Evolving Conceptions of Gun Liability

By Max Dorfman, Research Writer, Triple-I

Two recent developments – one the result of litigation, the other imposed by statute – warrant insurers’ attention, as they reflect shifts in legal thinking on potential firearms-related liability.

Nearly 10 years after the Sandy Hook Elementary School massacre in Connecticut, during which 20 first graders and six staff members were killed, a federal bankruptcy court in Alabama agreed to insurance payments totaling $73 million from gun manufacturer Remington Arms. The payment will be dispersed to the victims’ families who participated in the lawsuit.

This is the first time a gunmaker has been held accountable for a mass shooting in the United States. The ruling could force insurers to become more prudent in how they cover these companies. The risks of such settlements must be considered, particularly as the political and legal landscape continues to evolve.

The case revolved around the notion that Remington negligently sold civilian consumers assault-style rifles, which the plaintiffs argued are only suitable for use by military and law enforcement personnel. This, they argued, breached the Connecticut Unfair Trade Practices Act by the sale or wrongful marketing of the rifle.

Remington, which filed for bankruptcy protection in July 2020, contested that the plaintiffs’ legal arguments don’t apply under Connecticut law and invoked a federal statute, called the Protection of Lawful Commerce in Arms Act, which generally immunizes firearms manufacturers, distributors, and dealers from civil liability for crimes committed by third parties using their weapons.

The plaintiffs were able to demonstrate that the Remington used an “aggressive, multi-media campaign that pushed sales of AR-15s through product placement in first-person shooter video games and by touting the AR-15’s effectiveness as a killing machine,” according Josh Koskoff, lead counsel and partner at the Connecticut law firm Koskoff, Koskoff & Bieder, which represented the Sandy Hook families. 

San Jose takes notice

San Jose, Calif., recently approved the nation’s first mandatory gun liability insurance requirement. The news comes four months after a mass shooting on a light rail in the city, which resulted in nine deaths.

San Jose Mayor Sam Liccardo said gun liability insurance will be similar to car insurance, promoting responsible gun ownership, storage, and use, with the fees for possession of firearms potentially hovering between $25 and $30 a year.

Though this insurance cannot legally cover deliberate harm caused by a gun owner, it nonetheless marks a novel way to confront potential mass shootings. Second Amendment activists in San Jose contest the mandatory insurance, stating that this will primarily affect lawful gun owners and not criminals.

While the San Jose measure might remain an anomaly, it reflects a shift in thinking on firearms-related liability. Most insurers do not offer stand-alone gun liability coverage, and no other municipalities appear to be in the process of requiring it. But shifting public sentiment could lead to other ways to address gun violence through the courts and by statute.

Truckers’ Premiums Keep Rising, Despite Safety Improvements, Coverage Changes

As with so many other goods and services, insurance for commercial trucks has become more costly since the pandemic – but a closer look at the numbers shows that this trend pre-dates COVID-19’s economic and supply-chain disruption.

“Despite reductions in insurance coverage, rising deductibles, and improved safety, almost all motor carriers experienced substantial increases in insurance costs from 2018 to 2020,” according to a recent report by the American Transportation Research Institute (ATRI). And, while frequency and severity have been on the rise from 2009 to 2018, the report shows the rate of insurance cost increases during the period far exceeding the crash rate increase.

ATRI’s observations are consistent with findings in a recent study by Triple-I and the Casualty Actuarial Society (CAS) that the phenomenon known as “social inflation” accounted for $20 billion in commercial auto liability claims between 2010 and 2019. 

“External factors that go well beyond carrier safety force commercial trucking insurance costs to increase,” says Triple-I Chief Insurance Officer Dale Porfilio. “The higher premiums ultimately tend to be passed along to consumers in the form of higher prices for goods and services.”

ATRI recognizes three key areas of influence on premiums beyond crash history and policy components:

  • Economic impacts on the insurance industry,
  • Carrier-specific factors, and
  • Social inflation.

External economic conditions, including general inflation and rising health-care costs, contribute to increased insurance premium rates.

“Medical advances help save lives, but these treatments directly contribute to higher medical costs,” ATRI points out. “Similarly, technological advances in motor vehicles contribute to increasing costs associated with repairing them; electronics now make up 40 percent of the cost of a new vehicle.”

These higher costs affect premiums through larger claims and losses that have to be incorporated into pricing.

Premium rates also are affected by carrier-specific considerations like operational sectors, cargo values, states or regions of operation, company growth, and commitment to safety culture and technologies.

“Carriers demonstrating consistent year-over-year improvements in safety technology adoption, safe driver hiring and training practices, and crash history can potentially lower their premium costs, despite the current adverse environment,” ATRI said.

“Social inflation” refers to the impact of litigation and government policy trends on insurance claims and, ultimately, costs to policyholders. Social attitudes and behaviors affect insurance payouts through changes in laws and propensity to litigate, and jury awards don’t necessarily reflect logical conclusions or precedents. Jury decisions can be influenced by emotions, state and local laws or procedures, and plaintiff bar tactics. In recent years, practices like third-party litigation funding – investment by hedge funds and other third parties in lawsuits in return for a share in the awards – have played an increasing role in social inflation.

Acting to Curb Rising Auto Fatalities

By Max Dorfman, Research Writer, Triple-I

After years of steady declines, traffic fatalities in the United States are on the rise, contributing to increasing auto insurance rates. This comes despite declines in the average number of miles driven due to the pandemic. In 2020, 38,680 deaths occurred on U.S. roads, the most since 2007.

In late January, federal transportation officials released a plan to reduce the tens of thousands of road deaths that occur every year, an issue that has become more significant since the beginning of the coronavirus pandemic.

“We cannot and should not accept these fatalities as simply a part of everyday life in America,” said Transportation Secretary Pete Buttigieg. “No one will accomplish this alone. It will take all levels of government, industries, advocates, engineers and communities across the country working together toward the day when family members no longer have to say good-bye to loved ones because of a traffic crash.”

Pandemic’s impact

Roadway safety in the United States had increased for decades before the pandemic, primarily due to enforcement of seat belt laws and vehicle safety features, such as airbags, improved braking, and stability control. Yet, the first year of the pandemic saw a 7.2 percent rise in U.S. roadway deaths from 2019. Some experts saw this rise in reckless driving as due, in part, to the isolation associated with the pandemic lockdowns. 

“You’ve been cooped up, locked down, and have restrictions you chafe at,” said Frank Farley, a professor of psychology at Temple University in Philadelphia.

In the early months of the COVID pandemic, insurers were giving rebates for personal auto policies, spurred by reductions in miles driven and anticipation of fewer accidents. However, it quickly became clear that reduced miles driven didn’t automatically lead to fewer deadly accidents. Instead, reckless driving – and fatalities – increased.

The end of pandemic shutdowns hasn’t helped either, with the U.S. Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) estimating that 31,720 people died in motor vehicle traffic crashes for the first nine months of 2021, rising about 12 percent from the 28,325 fatalities projected for the first nine months of 2020. In Q1 of 2020, traffic fatalities were 1.12 per 100 million miles driven. By the end of Q3 of 2021, this number had spiked to 1.41 per 100 million miles driven.

What can be done?

The federal infrastructure deal promises to spend more on new safety measures, with the goal of eliminating road deaths. With this in mind, the Department of Transportation is implementing a Safe System Approach, under the premise that fatal accidents can be avoided if individuals understand the need for safe driving and accept that crashes can be avoided. The aim is zero traffic deaths.

Indeed, the Safe System Approach, which has been adopted across several countries in Europe, has seen remarkably positive results. Traffic fatalities fell 50 percent In Sweden and the Netherlands between 1994 and 2015.

“There are communities that have gotten to [zero traffic fatalities] already,” added Buttigieg. “And I’m not just talking about Oslo,” which experienced zero pedestrian deaths in 2019, “but a place like Hoboken, N.J., in the U.S. has seen multiple years with zero deaths.”

Auto insurance premium rates are affected by many factors, and accident and fatality trends are a major ones. Reckless driving trends – combined with increasing auto repair costs associated with safety, efficiency, and comfort – can only continue to put upward pressure on rates. Individual behavior and government policies must converge in the direction of improving responsibility and safety for all drivers.

P/C Insurers’ Profits Still Under Pressure

The profitability of the U.S. property/casualty insurance industry is expected to remain under pressure, according to the latest underwriting projections released by Triple-I and Milliman actuaries. Speaking at a members only webinar yesterday, the actuaries said this is due to continued deterioration in personal lines.

The sector’s combined ratio – the most commonly used measure of underwriting profitability – is seen running at an estimated 101.3 combined ratio for 2021. A combined ratio under 100 percent indicates an underwriting profit, and one above 100 percent indicates a loss.

Dr. Michel Léonard, vice president, senior economist, and head of Triple-I’s Economics and Analytics Department, said the industry’s performance continues to be “significantly constrained” by higher-than-average inflation and lower underlying growth.

Dale Porfilio, Triple-I chief insurance officer, noted that the insurance industry had the worst full-year catastrophe losses since 2017 with the Texas freeze, Hurricane Ida, wildfires and tornadoes.

“Healthy premium growth in 2022 and 2023 is possible from an economic recovery and a hard market,” he said, noting however, that uncertainty from COVID-19 continues to put pressure on rates and profitability.  “Inflation, supply chain, and riskier insured behavior are also contributing to loss pressures.”

On the personal auto side, Porfilio said the 2021 estimated combined ratio has increased to 99.9 due to deteriorating non-catastrophe loss trends combined with excess catastrophe losses.

“Loss pressures forecast for 2022 and 2023 will likely result in profitability similar to pre-pandemic levels,” he said.  “Miles driven are back to 2019 levels, but with riskier driving behaviors such as speeding and impaired driving.”  

On the commercial auto side, underwriting losses are forecast to continue through 2023, but improve year-over-year said Dave Moore, president and consulting actuary at Moore Actuarial Consulting.

“We continue to observe a significant rebound in premium growth due to the economic recovery and the hard market,” Moore said. He cited a recent paper published by Triple-I, funded by a research grant from the Casualty Actuarial Society (CAS), that quantifies the impact of “social inflation” on commercial auto liability claims.

“Based on this research, we estimate that social inflation increased commercial auto liability claims by more than $20 billion between 2010 and 2019,” Moore said. “This can be influenced by a variety of factors, including negative public sentiment about larger corporations, litigation funding, and tort reform rollbacks.”

Jason B. Kurtz, a principal and consulting actuary at Milliman, said general liability underwriting losses are expected to continue, but profitability should improve due to rate increases.  Looking at the workers compensation line, Kurtz noted that underwriting profits continue, although margins continue to shrink.

“The pandemic recession, remote work, and economic recovery are still impacting volume and location of workers comp risk,” he said. “Claim frequency remains below pre-pandemic levels and if the trend of large reserve releases on prior accident years continues, 2021 is likely to be another profitable year.” 

Learn More:

What’s Happening With Auto Insurance Premiums

Trends and Insights: Drivers of Homeowners’ Insurance Rate Increases

Social Inflation and Loss Development

Workers Comp:Resilient and Relevant

Despite early “dire estimates” of how the COVID-19 pandemic might affect the workers compensation insurance sector, the system has proved to be resilient, according to Bill Donnell, president and CEO of the National Council on Compensation Insurance (NCCI).

Triple-I CEO Sean Kevelighan recently spoke with Donnell about a range of workers comp topics, starting with how the line has managed to buck the hard-market trend affecting much of the rest of the industry. Workers comp plays a critical role in the U.S. economy and is the second-largest line of commercial insurance, with $42 billion in premium annually. As part of its mission to foster a healthy workers compensation system, NCCI gathers data, analyzes industry trends, and provides objective insurance rate and loss cost recommendations. 

While much of the rest of the property and casualty insurance sector has been marked by rising rates in recent years, Donnell said, “Workers compensation rates have been trending down, unlike others in the marketplace.”

Even with rates falling, he said, the line has seen “seven years of underwriting gains and favorable combined ratios.” Combined ratio is the most commonly cited measure of profitability for individual insurers and for the industry.

Donnell added that, in 2020, workers comp writers had $14 billion in reserves.

“It’s a resilient system,” he said.

Donnell also offered his perspective on how the nearly 100-year-old industry can stay relevant in the years ahead.

“It’s about modernizing data and analysis,” he said. “It’s about attracting the best talent, and never losing focus about why we exist, which is helping injured workers and their families. I can’t think of a more noble mission than that one.”

Triple-I, HBCU IMPACT Partner to Recruit African-American Talent

Triple-I and HBCU IMPACT have joined forces in a career-building campaign aimed at recruiting students at historically black colleges and universities (HBCUs) to the insurance industry.

The acronym, IMPACT, stands for “Insurance Mentoring Program Advance Career Track”. The organization’s co-founders say they are aggressively sharing the “good news” of insurance career opportunities with students from all disciplines. 

“The war for talent in our industry is indeed real, but it is also an extremely exciting time of corporate transformation and technological advancement,” said Triple-I CEO Sean Kevelighan.  Even before the “Great Resignation,” the insurance industry faced a talent gap. Much of the workforce is reaching retirement age, and the median age of insurance company employees is higher than in other financial sectors.

The U.S. Bureau of Labor Statistics reports that, as of 2019, African-Americans made up only 12.4 percent of the insurance industry’s employees.  A study conducted by the Independent Insurance Agents & Brokers of America (IIABA) in 2018 found that only 2 percent of established agencies had at least one African-American principal.

“We are going around like evangelists, letting the next generation of black talent know that insurance is a place where you can build a career, learn skills that are transferable, and you can make a lot of money,” said Rebekah Ratliff, mediator/arbitrator, founder of CCM Consulting Associates, LLC and HBCU IMPACT co-founder.

“Ultimately, we want to achieve an increased representation of black talent in the industry – not just at the entry level, but we are also looking to groom our next black executives,” said Ngozi Nnaji, founder of Ako Insurance Consulting, LLC and Ako Brokerage Services, LLC and an HBCU IMPACT co-founder. “HBCU IMPACT is proud to join forces with Triple-I to spread the word.”

The campaign kicks off Black History Month – which also is Insurance Careers Month – with the launch of HBCU IMPACT’s new website and Triple-I’s release of a video series titled “Insuring Success.”

Triple-I isn’t alone among organizations seeking to increase diversity and inclusion in insurance.

Zurich North America in January launched its Zurich Fellow Scholarship to help “diverse talent” pursue advanced degrees in insurance fields, Jessica Aguilar, head of talent acquisition for Zurich, told Business Insurance. The American Property Casualty Insurance Association (APCIA) and its members helped launch the Insurance Careers Movement (ICM) in 2015 to focus on workforce development and diversity as key industry priorities. More than 1,000 insurers, agents and brokers, trade associations, regulators, media organizations, and others are currently working together as part of Insurance Careers Month, according to ICM managing director Marguerite Tortorello.

#Insurancecareersmonth #ICM2022 #blackhistorymonth #insuringsuccess

Triple-I, CAS Quantify Social Inflation’s Impact on Commercial Auto

The phenomenon known as “social inflation” accounted for $20 billion in commercial auto liability claims between 2010 and 2019, a new study by Triple-I and the Casualty Actuarial Society (CAS) finds.

Social inflation isn’t a new term. Warren Buffett used it in the 1970s to describe “a broadening definition by society and juries of what is covered by insurance policies.” It has since become common parlance among insurers and risk managers for a range of factors causing losses in certain lines to rise faster than general inflation would predict. These include:

  • Class-action lawsuits;
  • Growing awards from sympathetic juries;
  • Third-party litigation funding, in which investors finance lawsuits against large companies in return for a share in the settlement; and
  • Rollbacks of tort reforms that were intended to control costs in the wake of the 1980s “liability crisis”.

Hard to measure, important to understand

Reliably quantifying social inflation for rating and reserving purposes is hard because it’s just one of many factors pressuring pricing. The paper, authored by actuaries James Lynch and David Moore, uses “standard actuarial metrics and visualizations to demonstrate how actuarial insights can be presented to an interested lay audience, such as lawmakers, regulators, the news media, and the public.”

This is an important contribution to the public policy discussion because actuaries are well positioned to spot shifts in loss severity.

Separately, Triple-I has published an “Issues Brief” that succinctly describes the drivers of social inflation, as well as its potential impact on insurers, policyholders, and the economy and society.

“More frequent suits and bigger awards can lead to increased insurance costs as rates are adjusted to reflect the changing risk profile – or even to insurers ceasing to write particular forms of coverage,” the brief says. “Higher premiums tend to be passed along to consumers in the form of higher prices and, in extreme cases, can ripple through the entire economy, creating conditions analogous to the 1980s liability crisis.”

In the 1980s, liability claims were pushing the U.S. insurance industry to the brink of collapse. Tort reforms – ranging from capping non-economic damages and limiting contingency fees to specifying statutes of limitations and eliminating “joint and several” liability – were enacted, and losses declined. It has been argued that legislative efforts to roll back these reforms in many states have contributed to social inflation, but the research is not conclusive.

Insurance Careers: Opportunity in Risk

February is “Insurance Careers Month” – a great time to remind the world that insurance isn’t boring!

“If you’re looking for tech, if you are looking to be a part of innovation, the insurance industry is definitely something people should consider,” Marguerite Tortorello, managing director of the Insurance Careers Movement (ICM), says in this brief video. ICM is a grass-roots initiative consisting of more than 1,000 organizations inspiring people to choose insurance as a career; identifying, developing, and retaining leaders; and advancing diversity, equity, and inclusion in the industry.

Long before today’s technology, insurance was the original “big data” industry. High-speed computing, telecommunications, and sophisticated modeling and analytics have only increased our ability to gather, organize, and analyze data to help mitigate and share risk and empower families, businesses, and communities to bounce back from calamity.

In addition, the pandemic has taught us that a globally interconnected economy is fraught with vulnerabilities and inequities that need to be addressed as the world navigates the “new normal.” Insurance touches all of these challenges and opportunities.

“There are so many exciting things happening,” Tortorello says, from automobile telematics and cybersecurity to disaster preparation and response, in roles from underwriting, claims, and loss control to customer service, marketing, and more. 

Throughout February, ICM’s members will be – even more than usual – sharing stories and insights and showcasing opportunities, using the hashtags #insurancecareersmonth and #ICM2022. Whether you’re a recent graduate, a veteran, someone looking to change careers, or a retiree interested in bringing your talents back into the game, insurance offers tremendous potential to do interesting work and have an impact.

#workininsurance #insuranceisntboring

Triple-I Brief Explains Rising Homeowners’ Insurance Premium Rates

Homeowners’ insurance premium rates have risen significantly since the pandemic and are likely to keep increasing. It’s important for consumers and policymakers to understand why this is happening and why it’s likely to continue, so Triple-I has published an Issues Brief on the topic.

From 2017 through 2021, premium rates are up 12.2 percent on average nationwide, according to S&P Global Market Intelligence data. Much of this can be attributed to pandemic-related supply-chain issues and labor shortages driving up the cost of home repairs and replacement.

But, as the Issues Brief shows, longer-term trends are in play – most significantly, more than 40 years of rising natural catastrophe losses. Average insured cat losses are up approximately 700 percent since the 1980s, due in part to increased frequency and intensity of events and to population shifts into disaster-prone regions. The brief cites U.S. Census Bureau data showing that the number of housing units in the United States has increased most dramatically since 1940 in areas most vulnerable to weather and climate-related damage.

It also shows that homeowners’ insurance premium rates have generally trailed increases in home replacement costs.  As a result, homeowners’ coverage has been an unprofitable business line for insurers in recent years – an unsustainable long-term trend that has been exacerbated by the pandemic’s disruption of the supply chain and the global economy.

Learn More

Flood: Beyond Risk Transfer

Hurricane Season: More Than Just Wind and Water

Fighting Wildfires With Innovation

Facts + Statistics: Homeowners’ and Renters’ Insurance

For even more resources, check out Triple-I’s Resilience Accelerator.

California Takes Top Spot on ATRA’s “Hellholes” List; Pennsylvania Falls to No. 4

California has reclaimed its top spot on the “Judicial Hellholes” list maintained by the American Tort Reform Association (ATRA).

“California’s appellate courts are the first to hold e-commerce companies strictly liable for products sold on their sites,” ATRA writes in its 2021-2022 report. “Baseless Prop-65 lawsuits thrive in courts, and the volume of litigation continues to skyrocket.”

The report also points to what it calls “frivolous” Private Attorney General Act (PAGA) and Americans with Disability Act (ADA) lawsuits and says the state’s Lemon Law “provides windfalls for plaintiffs’ lawyers.”

New York State is a close number two, ATRA says, “as the two jurisdictions battle it out for the most ‘no-injury’ class action lawsuits and the most claims under the ADA.” It adds that New York “is a preferred jurisdiction for asbestos litigation and, like California, the legislature ignores the need for reform and continues to push a liability-expanding agenda.”

Georgia has risen to number three on the basis of what ATRA calls the “significant deterioration” of its civil justice system.

“The Georgia Supreme Court eliminated apportionment of fault in certain cases and expanded bad faith liability for insurers,” ATRA says. “It also adopted an expansive view of jurisdiction of its courts over out-of-state businesses. Nuclear verdicts are bogging down business, and third-party litigation financing is playing an increasing role in litigation.”

Pennsylvania fell from number one to number four, but ATRA says this “was in no way a reflection of progress or improvements made in the state, but rather indicative of the number of issues plaguing other jurisdictions.”

ATRA is a Washington, D.C.-based group formed in 1986 and dedicated to tort and liability reform. It has published the Judicial Hellholes report since 2002.