Monthly Archives: November 2020

Auto Insurance, Market Conditions

Auto damage claims growing twice as fast as inflation: IRC Study

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The average payment for auto physical damage insurance claims increased at more than double the rate of inflation from 2010 through 2018, according to a new study from the Insurance Research Council (IRC).

The study, Patterns in Auto Physical Damage Insurance Claims, found that average payments increased 3.7 percent annualized during the study period, while the overall Consumer Price Index (CPI), as well as the CPI for motor vehicle maintenance and repair, grew 1.8 percent annualized.

“Damage to vehicles accounts for a growing share of the costs of paying auto insurance claims,” said David Corum, CPCU, vice president of the IRC. “As vehicle technology continues to evolve, an understanding of the cost drivers behind auto physical damage claims will be important in addressing issues in auto insurance availability and affordability.”

Other findings from the study:

  • Total losses have become more common and more expensive.
  • Catastrophe claims accounted for about one in five dollars paid for comprehensive claims.
  • Deductibles and policy limits have not kept pace with the growth in payments.
  • Physical damage claims have become less likely to have associated injury claims.
  • The rate of attorney involvement is lower in physical damage claims than in auto injury claims.
  • For most aspects of physical damage claims, there are significant differences among states.

According to National Association of Insurance Commissioners (NAIC) data, vehicle damage claims accounted for 60 percent of incurred personal auto losses in 2016, even as the injury cost index – a measure of injury costs relative to physical damage liability claims – declined. Enhanced passenger protections have contributed to a drop in the frequency of injury claims relative to the number of accidents, underscoring an important reality: auto safety improvements are effective but add to the cost of claims, as they lead to more expensive repairs when accidents happen.

With auto claims costs greatly outpacing inflation, it’s worth noting that – as Triple-I previously reported – auto insurance premium growth has trailed CPI growth, particularly since the COVID-19 pandemic and its subsequent economic downturn has led to insurers giving back $14 billion to policyholders in the form of refunds, premium reductions, and dividends.

The study presents findings from a collection of more than 220,000 claims closed with payment under the three principal private passenger auto physical damage coverages in claim years 2010, 2014, and 2018.

For more information on the study’s methodology and findings, contact David Corum at (484) 831-9046 or by email at IRC@TheInstitutes.org.

Business Risk, Disaster Resilience

Knead to Know – Basics for Business Survival

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Dimitri Mikhaylov working the front register at Chelsea Bagel of Tudor City

By Kris Maccini, Social Media Director, Triple-I

In support of Small Business Saturday, November 28, the Insurance Information Institute spotlights Chelsea Bagel, a business that has stayed resilient during the pandemic.

Deciding on your local bagel shop is a quintessential part of becoming a New Yorker. I’ve made this city my home for the past 17 years now, and it’s the first thing I do every time I move into a new neighborhood. About four years ago, I made Midtown East, Manhattan my home, and it didn’t take long for Chelsea Bagel of Tudor City to become my go-to shop.

Chelsea Bagel of Tudor City is owned by Dimitri Mikhaylov. He opened the shop and its sister restaurant, Chelsea Bagel & Café , along with his brother in 2015. Owning his own bagel shop became a dream after Dimitri invested in another coffee shop a few years prior. Never did he imagine just five years later, the world would be in a global pandemic.

The bagel and spread counter
at Chelsea Bagel of Tudor City

“Prior to the pandemic, we were doing fine covering expenses. We had a steady flow of regular customers and high traffic from tourists. Facing the pandemic and this tough economy has been one of our biggest challenges,” says Dimitri.

In the early days of the pandemic, Dimitri had to make some difficult decisions to keep his doors open. He made reductions in staff, changed hours of operation, and withheld his own paycheck in order to pay his employees.

“The first four weeks of the pandemic, I spent a lot of my own money to meet business expenses, and I didn’t pay myself for 10 weeks,” he says. “My wife and I also had to make the decision to postpone our home mortgage for six months in order to pay for the business.”

“During that time, I thought that my business interruption insurance would have been able to help cover our losses, but after contacting my insurer, I realized pandemics are not covered. The next step was to apply for a government PPP loan.”

The small business PPP loan allowed Dimitri both to cover his expenses and hire back some staff. Since the summer, business has picked up, and he’s slowly welcoming back his regulars. There has been a 25% increase in customers in recent months compared to the start of the pandemic where business decreased by 75%.

In addition to the PPP loan, Dimitri advises that small business owners really look at their expenses to see where they can cut off spending. At the height of the pandemic, he chose to do all the buying himself, which drastically cut down the cost of goods for his shop.

“I’m hoping that the economy returns and brings customers back,” Dimitri says. “This area [New York City] relies on tourists.”

“It crossed my mind not once but many times to give up the business during all this, but hope kept me going. I have a family to feed and my employees have families to feed.”

Auto Insurance, Highway Safety, Technology

Usage-Based Insurance Gets Confidence Boost During COVID-19 Pandemic

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Drivers seem to have become more comfortable in the past year with the idea of giving up their data to help insurers more accurately price their coverage.

In May 2019, mobility data and analytics firm Arity surveyed 875 licensed drivers over the age of 18 to find out how comfortable they would be having their insurance premiums adjusted based on typical telematics variables. Between 30 and 40 percent said they would be either very or extremely comfortable sharing this data.

In May of this year, they ran the survey again with more than 1,000 licensed drivers.

“This time,” Arity says, “about 50 percent of drivers were comfortable with having their insurance priced based on the number of miles they drive, where they drive, and what time of day they drive, as well as distracted driving and speeding.”

This is a year-over-year increase of more than 12%. What happened?

The answer begins with a “C” and ends with a “19.”

Money talks…

Telematic information was part of the reason insurers could return money quickly to their customers during the COVID-19 pandemic, and that fact seems to have brought positive attention to usage-based insurance (UBI). Telematics combines GPS with on-board diagnostics to record and map where a car is, its condition, and how fast it’s traveling. This technology is integral to UBI, in which insurers are able to adjust premiums based on driving behavior.

During the first wave of the pandemic, Arity data showed considerable changes in how and when people were driving when they began to self-quarantine in March 2020. Driving across the U.S. dropped significantly, and this data helped spark the trend of insurance carriers offering refunds to their policyholders.

“These paybacks were widely covered by the media, including Forbes, so consumers became aware of the potential savings, even if their own insurer didn’t offer a discount,” Arity reports.

“Private-passenger auto insurers returned around $14 billion in premiums this year to the nation’s drivers as miles driven dropped dramatically in the pandemic’s early months,” says James Lynch, Triple-I’s chief actuary. “This resulted in a five percent reduction in the cost of auto insurance for the typical driver in 2020, as compared to 2019.” 

Health & Safety

Tribal Communities Disproportionately Hurt by COVID-19

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The COVID-19 pandemic has disproportionately affected minority communities across the United States. A less reported but no less significant part of that story has been the disease’s impact on tribal populations.

According to the Center for American Progress, the Navajo Nation has one of the highest infection rates in the country – and they’re not alone in their suffering.

“Native people make up only around one-tenth of New Mexico’s population but more than 55 percent of its coronavirus cases,” the center wrote back in June, when it said the Navajo infection rate was “greater than that of the worst-hit state, New York; it is even greater than that of Wuhan at the height of the outbreak in China.”

In Wyoming, American Indian/Alaskan Native (AI/AN) people are less than 3 percent of the population but make up more than one-third of the state’s cases, the center said.

Inequities exacerbated

Limited health services, insufficient infrastructure, and above-average rates of immunocompromising diseases all predate COVID-19 and contribute to the vulnerability of these populations. Many tribes also feel excessive pain from the pandemic-spurred economic downturn as their lifeblood enterprises in gaming and hospitality are shutttered. Casino closures in early March led to an estimated loss of more than $4.4 billion in economic activity and $997 million in lost wages, affecting 246 tribes with over 500 gaming facilities in 29 states.

The Chickasaw Nation in Oklahoma is among the entities that have filed lawsuits against insurers related to business interruption coverage claims. As hundreds of COVID-19-related lawsuits regarding business interruption coverage make their way through U.S. courts, judge after judge has found in favor of insurer defendants.

Meanwhile, Native American leaders are keeping close watch on the U.S. Supreme Court battle over whether to repeal all or parts of the Affordable Care Act – a move many say could devastate health care for AI/AN communities.

“In the context of what we’re all facing,” said Stacy Bohlen, chief executive officer of the National Indian Health Board, “this is not the time to add this extra burden and an additional crisis onto the Indian health system and onto Indian people.”

The Affordable Care Act, signed by President Obama in 2010, contains provisions specifically relevant to Native Americans, including permanent reauthorization of the Indian Health Care Improvement Act, which provides ongoing funding for Native health programs. It also expanded tribes’ authority to run their own health care programs, including behavioral health and youth suicide prevention programs.

“People talk about the Affordable Care Act like it’s all one thing,” said Sarah Somers, an attorney with the National Health Law Program, who specializes in litigation to help underserved communities access good health care. “But if you repeal it, then all of the codified statutes go away.

A political force

The number of people in the United States identifying as American Indian has climbed in recent years, with California, Arizona and Oklahoma accounting for the largest concentration of the nation’s AI/AN populations, according to a USAFacts analysis of Census Bureau data.

“The U.S. held 2.8 million people who self-identify solely as Native American in 2018, with another 2.9 million identifying as multiple races, including Native American,” according to U.S. News & World Report. “The country’s population that identifies as solely Native American expanded 13% between 2000 and 2018, while the number of individuals who identify as at least partially Native American ballooned 77%.”

In this year’s elections, Native American voters played an important role in some key battleground states, according to High Country News. In Arizona, indigenous people account for nearly 6% of the population — 424,955 people as of 2018 — and eligible voters in the Navajo Nation alone number around 67,000. Native support for Joe Biden — who has released a robust policy plan for tribal nations — may have helped him win that heavily contested state.

Business Insurance, Business Risk, Emerging Risks, Health & Safety, Risk Management

House Panel Discusses Approaches to Manage Future Pandemic Risk

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That the insurance industry alone can’t be expected to cover future pandemic risk seemed to be a given at yesterday’s hearings by the House Finance Subcommittee on Housing, Community Development, and Insurance.

But, as is so often the case, the devil is in the details.

The session – Insuring Against a Pandemic: Challenges and Solutions for Policyholders and Insurers – was chaired by Rep. William Lacy Clay. In his opening statement, Clay said, “It is not realistic or practical to expect the insurance industry to shoulder the astronomical cost of a global pandemic. The American Property and Casualty Insurance Association has estimated that paying all [COVID-19-related] claims, regardless of exclusions, would amount to $1 trillion per month.”

With respect to business interruption coverage claims currently being adjudicated, Clay referenced both the virus exclusions in most commercial property policies and the lack of “direct physical damage or loss” in COVID-19-related cases.

John Doyle, president and CEO of global insurance broker Marsh, testified on the importance of a public-private partnership to address pandemic risk, as well as to the need to “act now” on a solution for future pandemics.

“Acting now on a public-private pandemic risk solution will accelerate the economic recovery by reducing uncertainty,” Doyle said. “Moving forward, capital markets will seek assurances that companies have protection against prospective pandemic risk. The pace of recovery will depend upon the nature and degree of confidence in the marketplace.”

Doyle said the credit and power of the U.S. government is essential – “at the same time, I believe the insurance industry has a role to play.”

The Pandemic Risk Insurance Act (PRIA), introduced by Rep. Carolyn B. Maloney of New York, provided the jumping-off point for the testimonies and discussions of alternative proposals. PRIA, patterned after the Terrorism Risk Insurance Act (TRIA) put in place after the 9/11 terrorist attacks, was generally recognized as a good start – but several other structures were proposed to address perceived weaknesses.

One is the Business Continuity Protection Program (BCCP), advanced by the National Association of Mutual Insurance Companies (NAMIC), the American Property Casualty Insurance Association (APCIA) and the Independent Insurance Agents & Brokers of America (Big “I”).

Brian Kuhlmann, chief corporate counsel for Shelter Insurance, speaking on behalf of NAMIC and APCIA, described BCCP as a program that “would provide straightforward revenue replacement for businesses and nonprofits of all sizes” using a parametric approach that wouldn’t require claims adjustment. Unlike traditional insurance, which pays for damage if it occurs, parametric insurance automatically pays when specific conditions are met – regardless of damage incurred.

Michelle Melendez McLaughlin, chief underwriting officer for the small commercial and middle market at Chubb, presented a “bifurcated” framework that would treat small businesses differently from mid-size to large corporations.

“Pandemics affect small and large businesses differently,” she said. The Chubb framework would cover small companies for up to three months of payroll and other expenses. Policyholders would be paid a pre-determined amount when the policy is triggered. “This provides policyholders with certainty that they will receive timely financial assistance after an event.”

For businesses with more than 500 employees, the Chubb proposal would create Pan Re – a federal reinsurance facility. “Private insurance companies that choose to sell coverage would write pandemic policies at market terms and retain some portion of the risk. The rest of the risk would be reinsured through Pan Re.”

R.J. Lehmann, senior fellow at the International Center for Law and Economics, agreed with other witnesses that the insurance industry isn’t equipped to handle pandemic risk alone. He went further to question whether insurance is the best structure for addressing this problem.

“Insurance is a system of risk transfer, not a system of economic relief,” Lehmann testified. “Even if private insurers could provide this coverage—on their own or with government support—it is not clear their incentives would align with public health goals or with the aims members of Congress likely have in mind.”

The best argument for a public-private partnership, he said, is that insurers can help policyholders mitigate risks. “But it’s important to ask, ‘Mitigate the risk of what’? The risk you’re trying to reduce is the risk that a business will shut down. But, in a pandemic, you want businesses to shut down. We want them to have a safety net so they can shut down and survive.”

Hartmann counseled legislators to take their time and get the solution right, drawing from all the options that exist.

“Let’s be humble about how little we know, even about the current pandemic,” he said. “Get help to the businesses, workers, and communities who need it now. Don’t legislate for the next pandemic while we’re in the midst of the current one.”

Catastrophes, Industry Financials, Insurance Industry

Triple-I/Milliman Report: 2020 Turmoil Takes Toll on P/C Insurer Finances

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The global pandemic and costly natural catastrophes will contribute to a projected 101.7 combined ratio for the U.S.’s property/casualty (P/C) insurers in 2020, higher than the 98.8 the industry posted last year, according to the latest Underwriting Projections: 2020-2022 report from Insurance Information Institute (Triple-I) and Milliman.

The combined ratio is the percentage of each premium dollar a P/C insurer spends on claims and expenses. An increase in the combined ratio means financial results are deteriorating, while a decrease means they are improving.

For 2020, insurers are projected to pay nearly $1.02 (101.7) in claims and expenses for every premium dollar they collected. In 2019, they paid about 99 cents (98.8) on every premium dollar in claims and expenses.

The latest report is somewhat rosier than prior projections. For 2020, P/C insurer annual premium growth is projected to be 1.5%, an improvement from the decline of 0.5% projected three months ago, the report noted.

“Our estimates of premium growth are tied pretty tightly to economic indicators. Estimates of 2020 nominal GDP, while still showing shrinkage, have improved. That, plus a more nuanced understanding of how insurers booked the personal auto givebacks, helped us revise our premium estimates,” said Jason B. Kurtz, FCAS, MAAA, Principal & Consulting Actuary, Milliman. 

In addition, the latest report incorporates more information as to how the industry is performing financially year-to-date. Filed first-half results provide a good idea of how premium and insured loss trends are impacting results.

“We can compare loss ratios for this year against last year and prior years and, after a couple of quarters, we can fine-tune our projection,” Kurtz said. “And we know a lot more about catastrophe losses, which are usually the biggest wildcard, and the third quarter is when the hardest catastrophes generally hit.”

For most lines of business, the forecast changed little from three months ago. Premium forecasts for lines like general liability and commercial auto insurance were affected because of the economic forecast.

“In commercial auto, for example, we thought the increase in online shopping would affect exposures more than it appears to have done. But as to the underwriting result, we didn’t change things much. Rates are higher, as we expected, and those lines are still fighting social inflation,” said James Lynch, FCAS, MAAA, Senior Vice President and Chief Actuary, Triple-I.

The report forecasts U.S. P/C insurance industry premium growth of 5 to 6 percent for 2021-22, slightly lower than the prior forecast released by Triple-I and Milliman.

What to Watch for

There’s still a lot of uncertainty when it comes to the pandemic. “The industry continues to grapple with how big the impact will be,” said Lynch. “There’s more certainty than three months ago, but that still leaves a whole lot of uncertainty,” he said. “Our stance remains where it was – the net loss impact will be the equivalent of a major hurricane – but as industry veterans know, some major hurricanes hit harder than others.”   

Also, the path the economy takes as a result of the pandemic matters, added Kurtz. “Gross domestic product (GDP) rose the fastest in U.S. history last quarter, but the resurgence of COVID cases could mean another lockdown – perhaps softer than what we saw in the spring, but any lockdown triggers a slowdown. So, we might see a double-dip recession, and that suppresses premium growth.” He noted that a K-shaped recovery would be good for some segments of the U.S. economy while not being good for others.

Another wild card: government and regulatory responses. Another Coronavirus Aid, Relief, and Economic Security (CARES) Act that puts money in the hands of individuals and businesses is likely to buoy the economy as it did in the spring, the report states. Liability protections for reopening businesses would be favorable for the industry. “Congress may deal with that in the lame duck session or next year, but we will see,” said Kurtz.

The quarterly report was presented on November 17 at an exclusive members only virtual webinar moderated by Sean Kevelighan, Chief Executive Officer, Triple-I.

“This webinar series is another example of how the Insurance Information Institute is modernizing and innovating,” Kevelighan said.  “Under the leadership of our chief actuary, James Lynch, the Triple-I is now giving its members timely, data-driven, and unique insights on insurance industry underwriting projections.”

Insurance Industry, Insurers and the Economy

Top Insurance Markets to See 4.5 Percent GDP Decrease In 2020

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The world’s 10 largest insurance markets are cumulatively expected to see their Gross Domestic Product (GDP) decrease by 4.5 percent in 2020 compared to 2019 because of COVID-19, according to Triple-I’s Global Macro and Insurance Outlook: Q4 2020 report.

“All things being equal, higher economic activity drives premium growth higher while lower economic activity drags premium growth down. Going into Q4, economic activity, expressed as year-over-year change in GDP for the world’s 10 largest insurance markets, is expected to decrease by -4.5% in 2020,” writes the report’s author, Dr. Michel Léonard, CBE, Vice President & Senior Economist, Triple-I.

The world’s 10 largest insurance markets, in order, as defined by total premium written in 2018-2019, are: the United States, China, Japan, the United Kingdom, France, Germany, South Korea, Italy, Canada, and Taiwan. The Triple-I’s projection of a 4.5 percent GDP decrease in the world’s 10 largest insurance markets in 2020 as compared to 2019 was weighted based on the total premium written in each one.

“The extent of new lockdowns, the success of vaccine trials and the efficacy of vaccine distribution will determine the pace of economic recovery in 2021, with consensus pointing to Q3 or Q4 2020 as rounding the corner out of the pandemic part of the recession. However, economic activity will not heal and recover until well into 2021 and early 2022,” Dr. Léonard states, adding, “Under best scenarios, economic growth will not start to fully recover until Q2 and Q3 2021 in advanced economies and Q3 and Q4 in developing economies.”

Global GDP is expected to contract between -5.5% and -6.5% in 2020, the report said, citing benchmark forecasts such as the ones issued recently by the International Monetary Fund (IMF) and the Organisation of Economic Co-operation and Development (OECD).

GDP represents the value of the total goods and services an economy produces in a single year whereas premium is the price paid for an insurance policy. Beyond premiums, insurers also generate revenue through investment income.

Homeowners Insurance

Friday the 13th is less scary with insurance

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Superstitious people consider Friday the 13th an unlucky day. The irrational fear of the number 13 even has a scientific name: triskaidekaphobia.

While Friday falls on the 13th at least once every calendar year, it can happen up to three times in the same year.

Whether you believe in this unlucky day or not, if you have purchased an HO-3 insurance policy for your home you are protected against even more than 13 perils. Lucky for you, we’ve compiled all you need to know about the basics of homeowners insurance here.

Insurance Industry

Triple-I and The Institutes Finalize Affiliation

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The Institutes, the leading provider of risk management and insurance education and research, today announced plans to finalize its affiliation with the Insurance Information Institute (Triple-I) on November 16, 2020. Triple-I is a long-standing, trusted source of unique, data-driven research and insights on insurance. Both organizations are not-for-profit entities committed to benefiting society at large.
 
“Together, the Triple-I and The Institutes will be better equipped and empowered to serve both the information and education needs of those interested in risk management and insurance,” said Peter L. Miller, CPCU, president and chief executive officer of The Institutes. “We see this as a great opportunity to provide a more synergized information platform for insurance knowledge and to bring further efficiencies to our organizations.”
 
“This affiliation is the culmination of several years of strategic dialogue at the Triple-I and with The Institutes,” said Sean Kevelighan, chief executive officer of the Triple-I. “It will further unify our collective efforts, grant both the Triple-I and The Institutes greater access to a deeper bench of resources and expertise, and improve value for the Triple-I’s member companies across the country.”
 
For the Triple-I, this affiliation finalizes its pursuit of a modern, transparent, and team-oriented structure that reflects the diversity and breadth of its more than 60 insurance company members—which include regional, super-regional, national, and global carriers. The Triple-I is the largest online source of insurance information dedicated to empowering consumers with objective, fact-based research they can use to make educated decisions, manage risk, and understand the value of insurance.
 
The Institutes, in turn, will gain additional insights and resources based on data-driven primary research. It will leverage these to support its wide range of offerings in professional education, research, publications, events, and career development.  
 
Triple-I will retain its offices in New York City and Arlington, Virginia, and also maintain staff throughout the country, and its employees will now become employees of The Institutes. 
 

Legal Environment

COVID-19-Related Litigation: A Snapshot

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At a recent webinar hosted by the American Tort Reform Association (ATRA), Cary Silverman, a partner at the law firm of Shook, Hardy & Bacon, presented a breakdown of COVID-19-related litigation drawn from his firm’s research.

The charts below are based on 4,283 complaints that – while not comprehensive – provide a useful snapshot of the types of litigation and their relative frequency. They were updated on November 8.

Contract-related cases accounted for 1,255 suits and the largest percentage. Not far behind are insurance cases – mainly involving business interruption – at 1,054 and employment cases at 910.  Employment cases, Silverman said, allege wrongful termination or  failure to pay employees properly during the pandemic.

Taken together, the three broad categories – contract, insurance, and employment – account for more than 75 percent of COVID-related litigation to date.

Among contract cases, the largest share is in the Miscellaneous category (278 cases), which Silverman said are general contractual disputes where performance was affected by the pandemic. The second-largest group (262) consisted of lawsuits against schools (primarily higher education), seeking refunds of tuition and fees. Next come litigation involving leases (225) and event, ticket, or other refunds (224).

Cases involving actual exposure to the coronavirus come in relatively low, at 343 (8 percent), a fact that Silverman attributes to the economic lockdown.

“As more businesses reopen, exposure cases are likely to increase,” he said.

Perhaps unsurprisingly, nearly half of those cases (164) have involved nursing homes. Cruise ship passengers account for 64 exposure claims, and suits related to exposure risk have totaled 58. At least 44 cases to date have involved employee injury or death.