Truth or Lore? Insurance ‘Factorama’ Explores the Known and Little-Known

December 20, 2009

It’s the end of the decade that apparently has no name as yet, but that doesn’t stop those of us at Insurance Journal from looking back at the past 10 years and beyond for known and little-known insurance “factoids.” Why? Just because.

Culled from various industry sources, as well as Insurance Journal‘s own database, whether these bits of information are useful or not rests entirely in the minds of the reader. To borrow from a phrase that was famously uttered earlier in this waning decade: “There are many things we don’t know that we don’t know we don’t know.” But this insurance “factorama” tries to reveal some of the things we do know, at least.

The First

The first independent insurance agent in the United States is thought to be John Maynard Davis, of Charleston, S.C., who went into business in 1795. (“Soaring With Eagles: The Rise of the Independent Insurance Agents in America”.)

The Eagle Flies

The organization that eventually became the Independent Insurance Agents and Brokers of America was launched in September 1896 as the National Association of Local Fire Insurance Agents. The first meeting was held at the Great Northern Hotel in Chicago. Twenty agents attended; annual dues were set at $1. The organization now has around 300,000 members. (“Soaring With Eagles”; IIABA)

The current Big “I” eagle logo evolved from one submitted by Palo Alto, Calif., agent W. Stanley Pierce and his local ad agency to a logo contest held by the organization in 1956. (“Soaring With Eagles”)

The Birth of PIA

The National Association of Professional Insurance Agents (PIA) was founded in 1931. At that time it was called the National Association of Mutual Insurance Agents (NAMIA) and served mainly independent insurance agents who represented property/
casualty mutual insurance companies. PIA now represents independent agents in all 50 states, the District of Columbia and Puerto Rico. (PIA National; PIA West)

The Largest Line

In 1925, only 25 to 30 percent of automobiles in the United States were covered by liability and property damage insurance, but during the post-World War II era, it became the largest property/casualty line. (“Soaring With Eagles”)

To Regulate, or Not

Insurance companies were seeking federal oversight of insurance as far back as 1866. That year, the National Board of Fire Underwriters, also known as the New York Board of Fire Insurance Companies, backed a bill to create a National Bureau of Insurance that would be under the jurisdiction of the Treasury Department. The bill was defeated on June 29, 1866. (“Soaring With Eagles”)

State insurance regulators created the National Association of Insurance Commissioners in 1871 to address the need to coordinate regulation of multistate insurers. The first major step in that process was the development of uniform financial reporting by insurance companies. (NAIC)

The McCarran Ferguson Act was passed by Congress in 1945. Subject to certain conditions, the McCarran Act essentially affirmed that insurance regulation falls under the jurisdiction of the states. The Act was designed to ensure the preeminence of state regulation not to free insurers from federal antitrust laws. (Insurance Information Institute)

Financial Woes

At the end of 2008, then-Hartford Financial Services Group Inc. Chairman and CEO Ramani Ayer said the year had been the most challenging in the company’s history. The Hartford reported a net loss of $2.7 billion, compared to net income of $2.9 billion in 2007. The Hartford was founded in 1810.

Money Matters

P/C insurance consists primarily of auto, home and commercial insurance. Net premiums written for the sector totaled $441 billion in 2008. (I.I.I.)

Insurance carriers and related activities accounted for $333 billion or 2.4 percent of U.S. gross domestic product in 2007 (latest data available). (I.I.I.)

P/C and L/H insurance companies paid $15.7 billion in premium taxes in 2008, or $52 for every person living in the United States. (I.I.I.)

P/C insurers paid out $27 billion to their policyholders for insured losses from catastrophes in 2008, the highest since the record $62.3 billion in 2005, the year of Hurricane Katrina. Year 2008 losses include $12.5 billion caused by Hurricane Ike. (I.I.I.)

The U.S. property/casualty insurance industry’s net income after taxes plunged $60.2 billion, or 96.3 percent, to $2.3 billion in 2008 from $62.5 billion in 2007 and a record $65.8 billion in 2006. (ISO)

Insurers recorded $21.3 billion in net losses on underwriting in 2008 — a $40.6 billion adverse swing from insurers’ $19.3 billion in net gains on underwriting in 2007. (ISO)

Since 1992, property/casualty insurers have paid out more than $6 billion in environmental and asbestos losses and loss adjustment expenses. Between 1992 and 1994, insurers increased reserves by $6 billion to $7 billion for future payments, and most industry analysts expect further increases. (ISO)

Health care costs account for an estimated 30 percent of countrywide personal automobile liability, personal injury protection (no-fault), medical payments coverage, and uninsured/
underinsured motorists losses combined; and an estimated 20 percent of all personal automobile losses. (ISO)

Job Security

The U.S. insurance industry employed 2.3 million people in 2008. Of those, 1.4 million worked for insurance companies, including life, health and medical insurers (804,200 workers) P/C insurers (569,200 workers) and reinsurers (28,400 workers). The remaining 907,000 worked for insurance agencies, brokers and other insurance related enterprises. (I.I.I.)

Nat Cats

The biggest natural disaster in South Carolina before 1989’s Hurricane Hugo was the magnitude 7.3 earthquake that shook Charleston on Aug. 31, 1886. The quake killed more than 100 people and destroyed about $5 million worth of property — worth $103 million when adjusted to 2005 figures for inflation. It was as powerful as the quake that rattled San Francisco and interrupted the World Series in 1989.

Hurricane Katrina in 2005 created the largest loss in the history of insurance, generating 1.7 million claims for damage to homes, businesses and vehicles in six states. Insurance companies have paid an estimated $40.6 billion in losses from the storm. By contrast, Hurricane Andrew in 1992 resulted in 790,000 claims and $15.5 billion in losses ($20.9 billion in today’s dollars).

Hurricane names are used in six-year cycles. The names are thus repeated every seven years; yet the names of particularly deadly storms are “retired.” Seventy-three names have thus been removed from the list since 1954.

By the end of this century, once-in-a-millennium (i.e. 1,000 years) storm surge events could well be striking Northern Europe every 30 years, according to SwissRe. Governments and insurers will have additional risk to manage as a result, as losses are expected to rise 100 to 900 percent, depending on the country.

The average number of major global weather-related catastrophes such as windstorms, floods or droughts is now three times as high as at the beginning of the 1980s, Munich Re reports. Losses have risen even more, with average increases of 11 percent per year since 1980.

Sept. 11, 2001

The terrorist attacks on the United States on Sept. 11, 2001, produced the second-largest loss in the history of insurance, falling just behind the losses resulting from Hurricane Katrina in 2005. Total insurance claims from 9/11 generated insured losses of $39.5 billion (adjusted to 2008 dollars), including property, business interruption, aviation, workers’ compensation, life and liability insurance claim costs. About two-thirds of these losses were paid for by reinsurers, companies that provide insurance for insurers. A total of 2,976 people died in the Sept. 11, 2001, terrorist attacks in New York, Washington, D.C., and Pennsylvania, excluding the 19 hijackers. (I.I.I)

Intentional Acts NOT Excluded

Intentional acts are not excluded by the commercial general liability (CGL) policy. Exclusion “2.a.” deletes coverage for only “Expected or Intended Injury,” not an expected or intended “Act.” An injury is the result of an act; and only if the result is expected or intended, can the claim be excluded. (Christopher J. Boggs, MyNewMarkets.com)

The History of Life Insurance

William Gybbons was the named insured on the first modern life insurance policy placed June 18, 1536; a one-year term policy. Gybbons died within that year on May 29, 1537, but the insurer refused to pay, holding that a year consisted of 12, four-week months. It maintained the policy expired May 27, two days prior to Gibbons’ death. The court thought otherwise and forced the insurer to pay. (“What’s Wrong With Your Life Insurance?” by Norman Dacy)

Fire!

The first fire insurance company in the United States formed in Charleston, S.C., in 1732.

Twenty years later in 1752, Benjamin Franklin and several prominent business associates established founded America’s oldest, continuously active insurance company: Philadelphia Contributorship for the Insurance of Houses from Loss by Fire. The company refused to provide coverage to houses and other structures that were not constructed according to strict building standards. During the British occupation of Philadelphia in 1777, the Contributorship hired a chimney sweep to maintain the chimneys of insured houses that were still occupied. (www.contributionship.com/, www.ushistory.org/)

Fire insurance carriers were part of the impetus for modern fire departments. Prior to the creation of municipal fire departments, volunteer fire departments, having no clear district lines, “competed” with one another to extinguish fires — the department that got there first and successfully doused the flames got paid. As the number of fire insurance companies grew so too did the competition among fire departments. Insurers would supply its insureds with “fire brand” placards that were placed on the front of the building to indicate that there was insurance coverage and which carrier provided the protection. Fire departments knew that if insurance coverage was in place they would get paid more and quicker than just trying to bill the building’s owner.

Arson costs the economy £53.8 million ($87.6 million) each week in England and Wales. An average of 2,123 cases of arson are reported in the United Kingdom every week. (UK Arson Prevention Bureau)

The U.K.’s Chartered Insurance Institute’s London headquarters contains the world’s largest collection of fire marks. More than 2,000 of the ancient plaques — used to identify properties covered by insurance — cover its walls.

Fraudulent Acts

In 2008, 13,511 heavy equipment theft reports were submitted to NCIC. In descending order, the five states with the most incidents of heavy equipment were Texas, Florida, North Carolina, California and Georgia. Together, those five states accounted for 43 percent of the total equipment theft. Rounding out the top 10 were Oklahoma, South Carolina, Tennessee, Illinois and Missouri. The top 10 states accounted for 61 percent of all thefts. (The National Equipment Register an ISO company; National Insurance Crime Bureau)

In 2004, Martin Frankel was sentenced to more than 16 years in prison for masterminding a scheme to loot insurance companies of more than $200 million to pay for a life of luxury. In 1999, Frankel triggered an international manhunt when he disappeared from his mansion in Greenwich, Conn. He was arrested in Germany four months later. He pleaded guilty to 24 federal charges of fraud and racketeering, and cooperated with authorities in prosecuting other defendants in the case. Frankel defrauded insurance companies in several states through a trust set up to hide his involvement. Although Frankel apparently had an inflated view of his financial abilities, in reality he spent 13 years in college without obtaining a degree and was fired from one of the few jobs he held, according to testimony at his trial.

Undetected general insurance claims fraud totals £1.9 billion ($3.1 billion) a year in the UK, adding on average £44 ($72) to the annual costs individual policyholders face, on average, each year. (U.K. Insurance Fraud Bureau)

Remember the Mold Crisis?

There are more than 100,000 species of mold of which at least 1,000 are common in the United States. From the insurance perspective, damage from mold, like rust, rot and mildew is specifically excluded in standard homeowners and commercial property policies. Mold contamination is covered under these policies only if it is the result of a covered peril. (I.I.I.)

Ancient History

Chinese and Babylonian traders as long ago as 3000 BC are thought to have used a form of insurance to transfer and distribute risk. The Code of Hammurabi, a set of societal laws enacted by the sixth Babylonian king Hammurabi circa 1750 BC, contains a reference to insurance as a means of protecting individual property. A 7-foot, 4-inch tall basalt stele on which the Code of Hammurabi was recorded is housed in the Louvre Museum in Paris, France.

Ship Captains, Financiers Unite

Lloyd’s of London began in the 1680s in Edward Lloyd’s coffee shop, a gathering place for ship captains and others who had a common interest in goods travelling into and out of England by sea. Financial types visiting the coffee shop began contractually agreeing to indemnify (make whole) the owner if the goods were taken by the ravages of the sea, in exchange for a premium. If nothing happened to the ship, the investor/guarantor kept the premium. When ships and cargos were lost, the investor had to make good on his promise. However, no one investor was willing to insure the total value of a ship and its cargo. A detailed description of the ship to be insured, its captain, the cargo, its route and destination was circulated among the participating investors. Each investor decided how much of the total value of the risk they were willing to “insure;” writing his name and the percentage under the description — thus they became known as “underwriters.”

The Mortal World

Sir Edmund Halley — for whom the comet is named — constructed and published the first known mortality tables in 1693. Data used to develop the tables were taken from a very small sample, a small town in eastern Germany (now a part of Poland), over a four year period. Insurance companies and governments would not make use of such life-expectancy tables for at least another century. (“Against the Gods: The Remarkable Story of Risk”).

The Largest Market

The European Insurance market is the largest in the world, taking in 41 percent of all global premiums paid; North America is next with 32 percent, and Asia is third with 22 percent. Total gross written premiums for the whole of the European market have almost doubled over the past 10 years. In 2008, they amounted to ≠1.058 trillion ($1.5573 trillion) — broken down as follows: life, 61 percent; property/casualty, 27 percent; accident and health, 12 percent. (Insurance trade association Comité des Enterprises d’Assurance [CEA])

Jack Sparrows, They’re Not

The International Maritime Bureau (IMB) reported that pirate attacks around the globe doubled in the first half of 2009. Overall, the IMB said that “78 vessels were boarded worldwide, 75 vessels fired upon and 31 vessels hijacked with some 561 crew taken hostage, 19 injured, seven kidnapped, six killed and eight missing.”

5 Worst Earthquakes in Terms of Victims

Rank Victims Date Event/Magnitude Place
1 255,000 1976 Earthquake (M7.5) China
2 220,000 2004 Earthquake (Mw9.0)
Tsunami in Indian Ocean
Indonesia, Thailand
et. al
3 87,449 2008 Earthquake (M7.9) China
4 73,300 2005 Earthquake (Mw7.6)
Aftershocks, landslides
Pakistan, India
Afghanistan
5 66,000 1970 Earthquake, (M7.7), landslides Peru

M is general magnitude that indicates strength of an earthquake at its epicenter. Mw measures the total energy released by an earthquake and is proportional to the size of the fracture surface and the displacement. (I.I.I.)

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