By Mark Friedlander, Director, Corporate Communications, Triple-I
Tropical Storm Henri is forecast to become a hurricane and may impact parts of New England this weekend. Residents are advised to plan and prepare now.
By John Novaria, Managing Director, Amplify
Bermuda is more than pink beaches and golden sunsets – it’s a major force in the re/insurance industry. The Association of Bermuda Insurers & Reinsurers (ABIR) works to raise the profile of Bermuda’s reinsurers and insurers and represents their public policy interests around the world.
ABIR CEO John Huff recently sat down with Triple-I CEO Sean Kevelighan to discuss the contribution of Bermuda companies to global resiliency. Some of those contributions include:
Huff is excited about the role the re/insurance industry is playing in securing a more resilient future for society.
“If you talk to your kids, this may be the first time our work is resonating with the next generation,” he says. “I do think it’s our opportunity to lead in the area of climate, resilience and adaptation.”
In discussing the Bermuda value proposition, Huff noted the concentration of exceptional talent within a square mile of Hamilton’s business district, which has captured the attention of investors who have plowed capital into the jurisdiction to form startup companies. Huff also said many established companies in Bermuda are scaling up by expanding their capabilities to take on more risk through analytics, underwriting and capital allocation.
Indeed, Bermuda is full of surprises. Huff said the general public doen’t realize that Bermuda companies underwrite half of the mortgage insurance sold in the US, creating opportunities for more young families to purchase their first home.
Learn more about ABIR.
By Loretta Worters, Vice President, Media Relations, Triple-I
Property/casualty insurers are projected to have less-than-stellar underwriting profits in 2021, according to a forecast released today by the Insurance Information Institute (Triple-I) and risk-management firm Milliman.
The forecast – presented in a members-only webinar, “Triple-I /Milliman Underwriting Projections: A Forward View,” moderated by Triple-I CEO Sean Kevelighan – projects a 2021 combined ratio of 99.6. Combined ratio is the percentage of each premium dollar an insurer spends on claims and expenses.
The industry ended 2020 profitably, with a combined ratio of 98.7. Combined ratios for 2022 and 2023 are projected to be 98.9 and 99.3, respectively.
Losses from atypical weather events in the first quarter – particularly, the Texas freeze – got the year off to a rough start, explained Dave Moore of Moore Actuarial Consulting.
“Insured losses from natural disasters worldwide hit a 10-year high of $42 billion in the first half of 2021, with the biggest loss related to extreme cold in the United States in February,” Moore said, citing Aon statistics. “Overall, catastrophe loss estimates are in the $15 billion to $20 billion range for the Texas freeze event, and the rest of the year doesn’t look promising for CAT losses overall. Extreme weather this spring brought multi-billion-dollar thunderstorm and hail losses, and the extreme drought in the West has helped fuel another severe wildfire season.”
Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman – an independent risk-management, benefits, and technology firm – said the current hard insurance market will persist, particularly in lines that have been hit hard by social inflation. A hard market is defined as a period of increasing premiums and decreasing insurance capacity.
Premium growth for the industry is projected to hit 7 percent in 2021. Growth is expected to slow in 2022 and 2023 but will remain above 5 percent both years.
“Lines like commercial auto, commercial multiperil, and general liability will still struggle to get their combined ratios under 100,” he said. “With ransomware attacks on the rise and tightening capacity, cyber bears watching, and homeowners insurers will have another tough year in 2021, but we predict improvement for 2022 and 2023.”
Michel Léonard, PhD, CBE, vice president, senior economist, and head of Triple-I’s Economics and Analytics Department, took a preliminary look at property/casualty industry results for 2021 and trends for the rest of the year. He noted that insurance outperformed the overall economy in 2019 and 2020 but was not likely to do as well in 2021.
“Right now, economists seem to be shifting growth from 2022 to 2021. That’s not good for insurance because of our industry’s business cycles. Shifting this growth means we are not expected to outperform the wider economy in 2021– but we are in 2022. What’s best for our industry is growth increasing, not decreasing, from 2021 to 2022.”
Regarding wildfire season, Roy Wright, president and CEO of the Insurance Institute for Business & Home Safety (IBHS), noted that as the climate changes and the population expands into the wildland urban interface, wildfires are intersecting suburban life. Wildfire losses continue to mount year after year and make clear the need for communities to adapt, he said.
Commercial auto insurance has been hit harder by litigation trends than any other line of business, according to David Corum, vice president at the Insurance Research Council (IRC).
“We estimate broadly that social inflation increased commercial auto liability claims by more than $8 billion between 2010 and 2019,” Corum said. “We are also seeing evidence that social inflation is becoming a factor in personal auto claims.” He noted that a soon-to-be-released paper by the Triple-I, Moore Actuarial Consulting, and the Casualty Actuarial Society will address this topic more broadly.
Pat Sullivan, senior editor and conference co-chair at Risk Information Inc., explained that commercial auto insurers spent the last few years trying to price themselves into profitability with little success.
Sullivan noted that COVID-19 wasn’t great for growth: “Commercial auto direct written premiums rose about one percent in 2020, compared to 12 percent in 2019, 13 percent in 2018, and 9 percent in 2017. Commercial auto’s underlying claims issues haven’t gone away.”
The past 15 months have been extraordinary from a legal perspective on COVID-19 business interruption claims, according to Michael Menapace, partner, Wiggin and Dana LLP and Triple-I Non-Resident Scholar.
“To date, 80 percent of the judicial decisions have dismissed policyholders’ claims without regard to whether the presence of SARS-CoV-2 or the government shutdown orders were the cause of their losses, Menapace said. That dismissal rate goes up to 95 percent when the policies also include a virus exclusion.”
“There have been some outlier business interruption decisions in favor of policyholders and some less favorable jurisdictions for insurers that we are watching,” he said. “Insurers must also remain vigilant by pushing back against proposals by state legislatures or executive agencies that would change the terms of insurance contracts to provide coverage where none was intended and for which no premium was paid.”
Looking forward, Menapace said the trend of dismissals in the trial courts should continue.
“There has been only one appellate court decision concerning business interruption coverage,” he said. “But, over the next 12-18 months, the focus will start shifting to state and federal appellate courts, which will have the final say on many of these issues.”
Dr Phil Klotzbach, research scientist in the Department of Atmospheric Science at Colorado State University and Triple-I Non-Resident Scholar, gave his updated projections for the 2021 hurricane season.
Klotzbach noted that 2021 is expected to have an above-normal Atlantic hurricane season, with 18 named storms, eight of which will become hurricanes. Of those eight, four will likely become major hurricanes (category 3, 4, or 5 with winds of a 111 mph or greater). That compares with the long-term average of about 14 named storms, seven hurricanes and three major hurricanes.
August is International Pirate Month – mainly, I suppose, because it’s fun to say “Arrrg-ust” like a Caribbean swashbuckler from the movies. But many people outside the maritime and insurance industries don’t realize that piracy remains a costly peril in the 21st century – and, like so many other risks, it may have gotten worse during the COVID-19 pandemic.
Global insurer Zurich estimates the annual cost of piracy to the global economy at $12 billion a year and, according to the International Maritime Bureau’s Piracy Reporting Centre (IMB PRC), global piracy and armed robbery numbers increased 20 percent in 2020. IMB PRC’s latest annual report lists 195 actual and attempted attacks in 2020, up from 162 in 2019. It attributes the rise to increasing incidents within the Gulf of Guinea in Africa, as well as increased armed robbery activity in the Singapore Strait.
In its Safety and Shipping Review 2021, global insurer Allianz says, the Gulf of Guinea accounted for over 95 percent of crew members kidnapped worldwide in 2020.
“Last year, 130 crew were kidnapped in 22 separate incidents in the region – the highest ever – and the problem has continued in 2021,” the report says. “Vessels are being targeted further away from the shore – over 200 nautical miles from land in some cases.”
The COVID-19 pandemic may have played a role in this rise in pirate activity, as it is tied to underlying social, political, and economic problems.
The economic effects of the pandemic have been especially devastating in parts of the world where piracy tends to be a problem: job losses, negative growth rates, and increased poverty. According to the International Monetary Fund (IMF), China is the only major economy projected to have a positive growth rate in 2020. The economies of most other countries have shrunk, some by more than 9 percent. Overall, the global economy likely shrank by at least 4 percent in 2020, and the World Bank expects an additional 150 million people have been pushed into poverty.
The economic costs of the pandemic have been particularly challenging for piracy-prone countries, and pre-COVID economic conditions in many of these places almost certainly means slower recoveries.
“Pirates, criminals, and terrorists exploit poverty and desperation to seek recruits, gain support, and find shelter. To counter these threats, we need to raise awareness and educate people, especially youth, while providing alternative livelihoods and support for local businesses,” said Ghada Waly, Executive Director at the UN Office on Drugs and Crime.
Pandemic’s impact on crews
Crew relief is essential to ensuring the safety and health of seafarers. Fatigued crew members make mistakes, and there are serious concerns for the next generation of seafarers. COVID-19 is affecting training, and the sector may struggle to attract new talent due to working conditions.
Reduced availability of well-trained crews could leave vessels more vulnerable as the global economy and international trade rebounds.
In March, the International Chamber of Shipping warned that lack of access to vaccinations for seafarers is placing shipping in a “legal minefield” and could cause disruption to supply chains from cancelled sailings and port delays.
“Vaccinations could soon become a compulsory requirement for work at sea because of reports that some states are insisting all crew be vaccinated as a precondition of entering their ports,” Allianz writes. “However, over half the global maritime workforce is currently sourced from developing nations, which could take many years to vaccinate. In addition, the vaccination of seafarers by shipping companies could also raise liability and insurance issues, including around mandatory vaccination and privacy issues.”
COVID-19’s confounding implications for international piracy were illustrated last month, when more than 80 percent of a South Korean anti-piracy unit serving a mission off the coast of Somalia were found to have tested positive and were airlifted out. South Korea’s defense ministry has said the unit left the country in February unvaccinated. The government has defended the decision, citing lack of vaccine availability at the time.
Learn More:
Insuring marine businesses and cargo
From the Triple-I Blog:
The formation of nine large wildfires this week—three in Washington, two in California and Oregon, and one each in Idaho and Montana—highlight the importance of having an evacuation plan and the right coverage.
“Insurers are fulfilling their traditional role as the nation’s financial first responders as thousands of Americans evacuate in the West,” said Triple-I CEO Sean Kevelighan. “Wildfires are actively burning millions of acres, and as we are seeing these regions becoming more populated, it will be critical to focus on rebuilding communities in a more resilient manner, as well as make changes to public policies that are hindering the ability to clean and remove tinder which are fueling the devastation.”
Triple-I’s Resilience Accelerator demonstrates the power of insurance as a force for resilience. It does so by telling the story of how insurance coverage helps governments, businesses, and individuals recover faster and more completely after catastrophes. The Resilience Accelerator also links to HazardHub, an organization that assesses the wildfire risks individual properties face nationwide.
The National Interagency Fire Center (NIFC) reported yesterday that 1.95 million acres have burned in the U.S. during 2021. California’s Antelope, Dixie, McFarland, and Monument Fires grew by thousands of acres over the past few days, the NIFC added.
Oregon’s Bootleg fire, which has been burning along the Oregon and California border since July 6, continues to challenge firefighters while new blazes emerge.
“We are running firefighting operations through the day and all through the night,” said Joe Hessel, incident commander. “We are looking at sustained battle for the foreseeable future.”
A standard homeowners insurance policy covers wildfire-caused property damage to a home’s structure and its outbuildings (e.g., garage), as well as the personal belongings housed on the premises. A renter’s insurance policy covers the renter’s personal belongings. If a residence has been rendered temporarily uninhabitable by a wildfire, standard homeowners and renters insurance policies provide additional living expenses (ALE).
Triple-I offers the following tips to those who live in a wildfire-prone community.
RELATED LINKS:
Colorado State University (CSU) hurricane researchers have slightly reduced their forecast for 2021 Atlantic hurricane activity in an August 5 update.
The CSU Tropical Meteorology Project team, led by Triple-I non-resident scholar Dr. Phil Klotzbach, predicts 18 named storms this year (down from 20 in the previous forecast), eight of which are expected to become hurricanes (down from nine). Four of the hurricanes are expected to be “major” (Category 3, 4, or 5).
Despite the slight drop in the number of storms, the 2021 hurricane season – which runs from June 1 to November 30 — is forecast to be above average and follows a record-breaking 2020 season. An average season has 14 named storms, seven hurricanes and three major hurricanes.
By Loretta Worters, Vice President, Media Relations, Triple-I
Despite the prevalence of cyber threats and the increasing number and severity of incidents, directors, officers, and C-suite executives remain too much in the dark when it comes to cyber risk and insurance, Risk & Insurance writer Alex Wright describes in this month’s cover story, Vigilance Demanded.
While specific policies are available to cover the risk, many policyholders still expect to be covered under their property and liability policies — but are not. Risk & Insurance, an affiliate of the Institutes and the Triple-I’s sister organization, notes that commercial insurance policies still suffer from a lack of clarity regarding damage from cybercrimes.
Confusion around coverage can lead policyholders to experience unexpected coverage gaps.
“In a best-case scenario, a cyber incident may trigger coverage under multiple insurance policies and increase the available total limit to respond to a covered event,” said Adam Lantrip, CAC Specialty’s cyber practice leader. “In a more common scenario, multiple insurance policies may be triggered but not coordinate with one another, and the policyholder spends more on legal fees than the cost of having purchased standalone cyber insurance in the first place.”
Of particular concern to insurers is silent – or “non-affirmative” – cyber risk, in which potential cyber-related events or losses are not expressly covered or excluded within traditional policies. In such cases, insurers can end up having to pay unexpected claims for which the policies weren’t adequately priced.
“Cyber risk is present in just about every insurance policy now,” said Tracie Grella, AIG’s global head of cyber insurance. “But because it hasn’t been factored into the underwriting of standard policies such as property, or properly identified, assessed, priced for and put into the aggregation model, it presents a huge systemic risk that can’t simply be ignored.”
Silent cyber first manifested in the WannaCry, Petya and NotPetya cyber-attacks of 2017, which devastated everything from shipping ports and supermarkets to advertising agencies and law firms, the article explains. The resulting losses from the encryption of master files and subsequent Bitcoin ransom demands for restoring access were the costliest on record, surpassing $3 billion.
Underwriters, brokers, and policyholders need to understand how ever-evolving risks and legal frameworks will affect their policies. They also need to keep themselves appraised of the scale of the problem and understand the most common misconceptions and coverage disputes around silent cyber.
More on cyber from Risk & Insurance
5 Tips to Get the Board Invested in Cyber Risk Management
No One’s Safe from Cyber Threats. Train Your Employees to Defend Your Company Now or Risk Millions
Managing Cyber Risk for Mid- and Large-Sized Companies: Why Each Requires a Specialized Approach
More from the Triple-I Blog
Cyber Risk Gets Real, Demands New Approaches
Businesses Large and Small Need to Be Cyber Resilient in a COVID-19 World
Victimized Twice? Firms Paying Cyber Ransom Could Face U.S. Penalties
Lower-risk drivers should pay less for auto insurance, and premiums have closely tracked broader U.S. economic trends for decades, Triple-I told the U.S. Treasury Department’s Federal Insurance Office (FIO) this week.
In a letter responding to a federal Request for Information, Triple-I said U.S. auto insurers accurately price their policies by using a wide variety of rating factors. All these factors must conform to the laws and regulations of the state in which the auto insurance policies are sold.
“There is no credible evidence that insurers charge more than they should, either across the broad market or in specific subsegments, such as neighborhood, race, income, education or occupation,” the Triple-I stated. The letter also said the rating factors U.S. auto insurers use to price their policies not only serve their purpose but are constantly retested to ensure their accuracy and reliability.
“If rating factors do their job well, they make insurance relatively inexpensive for some people and quite expensive for others,” the letter said. “In both cases, the assessment is correct. Drivers who present less risk pay less for coverage.”
The response to FIO’s information request highlighted how the appropriate price for an insurance policy varies greatly from customer to customer and from state to state. Insurance is regulated by state governments.
“Insurance companies and their actuaries have focused on finding factors that make sure every customer pays the appropriate rate,” the Triple-I said. Rates are based on historical loss experience for similar risks. Premiums constitute the price customers pay for insurance coverage.
Critics of U.S. auto insurer pricing practices have expressed concerns that certain rating factors, such as credit-based insurance scores and the geographic location of the customer’s residence, discriminate against lower-income drivers and minority groups. Triple-I explained that eliminating any rating factor – for whatever reason – forces those with less risk to overpay for auto insurance and allows those with greater risk to pay less than they should for auto insurance.
Interventions can backfire
“Eliminating factors does not affect the truth that they reveal, and if factors reveal that costs need to be high for a customer, banning them does nothing to change the underlying costs that are the reason the rate is high,” the Triple-I stated.
Regulators occasionally intervene in the rating process to make insurance less expensive for certain groups, citing the need to make insurance “affordable.”
“These interventions, however well-intentioned, can backfire in a spectacular way,” the Triple-I letter says, “raising the overall costs and severely reducing availability, as well as impeding innovations that could address the issue.”
Real problems need real solutions
Real solutions exist to make insurance more affordable, Triple-I says: “These solutions come not from tinkering with how insurers set prices but by addressing the costs that insurance covers.”
Improving the transportation environment and addressing societal issues that often force minorities and low- and moderate-income individuals to live and drive in circumstances where auto insurance costs the most are among the solutions suggested.
Extensive Triple-I research shows that rising claims costs have been the primary factor generating increased auto insurance rates.
Learn More From the Triple-I Blog
Here’s What’s Happening to Your Auto Insurance Costs
Auto Insurance Premiums Face Downward Pressure Due to COVID-19
Nevada Class Actions Against Auto Insurers Risk Hurting Policyholders
Policyholder Dividends Soar as Auto Insurers Respond to Pandemic
Auto Insurance Rates Decline Across U.S.
Auto Damage Claims Growing Twice as Fast as Inflation: IRC Study
Wildfire is a critical risk facing California, but at least one insurance industry leader argues that the state government isn’t taking it seriously enough.
“Yes, the governor has committed some $2 billion dollars to wildfire budget items,” writes John Norwood of Norwood Associates LLC in an Insurance Journal Op-Ed piece. “These include $404.8 million to hire staff and purchase firefighting equipment; $1.128 billion for forest management, such as thinning and prescribed burns; and $616 million to community investments.”
The details can be found in the Wildfire and Climate Change Fact Sheet provided by the governor’s office.
“However,” the Op-Ed continues, “if you compare that commitment of dollars to the list of other budget allocations the governor has just signed, it appears the administration and the Legislature determined the wildfire problem was only as worthy as some of the lower-priority budget allocations, like cleaning up trash ($1.5 billion) and paying-off delinquent water and electrical bills ($2 billion).”
Norwood is one of California’s top legislative advocates and managing partner of Norwood Associates. He is considered the leader in the state’s insurance, financial services, and small business sector.
Rising insurance costs
Wildfires over the past five years have burned millions of acres in California, destroyed entire towns, wiped out well over 10,000 homes, killed scores of residents, and blanketed the state with unhealthy air.
“California homeowners and businesses are paying five- and six-figure premiums for property insurance, and that is only when they can find insurance at any price,” Norwood writes. “California’s largest industries – agriculture and wine production – are being devastated by the lack of available insurance.”
And yet, he continues, “the $2 billion dollars committed to wildfire risks doesn’t even make it into the top five issues in the state based on the budget allocation committed to the fight.”
Role of reinsurance
Reinsurers — which insure insurers — are crucial to how the world handles natural disasters. As the frequency and severity of small-scale disasters increase, they’re having to pay more attention. S&P Global observes that “around one-half of the reinsurers we rate reduced their exposure in absolute terms, with very few players taking on additional catastrophe risk.”
It adds that this “de-risking trend” among reinsurers has been particularly visible in North America in recent years.
Without reinsurance, primary insurance rates must rise as properties in some areas become uninsurable.
Norwood argues that availability and affordability of property insurance are unlikely to change until the global reinsurance market believes California is serious about addressing its wildfire risks and there are demonstrable results in reducing the number and severity of wildfires in the state.
Without the reinsurance market backing California property/casualty insurance companies, there will continue to be an availability crisis in the state for property insurance and prices for such coverage will continue to increase substantially to the detriment of California’s homeowners and businesses.
Insurance is essential for individuals, businesses, and communities to recover quickly from natural catastrophes – but perils have evolved to a point at which risk transfer, though necessary, isn’t enough to ensure resilience.
Triple-I CEO Sean Kevelighan said during a that better insured communities recover more quickly but “the long-term resilience of both the communities impacted by natural catastrophes and of the industry itself depend on preparedness and improved risk mitigation.” He was one of three panelists participating in the webinar.
“Something’s Got to Give”
Insured U.S. natural catastrophe losses totaled $67 billion in 2020 after an Atlantic hurricane season which included 30 named storms, record-setting wildfires in California, Colorado, and the Pacific Northwest, and a severe derecho in Iowa. This year’s hurricane season looks to be more severe; the Bootleg wildfire in Oregon – so large and intense it has begun to create its own weather and is affecting air quality as far east as New York City – isn’t expected to be fully contained until late November; and these disasters are taking place on the heels of devastating winter storms in the first quarter.
As Kevelighan put it in his panel remarks, pointing to a 700 percent increase in insurer loss costs since the 1980s, “Something’s got to give.”
“As the country’s financial first responders,” he said, “insurers are not just responsible for providing relief to the communities affected by natural disasters, but also planning for potential catastrophes to come.”
One of the ways insurers do this, he said, is by building the industry’s cumulative policyholders’ surplus—the amount of money remaining after insurers’ collective liabilities are subtracted from their assets. At year-end 2020, the U.S. policyholders’ surplus stood at a record-high $914.3 billion.
Mitigate and educate
The role of the insurance industry has grown beyond merely taking on risks to educating the public, regulators, and corporate decision makers on the changing nature of risk and driving a resilience mindset characterized by a focus on pre-emptive mitigation and rapid recovery. Triple-I and a host of other insurance industry organizations have played a key role in promoting public-private partnerships and using advanced data and analytics to understand and address hazards in advance.
For example, Triple-I’s online Resilience Accelerator provides access to data and risk maps that empowers the public to assess and prepare for risks specific to their own communities.
This webinar, co-presented by The Institutes’ Griffith Foundation and the Insurance Regulator Education Foundation, included panelists Hanna Grant, Head of the Secretariat, Access to Insurance Initiative; and Dr. Abhishek Varma, Associate Professor, Finance, Insurance and Law, Illinois State University. It was moderated by James Jones, Executive Director, Katie School of Insurance and Financial Services, Illinois State University.
Webinar highlights: