Homeowners insurance premium rates are rising faster than inflation, S&P Global Market Intelligence data shows, and Triple-I’s chief insurance officer says they’re likely to keep climbing.
From 2017 through 2020, premium rates are up 11.4 percent on average countrywide, according to S&P. Recent factors include rising material costs and supply-chain disruptions that are driving up home-replacement costs — and insurers are adjusting premiums accordingly. The countrywide average annual premium has increased to $1,398 in 2021.
“From everything I know about homeowners’ risk, I expected those numbers to be higher,” Triple-I’s Dale Porfilio told the Washington Post. “Honestly, I would say they still should go up further.”
Most mortgage lenders require borrowers to carry homeowners insurance. According to a recent Bankrate.com analysis, the average homeowner spends about 1.91 percent of household income on home insurance. Location often drives costs up, particularly if the house is in an area prone to natural disasters. Some areas have higher rates because it costs more to rebuild a house there.
Porfilio said insured damage from tornados, hurricanes, severe storms, wildfires and other natural disasters has reached $82 billion in 2021, bringing the total from 2017 through 2021 to more than $400 billion. As the chart below shows, average insured natural catastrophe losses have increased nearly 700 percent since the 1980s.
“Climate risk is continuing to put pressure on all things weather-related,” Porfilio said. “We are seeing more severe hurricanes, more severe wildfires, and the science isn’t as clear on tornado events in terms of whether they’re changing in frequency or not. But what we definitely do know is that severity is going up.”
When a natural disaster affects a wide area, the demand for materials and labor puts pressure on prices.
On top of the extreme-weather and population shifts that have been driving up insurers’ costs and, in turn, policyholders’ premiums, add the impacts of the pandemic-driven supply-chain disruptions.
“When the pandemic hit, lumber producers feared a repeat of the Great Recession,” the Washington Post reported. “They cut production and unloaded inventory. But demand soared, catching them by surprise. The price of lumber spiked to $1,500 per thousand feet of board in March, a 400 percent year-over-year increase.”
At Triple-I’s 2021 Joint Industry Forum (JIF) on Thursday, December 2, CEO Sean Kevelighan challenged attendees to ponder a question: “What do we know about the new normal?”
In his opening presentation and a sit-down with NBC correspondent Contessa Brewer, Kevelighan shared insights on how the emerging post-pandemic reality is transforming how the world manages risk. Panel discussions highlighted critical issues facing the industry, including cyber risk, runaway litigation, and cultivating resilience in a world that will continue to face unprecedented natural and economic threats.
Kevelighan and other experts from across academia, media, and industry described how the pandemic fallout, along with other evolving threats to communities and businesses, demanded innovation at breakneck speed.
“Insurance is at the center” of this change, said Kevelighan. The industry has the opportunity to continue its role as the “leading voice in terms of creating more resilience.”
Peter Miller, president and CEO of The Institutes, took the stage later to speak about how the insurance world can optimally position itself for the benefits and hurdles of the coming year.
Technology, he said, can be a valuable tool to “provide a much clearer picture of risk.” He opened the door for cooperation with a call to action: “If you have an issue collaboration idea, give me a shout.”
Technology and collaboration as critical ingredients for success in the new paradigm was a recurrent theme throughout the forum.
Dale Porfilio, Triple-I’s chief insurance officer, moderated a panel on cyber risk. This peril continues to grow, driving profits – but also premiums – upward. Panelists estimated $28 billion in cyber premiums by 2026.
Chris Beck, managing director at Milliman Inc., Catherine Mulligan, global head of cyber for Aon, and Paul Miskovich, global business leader for Pango Group, shared their thoughts on how the market could be stabilized, with the government playing a pivotal role as legislative enforcer and data aggregator.
Dr. Michel Léonard, Triple-I vice president and senior economist, shared insights on the economic challenges and opportunities that lie ahead for insurance and risk managers. In 2021, industry growth lagged U.S. growth, with 1.10 percent for insurance versus 5.8 percent for overall U.S. growth.
Leonard believes that recovery, albeit uneven, will continue and growth will be strong – just not enough to make up for the contraction. He said he doesn’t expect overall pre-pandemic levels to return until 2024.
Re-imagining risk management in the new normal also requires finding effective ways to address two elephants in the room: the talent gap and “runaway litigation”.
Frank Tomasello, executive director of the Institutes Griffith Foundation, moderated a panel that explored the impact of litigation trends on claims expenses and, ultimately, policyholder premiums.
A panel featuring representatives from State Farm, Swiss Re, and The Hartford discussed the challenges of recruiting and retaining talent amid the Great Resignation. The rising generations – millennials and Gen Z – have different career goals and expectations for their employers, such as more diverse workplaces.
As Deepi Soni, executive vice president and CIO at The Hartford, put it: “We said oil is gold. We said data is gold. Talent is diamond.”
Insurers – beyond their traditional role as financial first responders – are helping policyholders mitigate the risks posed by natural disasters and cyber threats, panelists at a Joint Industry Forum (JIF) panel said.
The JIF’s C-Suite on Resilience panel was moderated by John Huff, president and CEO of the Association of Bermuda Insurers and Reinsurers (ABIR). It included Richard Creedon, CEO, Utica Mutual Insurance Company; Paul Horgan, Head of U.S. National Accounts, Zurich North America; John Smith, CEO, Pennsylvania Lumbermens Mutual Insurance Company; and Rohit Verma, CEO, Crawford & Co.
“2021 has been a year of risk that has certainly challenged us,” ABIR’s Huff said. “Eighteen events in the U.S. alone, with over a billion dollars an event. Just a few years ago, those types of numbers would be unheard of, not to mention the 538 deaths and significant economic losses.”
Hurricane Ida, a Category 4 storm that made landfall in Louisiana in August, and the Dixie Fire, which burned 1 million acres in California over four months, were two of the most devastating national disasters this year.
“One recurring theme that we can talk about, especially with hurricanes and wildfires, is that we have growth in population in areas that are significantly impacted by these threats,” said Phil Klotzbach, PhD, a research scientist at Colorado State University’s Department of Atmospheric Science, and a Triple-I non-resident scholar, in introductory remarks.
Huff started the discussion by noting that the notion of resilience seems to have evolved from preparedness to meet and rebound from large, single events like hurricane, earthquake, or wildfire.
“It seems we may have entered a new period for leadership to think of resilience more broadly,” he said. “I’m thinking of the interconnectedness of businesses, individuals, and communities through technology and global commerce; the supply-chain and labor-force disruptions we’ve experienced due to the pandemic; cyber risks, which is such a growing market for our industry but also a growing risk for our global economy. Have risk and resilience fundamentally changed in recent years? Or are we just having to adjust to viewing them through a new lens?”
“There’s certainly a lot more to think about,” said Utica Mutual’s Creedon. “The opportunity moment for us is that there’s market need and expertise we have to expand beyond the traditional risk-transfer product.”
He noted that the industry has historically thought about risk and resilience “in balance-sheet terms, we’re building up large reservoirs of capital and surplus for that large capital- and surplus-draining event that’s going to happen. But nowadays capital is fairly cheap and abundant – it’s almost a renewable resource – and that kind of makes the risk-transfer product more commoditized and sort of a race to the bottom on pricing and product.”
The opportunity lies in insurers’ ability to augment their traditional capabilities with risk management, loss control, and other services to have an impact for consumers, he noted.
“It’s not, in my mind, a fundamental shift in what we define as risk,” said Pennsylvania Lumbermens’ Smith. “It’s that there are so many coming at us. As I think about risk, I do a lot of listening. That’s why I’m here today, why I’m part of [Triple-I] I want to hear different perspectives.”
Zurich’s Horgan drew a contrast between U.S. insurers and their European counterparts, which, he said, “have been focused on climate change for a much longer time. Zurich has been monitoring its environmental footprint since 2007, has been net neutral since 2014, has signed on to U.N. agreements. These are things that have been hotly debated in the U.S., but they’re buying in.”
“Our customers are craving for insights,” Horgan continued. “These are evolving risks. Some of them are insurable, some of them are not. [Our customers] are looking to us for data. They know where they’ve got to be, and they know they have this journey to get there.”
“I think about resilience as being able to recover from adversity, able to recover from a loss, or prevent that loss from having any impact on you,” Crawford’s Verma said. “It’s impressive to see what the industry has done. Where there’s a gap is, if the industry was a playing field, everyone is playing like a quarterback, and if everyone is playing like a quarterback you can’t win.”
Verma said his concern is whether the industry is coming together as a team to “rethink the ecosystem of insurance – the brokers, the claims providers, the carriers” to have a meaningful impact on resilience.
Retaining and recruiting talent has been a priority for years, but the pandemic changed how insurers approach these needs, a panel of experts concluded at Triple-I’s Joint Industry Forum (JIF) last week.
The panel examined whether insurers’ growing comfort with remote work will lead to a more diverse workforce and if technological advances would give insurance industry employees more time to create value rather than allocating too much time toward administrative assignments.
“This industry offers so much to so many,” said Connecticut Insurance Commissioner Andrew Mais. “The pandemic accelerated the need for new talent. By casting a wider net, we can find new entrants who want to do meaningful work and make a difference. Attracting data scientists and new skill sets to the industry broadens our reach to new talent.”
“The pandemic accelerated our level of engagement with employees” said Deepa Soni, chief information officer for The Hartford. “We are championing mental health, supporting women in tech, caring for the whole person. The acquisition of new talent brings transformation to the insurance industry through flexibility, culture and purpose-driven work.”
Soni added that more flexible working arrangements have increased employee retention at The Hartford.
Victor Terry, State Farm’s chief diversity officer, said, “Start with the individual. What do they need to be their best and thrive? Redefine what the culture is and what does ‘good’ look like.”
“Vulnerability is a key trait for good leaders,” said panel moderator Lisa Butera, managing director and head of property/casualty client markets – U.S. for Swiss Re. “Leadership with empathy and authenticity is key.”
Butera said the industry is shifting to new technology to better serve customers and make work more efficient and “less clunky” for employees.
“Training existing employees and attracting new employees with tech skills will help to fill the current talent gaps,” Butera added.
The Hartford’s Soni noted her company offers a tech boot camp for claims professionals and underwriters, and State Farm’s Terry added, “New tech allows innovation and creativity – more time for passion projects.”
Learn More About Insurance Talent on the Triple-I Blog
Cybersecurity is no longer an emerging risk but a clear and present one for organizations of all sizes, panelists on a panel at Triple-I’s Joint Industry Forum (JIF) said. This is due in large part to the fact that cybercriminals are increasingly thinking and behaving like businesspeople.
“We’ve seen a large increase in ransomware attacks for the sensible economic reason that they are lucrative,” said Milliman managing director Chris Beck. Cybercriminals also are becoming more sophisticated, adapting their techniques to every move insurers, insureds, and regulators make in response to the latest attack trends. “Because this is a lucrative area for cyber bad actors to be in, specialization is happening. The people behind these attacks are becoming better at their jobs.”
As a result, the challenges facing insurers and the customers are increasing and becoming more complex and costly. Cyber insurance purchase rates reflect the growing awareness of this risk, with one global insurance broker finding that the percentage of its clients who purchased this coverage rose from 26 percent in 2016 to 47 percent in 2020, the U.S. Government Accountability Office (GAO) stated in a May 2021 report.
Panel moderator Dale Porfilio, Triple-I’s chief insurance officer, asked whether cyber is even an insurable risk for the private market. Panelist Paul Miskovich, global business leader for the Pango Group, said cyber insurance has been profitable almost every year for most insurers. Most cyber risk has been managed through more controls in underwriting, changes in cybersecurity tools, and modifications in IT maintenance for employees, he said.
By 2026, projections indicate insurers will be writing $28 billion annually in gross written premium for cyber insurance, according to Miskovich. He said he believes all the pieces are in place for insurers to adapt to the challenges presented by cyber and that part of the industry’s evolution will rely on recruiting new talent.
“I think the first step is bringing more young people into the industry who are more facile with technology,” he said. “Where insurance companies can’t move fast enough, we need partnerships with managing general agents, with technology and data analytics, who are going to bring in data and new information.”
“Reinsurers are in the game,” said Catherine Mulligan, Aon’s global head of cyber, stressing that reinsurers have been doing a lot of work to advance their understanding of cyber issues. “The attack vectors have largely remained unchanged over the last few years, and that’s good news because underwriters can pay more attention to those particular exposures and can close that gap in cybersecurity.”
Mulligan said reinsurers are committed to the cyber insurance space and believe it is insurable. “Let’s just keep refining our understanding of the risk,” she said.
When thinking about the future, Milliman’s Beck stressed the importance of understanding the business-driven logic of the cybercriminals.
If, for example, “insurance contracts will not pay if the insured pays the ransom, the logic for the bad actor is, ‘I need to come up with a ransom schema that I’m still making money’,” but the insured can still pay without using the insurance contract.
This could lead to a scenario in which the ransom demands become smaller, but the frequency of attacks increases. Under such circumstances, insurers might have to respond to demand for a new kind of product.
By Loretta Worters, Vice President, Media Relations, Triple-I
Costs associated with increasing lawsuits and “nuclear verdicts” continue to challenge insurers’ capacity to provide coverage, according to panelists at Triple-I’s Joint Industry Forum (JIF).
“Excessive growth in insurance settlements is top of mind for many,” said Frank Tomasello, J.D., executive director of The Institutes Griffith Insurance Education Foundation, who moderated the JIF Runaway Litigation panel. The panelists explored definitional issues and controversies surrounding this phenomenon and assessed its impact with a look ahead to what is needed to inform next steps.
“Certain observers dismiss runaway litigation, suggesting it’s a ‘phantom threat’ used to justify premium increases,” Tomasello said. “Industry leaders, however, point to data evidencing its existence in various lines of business, including commercial auto liability.”
Michael Menapace, an attorney with Wiggin and Dana LLP and a Triple-I Non-resident Scholar, noted that insurers’ claims expenses are increasing faster than inflation “due to a combination of increased litigation defense costs, higher percentage of plaintiff verdicts, and increased jury awards.”
Sherman (Tiger) Joyce, president of the American Tort Reform Association (ATRA), said the analysis should examine where litigation is having the greatest impact on expenses, whether it’s a line of business, type of litigation, or a geographic region. “Where is it real, where is it not? If it is real, why are defense costs up? Why are plaintiffs winning more?”
To offer guidance in this regard, the ATR Foundation publishes each year its list of Judicial Hellholes.
Rick Merrill, founder and CEO of Gavelytics, a litigation analytics software firm, said his company is well positioned to help answer these questions.
“We can’t do as well as insurers, who can speak to the cost side,” Merrill said. “They are better positioned to determine price; but where we can add value is in trying to understand why this has occurred.”
Merrill cautioned against reliance on anecdotes.
“The much more modern approach to litigation analysis is measuring things in an empirical fashion,” he said. “Understanding whether or not the rates of trial wins are up or down, understanding whether the grant rates of certain key motions are up or down, those are things we do, and that adds a lot to the conversation.”
Workers comp and commercial auto
Menapace noted that there are increased costs, particularly in workers compensation and commercial auto — specifically, trucking.
“After COVID started, we had more than a dozen states who implemented as a matter of policy a presumption that if a worker got sick with COVID, that it happened on the job,” Menapace explained. “The burden then shifted to the defendant/insurer to disprove that this happened. There was a public policy decision made in those states.”
In commercial auto, Menapace said, “We’re seeing in trucking and elsewhere the increased use of cameras – body cameras, cameras out in the public, dashboard cameras facing out or many trucking institutions now have cameras facing into the cab. Think about how powerful that might be in a court when, moments before the trucking accident, we now have on video the trucker who was checking Facebook, eating, or dozing off.
Reptile theory and litigation funding
Menapace also mentioned “reptile theory,” a popular plaintiff tactic in personal injury suits. Introduced in Reptile: the 2009 Manual of the Plaintiff’s Revolutionby David Ball and Don Keenan, it started a movement that has evolved into seminars, retreats and law review articles aimed at understanding and exploiting the primitive, emotion-driven “reptile” portion of jurors’ brains.
Litigation funding – in which third-party investors assume all or part of the cost of a lawsuit exchange for an agreed-upon percentage of the settlement – is a growing issue that increases defense costs and the length of dispute, the experts said. According to a recent Bloomberg article, hedge funds and others “are piling billions into the outcome of high stakes court cases at a faster rate than ever before,” turning litigation funding into a $39 billion global industry in 2019. The panelists concurred that requiring disclosure of third-party funding of litigation would be a great benefit for the industry if it were to happen.
Learn More About Runaway Litigation on the Triple-I Blog
Even before the pandemic and “the great resignation,” insurance faced a “talent gap”. Part of the challenge has been finding replacements for a rapidly retiring workforce, as the median age of insurance company employees is higher than in other financial sectors.
The industry also needs new talent skill sets to tackle rapidly evolving risks and accelerate digital progress.
A major U.S. employer
Insurers employ nearly 3 million people in the United States, many with uniquely insurance-specific jobs, such as claims adjusters, underwriters, risk managers, and agents. Many other workers – like accountants, human resources managers, or data analysts – could work in many different industries.
Filling insurance-specific roles has been a particular challenge. When Triple-I’s Chief Insurance Officer, Dale Porfilio, worked in personal lines for major carriers, companies routinely had staffing shortages in both claims and underwriting – two of the largest staff populations in a property/casualty company. The shortages were due mainly to companies struggling to replace retiring adjustors. A similar need existed in underwriting, as people early in their careers commonly used their insurance positions as a stepping stone to other opportunities.
The industry also competes with other sectors for technology talent, particularly for digital, design, data, and analytics roles, according to McKinsey, and to integrate new capabilities into the business. During the pandemic, insurers have quickly and successfully moved many of their interactions with customers onto digital channels. While this shows the industry’s potential for rapid digitalization, according to an EY report, the pandemic has exposed gaps in digital capabilities, especially in products, distribution, and the need to upgrade legacy systems.
Not all companies are equally challenged by the talent gap. Grinnell Mutual, based in Grinnell, Iowa — a rural area of about 10,000 residents – experiences lower-than-average turnover, according to Brian Delfino, vice president for direct claims at Grinnell. Many employees have been with the company for more than 15 years. During the pandemic, Grinnell Mutual adopted a “work-from-anywhere” policy and is now able to attract talent from farther afield.
Automation’s impact
A McKinsey study assessed the potential impact of automation on functions like underwriting, actuarial, claims, finance, and operations at leading U.S and European companies. It found that 10 to 55 percent could be automated over the next decade. This won’t necessarily lead to staff reductions and might free employees from routine tasks to perform higher-value activities.
McKinsey predicts automation will speed up the changes in needed skills in unprecedented ways: the need for technological skills will increase 55 percent from 2021 through 2030, while the need for basic skills like data entry will decline by 15 percent.
As more knowledge work is automated, the workforce will require more creativity, critical thinking, and social intelligence to shape and guide them.
Insurance executives surveyed by McKinsey said underwriting will not only become more technical but also require more social skills and flexibility. Respondents said automation and analytics-driven processes will produce a greater need for soft skills to shape and interpret quantitative outputs. Adaptability will also become more important for underwriters to stay responsive to changing risks and learn new techniques as technology changes.
Upskilling and reskilling
Bright people with raw talent, energy, and adaptability make excellent candidates for internal training. Denise Campbell, a Marsh senior vice president, graduated from New York University with a major in music technology. She joined AIG as an administrative assistant and, when offered a promotion, admitted to her manager that she had no experience in the field.
“We can teach you the skills you need to do the job,” her manager countered, “but we can’t teach someone to be you.”
Reskilling and upskilling are vital to meeting insurers’ future talent needs because hiring externally is expensive and time consuming. Replacing an employee can cost more than 100 percent of the role’s annual salary, while successful reskilling can cost less than 10 percent, according to McKinsey.
“Since growth in digitization is moving so quickly, an agile workforce that’s open to re-skilling constantly is crucial,” said Frank Tomasello, executive director at the Institutes Griffith Foundation.
A good learning and development program will incorporate the latest insights on adult learning methods, and combine in-person, digital, and—especially important—on-the-job learning, where a whopping 80 percent of adult learning happens. The Institutes – a leading provider of insurance education – develops courses based on the latest knowledge about how people learn, incorporating videos and animation and breaking down learning into manageable chunks. Triple-I is an affiliate of The Institutes.
Diversity and innovation
Insurers are making diversity and inclusion a priority, and there are many reasons to do so: Research indicates that more diverse companies tend to perform better; customers increasingly prefer companies that demonstrate values like social equity; and a more diverse workforce is more appealing to workers.
The industry has long known of the valuable role internship programs play in its quest to find fresh talent. Grinnell Mutual has a top-ranking co-op and internship program that draws recruits from many universities in Iowa.
Going into high-schools and getting an early start in reaching potential employees is another valuable step in building the talent pipeline. Nicole Riegl, president of the Agent and Broker Group at The Institutes, is on the board of directors at Invest℠ an organization that connects insurance professionals with teachers. Invest volunteers visit the classroom to teach students about insurance and share their career experiences.
And recently, insurance giant, Zurich North Americaannounced plans to hire apprentices in at least nine cities, as well as in certain agricultural areas where Zurich’s crop insurance business operates.
“We’re growing the Zurich Apprenticeship Program because apprentices have brought value to our business from the very beginning,” said Zurich North America CEO Kristof Terryn. “This is a talent source that has proven its value and versatility through many different market conditions, including at the height of the pandemic, when we expanded our program from our suburban Schaumburg headquarters to New York City.”
As the industry evolves, it can continue to leverage one of its greatest assets for attracting talent – its appeal to people who are drawn to work that puts a premium on human relationships. The industry’s role as a financial first responder that helps people get back on their feet after a disaster and as a provider of sophisticated financial instruments that encourage responsible risk taking, is certain to continue to draw people who are looking for meaningful work.
Insurance industry decision makers and thought leaders gathered yesterday for the Triple-I Joint Industry Forum (JIF) in New York City to share insights on managing risk in the post-pandemic world.
The in-person, daylong program was conducted in accordance with New York City’s COVID-19 protocols. Topics ranged from climate and cyber risk and the impact of “runaway litigation” on insurer losses and policyholder premiums to the challenges and opportunities presented by “the Great Resignation” for acquiring and nurturing talent in the industry.
The panels featured speakers from across the insurance world, academia, and media. Watch this space next week for panel wrap-ups.
