All posts by Jeff Dunsavage
Triple-I Briefing: Surplus Is Key to Insurers KeepingPolicyholder Promises
The insurance industry can meet its obligations to policyholders in the midst of the coronavirus pandemic – but government interventions being discussed threaten to unravel this safety net and could make it impossible for insurers to affordably provide essential coverage in the future.
These are among the conclusions shared by Triple-I chief economist Steven Weisbart and senior economist Michel Léonard in a briefing today that explained how the industry already has been affected by the pandemic and subsequent recession; how policyholder surplus ensures funds are available to cover claims; and how any attempt to retroactively apply this pandemic to business interruption policies would cause irreparable harm to the financial stability of the property-casualty insurance industry.
“Insurers price their policies for expected claims, with additional monies set aside for unexpected claims, such as those which are filed during exceptionally severe hurricane seasons,” Dr. Weisbart said. “The policyholders’ surplus backs up every line of insurance each insurer writes. It is calculated as assets, minus liabilities, and rises and falls due to changes in asset values.”
Dr. Weisbart and Dr. Leonard explained in detail how surplus works and showed how – under a variety of plausible scenarios – retroactively rewriting insurance contracts could make it impossible for insurers to play their critical role as financial first responders.
“If insurers nationwide had to pay business interruption policy claims for which they collected no premium, it could cost the industry each month anywhere from roughly $150 billion to nearly as high as $380 billion,” said Léonard, noting that the smaller amount accounted for the U.S.’s small and medium-size businesses that currently have business interruption coverage and the larger amount includes those who do not. “Pandemic-caused losses are excluded from standard business interruption policies because they impact all businesses, all at the same time.”
If you missed the briefing, you can view the presentation.
Related Links:
Coronavirus: Issues and impacts
Triple-I Fact Sheet: Insurers Are Engaged In the COVID-19 Crisis
Triple-I Publication: A Firm Foundation: How Insurance Supports the Economy
Triple-I Publication: A Firm Foundation: How Insurance Supports the Economy
Triple-I Blog:
Putting Car Insurance Prices Into Perspective
As car insurers help their customers cope with the pandemic’s economic impact through premium refunds and other relief measures and some groups complain the efforts are insufficient and ask regulators to make insurers pay more, it’s worth noting that the cost of insuring motor vehicles has grown more slowly than inflation over the past 12 months and well below prices for hospital services and car repairs – two key drivers of car insurance claims.
As the chart below shows, year-over-year increases in auto insurance prices have trailed growth in the Consumer Price Index, the most widely used measure of inflation.
“Auto premiums are kept relatively low by competition among insurers,” explained Triple-I chief economist Steve Weisbart. “This has been happening even as two major contributors to claims have grown much faster. In the case of hospital services, prices have not just been rising – growth has been accelerating since last July.”
You read that right. Even as two of the biggest contributors to claims – the money insurers pay policyholders after accidents – have grown faster than inflation, the prices policyholders pay for coverage have grown more slowly than consumer prices generally.
Many factors come into play when an insurer determines an individual’s premium payment – age, driving record, where and how far one generally drives, and much more; and, let’s face it, no one likes to pay for insurance or to see their payments go up.
But think about it: even though you might roll the dice if your state didn’t require you to have insurance, would that really be a wise move? Would you really want to be on the hook for the full cost of damage to your car or that of another driver? Or for the liability associated with someone’s injury or death?
That premium payment provides an awful lot of value in terms of peace of mind – IF you think about it. And, if you think further about it, you have more control over how much you pay for car insurance than you do over other products and services. You can shop around. You can change how much or what type of coverage you buy. You can bundle auto with other coverages. You can get fewer tickets and improve how you handle your credit.
And as usage-based insurance, powered by telematics, gains traction, your options will only increase.
Compare this with, say, cable and satellite TV. Your ability to shop around is quite limited (though improving with each new streaming opportunity that comes online). The products you really want come bundled with others you would never pay for if you had a choice.
And the prices of these services, as the chart below shows, continue to grow at rates well above both CPI and car insurance.
CORONAVIRUS WRAP-UP: PROPERTY AND CASUALTY (4/16/2020)
CORONAVIRUS WRAP-UP: PROPERTY AND CASUALTY (4/15/2020)
CORONAVIRUS WRAP-UP: PROPERTY AND CASUALTY (4/14/2020)
CORONAVIRUS WRAP-UP: PROPERTY AND CASUALTY (4/13/2020)
Coronavirus Wrap-up: Property and Casualty (4/9/2020)
Coronavirus wrap-upLife/Health(4/8/2020)
A.M. Best Holds Stable Outlook on U.S. Health Industry Amid COVID-19 Pandemic Crisis
Insurance rating agency A.M. Best said it is maintaining its stable market segment outlook on the U.S. health insurance industry, despite the impact of the COVID-19 virus outbreak. It cited:
- A trend of strong earnings;
- Strengthened risk-adjusted capitalization;
- Lower-than-estimated utilization and medical cost trends; and
- The cancellation or postponement of visits for routine care and elective procedures.
U.S. life insurers’ growing commercial mortgage portfolios may face virus pressure
U.S. life insurers continued in 2019 to increase their holdings of commercial mortgage loans, an asset class that industry participants say faces unique challenges during the coronavirus pandemic, S&P Global reports. The long-term nature of commercial mortgages makes them a good asset match for the long-duration liabilities life insurers carry. However, commercial mortgage loans could be under stress as the pandemic-sparked economic slowdown continues.
Calls for Medicaid expansion renewed as COVID-19 outbreak strains health care system
More than 50 Texas health policy and industry groups are urging Gov. Greg Abbott to expand the state’s Medicaid program to cover more than 1 million people as a way to slow the spread of the coronavirus and the illness it causes, COVID-19.
Coronavirus Reset: How to Get Health Insurance Now
Millions of people have lost jobs — and often the health coverage that came with those jobs. More still have had their work hours reduced or have received drastic pay cuts, so monthly premiums that may have been manageable before are now out of reach.
Estimated Cost of Treating the Uninsured Hospitalized with COVID-19
A great deal of uncertainty surrounds how the COVID-19 epidemic will evolve, including how many people will become infected and how many will become severely ill and require hospitalization. The Kaiser Family Foundation provides a range of cost estimates for the Trump administration’s proposal to reimburse hospitals for COVID-19 treatments for uninsured patients, based on results from recent studies and models.
Coronavirus Wrap-up: Property/Casualty (4/7/2020)
Below are abstracts and links to recent articles related to coronavirus from a property and casualty insurance perspective.
Auto:
Less driving, fewer accidents: Car insurers give millions in coronavirus refunds
One of the largest car-insurance companies in the country and a smaller Midwestern auto insurer are refunding hundreds of millions of dollars to their policyholders, citing a dramatic drop in accident claims from Americans hunkered down in their homes, The Wall Street Journal reports.
Allstate providing more than $600M to auto insurance customers amid pandemic
Allstate announced that it’s providing a Shelter-in-Place Payback to help its personal auto insurance customers during the pandemic.
Business Interruption:
This insurance would have helped in coronavirus crisis; nobody bought it
PathogenRX, a parametric insurance policy developed by broker Marsh, Munich Re, and technology firm Metabiota, is designed to provide business interruption insurance in the event of a pandemic, Insurance Journal reports.
Wimbledon nets £100m coronavirus cancellation payout
When the coronavirus outbreak forced the cancellation of Wimbledon it looked like game, set, and match against the All England Club. It turns out, The Times reports, that the club has insurance that covers infectious diseases and is putting together a claim potentially in excess of £100 million.
Insurers warn on forced payouts for uncovered coronavirus losses
World insurers told governments on Monday that making them pay out on losses suffered due to the coronavirus that were not covered by policies risked destabilizing the insurance industry, Reuters reports.
Considering a business interruption insurance claim due to COVID-19? Check your policy first
Insurance brokers say viruses and pandemics are specific exclusions in many such policies, which are often included with standard property and casualty coverage. But whether COVID-19 is the basis for a business interruption claim remains an open question as government leaders and the plaintiffs’ bar wrestle over the issue.
How social inflation may affect coronavirus business interruption losses
COVID-19 could produce a big increase in social inflation, according to A.M. Best. The reason: expectations that businesses will sue their insurers in an attempt to access their business interruption coverage for losses relating to the coronavirus pandemic.
After SARS, insurers changed policies covering businesses
SARS infected 8,000 people and led to millions of dollars in business-interruption insurance claims – including a $16 million payout to a single hotel chain. As a result, The Washington Post reports, many insurers added exclusions to standard commercial policies for losses caused by viruses or bacteria.
Flood:
FEMA extends flood renewal period
The Federal Emergency Management Agency (FEMA) announced that it will extend the grace period to renew flood insurance policies to help policyholders affected by the coronavirus (COVID-19) pandemic. FEMA said it would push back the grace period from 30 days to 120 days.
Property:
Florida’s property insurer of last resort, announced it will suspend cancellations and non-renewals for the next 45 days.
Wildfire:
First responders are preparing for raging wildfires that they expect will consume thousands of acres and drive some residents from their homes in upcoming months. But this year, CNBC reports, preparations have stalled. The coronavirus pandemic has hit the country’s already strained emergency services, raising concerns over inadequate disaster relief during peak fire season.
Workers Compensation:
Catch coronavirus on the job? In Florida, workers comp may not cover you
Florida’s Chief Financial Officer has ordered the Division of Risk Management to fulfill workers’ compensation claims for frontline employees who work for the state, the Tampa Bay Times reports. But the order doesn’t include similar workers in the private sector.