All posts by Jeff Dunsavage

Auto Insurance, Homeowners Insurance, Insurers and the Economy, Legal Environment

Illinois Bill Highlights Need for Education
on Risk-Based Pricing
of Insurance Coverage

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Legislation being considered in Illinois underscores the need for legislators and other policymakers to become better educated about the importance of risk-based pricing and how it works.

The Motor Vehicle Insurance Fairness Act would bar insurers from considering nondriving factors, such as credit scores, when setting premium rates. The prohibitions include factors that actuaries have demonstrated correlate strongly with the likelihood of a driver eventually submitting a claim, as well as ones insurers already are prohibited from using.

This suggests a lack of understanding about risk-based pricing that is not isolated to Illinois legislators – indeed, similar proposals are submitted from time to time at state and federal levels.  

Confusion is understandable

Risk-based pricing means offering different prices for the same coverage, based on risk factors specific to the insured person or property. If policies were not priced this way, lower-risk drivers would subsidize riskier ones. Charging higher premiums to higher-risk policyholders helps insurers underwrite a wider range of coverages, improving both availability and affordability of insurance.

The concept becomes complicated when actuarially sound rating factors intersect with other attributes in ways that can be perceived as unfairly discriminatory. For example, concerns are raised about the use of credit-based insurance scores, geography, home ownership, and motor vehicle records in setting home and car insurance premium rates. Critics say this can lead to “proxy discrimination,” with people of color in urban neighborhoods being charged more than their suburban neighbors for the same coverage.

Confusion is understandable, given the complex models used to assess and price risk. To navigate this complexity, insurers hire actuaries and data scientists to quantify and differentiate among a range of risk variables while avoiding unfair discrimination.

Appropriate protections are in place

It’s important to remember that insurers don’t make money by not insuring people. They are in the business of pricing, underwriting, and assuming risk.

Because of the critical role insurers play in facilitating commerce and protecting the lives and property of individuals, insurance is one of the most heavily regulated industries on the planet. To ensure that sufficient funds are available to pay claims, regulators require insurers to maintain a cushion called policyholder surplus.

Credit rating agencies, such as Standard & Poor’s and A.M. Best, expect insurers to have surpluses exceeding what regulators require to keep their financial strength ratings. A strong financial strength rating enables insurers to borrow money at favorable rates – further promoting insurance availability and affordability.

On top of these constraints, state regulators have the authority to limit the rates insurers can charge within their jurisdictions.

No profit, no insurers — no insurers, no coverage

Like any other business, insurers must make a reasonable profit to remain solvent. Because they can’t just move money around as more lightly regulated industries can, the only way to generate underwriting profits is through rigorous pricing and expense and loss controls. Insurers don’t want to overcharge and send consumers shopping for a better price, or undercharge and experience losses that erode their ability to pay claims.

In this context, it’s important to note that personal auto and homeowners insurance premium rates have remained relatively flat as inflation and replacement costs have soared through the pandemic and supply-chain issues related to Russia’s invasion of Ukraine (see chart below).

During this period, writers of these coverages have struggled to turn an underwriting profit. Personal auto has been a primary driver of the overall industry’s weak underwriting results.  Dale Porfilio, Triple-I’s chief insurance officer, recently said the 2022 net combined ratio for personal auto insurance is forecast at 111.8, 10.4 points worse than 2021 and 19.3 points worse than 2020.  Combined ratio represents the difference between claims and expenses paid and premiums collected by insurers. A combined ratio below 100 represents an underwriting profit, and one above 100 represents a loss. 

Even as inflation moderates, loss trends in both of these lines – associated with increased accident frequency and severity in auto and extreme-weather trends in homeowners and auto – will require premium rates to rise. The question is: Will the cost fall evenly across all policyholders, or will rates more accurately reflect policyholders’ risk characteristics?

Protected classes

The United States recognizes “protected classes” – groups who share common characteristics and for whom federal or state laws prohibit discrimination based on those traits. Race, religion, and national origin are most commonly meant when describing protected classes in the context of insurance rating, and insurers generally do not collect information on these “big three” classes. Any discrimination based on these attributes would have to arise from using data that might serve as proxies for protected classes.

Algorithms and machine learning hold great promise for ensuring equitable pricing, but research shows these tools can amplify implicit biases.

The insurance industry has been responsive to such concerns. For example, recent Colorado legislation requires insurers to show that their use of external data and complex algorithms does not discriminate against protected classes, and the American Academy of Actuaries has offered extensive guidance to the state’s insurance commissioner on implementation. The Casualty Actuarial Society also recently published a series of papers (see links at end of post) on the topic.

Correlation matters

Certain demographic factors have been shown to correlate with increased risk of submitting a claim. Gender and age correlate strongly with crash involvement, as the National Highway Traffic Safety Administration (NHTSA) data illustrated at right shows.  

Likewise, National Association of Insurance Commissioners (NAIC) data below clearly shows higher credit scores correlate strongly with lower crash claims.

Similar correlations can be shown for other rating factors. It’s important to remember that no single factor is determinative – many are used to assess a policyholder’s risk level.

Consumers “get it” – when it’s explained to them

A recent study by the Insurance Research Council (IRC) found consumer skepticism about the connection between credit history and future insurance claims appears to decline when the predictive power of credit-based insurance scores is explained to them. Through an online survey with more than 7,000 respondents, IRC found that:

  • Nearly all believe it is important to maintain good credit history, and most believe it would be “very” or “somewhat” easy to improve their credit score;
  • Consumers see the link between credit history and future bill paying but are less confident about the link between credit history and future insurance claims.
  • After reading that many studies have demonstrated its predictive power, most agree with using credit-based insurance scores to rate insurance, especially for drivers with good credit who could benefit.

If consumers “get it” when you share the data with them, perhaps policymakers and legislators can, too.

Learn More:

Triple-I Issues Briefs

Risk-Based Pricing of Insurance

Race and Insurance Pricing

Personal Auto Insurance Rates

Drivers of Homeowners Insurance Rate Increases

How Inflation Affects P/C Insurance Premium Rates – And How It Doesn’t

The Triple-I Blog

Inflation Trends Shine Some Light For P&C, But Underwriting Profits Still Elude Most Lines

Education Can Overcome Doubts on Credit-Based Insurance Scores, IRC Survey Suggests

Matching Price to Peril Helps Keep Insurance Available & Affordable

Bringing Clarity to Concerns About Race in Insurance Pricing

Delaware Legislature Adjourns Without Action on Banning Gender as Auto Insurance Factor

Triple-I: Rating-Factor Variety Drives Accuracy of Auto Insurance Ratings

Auto Insurance Rating Factors Explained

The Casualty Actuarial Society

• Defining Discrimination in Insurance

• Methods for Quantifying Discriminatory Effects on Protected Classes in Insurance

• Understanding Potential Influences of Racial Bias on P&C Insurance: Four Rating Factors Explored

• Approaches to Address Racial Bias in Financial Services: Lessons for the Insurance Industry

Insurers and the Economy

How Inflation Affects P&C Rates & How It Doesn’t

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Triple-I fields a lot of questions from consumers and the media as to exactly how inflation affects insurance premium rates. As we explain in a new Issues Brief, the relationship between inflation and rates is, in one sense, straightforward – and yet the outcomes are not necessarily what you might expect.

As material and labor costs rise, the cost to repair and replace damaged homes and vehicles increases. If premium rates didn’t reflect these increased costs, insurers would quickly exhaust the funds they set aside – “policyholder surplus” – to ensure that they can afford to keep their promises to pay all claims. If losses and expenses exceed revenues by too much for too long, they risk insolvency.

But insurers do more than pay claims: They employ people (labor costs) and conduct business operations (supplies and energy costs); and, if they are to remain in business, they have to earn a reasonable profit.

So, when inflation and replacement costs rise, one might reasonably expect a proportionate increase in auto and homeowners insurance premium rates. But, as the charts below show, rates remained relatively flat during 2021’s sharply higher costs that coincided with the height of the COVID-19 pandemic.

Chart, bar chart Description automatically generated

In addition to not increasing rates proportionately to rising costs, personal auto insurers – expecting reduced losses as fewer drivers were on the road during lockdown – returned about $14 billion to policyholders through cash refunds and account credits. While loss ratios fell briefly and sharply in 2020, they have since climbed steadily to exceed pre-pandemic levels.

With drivers fully on the road again, this loss trend is expected to continue.

It’s important to remember that the decreases in CPI and replacement costs indicated above do not represent cost declines but, rather, reduced rates of growth. These and other forces – such as unfavorable accident fatality trends and population shifts into disaster-prone regions – will continue to apply upward pressure on premium rates.

Learn More:

Inflation Trends Shine Some Light for P&C, But Underwriting Profits Still Elude Most Lines

Monetary Policy Drives Economic Prospects; Geopolitics Limits Infation Improvement

Industry Financials, Insurers and the Economy

Inflation Trends Shine Some Light for P&C, But Underwriting Profits Still Elude Most Lines

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Moderating inflation and replacement costs provide glimmers of hope for property & casualty insurers, but underwriting profitability will remain a challenge for most lines of business for the foreseeable future, according to actuaries at Triple-I and Milliman, a risk-management, benefits, and technology firm. Their findings were presented at a Triple-I’s quarterly members-only webinar.

Dr. Michel Léonard, Triple-I chief economist and data scientist, forecast that costs of materials and labor involved in replacing or repairing insured property will decline from 8.1 percent at year-end 2022 to 4.5-6.5 percent at the end of 2023 on the way to 0.9 percent in 2024.  Supply-chain issues since the start of the COVID-19 pandemic and Russia’s invasion of Ukraine have kept replacement costs at historic highs.

When the cost to repair or replace damaged cars or homes is high, premium rates that determine how much policyholders pay for coverage should rise proportionately. As Triple-I has previously reported, though, this has not been the case for homeowners and auto insurance.  Premium rates for both of these lines of insurance have not kept up with rising costs. As a result of these and other factors, insurers have struggled to remain profitable.

Personal auto replacement costs, Dr. Léonard projected, will fall from nearly 10 percent to near 0 percent by 2024. Homeowners replacement costs are predicted to fall from 7.6 percent to below 2 percent by 2024.

Worsening profitability generally

The P&C industry’s 2022 combined ratio – a measure of underwriting profitability – is estimated at 105.8, a 6.3-point worsening from 2021. Combined ratio represents the difference between claims and expenses paid and premiums collected by insurers. A combined ratio below 100 represents an underwriting profit, and one above 100 represents a loss. 

For the overall P&C industry underwriting projections, Porfilio said, “We forecast premium growth of 8.4 percent in 2022 and 8.5 percent in 2023, primarily due to hard market conditions and exposure growth.”

The personal auto line of insurance has been a primary driver of the industry’s weak underwriting results. Dale Porfilio, Triple-I’s chief insurance officer, said the 2022 net combined ratio for personal auto insurance is forecast at 111.8, 10.4 points worse than 2021 and 19.3 points worse than 2020. He said supply-chain disruption, labor shortages, and costlier replacement parts all contribute to current and future loss pressures.

For the commercial multi-peril line, Jason B. Kurtz, a principal and consulting actuary at Milliman, said underwriting losses are expected to continue.

“Insurers will need to consider rate increases to offset economic and social inflation loss pressures,” Kurtz said.

Dave Moore, president of Moore Actuarial Consulting, said the 2022 combined ratio for commercial auto is forecast to have worsened in 2022. Moore also stated that general liability is deteriorating.

“We forecast a small underwriting profit for 2023 and 2024, but inflation and geopolitical risk put pressure on these forecasts,” he said, adding, “premium growth from the hard market is forecast to slow in 2022 to 2024.”  

For the commercial property line, Kurtz noted that the industry is seeing strong premium growth and that rate increases should help alleviate some of the pressure from catastrophe losses. Despite Hurricane Ian, he said he expects an underwriting profit in 2022, continuing into 2023 and 2024.

Donna Glenn, chief actuary at the National Council on Compensation Insurance, noted that the workers compensation line of business has seen declines in rates and loss costs for several years, partially driven by reductions in on-the-job accident frequency. This line, Glenn added, is expected to continue its profitability.

Learn More:

Drivers of Homeowners Rate Increases (Triple-I Issues Brief)

Personal Auto Insurance Rates (Triple-I Issues Brief)

Risk-Based Pricing of Insurance (Triple-I Issues Brief)

Auto Insurance, Legal Environment

Florida Auto Legislation, on Heels of 2022 Reforms, Suggests State is Serious About Insurance Crisis Fix

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Florida legislation proposed last week would prevent the state’s motorists from assigning their legal rights in auto insurance claims to repair shops.  

Assignment of benefits (AOB) is a standard practice in the insurance world. In Florida, however, this efficient, customer-friendly way to settle claims has long served as a magnet for fraud. The state’s legal environment has encouraged vendors and their attorneys to solicit unwarranted AOBs from tens of thousands of Floridians, conduct unnecessary or unnecessarily expensive work, then file tens of thousands of lawsuits against insurers that deny or dispute the claims.

Legislation approved in the closing weeks of 2022 took several crucial steps toward resolving the state’s property/casualty insurance crisis, including elimination of the state’s AOB laws with respect to property claims. But it didn’t affect auto-related AOBs.

Intended to help consumers

Florida’s auto glass law – originally intended to encourage drivers to repair or replace damaged windshields by prohibiting insurers from charging deductibles for windshield damage – is being exploited by glass-repair shops all over Florida. Unscrupulous vendors hire workers to canvas neighborhoods, enticing vehicle owners to sign up for “free” windshield replacements. They get car owners to sign an AOB contract that assigns the owners’ legal rights to the repair shop.

The shop then can sue the consumer’s insurer if it doesn’t pay what the shop demands. The result is a lawsuit by the vendor in the consumer’s name.

Lawyers have a strong incentive to file suits, as the insurer is required to pay their fees if it loses in court.  This has resulted in a “sue-to-settle” system, in which lawyers file suits over very small disputes to force a settlement.

Hope for the future

“What began as a small regional issue a decade ago with a few lawyers and some auto repair shops has blown up to become a major problem throughout the state,” said Mark Friedlander, Triple-I’s director of corporate communications and a Florida resident. Between 2011 and 2021, the number of auto glass lawsuits in Florida rose more than 4,000 percent, from 591 to more than 28,000. A National Insurance Crime Bureau (NICB) analysis found that Florida had the highest number of questionable auto-glass claims among the 50 states in 2020.

WhileFlorida is a “no-fault” state – meaning both parties in an accident submit claims to their own insurer, regardless of fault – it ranks high for attorney involvement in accident claims, the Insurance Research Council (IRC) has found. Attorney involvement is associated with higher costs, and IRC also has found Florida to be among the least affordable auto insurance markets.

The new measure, filed for the 2023 legislative session that starts March 7, offers hope that Florida is finally serious about solving the decades-old mechanisms that have fed the state’s current insurance crisis. Taken together, the two pieces of legislation will help stabilize Florida’s insurance market, but it will take years for the impacts of fraud and legal system abuse to be wrung out of the system.

Learn More:

Fraud, Litigation Push Florida Insurance Market to Brink of Collapse

Florida’s AOB Crisis: A Social-Inflation Microcosm

Careers and Employment

Nurturing Tomorrow’s Risk & Insurance Leaders

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By Loretta L. Worters, Vice President, Media Relations, Triple-I

Forget the stereotype of the boring door-to-door life insurance salesperson – aka Ned Ryerson from the movie Groundhog Day.  Insurance is not just about sales – it is a purpose-driven industry with countless opportunities to make a positive impact on individuals, businesses, and communities.

The insurance industry employs more than 2.8 million people spanning an incredible range of skills and talents, from art historians to actuaries; data scientists to drone pilots; marketers to M&A specialists; and, of course, from underwriters to claims professionals.

February’s annual celebration of Insurance Careers Month offers a reminder of the industry’s opportunities.

First organized in 2016, Insurance Careers Month seeks to inspire young people to choose insurance as a career, share what makes the industry a great one to work in, and collaborate to recruit, nurture, and retain emerging leaders.

“Insurance is the backbone of the global economy, providing security, recovery, and sustainability,” said Triple-I CEO Sean Kevelighan. “Whether just starting out in the workforce or thinking about a career enhancement, there are a wealth of opportunities across a broad spectrum of pursuits.”  

To raise awareness about insurance as a career path, Triple-I continues to partner with the HBCU I.M.P.A.C.T Initiative, Inc.® (IMPACT), a campaign aimed at recruiting students at historically Black colleges and universities (HBCUs) to the insurance industry. 

Lack of exposure to the insurance industry and to professional networks are the top barriers for Black professionals, according to a study conducted by Marsh. That’s why the Black Insurance Industry Collective (BIIC), a nonprofit organization affiliated with The Institutes, is focused on accelerating the advancement of African-American insurance professionals. The goal of BIIC is to empower these professionals to expand their leadership development opportunities by emphasizing mentorship and sponsorship while collaborating with like-minded organizations.  

“We contributed to the formation of the BIIC as part of our overall Diversity, Equity, and Inclusion initiative,” said Peter L. Miller, CPCU, president and chief executive officer of The Institutes. “We look forward to working with the BIIC Leadership Council as they cultivate and preserve a culture of inclusion for all who work in and are served by the risk-management and insurance community.”

The Insurance Industry Charitable Foundation (IICF) has a Talent HubTM, an online resource center created to help job seekers learn about opportunities in the insurance industry and for the insurance carriers, reinsurers, brokers, and agents to reach a new and diverse talent pool. 

“As the Baby Boomers near retirement, the insurance industry will need to fill a generation’s worth of jobs,” said IICF CEO Bill Ross.  “The goal of the IICF Talent HubTM is to introduce a new audience of non-traditional job seekers to the industry and the rewarding jobs and careers that are available.”

Talent development and the future of work will also be two key topics at the IICF Inclusion in Insurance Global Conference, June 13-15, 2023, in New York City.

Other organizations – like RIMS, the Spencer Educational Foundation and Gamma Iota Sigma – promote and advance risk-management and insurance education at the undergraduate and graduate levels.

In conjunction with Insurance Careers Month, the American Property Casualty Insurance Association’s (APCIA) 5th annual Emerging Leaders Conference, to be held February 5-7 in Charleston, S.C., will give younger industry professionals access to executive thought leadership, networking opportunities across job functions, and an agenda focused on professional and personal development. 

“The insurance industry is facing the most competitive labor market in decades, making retaining and developing talent a top priority,” said Marguerite Tortorello, managing director, Insurance Careers Movement, an industry initiative designed to raise awareness of the diverse career options risk management and insurance offer. “The Insurance Careers Movement is designed to bring together and recognize exceptional rising stars in our industry; an industry we are most proud to be a part of.”

As the next generation of professionals embark on their careers, they will find it’s an exciting time to join the insurance industry – an industry that embraces people who can drive change, innovate, and solve problems.  They will find that with a career in insurance they can contribute meaningful work, making a difference in the world every single day. 

Auto Insurance, Highway Safety, Theft

Online Promotionof Car-Theft Techniques Adds to Upward Pressure on Insurance Premiums

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Three anti-crime organizations have asked YouTube to take down all videos that teach people how to steal Kia and Hyundai automobiles. The organizations – the National Insurance Crime Bureau (NICB), the Coalition Against Insurance Fraud, and the International Association of Special Investigation Units (IASIU) – made their request in response to a spike in thefts of these vehicles.

The Highway Loss Data Institute (HLDI) late last year reported that bargain-priced Kia and Hyundai vehicles were being targeted for theft at rates similar to muscle cars and SUVs, based on an analysis of 2021 insurance claims. The spike is due, in part, to the fact that the models being stolen don’t have electronic immoblizers that stop thieves from bypassing the ignition.

Some thieves have even made instructional videos – shared on platforms like YouTube and TikTok – on how to perform the theft procedure using just a screwdriver and a USB cable. Since these videos started appearing on social media, police departments across the U.S. have reported drastic increases in Kia and Hyundai thefts.

In Chicago, for example, where only 328 Kias were stolen in 2021, more than 3,500 were stolen last year, CBS Chicago reported.

“Everyday consumers are being victimized by criminals using social media platforms to learn their newest illegal tricks and techniques,” said David Glawe, president and CEO of the NICB. “Some platforms are not doing enough to protect innocent victims from unnecessary harm.”

Celeste Dodson, president of IASIU, added, “When a vehicle is stolen, it is often not the end of the crime but the beginning. Vehicle thefts are associated with a multitude of criminal activity, including insurance fraud. The cost of these crimes is then passed on to consumers through higher premiums.”

Private-passenger auto insurance premium rates are experiencing upward pressure due to a variety of factors, including:

  • Rising insurer losses due to increasing accident frequency and severity;
  • More fatalities and injuries on the road, leading to increased attorney involvement in claims;
  • Continuing supply-chain issues, leading to rising costs for cars, replacement parts, and labor; and
  • More costly auto repairs due to safer, more technologically sophisticated vehicles.

Thefts of vehicles or components like catalytic converters only increase that pressure to raise rates.

The only way to turn that pressure down is to reduce claims and losses by reducing accidents and thefts. Making it harder for people to learn how to break the law and cause damage by watching online videos would be a small but needed step in that direction.   

Cyber Risk

Despite Warnings,Weak Password Policies Still Invite Cybercrime

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By Max Dorfman, Research Writer, Triple-I

It’s Cyber Security 101: Multi-factor authentication and hard-to-crack passwords are table stakes for preventing incursions.

Nevertheless, “Password,” “12345”, and “Qwerty123” are among the most commonly found passwords leaked on the dark web by hackers, according to mobile security firm Lookout. And, despite the amount of attention the issue receives, the situation does not appear to be improving.

A survey by EY, a consulting firm based in the United Kingdom, found that only 48 percent of government and public sector respondents said they are “very confident in their ability to use strong passwords at work.” The problem is exemplified by a recent study by the U.S. Office of Inspector General – part of the Department of the Interior (DOI), the agency responsible for managing federal lands and natural resources.

Hacking DOI, it turns out, is relatively easy.

In fewer than two hours – and spending only $15,000 – the Inspector General’s Office was able to procure “clear-text” (non-encrypted) passwords for 16 percent of user accounts. In total, 18,174 of 85,944 – 21 percent of active user passwords – were hacked, including 288 accounts with elevated privileges and 362 accounts of senior U.S. government employees.

Much of this issue, according to the report, stems from a lack of multifactor authentication, as well as password complexity requirements that allowed unrelated staff to use the same weak passwords. The Inspector General’s Office found that:

  • DOI did not consistently implement multifactor authentication;
  • Password complexity requirements were outdated and ineffective; and
  • The department did not timely disable inactive accounts or enforce password age limits, which left more than 6,000 additional active accounts vulnerable to attack.

The most commonly reused password was used on 478 unique active accounts. Investigators found that five of the 10 most-reused passwords at DOI included a variation of “password” combined with “1234”.

Simple passwords make hacking easy

With the average person having over 100 different online accounts with passwords, reusing passwords is understandable – but simple passwords make it easy for hackers to access personal data and accounts.

“Compromised, weak and reused passwords still account for the majority of hacking-related data breaches and are one of the top risk issues for most enterprises” said Gaurav Banga, CEO and founder of cybersecurity firm Balbix. In 2020, Balbix found that 99 percent of enterprise users recycle passwords across work accounts or between work and personal accounts.

A growing peril

“The cost of ransomware attacks has increased as criminals have targeted larger companies, supply chains and critical infrastructure,” Allianz says in its Allianz’s 2023 Risk Barometer. “In April 2022, an attack impacted around 30 institutions of the government of Costa Rica, crippling the territory for two months.”

The global insurer goes on to say, “Double and triple extortion attacks are now the norm…. Sensitive data is increasingly stolen and used as a leverage for extortion demands to business partners, suppliers, or customers.”

Part of this growth is due to the rise of “ransomware as a service” – a subscription-based business model that enables affiliates to use existing ransomware tools to execute attacks. Based on the “software as a service” model, it helps bad actors attack their targets without having to know how to code or hire unscrupulous programmers.

Shifting targets

Michael Menapace, an insurance attorney with Wiggin and Dana LLP and a Triple-I Non-resident Scholar, told attendees at Triple-I’s 2022 Joint Industry Forum that “ransomware as a business model remains alive and well.”

What has changed in recent years, he said, is that “where bad actors would encrypt your systems and extract a ransom to give you back your data, now they will exfiltrate your data and threaten to go public with it.”

The types of targets also have changed, Menapace said, with an increased focus on “softer targets—in particular, municipalities” that often don’t have the personnel or finances to maintain the same cyber hygiene as large corporate entities.

Organizations and individuals must take the threat of cyberattacks seriously and do as much as possible to reduce their risk. Improved cyber hygiene policies and practices are a necessary first step.

Industry Financials, Insurance Industry, Insurers and the Economy

Monetary Policy Drives Economic Prospects; Geopolitics Limits Inflation Improvement

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Inflation, interest rates, and recession will dominate the U.S. economic narrative in the first quarter of 2023, shifting in the second and third to a focus on timing of recovery and a more neutral monetary policy and, in the fourth, whether and when the Fed will signal the start of a new easing cycle, according to Triple-I Chief Economist and Data Scientist Dr. Michel Léonard.

“We forecast the U.S. economy to grow 3.2 percent in 2023, up from 2.6 percent in 2022,” Léonard says. The U.S. Consumer Price Index (CPI) ended 2023 at 6.5 percent year over year, down from a high of 9.1 percent year over year in June. “Triple-I expects inflation to continue to decline throughout 2023, though not equally from one to the next quarter. The pace and extent of any inflation slowdown are predicated on improvements in global geopolitical risk.”

P&C underlying growth, which has been below overall GDP since the start of the pandemic, is likely to grow at a faster pace than the rest of the U.S. economy throughout the year.

“We remain cautious and forecast insurance underlying growth for 2023 to be around 3 percent, up from 2 percent in 2022,” Léonard says. “We forecast P&C replacement costs to increase by between 4.5 percent and 6.5 percent year-over-year in 2023. P&C replacement costs increased on average 25 percent since the beginning of the COVID-19 pandemic in 2020.”

Even though Triple-I expects economic fundamentals to improve throughout 2023, line-specific underwriting considerations will continue to depress performance, Léonard says.

Triple-I members can access the Triple-I’s Economic Dashboard, available at the organization’s members-only website. The Dashboard’s ongoing updates allow insurance industry professionals to follow key economic reports (e.g., federal governmental updates on interest rate, unemployment, and housing trends) in real time, adjust forecasts, and recalibrate strategy. Each quarter, the Triple-I’s Outlook provides a road map about which key economic reports will most impact insurance industry performance.

To learn about the benefits of Triple-I membership, click here.

Auto Insurance, Theft

Catalytic Converter Thefts Up, SpurringLawmakers to Act

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By Max Dorfman, Research Writer, Triple-I

Rising thefts of catalytic converters – driven, at least in part, by increased black-market prices for the motor vehicle pollution-control component – have prompted renewed state and federal focus on stopping these crimes.

Converter thefts rose in 2021, with 52,206 reported, up from 1,298 in 2018, according to claims data from the National Insurance Crime Bureau (NICB). Catalytic converters are part of a vehicle’s exhaust system, reducing toxic gas and pollutants and turning them into safe emissions. Though the part itself is valuable—sometimes rising above $1,000 each on the black-market—the precious metals inside can be more valuable than gold. They include palladium, platinum, and rhodium, the latter of which is valued at $20,000 per ounce.

The NICB has found a strong link between “times of crisis, limited resources, and disruption of the supply chain that drives these thefts.”

In late 2022, the U.S. Department of Justice, alongside federal, state, and local law enforcement partners, broke up a network of thieves, dealers, and processors involved in selling stolen catalytic converters to a metal refinery for tens of millions of dollars. The ring spanned nine states, from California to Virginia. The United States is now pursuing forfeiture of $545 million connected to the case.

“This national network of criminals hurt victims across the country,” said FBI Director Christopher Wray. “They made hundreds of millions of dollars in the process—on the backs of thousands of innocent car owners.”

Lawmakers take notice

In 2021, 26 states across the U.S. proposed bills to limit the theft of catalytic converters. Stringent laws in Arkansas, South Carolina, and Texas require scrap metal buyers to maintain records of catalytic converter purchases. In Minnesota, a Catalytic Converter Theft Prevention Program was created for investigation and prosecution of this crime.

More recently, U.S. Rep. Jim Baird of Indiana introduced a federal “Preventing Auto Recycling Theft Act,” which would help law enforcement address these thefts by marking each converter with a traceable identification number and establishing federal penalties.

“Whoever steals or knowingly and unlawfully takes, carries away, or conceals a catalytic converter from another person’s motor vehicle, or knowingly purchases such a catalytic converter, with the intent to distribute, sell, or dispose of such catalytic converter or any precious metal removed therefrom in interstate or foreign commerce shall be fined under this title or imprisoned not more than 5 years, or both,” the legislation says.

Companion legislation has been introduced in the Senate by Sen. Amy Klobuchar of Minnesota and Ron Wyden of Oregon.

Preventive measures can be taken

The NICB recommends several steps to protect yourself from catalytic converter thefts:

  • Install a catalytic converter anti-theft device.
  • Park fleet trucks in an enclosed area that is secured, well lighted, locked and alarmed. 
  • Park personal vehicles, if possible, in a garage. If not possible and the vehicle must be parked in a driveway, consider installing motion sensor security lights. Whether in the garage or outside in the driveway, set the alarm on your vehicle if equipped.
  • Attend a local NICB catalytic converter etching event. If none are currently scheduled in your area, contact a muffler shop that can etch your vehicle’s VIN on the converter, and spray it with a highly visible high-heat paint.

The NICB notes that these thefts can be covered by insurance under the optional comprehensive portion of your insurance policy, which provides coverage for damage to your vehicle not caused by a collision.

Insurance Industry, Insurers and the Economy, Regulation

Data Call Would Hinder Climate-Risk EffortsMore Than It Would Help

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A new data-reporting mandate the U.S. Treasury Department’s Federal Insurance Office (FIO) is considering imposing on certain property/casualty insurers raises a variety of concerns both for insurers and their policyholders.

In response to a request for comments on the proposed data call, Triple-I has told FIO that the requested data would be duplicative, could lead to misleading conclusions, and – by increasing insurers’ operational costs – would ultimately lead to higher premium rates for policyholders.

“Fulfilling this new mandate would require insurers to pull existing staff from the work they already are doing or hire staff to do the new work, increasing their operational costs,” Triple-I wrote. “As FIO well knows, state-by-state regulation prevents insurers from ‘tweaking’ their cash flows in response to change the way more lightly regulated industries can. Higher costs inevitably drive increases in policyholder premium rates.”

President Biden’s Executive Order on Climate-Related Financial Risk, issued in May of 2021, emphasized the important role insurers can play in addressing these risks. The order authorizes FIO “to assess climate-related issues or gaps in the supervision and regulation of insurers” and to assess “the potential for major disruptions of private insurance coverage in regions of the country particularly vulnerable to climate change impacts.”

Triple-I argues that these objectives can be met by using the information insurers already are required to report, as well as other publicly available data. It also suggests that “assessing the potential” for disruptions might not be as productive an endeavor as working to prevent such disruptions by collaborating with the insurance industry to reduce their likelihood.

“There is no dearth of information to help FIO and policymakers address the conditions contributing to climate risk and drive the behavioral changes needed in the near, intermediate, and long term,” Triple-I wrote, reminding FIO that catastrophe-modeling firms prepare their industry exposure data bases from public sources, not insurer data calls. Similarly, abundant public data exists regarding the needs of vulnerable populations and the risks to which they are subject. “What is needed is to build on existing efforts and draw on the voluminous data and analysis already extant to target problem areas that are well understood.”

Insurance availability and affordability are inextricably linked to reducing damage and losses. The best way to keep insurance available and affordable is to reduce the amounts insurers have to pay in claims.

“Less damage leads to reduced claims, helping to preserve policyholder surplus and enabling insurers to limit premium rate increases over time,” Triple-I wrote.

The importance of collaboration with the industry was a major theme of the National Association of Insurance Commissioners (NAIC) response to FIO’s request for comments.

“While we recognize the Treasury’s desire to better understand the impact of climate risk and weather-related exposures on the availability and affordability of the homeowners’ insurance market,” NAIC wrote, “we are disappointed and concerned that Treasury chose not to engage insurance regulators in a credible exercise to identify data elements gathered by either the industry or the regulatory community.”

NAIC contrasted Treasury’s approach to prior data-gathering efforts, such as after Superstorm Sandy, when Treasury initially asked the states for a wide-ranging data set but ultimately agreed to a more focused call. In the current case, NAIC wrote, “The unilateral process Treasury employed thus far is a missed opportunity to work collaboratively with regulators on an issue we have both identified as a priority.”

Insurers are responsibly promoting a more sustainable and resilient environment and economy. The most pressing need now is to help communities adapt and make sure they are adequately insured against events that can’t be prevented.  The NAIC, as well as residual-market administrators in Florida, Louisiana, and California – states where the impacts of climate risk already are playing out – can provide relevant data and insights and help FIO translate them into actionable policy proposals.

Triple-I agrees with the NAIC that FIO should use publicly available data and work with state insurance regulators, who fully understand the risks, market and operational dynamics, and policy structures. Such an approach would spare FIO and insurers unnecessary work and the public unnecessary confusion.