provide a badly needed injection of cash. The program was self-financed for decades until the storms of 2005 wrecked its finances. It expects to be about $20 billion in debt to the Treasury once all claims are paid. It takes in $2 billion a year in premiums, but more than a third of that goes to pay debt.

The recent surge in policy purchases put the program over $1 trillion in liability, with some 5.4 million policies. Along with Katrina, regional flooding in the northeast and elsewhere last year probably contributed to the spike, said a FEMA spokesman.

Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

The Commissioners: John Oxendine

Oxendine defends Main Street independent insurance agents

Georgia Insurance Commissioner John Oxendine, who was recently elected to his fourth four-year term, spoke with Insurance Journal's Andrea Ortega Wells at the winter meeting of the National Association of Insurance Commissioners in December. The following is an edited version of the interview. The complete video interview is available at www.insurnacejournal/broadcast, in the video section of the Web site.

IJ: How are the affordability and availability of property insurance for Georgia's coastal home and business owners?

Oxendine: We've been very fortunate in Georgia to maintain a good competitive market on our coast. We don't have the historical problems that a lot of other states have. Therefore, we only allow companies to use historical data in rating information. We don't allow the hurricane models that are used in a lot of other states. We want to keep a good competitive market. We want the agents to be able to serve their customers and be able to place that business.

We do have a wind pool, but we have kept the population of it low. We're constantly wrestling with some of the companies trying to put big insurance loads on the homeowner's market. That's something we've resisted and have not allowed because we feel like reinsurers are really putting some of that from the Gulf coast and Florida and the Carolinas and really trying to put it on the Georgia citizens. That's something that we think is very inappropriate, so we've resisted that. We've made companies actually absorb some of that or put that risk on other states.

IJ:How would you describe the overall property and casualty market in Georgia?

Oxendine: We have the lowest [rates] in the Southeast. Our homeowner's rates are by far the cheapest; the most competitive market. Our automobile market is the lowest of all of the 10 large states. Actually, Illinois and Georgia about tie for having the lowest of big states around the country. Our workers' comp market is one of the most competitive. It's the most competitive in the South, so we're very happy about that.

IJ: A recent agreement between Zurich and some attorneys general and other agreements with four large insurers either ban contingent compensation or require disclosure of compensation. Your state was not involved in these agreements but how do you feel about the deals?

Oxendine: I'm actually first going to give you my overall view about the agents in this issue, and then I'm going to talk specifically about the Zurich and other settlements and why we haven't participated and never will as long as I'm commissioner.

Insurance agents, especially the local neighborhood agent, they're really, really getting a raw deal on this. I will tell you as the advocate for consumers in the state of Georgia my number one ally is that local neighborhood Main Street agent. They're the one out there fighting for the little guy. When I catch insurance companies doing something bad, half the time it's an agent that picks up the phone and calls and says, "Now, don't use my name, but look into this company. They're doing such-and-such" or "My client is not being treated right."

When the client is upset, their agents will tell them, "Go call John Oxendine's office because he'll get this fixed and he'll take care of you." The agent is there looking out for people. They really have a reason to be looking after people; it's competition. If your agent doesn't take care of you, you're going to leave that agent and go to the next street corner and get another agent, because you've got so many available and it is a great competitive market that really keeps the agent working for people.

We've had some very large commercial brokerage firms that have done some bad stuff. Marsh - and we're continuing our investigation on Marsh. We haven't signed off on the previous settlement because we actually think it didn't cover everything that Marsh was doing. They've done some bad stuff, and we're dealing with that.

Insurance companies - AIG, a lot of large companies - have done bad things, but what they're trying to do is put it back on the local agent, and that's wrong. You don't punish the local agent because somebody else did something wrong. There is nothing inherently wrong with a contingent commission. It's a bonus. All a contingent commission is, is a Christmas bonus. What is wrong is when individual large brokerage firms and companies working with those firms misuse the principle of contingent commissions, and that's what happened. It was individuals misused it. You don't punish the innocent; you punish the guilty.

For that reason, I have not signed Zurich. I never ever will because it is fundamentally wrong. I am very disappointed in those attorneys general that participated in it. We've taken a position in Georgia that our attorney general does not have any jurisdiction to even deal with the issue. If he wants to sign it, fine. It would not be binding on any agent in Georgia. It would not be binding on any insurance company. We're the only ones that can address that issue, and it is fundamentally wrong and unjust to the hardworking men and women that serve the insurance consumers of our state. Similar settlements just like the Zurich I would give the same answer to.

IJ: How do you feel about state attorneys general getting involved in insurance issues? Can you describe your relationship with your state attorney general?

Oxendine: We work very good with our attorney general. My attorney general is my attorney. It varies and, of course Georgia is different. We are an elected constitutional office. Under the Constitution, I am the only one that regulates the insurance industry. The attorney general has no jurisdiction. The governor has no jurisdiction.

Now, in some other states it appears like attorneys general may have some authority, but we would actually prevent our attorney general from sticking his nose into the insurance industry. If he started to, we would probably seek legal action against the attorney general to enjoin him from doing that.

The Constitution says that I will regulate insurance. I've been chosen by the people to do it, and we won't let the governor or anybody else do it unless there's specific legislation authorizing them to do that.

IJ: Do you think that a state should have appointed or elected commisisoners?

Oxendine: You're going to get different views. I really like the elected better, and I'll tell you why... Some that are currently [appointed] commissioners say, "Well, I don't really go to those rotary clubs that much. I don't go to that Chamber of Commerce. I don't go speak to the citizens that much because I don't have to hear from them. All I've got to do is just keep one person happy. As long as the governor's happy with me, that's all that matters."

I'm constantly on the road. I will go to any civic group, speak to any group of Georgia citizens, because I want to know what their concerns are. I speak to insurance agent groups, but I also just want to speak to everyday consumers. I want to know how I can help them better. You don't get that with the appointed commissioners...They want to keep the governor happy and other people. I could care less if my governor likes me or not. I actually get along very well with my current governor.

For example, my office is open from 8:00 in the morning until 7:00 at night. Very, very few states do that.

IJ: What is your relationship with independent agents?

Oxendine: My relationship is very good with the independent agents. We have four very active associations of local independent agents. We've got the Independent Agents Association, the PIA, the Health Underwriters. We've got NATHA. I routinely publicly encourage every agent to join one of those four professional agent associations...

Whenever I make a decision that's going to affect agents, I pick up the phone and I call the associations. I say, "Come on down. I'm looking at doing some regs. Give me your input and let's talk." Now, lots of times we disagree. I do a lot of things that the independent agents sometimes don't like, but the issue is that they're always part of the process.

IJ: What was your most recent decision?

Oxendine: I'm not a big fan of credit scoring. The legislature has approved it, and I know the independent agents... well, in our state the Georgia Independent Agents Association really likes it; the Professional Insurance Agents are not as crazy about it. So you even get differences of opinion.

I'm not real crazy about it, and the reason is it's sort of a "garbage in, garbage out" situation. I think the underlying credit reports are often flawed. When that credit report is flawed, then the credit score that comes from the model is going to be flawed. I don't think the models are necessarily that bad, but you've got to have good data to go in there, and I do not have confidence in these underlying credit reports.

We have instituted a procedure of consumer protections that really go far beyond what any other state actually has. The only way we could actually have more consumer protections on credit scoring would be to actually prohibit the process entirely, which is not allowed by the legislature.

So, we used our discretionary authority to put in what we call guidelines. The guideline basically says if you do this, we'll approve you. If you don't do it, we're not going to approve you. You've got to sue me, and people generally don't like to sue insurance commissioners. I've only been sued twice in 12 years, so it doesn't happen very often.

IJ: How has the industry responded?

Oxendine: The insurance companies are like, "Well, we don't like, but yeah, we can live with it." That probably means it's right in the middle. I learned in law school that when both sides are a little bit upset you've probably done justice, and that's what we've tried to do.

Florida insurers in freeze until June

Florida Gov. Charlie Crist convinced Cabinet members to approve a rule that will prevent property insurers from canceling Florida policies for much of the rest of this year. The emergency rule will freeze insurance rates and prevent cancellations through the end of Nov. 30, the hurricane season.

The freeze came just a week after Crist signed into law a wide-ranging bill that is expected to result in lower rates.

Crist told his fellow Cabinet members that the Legislature had "the backbone" to stand up to the insurance industry and that now it was time for the Cabinet to do the same.

Crist's freeze rule would prevent companies from filing for new rate increases without taking into account changes in the bill, some of which won't be in effect until this summer.

Another part of the rule also prevents companies from dropping customers, in effect saying that they can't respond to the new requirements that are expected to lower rates by simply canceling policies.

Despite part of the rule remaining in effect only until May, companies still won't be able to cancel policies because of another part of the new law that prevents them from dropping customers close to hurricane season, which starts June 1 and ends Nov. 30.

Crist said he expected that without the rule, insurers would try to find a way to get around the new law any way they could.

Guy Marvin, president of the Florida Insurance Council, which represents several large insurers, said the move would have a "drastically negative impact on the financial statements of some of our members."

Mark Delegal, a lobbyist for Nationwide Insurance and State Farm Florida Insurance Co., argued that the two companies are trying hard to stay in the state, and yet are being punished with rules like the one the Cabinet approved.

The emergency rule did not stop one major insurer from making plans to drop policies as soon as it is permitted to do so. The Hartford Financial Services group announced it will drop about 38,000 property insurance policies within the next 18 to 30 months, about a third of its business and personal policies in the state. The company stressed that it was not pulling out of the state and that its 80,000 Florida participants in a separate program with the AARP will not be affected by the cutback.

Separately, the president of Tower Hill Insurance Group Inc. said that the Gainesville company has stopped writing new policies in 16 Florida counties .

Katrina punitive damages reduced

The federal judge overseeing the Katrina claims cases in Mississippi has reduced a recent $2.5 million jury award of punitive damages against State Farm to $1 million.

U.S. District Judge L.T. Senter ruled that a punitive damage award that is four to five times the compensatory damages of $211,212 in the case was more appropriate than the figure 12 times that amount decided by the jury.

The case involved State Farm's handling of wind and water claims at the home of the Broussard family. State Farm denied the family's claim. But Judge Senter ruled that State Farm failed to meet its burden of proving that all damage to the Broussard's house was caused by water and therefore excluded from coverage. He ordered the insurer to pay the $212,000 policy limits. He then handed the case to the jury, which returned with the $2.5 million in punitive damages.

But Senter has now decided that is too high. He said that "few awards exceeding a single-digit ratio between punitive and compensatory damages" will satisfy due process.

Days after the $2.5 million was awarded, State Farm settled another Katrina case in Mississippi out of court.

Then about a week later the giant insurer agreed to pay a minimum of $50 million to settle a class action involving more than 35,000 policyholders who did not sue the company and also agreed to pay $80 million to settle 640 lawsuits.

The class action settlement has been delayed by Senter, who has demanded more information before signing off on it.

St. Paul Travelers retreats on Ga. commissions

Georgia Insurance Commissioner John W. Oxendine announced that St. Paul Travelers Insurance Companies has changed what he alleges was the company's prejudicial agent commissions on homeowners policies in Georgia's coastal counties, allowing him to cancel a planned hearing into the matter.

According to Oxendine's prior order, St. Paul Travelers had planned to reduce commissions paid to agents on homeowners policies sold in Bryan, Camden, Chatham, Glynn, Liberty, and McIntosh Counties. The intention, Oxendine said, was for St. Paul Travelers to write fewer policies in those counties.

He cancelled a hearing he scheduled for February.

"I applaud St. Paul Travelers for cancelling their intent to discriminate against coastal homeowners and agents," Oxendine said. "Citizens in the affected counties deserve coverage at reasonable rates, which can only be fostered through competition from many companies, including St. Paul Travelers."

Minnesota-based St. Paul Travelers does business in Georgia through approximately 42 affiliated companies.

Industry forecast predicts slower premium growth in 2007 and 2008

Despite slow-down, industry still anticipates underwriting profits

Most insurance industry analysts predict slower P/C premium growth for 2007, according to an Insurance Information Institute's annual survey of Wall Street stock analysts and industry professionals released each year on Feb. 2, Groundhog Day. This year's survey results indicate that the respite in catastrophe losses in 2006, combined with a strong performance in virtually all other major lines of property/casualty (P/C) insurance, will, in all likelihood, propel the industry to its best underwriting performance since 1936.

Analysts further expect the industry's profitability to continue in 2007, albeit with an underwriting performance that generates a much smaller underwriting profit; the trend of decreasing underwriting profits is expected to continue in 2008.

The I.I.I.'s poll also shows that analysts uniformly expect premium growth to become even more sluggish in 2007 and 2008. This apparent paradox -- a peak in industry profits, but stalling premium growth -- is a clear reminder of the cyclical nature of the property/casualty business.

Premium growth stuck in neutral

The average forecast calls for an increase in net written premiums of just 1.8 percent in 2007, a substantial slowdown from the 3.3 percent estimated for 2006. The 1.8 percent increase in premium growth that analysts forecast for 2007 would be the third slowest rate of growth for P/C insurers since 1998, during the depths of the last soft market. It represents a near halving of the estimated figure for 2006.

The deceleration in premium growth in 2007 is a direct result of an across-the-board softening in the personal and commercial lines pricing environment. The exception to this general trend is hurricane-exposed coastal property insurance coverages. For 2008, the average forecast calls for an equally modest increase in net written premiums at just 1.9 percent.

Premium growth peaked during the most recent cycle at 14.6 percent in 2002, before dropping to 9.8 percent in 2003. It is also worth noting that premium growth in 2006 will come in well below the average analysts' expectations from a year ago. In last year's Groundhog survey, the consensus estimate was for net written premium growth of 3.8 percent.

Buyers of insurance are, of course, the clear winners when it comes to reaping the benefits of slowing premium growth. For example, countrywide auto insurance expenditures are expected to fall 0.5 percent in 2007 -- the first drop since 1999. Businesses will see declines of 5 percent or more in 2007, across their entire insurance program.

Overall, the share of P/C insurance premiums relative to the overall economy will shrink by about 2.5 and 3.1 percent in 2006 and 2007, respectively.

For insurers, the current premium growth pattern is eerily reminiscent of the soft market of the late 1990s, when the industry recorded growth of 2.9 percent in 1997 and 1.8 percent in 1998. Those years presaged some of the worst years in the insurance industry's history, with combined ratios rising from 102 in 1997 to nearly 116 in 2001. Fortunately, with an expected combined ratio of 96.6 in 2007 and 98.6 in 2008, the comparison -- at least so far -- appears to be superficial, or at least premature.

Combined ratio: best result in decades

The combined ratio -- the ratio of losses and expenses to premiums -- for 2007 is projected to be 96.6, a deterioration from an estimated 93.2 in 2006. The 93.2 estimate for 2006, if accurate, would represent the industry's best underwriting performance since the 93.3 combined ratio recorded 70 years earlier in 1936. If, as predicted, the combined ratio in 2007 comes in under 100, it would produce just the third underwriting profit in the property/casualty insurance industry since 1978.

While the survey results indicate fundamentally sound underwriting performances in 2006 and 2007, the anticipated 3.4 point deterioration in the combined ratio for 2007 begs questions about 2008 and beyond. This year's Groundhog survey includes, for the first time, combined ratio projections for 2008 -- the combined ratio for that year is forecasted to be 98.6, a very respectable number, but one that nonetheless represents an additional 2.0 point deterioration from 2007 and a 5.4 point deterioration relative to 2006.

2007 looks favorable; challenges remain

What are the biggest potential downside risks for 2007? Still high on the list is exposure to catastrophic loss, which superseded loss of pricing and underwriting discipline as the chief concern in 2005 -- by far the worst year for catastrophe losses, with $61.2 billion in insured losses.

Analysts' forecasts for net written premium growth in 2007 -- which range from 0.1 percent on the low end to just 3.1 percent on the high side -- reflect the fact that pricing and underwriting discipline remain a key issue.

Increased interest by traditional commercial insurance buyers in alternative forms of risk transfer, especially captives, self-insurance arrangements and large deductibles, is causing significant leakage of premiums from the system. Also, insurer pullbacks from coastal areas are resulting in the ceding of significant premium to state-run residual market mechanisms.

High on the list of external threats are adverse court decisions in Mississippi and Louisiana that have injected significant additional uncertainty into what are already very difficult operating environments.

Terrorism and more

Among other major external risks, terrorism remains a key concern as the two-year extension of the Terrorism Risk Insurance Act is set to expire on Dec. 31, 2007. While the shift to Democratic control in Congress leads many industry pundits to believe that passage of some form of backstop is likely, there is concern as to exactly what the program will look like and how it will operate.

Fortunately for insurers, at least some of the momentum built in 2006 will be carried into 2007 and 2008. That being said, insurers will need to come to grips with challenges unrelated to catastrophe losses, including increasing price pressure and the slow growth environment in the year ahead.

Forecasters predict active hurricane season to come in 2007

Atlantic basin and U.S. hurricane landfall expected to be up 60 percent above normal

A return to high hurricane activity in 2007 is likely following the below-average 2006 hurricane season, according to the consortium of experts on insurance, risk management and seasonal climate forecasting led by the Benfield UCL Hazard Research Centre at University College London.

The Tropical Storm Risk (TSR) consortium, long-range forecast anticipates Atlantic basin and U.S. landfalling hurricane activity will be 60 percent above the 1950-2006 norm next season. According to TSR, whose long-range outlooks for the exceptionally active 2004 and 2005 hurricane seasons and active 2003 hurricane season proved accurate, it is 76 percent likely that U.S. landfalling hurricane activity in 2007 will be in the top one-third of years historically.

TSR predicted there will be a 79 percent probability of an above-normal Atlantic hurricane season, a 15 percent probability of a near-normal season and only a 6 percent chance of a below-normal season. The consortium also predicted there will be 16 tropical storms for the Atlantic basin as a whole, with nine of these being hurricanes and four intense hurricanes.

For the United States specifically, TSR predicted a 76 percent probability of above-normal landfalling hurricane activity, a 15 percent likelihood of a near-normal season and only a 9 percent chance of a below-normal season. Additional, the consortium says five tropical storm are likely to strike the U.S., of which two will be hurricanes.

TSR predicts that two tropical storm will strike on the Caribbean Lesser Antilles, of which one will be a hurricane.

P/C industry may be long overdue for massive losses from an extreme "great" earthquake

>Study says industry could suffer from a $100 million loss

The U.S. property/casualty insurance industry is long overdue for heavy losses from a massive earthquake, reports A.M. Best in its recent "2006 Annual Earthquake Study." It is likely that if an earthquake of 7.6 magnitude occurred in San Francisco today, the insured loss would top $100 billion, the report says. The next "great quake" is only a matter of time.

The San Francisco Bay area, which includes Oakland, has a well established potential for destructive ground shaking. Less well known, at least to the general public, is the time bomb not far from St. Louis: the New Madrid fault. While northern California is assumed to be a candidate for such a temblor, other major metropolitan areas are at some risk for a similar level of earthquake devastation. Among those areas are Chicago, Philadelphia, Tokyo and Vancouver, Canada.

If such a disaster occurred today, insured loss undoubtedly would be severe, placing financial stress on thinly capitalized insurers with heavy concentrations of earthquake, fire, multiperil and automobile physical damage coverage in the stricken area, the study reports.

Further, because of generally low take-up rates on earthquake insurance, a major earthquake would tend to do more damage to the economy than would a more fully insured catastrophe of equivalent insured loss. This is due to the relatively greater uninsured loss that has to be absorbed by those without insurance.

Best's study provides historical perspective on earthquakes and the insurance industry, as well as an examination of the ability of the insurance industry and the public to absorb losses from a "major" or "great" earthquake, otherwise referred to as a mega-catastrophe.

Top 10 hail cities

Hail events remain a constant threat to property and casualty insurers. In 2005 alone, there were over 13,000 hail storms in the United States. According to Swiss RE, four out of the top 20 most costly insurance losses of 2005 were hail related.

The following is a list of the top 10 most hail prone metro areas in the United States, according to the Boston, Mass.-based CDS Business Mapping's, RiskMeter Online's Hail Model, which predicts the severity of hail storms for any location in the Continental U.S.

1. Tulsa, Okla.

2. Amarillo, Texas

3. Oklahoma City, Okla.

4. Wichita, Kan.

5. Dallas/Fort Worth, Texas

6. Arlington, Texas

7. Denver, Colo.

8. Colorado Springs, Colo.

9. Shreveport, La.

10. Kansas City, Kan./Mo.

Top 10 tornado cities

The violent thunderstorms in Central Florida in early February, spawned powerful tornadoes that killed at least 20 people is a deadly reminder of the constant threat insurers face against tornado exposures. Tornado-related losses account for 24.5 percent of insured catastrophe losses in the U.S., says the Insurance Information Institute.

The following is a list of the top 10 most tornado prone metro cities in the U.S., according to Boston, Mass.-based CDS Business Mapping's RiskMeter Online's Tornado Model.

1. Aurora, Colo.

2. St. Petersburg, Fla.

3. Houston, Texas

4. Hollywood, Fla.

5. Sioux Falls, S.D.

6. Little Rock, Ark.

7. Dallas, Texas

8. Ames, Iowa

9. Oklahoma City, Okla.

10. Bloomington, Ill.

Lloyd's climbs on the climate change bandwagon

There's little doubt that the world is getting warmer. But this raises more questions. To what extent are greenhouse gasses, particularly CO2, responsible? Will the warming trend continue? Are there any effective measures that can be taken to slow down or reverse it? Are the dire predictions of worldwide catastrophes justified?

The insurance industry has made strong commitments to address the potential climate change problems. The latest pronouncement came from Lloyd's Chairman Lord Peter Levene. In an address to the World Affairs Council in Washington, D.C., on Friday, Jan. 12, he stated: "We cannot risk being in denial on catastrophe trends. We urgently need a radical rethink of public policy, and to build the facts into future planning."

He stressed the importance of convincing the United States to take action. He noted that Lloyd's has "a particular responsibility to understand those trends in the U.S., our largest market, where we underwrote a record $12 billion of insurance and reinsurance here last year." Levene warned that failure to "prepare and adapt quickly and vigorously" would risk "putting society's future in grave danger."

His direct appeal for action reinforces Lloyd's concern over global warming. Last June, Franchise Director Rolf Tolle, commenting on Lloyd's first "360 Report," stated: "Although it's almost two decades since the U.N. (United Nations) recognized that climate change was a catastrophic threat to earth, it's clear that the insurance industry has not taken catastrophe trends seriously enough. As an industry we must work together to understand and manage these new risks, and to change our behavior.

"Today's risk environment is changing and evolving -- more rapidly than ever before," he continued. "So at Lloyd's, understanding and anticipating major risk trends is at the heart of all we do. Climate change is today's problem, not tomorrow's. If we don't take action now to understand the changing nature of our planet and its impact, we will face extinction."

Levene aimed three rhetorical questions at his U.S. audience: "First, is the U.S. a nation in denial? Today the insurance industry faces the prospect of a $100 billion mega-catastrophe twice the size of Katrina. We need to wake up to the truth about catastrophe trends and radically review our public policy.

"Second, is the insurance industry strong enough to protect its policyholders against Mother Nature? Insurance has a vital role to play as a supporter and enabler of the economy -- but it can only do that where free market forces prevail.

"Third, what action can we take on climate change? We believe that an international partnership which brings together governments and businesses is the only solution, and there are sound business reasons to change our behavior."

Levene's responses are familiar. He reminded his audience of the terrible 2004-05 hurricanes and the threat, despite the 2006 respite, increasingly powerful natural disasters pose. He challenged the idea that the industry has made excessive profits, indicating that for the health of world economies must remain strong. Solid balance sheets and adequate reserves are vital. Nor did he miss an opportunity to cite Lloyd's long-standing complaints about discrimination against "alien" insurers.

The third question, however, remains the most unsettled and the most controversial. Levene noted some progress. He specifically cited initiatives by a number of states and local governments to "cut carbon dioxide or CO2 emissions by Kyoto levels." A few days after his speech the U.S. Congress weighed in with a bill aimed at cutting greenhouse gas emissions by 2 percent a year. Levene sees in such measures a "groundswell of opinion which suggests action will become an increasing priority for business too."

This "groundswell" may hold true for the insurance industry, which is in line to take the hits from catastrophic weather events, but elsewhere, particularly in the U.S., it's more like a ripple.

Two days before Levene's speech, Daimler Chrysler's chief economist, Van Jolissaint, caused controversy after a report, broadcast by the BBC, said that any fallout from climate change is "way, way in the future, with a high degree of uncertainty."

Chrysler challenged the report's accuracy and asked for a retraction, which the BBC refused. (Transcript available at: http://news.bbc.co.uk/

2/hi/business/6250327.stm.)

Jolissaint's conclusions were triggered by the time he spent in Germany, where he saw a far greater concern among Europeans over climate change than from their American counterparts. He called studies, notably the U.K.'s Stern report, "highly political," and saw no reason to radically alter the structure of society to meet the threat. He supports a "step-by-step" approach as opposed to playing "Chicken Little."

He also indicated that "what you do is buy insurance" to cover the problem. While that might help Chrysler, it also highlights the risks that concern Levene and the rest of the industry. There are certainly people who would agree with Jolissaint's attitude, but there are others who don't.

Thomas Friedman, in a recent New York Times column, described his trip to Montana, where the State's Governor, Brian Schweitzer, accompanied him to an open-pit coal mine. Friedman notes that Montana, with a third of all U.S. coal reserves (8 percent of world reserves), could supply the equivalent of 240 billion barrels of oil. Gov. Schweitzer, however, is committed to making sure that it's burned cleanly by eliminating the CO2. He's also skeptical about industry efforts to minimize adverse reports. He's seen hard evidence of global warming and believes it.

Levene, however, made another point; becoming more energy efficient saves money and increases profits -- even if it has no effect on global warming.

He recognized this in his conclusion, stating: "Mega-catastrophes and climate change are two powerful forces here to stay. We don't yet know exactly what the future will bring. And there is little or nothing that could be done now to turn back the clock. Even if we stop all man-made CO2 emissions now, we would still endure 30 years of warming before the effects take hold. But we must not use that as an excuse not to act. History, and future generations will surely not forgive us if we do."