Among the themes running through Triple-I’s 2022 Joint Industry Forum (JIF), a dominant one was the growing importance of predicting and preventing losses, versus the property/casualty insurance industry’s traditional emphasis on transferring risk from policyholders to insurers and assessing and paying claims when they arise.
Increasing severity of weather- and climate-related events, compounded by rising numbers of people moving into the most vulnerable geographies; cyber criminals shifting their targets and evolving their strategies, often protected by nation-state hosts; and legal-system abuse, pushing up litigation costs in ways that ultimately hurt all policyholders are among the factors contributing to the need for this shift in focus.
Against this backdrop, insurers still must price coverage and appropriately reserve for these costly risks while ensuring that their business practices remain equitable and insurance is available and affordable for all who need it. This means financial and economic issues and diversity, equity, and inclusion considerations are always part of the conversation.
Predicting and preventing requires strategy, effective use of data and technology, and partnerships across diverse disciplines and stakeholder groups – along with a focus on educating consumers, policymakers, media, academia, businesses, communities, and others about the complexities of risk and risk management.
Triple-I plays this educational role every day, through its research and media outreach and support; continuous contact with its members, regulators, content partners, and data providers; and participation in and sponsorship of events like JIF.
At JIF 2022, a panel assembled to discuss the importance of diversity, equity, and inclusion (DEI) in the insurance industry.
Jennifer Kyung, Property & Casualty (P&C) chief underwriter, USAA and Triple-I Chair, moderated the discussion, which focused on a wide array of issues, including the talent gap.
“We need to put a focus on talent in the insurance industry, and make sure that the talent is diverse,” Kyung stated in her opening. “We have hundreds of thousands of jobs that we need to fill, and we need to fill those with people who have the best skill sets.”
For Roosevelt C. Mosley Jr., principal and consulting actuary, Pinnacle Actuarial Resources, the approach to DEI has a significant impact. Mosley noted that it is a sensitive issue, with people having different interpretations.
“We all have differences,” Mosley said. “But we have to recognize that we’re different, and if we’re going to serve diverse communities, we need to be diverse, too.”
“Bringing more diverse talent to the industry is good, but that’s not enough,” Mosley added. “They need to feel included. We haven’t completed the process if they don’t feel included.”
For Traci Adedeji, president-elect, CPCU Society, “diversity is differences that exist whether we choose to call them out or not.”
“A DEI strategy really has to be baked into the DNA of an organization,” Adedeji said. “It’s what you want your culture to be.”
Adedeji added that equity and inclusion necessitate intentional actions within an organization.
“When I think of DEI, it’s about considering all the key stakeholders,” said John Tribble, vice president, Agency Operations and Business Development, Church Mutual. “When I think about diversity, it’s simple: does the leadership have the foresight and willingness to step into situations that are uncomfortable for them?”
Tribble added that if one company does not strive for this, a competitor will do it, leading to a loss in market share.
For Rebekah Ratliff, mediator, arbitrator, neutral evaluator and settlement master, JAMS, there is an extra step in the DEI equation.
“The belonging piece to DEI is inviting people to bring their gifts and talents, understanding that it will make the experience richer for everyone,” Ratliff said. “Research shows it’s a business imperative to have diverse thinkers, participants, people from different cultures, backgrounds, and experiences.”
Ratliff furthered the point, saying, “It’s about examining, assessing, and revamping cultures to utilize people in the right spaces, people from underutilized communities. It’s not just about the faces but putting people in the right positions.”
The panelists agreed that this process has to come from the highest echelons of the company. Mandates and incentives, they said, are a necessary part of this.
The question, Kyung posed, is how the insurance industry is doing with DEI compared to other industries, and where further progress can be made.
“Company culture has to be examined,” Ratliff said. “We have to be truthful about the deficiencies and barriers to entry. 400,000 jobs are coming open. Companies are spending millions of dollars replacing technology, but they’re not willing to spend money on the biggest risk: people. People are our biggest asset and our biggest risk.”
“Our work is incomplete,” Mosley said. “I say that because, with 30 years of experience, the industry looks vastly different, but sometimes progress has been slow and difficult.”
“We are doing better but we’re not there,” Adedeji said. “The fact that we’re in this room having this conversation is progress. It’s important to bring in diverse talent, but if the leadership doesn’t lead to mentorship, sponsorship and bubbling up to senior levels of the organization, then we’re being disingenuous.”
Tribble concluded, “A lot of us aren’t comfortable with being uncomfortable.”
Florida took center stage at JIF 2022, as a group of panelists discussed growing courtroom costs and the rise of legal system abuse.
“Legal system abuse is a combination of factors, including social inflation, nuclear verdicts, third party litigation funding, tort reform pullback, cost shifting schemes, and attorney advertising,” opened Ronna Ruppelt, CEO of CLM & Claims Pages, who served as moderator.
Ruppelt added, “Florida is the poster child for legal system abuse.”
The panel analyzed the general landscape of these issues, and how Florida became the epicenter of many of these issues.
They noted that in Florida, roof and windshield claims are part of this cottage industry, driven by plaintiff fee recoveries more than the subject of the litigation itself. The costs of roofs have dramatically increased even in the past three years. This is not primarily driven by disasters.
“In 2021, Florida had 116,000 property insurance lawsuits pending,” Ruppelt said. “The state is on pace for approximately 130,000 in 2022.”
Most states only have a few hundred. California, the most populous state in the U.S., had a mere 3,500 property insurance lawsuits pending in 2021.
“The numbers highlighted are staggering,” said Fred Karlinsky, shareholder and global co-chair of Greenberg Traurig, LLP. “It’s been recognized at the highest levels of state government.”
With the recent gubernatorial election in Florida, this problem has only become more visible. Incumbent Ron DeSantis and his challenger (and former governor of Florida) Charlie Crist debated over the costs of roof replacement, as well as litigation over home insurance.
“There may be a $10,000 judgement award, but millions of dollars of fees,” Karlinsky said.
Indeed, the property insurance market has become similar to health care, with assignment of benefits (AOBs)—in which an insured signs their benefits over to the medical provider—getting paid by insurers. AOBs utilize unscrupulous contractors that come in before the insurers, and “make your home a disaster zone.”
“The insurers have no way to know what the damage was, and now they have to fight these claims,” Karlinsky added, noting that once the insurer enters the court system, it often results in nuclear verdicts.
“Florida is tougher for adjusters,” mentioned Joseph Blanco, the president of Crawford & Company. “After we confirmed up for Hurricane Irma, there have been billboards all over the place saying don’t believe adjusters.”
Attacking the credibility of adjusters, Blanco said, makes it very difficult for insurers. This only adds to unrealistic expectations for claims, making it more challenging to settle pre-litigation.
Though the panel recognized this kind of legal abuse began in the 80’s and experienced upward trends in the 90’s and early 2000’s, there were calls at the time for nationwide tort reform. However, the lawyers involved in these suits have become more sophisticated, making it even more challenging to confront this issue.
“The lawyers involved identify a theory of liability, find litigation funders, create advertisements, and then they go forum shopping,” said Harold H. Kim, the president of the Institute for Legal Reform, and the chief legal officer and executive vice president of the U.S. Chamber of Commerce. “They roll the dice to see if they can achieve a settlement or a nuclear verdict, which shifts the value of negotiations.”
“It’s so pernicious that the corporate community is in the crosshairs,” Kim added. “The stability of the rule of law and the ability to operate a business is critically challenging.”
The panelists agreed that problems surrounding legal abuse are only growing more significant.
“What we have seen is the use of plaintiff attorneys are moving out of Florida to you,” Karlinsky said. “AOBs and the roof phenomena are not just going to be in the large states. We’re seeing them all over the place. The plaintiff’s bar does not have the same restrictions as the insurance industry.”
“What happens in Florida doesn’t stay in Florida,” concluded Kim.
Insurance groups argue that new laws in California and New Jersey that raise the minimum auto liability coverage required for drivers may cause price-sensitive consumers to drop their coverage.
The law in California, signed by Gov. Newsom in October, raises the minimum liability coverage to $30,000 per single injury or death, from $15,000; $60,000 per accident, from $30,000; and $15,000 for property damage, from $5,000. These changes are effective January 1, 2025
The New Jersey law, signed in August 2022 by Gov. Murphy, raises the limits in two steps: first to $25,000 per injury, $50,000 per accident and $25,000 for property damage effective on January 1, 2023 and then to $35,000 per injury and $70,000 per accident on January 1, 2026. Coverage for property damage will remain unchanged for the second increase.
To better understand the impact this will have on insurers and consumers, we sat down with Gary R. La Spisa, II, vice president, Insurance Council of New Jersey, and Janet Ruiz, Triple-I’s director of strategic communications, who specializes in the California insurance landscape.
Why are these laws being passed now?
La Spisa: While the ICNJ understood the need for, and ultimately supported, a move from our current minimums of 15/30/5 to the next currently filed level of 25/50/25 to keep up with average losses, we advocated against imposing a second state-mandated premium increase on drivers with minimum limits.
Ultimately, 1.36 million drivers in New Jersey will face at least one premium hike as a result of the law, at an estimated $130 annual increase. Unfortunately, we cannot estimate the impact of the second hike, as limits of 35/70/25 are not filed in any state.
Ruiz: We’ve seen medical and repair costs increase dramatically and an increase in accidents and fatalities now that pre-pandemic numbers of drivers are back on the road. While inflation, supply-chain issues and litigation costs are on the rise, we are concerned that this will cause drivers who can’t afford increased limits to drop coverage
What are the consequences of consumers dropping coverage?
La Spisa: Presently, the uninsured motorist rate in New Jersey is estimated to be the lowest in the nation, at 3.1 percent. We are concerned that some drivers will drop coverage, which will push this number up and force carriers to increase rates for uninsured/underinsured motorist coverage.
Ruiz: Consumers who drop coverage risk losing their driver’s license, fines, and inability to register their car with the DMV. California now has the highest number of uninsured drivers in the U.S., estimated at 3.6 to 4.1 million people.
What other effects do you anticipate?
La Spisa: New Jersey law offers a bare bones insurance product, which we refer to as the Basic Policy. We expect that as affordability becomes a greater concern some drivers will opt for this limited product, instead of a full Standard Policy.
Ruiz: California law also offers a bare bones, low-cost auto insurance product, which may get more takers as we face affordability issues for low-income drivers. The state is expecting fewer underinsured accidents due to the higher limits. We expect to see more drivers in the low-cost auto program and litigation for higher verdict awards for those who have the higher limits.
Do you believe this will have a ripple effect on other states?
La Spisa: Perhaps. The challenge is striking a balance between adequate coverage and affordable premium so to avoid pricing drivers out of insurance all together.
Ruiz: Many states have already increased the minimum liability limits and may not make changes.
How are insurers responding to these price hikes, or planning to?
La Spisa: Most companies already have a 25/50 bodily injury and a $25,000 property damage product filed in New Jersey, so the impact of the first increase on carriers is primarily on the administrative and IT front as they reprogram their systems and renew policyholders with current minimums at the new standard.
For the second increase, carriers will have significant work to do, including determining pricing for this new limit which does not exist anywhere in the country and filing this new product with the Department before rolling it out.
Ruiz: Insurers will adapt to the new law. Many are reluctant, due to the affordability issues for low-income drivers.
What can consumers do to deal with these increased costs?
La Spisa: Consumers should carefully review their policies and always consider shopping around to find the policy which best fits their needs and budget.
Ruiz: We recommend that people shop and compare. Ways to save include choosing higher deductibles, bundling home and auto insurance, or dropping comprehensive or collision insurance on older cars with low value.
State Farm CEO Michael Tipsord discussed a wide range of insurance industry issues and trends with Triple-I CEO Sean Kevelighan at Triple-I’s 2022 Joint Industry Forum. A unifying thread throughout their conversation was the continued relevance of State Farm’s mutual ownership structure and “captive” agent network in today’s risk and operational environment.
State Farm is unusual among large U.S. insurers in that it has retained its mutual structure and continues to rely primarily on a network of more than 19,000 captive agents to sell its products. Founded in 1922 by a farmer who believed farmers shouldn’t have to pay the same auto insurance rates as city dwellers, State Farm has grown to become the largest home and auto insurer in the United States, in terms of market share and premiums written.
The mutual structure – in which policyholders own the insurer – was popular at the time, but in recent decades many mutuals have converted to stockholder-owned companies to access capital needed to grow more quickly.
“This mutual structure permeates everything we do, every decision we make,” Tipsord said. “My focus is always on what’s in the best long-term interests of that State Farm customer group as a whole.”
Mutuality “gives us the flexibility to make choices that our publicly traded counterparts may not think they have,” he explained. “That mutual structure has to be combined with financial strength. Annual operating results are just a means to that end. We’re not subject to the same pressures” as insurers that have to answer to external shareholders.
Similarly, State Farm’s captive agent workforce – located in all but two U.S. states – “are in their communities, day in and day out. They’re in a position to understand their customers because they’re living with their customers.”
Tipsord noted that 95 percent of State Farm’s business comes through its agents, and “we are investing back” into that workforce.
When the pandemic hit and lockdowns commenced, Tipsord said, “Our agents and team members proactively reached out to their customers – not to sell anything, just to check in, to see if they were okay. To see if they needed any help. There are hundreds of stories of agents identifying elderly who needed help buying groceries. It always comes back to our mission of helping people.”
But the success of State Farm’s mutual model and captive agency force doesn’t absolve the company from the need to evolve with changing conditions. State Farm is investing heavily in “digitally enabling our agents,” Tipsord said, “and our agents and their teams readily adapt” to their customers’ expectations.
Part of that digitization effort was State Farm’s recent investment of $1.2 billion in ADT for a 15 percent stake in the home-security company.
“What was most important in that transaction was the relationship that it created among State Farm, ADT, and Google,” Tipsord said. “This is what I call the $300 million opportunity fund. Let’s dedicate resource so we can look for ways in which you bring these three organizations that have very different skill sets together to help our customers.”
Insurers are expected to post an underwriting loss in 2022, following four years of modest underwriting profits, according to a panel at the Triple-I’s Joint Industry Forum.
The panel was introduced by Paul Lavelle, head of U.S. national accounts for Zurich North America, who noted that the insurance landscape has dramatically changed over the past year.
“The biggest concerns for the world economy are rapid inflation, debt crisis, and the cost of living,” Lavelle said in his opening remarks. “I think that’s why, we as an industry, need to pull this together, and deal with all the variables.”
The panel consisted of Dr. Michel Léonard, Triple-I chief economist and data scientist; Dale Porfilio, Triple-I chief insurance officer; and Jason Kurtz, principal and consulting actuary for actuarial consultant Milliman Inc.
“Inflation overall has gone up and replacement costs have come down,” Léonard said in his initial remarks. “Growth has been challenging because of federal reserve policy that has brought the economy to a halt. Most growth has been disappearing in homeowners, a bit on the commercial real estate side, and on the auto side.”
Porfilio said the rise in loss trends across the insurance industry reveals an underwriting loss, with a projected combined ratio of approximately 105 in 2022. The 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 a ratio above 100 represents a loss.
The 2022 underwriting loss comes after a small underwriting profit from 2018 through 2021, at 99. However, underwriting results are expected to improve as the industry moves forward.
“The results don’t look like the prior years,” Porfilio said. “The core underwriting fundamentals are concerning. However, after a poor result in 2022, we do expect some improvement in 2023 and 2024.”
“In the aggregate, commercial lines are relatively outperforming personal lines,” said Kurtz. “That was the case in 2021 and we expect that to be the case in 2022 and through our forecast period of 2024.”
This includes workers compensation, which is closing in on eight years of underwriting profits, according to Kurtz.
On the personal auto line, gains from 2020 have been changed to the biggest losses in two decades.
“Personal auto is very sensitive to supply and demand,” Léonard said. “In the last 24 months, there’s been a historic swing in prices, and particularly the used auto side. It’s all about supply and demand. Those prices increased 30 to 40 percent year-over-year. Recently, though, prices have come down a bit.”
“The industry lived through high profitability in 2020 due to less drivers,” Porfilio added. “Fourteen billion was returned to customers that year.”
However, due to increased driving and reckless driving, the loss ratios have gone up.
The combined ratio in 2021 stood at 101, and in excess of 108 in 2022, according to Porfilio. Still, loss trends are expected to return to normal in 2023 and 2024.
Interest rates have also affected homeowners lines.
“The federal policies have been punishing growth,” Léonard said.
“Underlying loss pressure and Hurricane Ian have created challenging results,” Porfilio added.
However, the hard market has caused growth of 10 percent in 2022, partially due to exposure agreements, as well as rate increases.
The combined ratio for 2022 is expected to be around 115, dropping to approximately 106 in 2023, before an expected decrease to around 104 percent in 2024.
On the commercial auto side, the panelists predict an underwriting profit with a combined ratio of 99 in 2021, but there was a four-point loss in 2022. This is expected to improve in 2023, with a forecast ratio of 102, and 101 in 2024.
On the commercial property lines, the markets are facing shortages of steel, glass, and copper, according to Leonard, with labor challenges contributing to low-to-mid-double-digit percentage time increases to some tasks.
“One of the most important factors in this is labor. It’s very unlikely that labor will go back to where it was,” Léonard said. “We’ve estimated that it will take 30 percent longer for repairs, rebuild, and construction, and five percent in terms of cost.”
However, Kurtz said that the net combined ratio for commercial property markets is projected to be approximately 99.1 in 2022, a small underwriting profit in spite of losses tied to Hurricane Ian. For 2023, the combined ratio is expected to be roughly 94 and 92 in 2024.
“We are anticipating further rate increases and further premium growth,” Kurtz added.
Indeed, insurers continue to adapt to these new challenges. Although 2022 is predicted to result in small losses, the industry continues to evolve.
As Lavelle said in his introduction, “Insurance companies are no longer able just to assess the risk, collect the premium, and pay the loss. We’re being looked at to come up with answers.”
Cyber criminals continued to shift their tactics and adapt their techniques in 2022, according to experts speaking at the Triple-I Joint Industry Forum (JIF) last week.
“Ransomware as a business model” remains alive and well, said Michael Menapace, an insurance attorney with the law firm Wiggin and Dana LLP and a Triple-I Non-resident Scholar. What has changed in recent years is that “where the 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.
Theresa Le, Chief Claims Officer for Cowbell Cyber, concurred with Menapace’s assessment, noting an increased tendency of cyber criminals to contact organizations’ customers or leaders as “a pressure point” for the organization to pay the ransom in order to avoid reputational harm.
“Threat actors are focusing on the quality of the data that they can extract while they’re ‘in the house’,” Le said, “so it’s not just stealing Social Security numbers or other information they can sell on the Dark Web, as it was a few years ago. It’s really much more thoughtful and focused.”
Scott Shackelford, professor of Business Law and Ethics at Indiana University’s Kelley School of Business, reinforced Menapace’s and Le’s observations about the increased sophistication and adaptability of cyber criminals by talking about state-sponsored incursions.
“It’s not just the North Koreas of the world,” he said, adding that “a growing cadre of nation-states” are launching attacks “not just on large corporations but increasingly small and medium-sized businesses, even local governments.”
“We founded a cyber security clinic two years ago,” Schackelford said, “and the number one request we get from local government and small utilities has to do with insurance coverage. There’s a lot of need out there for better information.”
Shackelford emphasized the continuing evolution of the Internet of Things (IoT) as an “attack surface.” In the new pandemic-driven work-from-home environment, he said, “What counts as a covered computer device for some of these policies has led to litigation and remains a big vulnerability that we’ve only just begun to wrap our minds around.”
The conversation, moderated by Frank Tomasello, executive director for The Institutes Griffith Insurance Education Foundation, ranged across topics that included:
Deep-fake technology;
The importance aligning insurance pricing with the risk – and educating policyholders on how to get a better price by becoming a better risk;
How threats differ for different-sized organizations and for individuals; and
The need for better data and information sharing around cyberattacks and trends.
ByDeena Snell, Director of Research Operations & Membership, Triple-I
Insurance industry decision makers and thought leaders gathered yesterday for the day-long Triple-I Joint Industry Forum (JIF) in New York City to discuss opportunities and challenges across the insurance landscape.
“The world is getting more risky,” Triple-I CEO Sean Kevelighan said in his opening remarks, “and when the world gets more risky people want answers and solutions.”
A recurring theme throughout the event – which featured panels on climate and cyber risk; legal system abuse; diversity, equity, and inclusion; and the impact of current economic conditions on insurers and policyholders – was the importance of moving from a focus on assessing and repairing damage to one of predicting and preventing losses and promoting policyholder resilience.
Kevelighan and State Farm CEO Michael Tipsord had a one-on-one conversation about how the events of recent years – from the COVID-19 pandemic and subsequent supply-chain disruptions to international conflict and inflation levels not seen since the 1970s – have contributed to shifting customer and employee behavior and expectations.
Watch this space next week for blogs featuring the panel discussions.
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, a recent study by the Insurance Research Council (IRC) suggests.
This is just one of the IRC’s encouraging findings. Others include:
Consumers are generally knowledgeable about credit, credit histories, and credit scores.
Nearly all believe it’s important to maintain good credit history, and most believe it would be easy to improve their credit score.
Among nearly all demographic groups, paying for auto insurance is not considered a burden for most households.
Concerns have been raised about the use of credit-based scores and certain other metrics in setting home and car insurance premium rates. Critics say it can lead to “proxy discrimination,” with people of color – who are more likely to have less-than-stellar credit histories – sometimes being charged more than their neighbors for the same coverage.
Confusion around insurance rating is understandable, given the complex models used to assess and price risk, and insurers are well aware of the history of unfair discrimination in financial services. To navigate this complexity, they hire teams of actuaries and data scientists to quantify and differentiate among a range of risk variables while avoiding unfair discrimination.
As the chart below shows, insurance claims tend to decline as credit scores improve. The fact that race frequently correlates with lower credit scores highlights societal problems that must be addressed through public policy, including financial literacy education. If anything, apparent racial disparities in insurance availability or affordability related to credit quality lend force to arguments for policy change.
In a study published last year, nearly half of respondents said financial literacy education would have helped them manage their money better through the pandemic. The study, which surveyed 1,047 U.S. adults, found that 21 percent felt insurance was the subject they understood least.
While the IRC study found non-Hispanic Black respondents were more likely than other groups to say their credit scores were below average and that it was important to improve their scores and would be easy to do so, they also were less likely to believe credit is a reliable indicator of paying bills or filing claims. Similarly, they were less likely to say it was okay to use credit history in lending, renting, or insurance settings.
All ethnic and racial groups, however, agreed that a person who has maintained good credit should benefit in the form of lower insurance rates.
“Many studies have shown that credit-based insurance scores are predictive of claims behavior,” the IRC report says, adding that recent studies using driving data from telematics devices “show a link between specific driving behaviors, such as hard braking, and variations in credit-based insurance scores.”
Any rating factor that can predict losses and claims helps insurers fairly price insurance by charging individual drivers rates that closely align with their risk. In the absence of these factors, less risky drivers would pay higher rates to subsidize the insurance of more risky drivers.
The property/casualty insurance industry’s underwriting profitability is forecast to have worsened in 2022 relative to 2021, driven by losses from Hurricane Ian and significant deterioration in the personal auto line, making it the worst year for the P&C industry since 2011, actuaries at Triple-I and Milliman – an independent risk-management, benefits, and technology firm – reported today.
The quarterly report, presented at a members-only webinar, also found that workers compensation continued its multi-year profitability trend and general liability is forecast to earn a small underwriting profit, with premium growth remaining strong due to the hard market.
The industry’s combined ratio – a measure of underwriting profitability in which a number below 100 represents a profit and one above 100 represents a loss – worsened by 6.1 points, from 99.5 in 2021 to 105.6 in 2022.
Rising rates, geopolitical risk
Dr. Michel Léonard, Triple-I’s chief economist and data scientist, discussed key macroeconomic trends impacting the property/casualty industry, including inflation, replacement costs, geopolitical risk, and cyber.
“Rising interest rates will have a chilling impact on underlying growth across P&C lines, from residential to commercial property and auto,” he said, adding that 2023 “is gearing up to be yet another year of historical volatility. Stubbornly high inflation, the threat of a recession, and increases in unemployment top our list of economic risks.”
Léonard also noted the scale of geopolitical risk, saying, “The threat of a large cyber-attack on U.S. infrastructure tops our list of tail risks.”
“Tail risk” refers to the chance of a loss occurring due to a rare event, as predicted by a probability distribution.
“Russia’s weaponization of gas supplies to Europe, China’s ongoing military exercises threatening Taiwan, and the potential for electoral disturbances in the U.S. contribute to making geopolitical risk the highest in decades,” Léonard said.
Cats drive underwriting losses
Dale Porfilio, Triple-I’s Chief insurance officer, discussed the overall P&C industry underwriting projections and exposure growth, noting that the 2022 catastrophe losses are forecast to be comparable to 2017.
“We forecast premium growth to increase 8.8 percent in 2022 and 8.9 percent in 2023, primarily due to hard market conditions,” Porfilio said. “We estimate catastrophe losses from Hurricane Ian will push up the homeowners combined ratio to 115.4 percent, the highest since 2011.”
For commercial multi-peril line, Jason B. Kurtz, a principal and consulting actuary at Milliman – a global consulting and actuarial firm – said another year of underwriting losses is likely.
“Underwriting losses are expected to continue as more rate increases are needed to offset catastrophe and economic and social inflation loss pressures,” Kurtz said.
For the commercial property line, Kurtz noted that Hurricane Ian will threaten underwriting profitability, but that the line has benefited from significant premium growth. “We forecast premium growth of 14.5 percent in 2022, following 17.4 percent growth in 2021.”
Regarding commercial auto, Dave Moore, president of Moore Actuarial Consulting, said the 2022 combined ratio for that line is nearly 6 points worse than 2021.
“We are forecasting underwriting losses for 2023 through 2024 due to inflation, both social inflation and economic inflation, loss pressure, and prior year adverse loss development,” he said. “Premium growth is expected to remain elevated due to hard market conditions.”
“After a sharp drop to 47.5 percent in 2Q 2020, quarterly direct loss ratios resumed their upward trend, averaging 74.2 percent over the most recent four quarters,” Porfilio said. “Low miles driven in the first year of the pandemic contributed to favorable loss experience.”
Since then, Porfilio continued, “Miles driven have largely returned to 2019 levels, but with riskier driving behaviors, such as distracted driving, and higher inflation. Supply-chain disruption, labor shortages, and costlier replacements parts are all contributing to current and future loss pressures.”
Overall, loss pressures from inflation, risky driving behavior, increasing catastrophe losses, and geopolitical turmoil are leading to the need for rate increases to restore underwriting profits.
