An article in today’s Wall Street Journal got me thinking about how to put the BP oil spill into perspective.

 The gist of it is that although insured losses from the Deepwater Horizon Gulf Coast oil spill could reach $3.5 billion insured, according to Moody’s, this disaster and the volcanic ash mess earlier this year could end up being a shot in the arm for the insurance industry. In the case of the oil spill,  80 percent of the losses will be carried by self-insured BP, and the volcanic ash thing had little impact on insured losses. The “upside” is, insurers will be able to hike rates on property coverage for oil rigs and offshore energy liability insurance to reflect the increase in risk.

The article concludes:

This would provide some welcome relief for an industry that for years has suffered from declining prices and volumes, because demand for cover declined in the absence of large catastrophes.

Talk about turning lemons into lemonade. You can see this oil spill from space and it’s threatening the whole Gulf Coast, Florida Keys and Cuba, but heck, the insurance industry is happy because we might be able to raise rates.

I don’t know about you, but that doesn’t seem like much of a reason to celebrate.

Last week, III came out with a comprehensive study on the impact of Deepwater Horizon and the possible fallout we can expect to see in the insurance industry. True, the industry may only end up shouldering 20 percent of the direct p-c losses, but a disaster of this magnitude will doubtless spread just as inexorably as the oil itself to all areas — especially as the litigation sharks begin to circle (as of May, 110 lawsuits and counting).

According to III, first- and third-party insurance policies that will take the biggest hits are:

• Business interruption/loss of production income
• Comprehensive general liability
• Environmenta/pollution liability
• Operators’ extra expense (provides coverage when controlling well after a blowout)
• Physical damage
• Workers’ compensation/employers liability

 One of the biggest insurance angles of this story, however, doesn’t lie in potential claims or rate increases, but in risk management — or lack thereof. With the U.S. Attorney General announcing that federal authorities were opening criminal and civil investigations into the spill, it’s likely that a host of risk management oversights will come to light, including increasing pressure on the Minerals Management Service and its lackadaisical regulation of offshore drilling.

In fact, based on the number and magnitude of oil spills over the last 20 or so years, nuclear power plants, in spite of their bad press, are beginning to look like paragons of safety in comparison (there’s an interesting blog on the subject here).

And as far as pinning hard-market hopes on Deepwater fallout, I wouldn’t hold my breath — everyone expected that a hard market would be inevitable after the losses of Hurricane Katrina, but it didn’t happen. Given the fact that there’s still plenty of capacity in the market, it seems unlikely that a single event, even as big as this oil spill, will cause the soft market to magically disappear.

When the countdown ends on 2009, it also brings an end to the first decade of the new millennium. It’s hard to believe how much our world has changed in those 10 short years, from global terrorism (still happening) to the financial meltdown to the ascendancy of the Internet. Let’s look at just a few:

Everything tech. Yes, the Internet was around at the turn of the century, but it wasn’t as ubiquitous as it is now. Since then, a whole generation has grown up with this technology, and that generation is our future employees and customers. While all this has made our lives a lot easier, it’s also phased out a lot of what we were confortable with and raised the bar on customer expectations. A mixed blessing, to say the least.

A world of new risks. The world is smaller, and the risks you underwrite are not like anything that’s been insured before. Acts of terrorism, environmental exposures, professional liability related to new technology standards and expectations — they’re all in the mix, with new risks coming at us every day. The challenge for our industry will be to keep one step ahead of anything new that comes along.

A bigger, smaller agency universe. The agency/brokerage M&A boom may have slowed to a trickle, but the activity of the past 10 years has altered the landscape forever. Big brokerages have gotten bigger by increasingly targeting the midmarket customers that have long been the bread and butter of the average agency. Conversely, the latest IIABA Agency Universe numbers suggest that smaller, startup agencies are on the rise, thanks in large part to the availability of sophisticated automation systems that allow them to compete with bigger players.

More eyes on the industry. Public/political scrutiny of the insurance industry is nothing new, but the seismic financial upheavals of the past 10 years — from the Enron fiasco in 2002 to last year’s subprime mortgage meltdown and AIG bailout and current healthcare debate — have put this most risk-averse industry in the spotlight more than ever before.

And while nobody can predict what the next 10 years will bring, it’s a safe bet that the trends we saw begin at the dawn of the century will continue to play a significant role going forward. And while 2009 was a good year in that we dodged a lot of bullets — from natural disasters to truly bad legislation — it’s inevitable that we’ll stand to take a hit from these and other problems in the future.

What were your biggest concerns in 2009, and what do you predict will dominate the headlines in 2010?

Did you get your flu shot? Are you washing or sanitizing your hands? And more to the point, what’s the absentee level at your office?

Here at the Chicago Summit Business Media office where AA&B is based, we’ve had at least two fairly lengthy employee absences because of some form of flu. Although one case was inconclusive, the other employee is still waiting to get the word from her doctor on whether the illness that kept her out for a week was officially swine flu (which brings up the subject of the H1N1 vaccine shortages, for one thing, but that’s another story).

And while two cases may not sound like much, it seems as if the rest of us are just feeling under the weather to some degree or another — aches and pains, coughing, sneezing, and a general malaise (or maybe it’s just the power of suggestion). Maybe it’s the time of year — daylight savings time, effective last weekend, makes 5 p.m. seem like midnight. Most of us are suffering through not H1N1, but a cold or some less extreme form of the annual annoyance that is the flu (the official line of demarcation between flu and H1N1 is whether or not you get a fever and have stomach issues).

As far as productivity goes, whether you’ve got swine or seasonal flu is a moot point. Sick is sick, and when sick people stay home (as they should), work doesn’t get done. The issue could very well be exacerbated by the fact that many workplaces have been decimated by layoffs over the past year. Add the flu to these shrunken staffs, and companies could be facing a very real production problem.

When the swine flu first raised its ugly head this spring, I spoke with Harry Rhulen, CEO of Firestorm Solutions, which specializes in advising corporations on business continuity, communicable illness and disaster planning. I called Harry today to get an update on what his clients are seeing and to paraphrase Al Jolson at the dawn of talkies, the message was, “You ain’t seen nothin’ yet.”

Although two of his clients have reported deaths related to H1N1, Rhulen believes things still aren’t as bad as they will be by late November and early December, when cold weather and enclosed spaces create the ideal breeding ground for illness. He predicts that by then, 30 or 40 percent of the nation’s workforce could be home sick — if not from swine flu, then from any other typical winter virus.

By now we’re all familiar with what to do to try and prevent the spread of illness, but what about those employees who already have it? Do you have a formal workplace strategy in place to deal with the absences? Are you allowing employees to work from home if they’re getting over the worst of it, or have to take care of sick family members?

The CDC suggests that businesses take a similar approach to the flu, whether it’s H1N1 or seasonal. Key elements to a plan include:

• Revisiting pandemic plans made during the first swine flu threat this spring
• Allow sick workers to remain home with pay and without fear of losing their jobs
• Develop flexible leave policies so employees can care for sick family members
• Share best practices with other businesses in your community
• Add a widget or button to your Web page so employees can stay informed.

A while back, we conducted a poll on our Web site asking readers if their businesses were doing anything different in the way of company policy to address the possibility of a swine flu outbreak. Most of the few respondents said they weren’t.

Now that the official flu season is here — and things are likely to get worse — I wonder if the answer has changed.

How is your office coping with absenteeism related to seasonal and/or swine flu?

It’s hard to believe it’s been 8 years since the terrorist attacks on the WTC and the Pentagon. Do you remember what you were doing when it happened?

I was driving north on 294 on my way to work at NAII (now PCI) and listening to erstwhile Chicago radio shock-jock Mancow Muller gibbering about a plane hitting first one tower, then the second. By the time I walked into the office, the news about the Pentagon attack was being broadcast. My first thought was that a massive planned air attack was moving west, and that a downtown Chicago target would be next on the list.

Of course, there weren’t any attacks on Chicago, but that didn’t keep the events of that day from changing all of our lives, on both a professional and personal level. I recall spending the next week or so in a state of shock and uncertainty. When would another attack happen? Where was Osama bin Laden? Were there still people buried alive in the WTC rubble? How could insurance craft coverage and pricing to protect against similar events? And how could someone write about the impact of such an unprecedented event when history was still happening?

I wasn’t alone. Both businesses and people were afraid to travel, conduct business, make long-term plans. 9/11 may not have launched the recession of the early 2000s, but it sure didn’t help. In the aftermath, a burgeoning global recession went viral, following heady years of stock market growth, dot-com mania, and relief that we dodged the 1999 Y2K or Armegeddon bullet. 

Ultimately, of course, insurance took a huge hit — between property, business interruption, aviation, workers’ comp, life and liability payouts, the cost came to almost $40 billion, according to III. The human cost was much higher.  Zurich, Marsh and Aon, all of which had offices in the Twin Towers, had their share of fatalities among the almost 3,000 who died as a result of the attacks.

Today, in spite of a couple of wars and the Dept. of Homeland Security, we don’t seem to be any safer. According to risk modeling firm Risk Management Solutions (RMS), potential insured losses from a terrorist attack rose 8 percent in 2008, based on the growing threat of chemical and biological attacks. (This doesn’t even take into account the threat of cyber-terrorism, which could wreak more havoc on the civilized world than a dozen 9/11s).

We live in a world that has been unalterably changed because of what happened on 9/11. Today’s children, many of whom can never know what things were like before the threat of global terrorism, can never comprehend the more carefree times we were lucky enough to have experienced. It’s pretty sad when you have to pity the young.

Sam Friedman recently generated a lot of controversy in NUP and on his blog (http://nusamsoapbox.com/2009/05/27/time-for-some-tough-love-on-industrys-image/) about the insurance industry’s traditionally lousy image and what can be done about it (even Bob Hunter weighed in — I’m jealous!).

On the same topic, I’d like to comment on the recent State Farm ads (http://www.youtube.com/watch?v=9PMwTwY7SUs) now airing on TV. I almost never watch commercials since the advent of TiVo, but the latest one grabbed me and didn’t let go.

To the strains of the Jackson Five classic “I’ll Be There,” the 90-second spot shows real (albeit staged) images of what insurance is all about: hurricane victims crying in front of home wreckage, women on a breast cancer walk, a female soldier returning home to her young son, a Habitat for Humanity group raising a house, old folks caring for one another. It ends with the simple words on the screen, “Nothing’s more important than being there.”

Apparently I’m not alone: read some of the comments under the YouTube clip to see that along with the usual cynicism, many people were actually moved by this piece of advertising.

I know the insurance industry’s image revolves around a lot more than paid advertising — and that direct writers are the the Great Satan — but this ad campaign speaks to what insurance is really about, underplaying the price issue and playing up the importance of a real, live agent who’s on the scene when you need them.

I’ve always maintained that catastrophes are the true proving ground for agents to not only justify their existence, but to establish some bragging rights about the important work they do for their customers.

Hurricane season is coming up. Image enhancement, anyone?

Once again our readers gave it to us with both barrels when we asked them in an online poll what they thought about the fracas in Florida between State Farm and the coastal property insurance market.

Our question centered on what will happen to the current State Farm agency force when the company pulls out of the state–and, if they’re allowed to compete as independent agents, whether they present a threat to independent agents.

When asked if State Farm agents in Florida should compete with independent agents, 37.5% said yes, while 62.5% said no.

When asked if they would be worried about the competition if they were doing business in Florida, 31.25% said yes, and 68.75% said no.

As usual, the individual comments are the best:

“I wouldn’t even think of living there. State officials are nuts.”

“Maybe they could all get contracts with Allstate.”

“Florida CFO: butt out. The State Farm agents signed the contract.”

“State Farm AND its agents have both made a fortune from the clients they ‘served.’ Get the company out of Florida and let their agents resign from the company.”

“If this really does happen, most State Farm agents will find a way to open an independent agency, whether licensing their spouse or other trusted person, and move the business. I feel they have had a good run with State Farm in the past and never paid attention to the independent market because they enjoyed favorable pricing. You live by the sword, you die by the sword.”

As I’m writing this from drizzly and overcast Chicago, Hurricane Ike is bearing down on the Texas panhandle, predicted to strike late tonight and Saturday morning. In Galveston, which is at the epicenter of the approaching storm, half the island is already under water.

Garry Kaufman, president of Galveston Insurance Associates, took a moment to speak with me this morning about what his firm is doing to get out of harm’s way and prepare for the influx of claims (the agency is about evenly split between commercial property/casualty insurance and commercial lines).

 ”The office is secure, the employees are gone, and management and staff have gone 100 miles inland to set up shop,” he said.

Garry closed up his office yesterday and as of about noon, the agency had all its servers and computers on a trailer headed to College Station, Tex., 130 miles north of Galveston. “We rent server space at a housing facility, where we have 10 work stations and our management staff checked into a hotel there.” This means that the agency’s phones and Internet service will be working when his customers start calling with claims.

Garry himself plans to ride out the storm from his home 30 miles north of the city, where he will be able to process claims manually if needed. “I was going to stay on the island, but as bad as it’s flooding now, I didn’t want to get stranded,” he said. However, his office is ready with generators so the agency will be able to service its clients whether or not power is out.

Although the severity of the situation is similar to 2005, when Hurricane Rita struck, the area seems better prepared to handle evacuations this time. ”For Rita, I stayed in  Galveston, but my folks evacuated, and it was a nightmare,” he recalls. “This time, Galveston and Houston have done a great job and the highways are wide open.”

Garry’s agency has had a solid disaster plan in place for a long time, subscribing to Agility Recovery Solutions,  a nationwide company specializing in disaster recovery. The service can provide them with a double-wide trailer with 40 workstations if the office is destroyed, or assistance with generators and computers if damage is less severe.

Garry has nothing but praise for Fidelity National Insurance Co. and the Texas Windstorm Insurance Association, both of which do an excellent job in handling claims and having adjusters on the ground quickly after disaster strikes. “I wish I could say something nice about the big carriers, but they’ve all stopped writing windstorm and flood coverage in my area,” he adds.

When I compliment him on his disaster preparedness, Garry shrugs it off. “We can’t afford to be complacent. If our customers didn’t count on us, we could be, but we’ve got too many folks depending on us. We’ve been around since 1892, and we know we’ve got to do everything we can to help our customers. Most residents will have a flood claim, and our phone will start ringing the minute this is over.”

When catastrophe strikes, agents who respond quickly to their stricken customers get a chance to look like heroes. But when it’s the agency that’s been hit, who can an agent look to for a hero? 

In Louisiana, a good candidate is David Bulloch — better known as  “Moose” — a territorial manager for Bankers Insurance.

Based in Covington, La., 40 miles north of New Orleans, Moose has relationships with 105 agents throughout Louisiana — from jumbo brokerages to mom-and-pop operations. Like all insurer reps, his typical day consists of talking to his agents about marketing, what the competitors are up to, and how to sell more coverage. But when a cat strikes, Moose’s days are anything but typical.

Since Hurricane Gustav made landfall, almost all of Moose’s time has been split between helping about 20 agents in hard-hit areas like Baton Rouge, Houma and Thibodeau. These agents have lost “their buildings, homes and roofs,” he said.

A typical day for Moose now involves stocking up his car with fuel for generators, food, water, office supplies, changes of clothes, or whatever else they might need. ”I just went to the grocery store and bought ham, cheese and bread, and I’m waiting on a shipment of wireless cards to give to agents who don’t have power,” he said.

Of course, these agents have customers with problems of their own, and claims that need to be processed. Many areas still don’t have power, so they’re doing their jobs however they can, with generators, cell phones and laptops, putting in 15-hour days. Moose helps out by filing customer claims himself, if the agency is operating in survival mode.

Since he’s been at this for more than 10 years, Moose has seen it all. Many of his agents were wiped out in Katrina. Other agents in the area who escaped heavy damage let the agent use their offices to contact clients, hook up a computer and do business. For this agent and others struck by Katrina, things didn’t get back to normal for at least six months afterward.

And with Hurricane Ike and other storms still lurking in the wings, Moose knows he could still have a lot of non-typical work ahead of him. ”I never evacuate, just stay with friends and wait for the storm to pass through,” he said. “I have two suitcases packed — one with business clothes in case I have a meeting, the other with T-shirts and stuff that can get dirty.”

It’s all a part of doing business in Louisiana.