A Recurrence of Recalls; ‘PIGS’ in a Poke; Lloyd’s Powers on; Haiti Now Faces Floods and Hurricanes

First Toyota, then Honda – who’s next? 2010 is not starting out as a good year for car companies. Japan’s Toyota Motor Corp. was already in the process of recalling approximately 8 million vehicles, due to problems with the accelerator pedal, which has caused a number of fatal accidents. But on Feb. 9, it announced yet another recall.

Almost half a million of its iconic hybrid, the Prius, were subject to recall notices due to problems with their braking system, which is apparently probe to failure on rough roads. 437,000 units of its 2010 Prius, Sai, Prius PHV (plug-in hybrid) and Lexus HS250h hybrids globally, including 155,000 in North America, 223,000 in Japan and 53,000 in Europe are affected.

Now Toyota has company. Japan’s second largest automaker, Honda Motor Corp., announced it was adding 437,000 vehicles [perhaps that number is significant] to its 15-month-old global recall for faulty air bags. Honda originally announced the recall to the U.S. National Highway Traffic Safety Administration in November 2008. Since then nearly one million have been recalled.

The company will replace the driver’s side air bag inflator in the cars because they can deploy with too much pressure, causing the inflator to rupture and injure or kill the driver. So far one death has been blamed on the problem, and 11 people have been injured.

The Associate Press reported that the latest expansion of the air bag recall includes 378,000 cars in the U.S., some 41,000 cars in Canada and 17,000 cars in Japan, Australia and elsewhere in Asia. The North American recall was announced Feb. 9 and followed Feb. 10 by the recall in Asia.

The recall now affects 952,118 vehicles, including certain 2001 and 2002 Accord sedans, Civic compacts, Odyssey minivans, CR-V small sport utility vehicles and some 2002 Acura TL sedans.

PIGS or PIIGS – They’re all in trouble. The rather disagreeable acronym denominates Portugal, Ireland (+/- Italy), Greece and Spain as the European Union’s and Euro zone countries with the most troubled economies. At least EU financiers didn’t use the acronym “GIPS.”

The once high flying Euro – as late as last December it traded above $1.50 – has now been brought back down to earth by the belated effects of the economic crisis, which have severely impacted the economies of the PIGS. The pound has also fallen against the dollar, but less than the 15 percent decline of the Euro.

Greece is the worst off. Its problems: Near 10 percent unemployment; a declining GDP; an overall debt forecast for 2010 of as much as 125 percent of its GDP – over $410 billion, the ongoing budget deficit, which is now above 12 percent (four times more than the 3 percent Euro zone target), and the resistance of both politicians and the general population to adopt stringent measures to do anything about it. This is further complicated by erroneous financial figures that papered over the true state of the economy.

Ireland’s gross debt is now almost 83 percent of GDP; Spain’s is above 66 percent; Portugal’s is nearing 85 percent; while the UK’s hovers around 80 percent. Ireland has adopted a draconian series of cutbacks in public spending, which, while not welcomed by the public, have at least stemmed the tide of negative growth, and have restored confidence in its banks.

The Euro’s decline in value will make EU goods more competitive and could stimulate a recovery, but the countries that are suffering the most will need more than that. So far EU politicians have said only that they will help, but they haven’t said how.

Lloyd’s 2010-2012 Strategy Plan offers a blueprint for maintaining the policies it has been pursuing over the last five years. It’s mainly focused on “maintaining and developing the attractiveness of the Lloyd’s market.”

The most important ongoing initiatives are aimed at lowering costs and improving efficiency by introducing modern technology into all of Lloyd’s, and the rest of the London market’s operations. Policy placement (the Lloyd’s Exchange), and claims handling (the Electronic Claims File or ECF) are the principle programs.

Lloyd’s CEO, Richard Ward, said the strategy reinforced the strong position the market currently enjoys. “This is about evolution, not revolution. We have stood up well in the face of the worst recession since the Great Depression, and we don’t see a huge necessity to change direction. The Lloyd’s subscription model backed by a layer of mutual security is serving us and our customers well, as is our location in the heart of the London insurance market.”

He also warned that despite Lloyd’s being in “good shape,” it should not become complacent. He pointed out the necessity of focusing on underwriting discipline and risk management and in preparing the market for the introduction of Solvency II, the revised regulations governing the EU’s insurance industry that are scheduled to come into force in 2012.

230,000 people are now known to have died as a result of the earthquake that struck Haiti on Jan. 12. The death toll in this small country is approximately the same as the number of dead from the tsunami, which struck Indonesia, Thailand and other Asian countries in 2004.

Moreover Haiti is facing a new peril. The vast tent cities and other makeshift shelters, which now house surviving earthquake victims, are under imminent threat from floods and mudslides when the rainy season begins. The island also remains exposed to major hurricanes, as the season for tropical cyclones approaches.

In light of these concerns, the Caribbean Catastrophe Risk Insurance Facility (CCRIF) and the Caribbean Institute for Hydrology and Meteorology (CIMH) announced that they “will extend support to Haiti in its long-term recovery and reconstruction efforts, particularly in hazard mitigation and future disaster prevention.”

While most of the aid is still concentrated on the earthquake’s victims, the potentially lethal future needs more study. The CCRIF/CIMH project aims to make available “tools and data to help planners and relief workers in Haiti to make better decisions about where to re-settle the citizens of Haiti and re-build infrastructure to minimize people’s exposure to flooding and landslides.”

Haiti’s population is among the most vulnerable in the world to rainfall, flooding and landslide hazards.

Margareta Wahlstrom, UN representative for disaster risk reduction, recently warned: “There are probably 200,000 families without a roof.” She called for the international community to take measures so that “their disaster, that has already destroyed much of their life, is not exacerbated further.”

The CCRIF and CIMH studies should give a better picture of the potential impact heavy rains may have on many areas of the country since the earthquake struck. They can “provide early warning for potential heavy rainfall events over major watersheds, especially those in the earthquake impacted areas,” explained Dr. David Farrell, principal of CIMH

In addition to the weather models, CIMH will be developing simple surface water flow models for key drainage basins to delineate the extent of probable flooding. These models, in conjunction with the historical rainfall record derived from the CCRIF Caribbean rainfall model, will be refined to develop flood hazard maps for critical basins.

Topics Catastrophe Natural Disasters Excess Surplus Flood Europe Hurricane Lloyd's Japan Earthquake