The “Early Bird Forecast 2008” by Robert Hartwig, president, Insurance Information Institute, said the biggest potential downside risks for 2008 will be exposure to catastrophic loss.
The report also represented other risks raising concern in the industry. “Many industry observers point to the potential loss of pricing and underwriting discipline as their chief concern in 2008,” said Hartwig.
The apparent end of favorable underlying frequency and severity trends is a big concern as well, especially in private passenger auto said Hartwig, “Despite declining tort costs in recent years and the current woes of certain high profile tort kingpins like Bill Lerach (now an admitted felon headed to prison) and Dickie Scruggs (indicted for bribing a judge), there is mounting concern that the tort pendulum — which had swung in favor of corporate defendants and insurers in recent years — could begin to swing in the opposite direction.”
A resurgence of bad faith litigation in auto, home and medical malpractice claims combined with state referenda to potentially raise damage awards causes concern. And, Hartwig said, “Anti-insurer activism by a number of state attorneys general is likewise worrisome.”
Regulatory and legislative risks also loom large in 2008. “With the change in party control, 2007 became what was likely the most active year for the industry on Capitol Hill ever, including a large number of Congressional hearings on a wide variety of issues ranging from terrorism and optional federal chartering to natural catastrophe risk and credit-based insurance scores,” Hartwig said.
Among major pressing risks associated with the expiration of the Terrorism Risk Insurance Act on December 31, 2007 and Congress’ failure to approve an extension, disagreements between the House and Senate have held up passage and are creating uncertainty in commercial insurance markets according to Hartwig’s report.
“At least some of the momentum built up in 2006 and 2007 will be carried forward into 2008. That being said, insurers will need to come to carefully manage a variety of challenges unrelated to catastrophe losses, including increasing price pressure, slow growth and the legal, legislative and regulatory environments, all of which could erode underwriting performance and profitability in the year,” Hartwig said.
Source: Insurance Information Institute.
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