Each month we summarize the latest studies, reports and surveys whose findings have relevance to the insurance industry.
Highlights from the August issue include:
And much more…..
The National Insurance Crime Bureau (NICB) recently released a three-year analysis of insurance claims associated with hail storms in the United States. According to the NICB review of claims data from ISO ClaimSearch®, there were a total of 2.9 million hail loss claims in the United States from 2016 through 2018.
The top five states for hail loss claims were:
The top five cities for hail loss claims during that period were:
Over the three years covered by the report, May had the highest monthly average for hail loss claims with 203,296. June was next with 178,881. April (164,232), March (153,716) and July (96,947) round out the top five.
Of the five policy types providing hail loss coverage, Personal Property-Homeowners was the most affected with 1,657,663 claims or 57 percent of the three-year total. It was followed by Personal Auto with 898, 500 claims and Personal Property – Farm with 149,215 claims.
“Hail damage fluctuates year-to-year, but what seems to be consistent is the number of unscrupulous contractors ready to swoop in promising a quick fix, which is why NICB encourages policyholders to use caution when selecting a contractor or other workers to help repair your property or replace your windshield following a storm,” said Brooke Kelley, NICB vice president of communications. “Always check first with your insurance company or agent before signing any documents presented by a contractor whom you did not request to appear. It’s why we say, “If you didn’t request it, reject it.”
The following tips are also helpful:
The I.I.I. has facts & statistics about hail here and here.
On Monday August 5th Colorado State University (CSU) hurricane researchers issued a news release in which they continue to predict a near-average 2019 Atlantic hurricane season.
The CSU team is predicting a total of 12 additional named storms to form after August 1st . Of those, six are expected to become hurricanes and two to reach major hurricane strength (Saffir/Simpson category 3-4-5) with sustained winds of 111 miles per hour or greater. These forecast numbers do not include Subtropical Storm Andrea and Hurricane Barry which formed prior to August 1.
The scientists, led by I.I.I. non-resident scholar, Dr. Phil Klotzbach, cite both near-average sea surface temperatures in the tropical Atlantic and a weakening El Niño event in the tropical Pacific as the primary reasons for the near-average prediction.
El Niño tends to increase upper-level westerly winds across the Caribbean into the tropical Atlantic, tearing apart hurricanes as they try to form. While El Niño has weakened over the past several months, they anticipate that lingering warming in the central tropical Pacific should be a slight inhibiting factor for the remainder of the hurricane season.
The tropical Atlantic currently has near average sea surface temperatures. A warmer tropical Atlantic provides more fuel for developing tropical cyclones. Increased tropical Atlantic warmth is also associated with moister air and a more unstable atmosphere, both of which foster organized thunderstorm activity necessary for hurricane development. Vertical wind shear was slightly stronger than normal across the Caribbean in July. This tends to be associated with quieter Atlantic hurricane seasons.
The team based this forecast on 40 years of historical data that include Atlantic sea surface temperatures, sea level pressures, vertical wind shear levels (the change in wind direction and speed with height in the atmosphere), El Niño (warming of waters in the central and eastern tropical Pacific), and other factors.
So far, the 2019 hurricane season is exhibiting characteristics similar to 1990, 1992, 2012 and 2014. “1992 and 2014 had below-average Atlantic hurricane activity, 1990 had near-average hurricane activity, and 2012 had above-average Atlantic hurricane activity.” said Dr. Klotzbach.
The full forecast report is available here.
It’s always interesting to know which of our blog posts get the most views. Here are the top five most viewed in July:
By Dr. Steven Weisbart, Chief Economist, Insurance Information Institute
Beginning in 2020, the Social Security fund for retirees will be paying out more than it is taking in. This means that if there are no significant changes, in about 2034 the fund will exhaust the surplus it had built up since 1983. In that case, income to Social Security (from FICA taxes) will only be able to fund about 75 percent of benefits payable. It is for this reason that surveys show that many people under age 50 believe that Social Security won’t be available to provide retirement income for them.
Since Social Security income will be an important part of virtually everyone’s retirement, and since 2035 isn’t very far off (in financial planning terms), we should all be mindful of what might happen, and what we can do now to cope with adverse scenarios.
The government currently has no plan for what to do when the money runs short. One possibility is that everyone’s check in 2035 will be for 75 percent of what it was in 2034. Another possibility is that all those who received checks in 2034 will get the same amount in 2035 and new recipients will have benefits trimmed to fit the remaining funds. A third possibility is that those who are entitled to the highest dollar benefits will get nothing (on the presumption that they had high incomes and so likely have other sources of retirement income) so that those with smaller benefits can be paid their whole entitlement. And other possibilities exist, too.
It’s also possible that Congress will act to change the program so that none of these possibilities take place. Indeed, earlier this year H.R. 860 (The Social Security 2100 Act) was introduced in the U. S. House of Representatives to do just that. The House Ways & Means Committee held a hearing on this bill on July 25, 2019. As of July 30, the bill had 211 co-sponsors—nearly enough for the full House to pass the bill and send it on to the Senate.
There are essentially seven major provisions in H.R. 860. Two of them raise payroll taxes to help fund Social Security benefits. Oddly, other provisions raise Social Security benefits. The two that raise payroll taxes are:
The provisions that raise Social Security benefits are mostly focused on low- and moderate-income earners:
The Dodge Charger HEMI and the Dodge Challenger SRT Hellcat are at the top of the Highway Loss Data Institute’s (HLDI) most-stolen vehicles list this year. Both cars have theft rates that are more than five times the average for 2016-18 models, with the same as the Infiniti Q50, a midsize luxury sedan.
HLDI released its most likely to be stolen list for 2016-2018 models today, and almost all 20 models with the highest theft rates either have big engines or are luxury vehicles or pickups.
At the top of the least stolen list is the two-wheel-drive BMW 3 series, a midsize luxury sedan. It had just one claim for whole-vehicle theft in 104,901 insured vehicle years (an insured vehicle year is one vehicle insured for one year).
The Tesla Model S and Model X are also on the least-stolen list. A 2018 HLDI report showed that electric vehicles from a variety of manufacturers have lower theft claim rates than comparable vehicles. Their low theft rate may be due to the fact that they are usually parked in garages or close to a house to be near a power supply.
The Cadillac Escalade, which previously dominated HLDI’s rankings of most-stolen vehicles, is notably absent from this year’s list. Part of the reason is that there are more large luxury SUVs for thieves to choose from but also because Cadillac added enhanced security features beginning with the 2015 model year.
“The models most likely to be stolen tend to be powerful, pricey or pickups, but vehicle theft is also a crime of opportunity,” says HLDI Senior Vice President Matt Moore. “Better security features on all vehicles would be the best way to address the problem.”
Seventeen states and Washington, D.C. have laws taking effect in 2019 that either abolish or extend statutes of limitations for victims of child sexual abuse to sue or seek criminal charges against their abusers. A recent A.M. Best report compares child sexual-abuse claims to asbestos liability because the claims can affect decades-old insurance policies and the settlement amounts can be hard to predict.
In a recent blog post, Carey Quigley, a Gen Re treaty account underwriter, discusses what the new laws mean for underwriters that handle commercial “child custodial care” risks. These risks encompass schools, churches, sports, camps, day care and any other organized activities involving minors.
Quigley notes that unless their policies were written on a claims-made basis, the liability of these organizations for the past conduct of employees and volunteers does not typically affect their exposure under current insurance policies. Nevertheless, he recommends that underwriters take the following three steps in reviewing guidelines and policy forms:
Build a hazard scale: The degree of risk increases with the length of the activity, so a boarding school would be on the far end of the spectrum. Since parents are now more involved with their children’s activities, local groups and gatherings would present a lower risk.
Review insurance forms: Most general commercial writers may have a local dance school or a small church in their portfolio. For these types of policyholders insurers have developed Sexual Abuse and Molestation (SAM) endorsements offering critical but not unlimited protection.
Quigley recommends that insurers include language in their SAM endorsement to: Move all coverage into the policy when the abuse first began; treat all abuse by a single perpetrator as a single claim; treat all related or interrelated abuse as a single claim, without further qualification; and provide coverage on a claims-made basis.
Decide exclusions and check wording: When writing exclusions it’s important to determine whether they will extend to all types of physical abuse, or only sexual abuse. Often these terms are defined to prevent overlap with the GL policy and stacked limits from the endorsement and base policy. If a lawsuit alleges sexual abuse with false imprisonment or battery for instance, the insurer probably intends that all such allegations trigger only the SAM endorsement.
In conclusion Quigley says that underwriters should monitor court decisions to learn how policy language is interpreted by courts and check forms filed by other insurers to see how they address stacking issues.
Figuring out what the cost of an insurance premium should be is quite complicated — so complicated that insurance companies employ entire actuarial departments to do just that. Rating variables are an indispensable tool for setting the cost of insurance.
In a new paper, Insurance Rating Variables: What they are and why they matter, the Insurance Information Institute (I.I.I.) and the Casualty Actuarial Society (CAS) explain why actuaries apply variables when setting rates – for example using a driver’s age and gender, accident history and vehicle model year to calculate the premium on an auto policy.
Rating variables are basically the characteristics of individual policyholders that can help approximate the cost of their risks. Insurance companies have been using rating variables to help set rates (and thereby price their policies) for decades.
However, the use of some rating variables has recently generated discussion within the United States. Some states have even passed legislation controlling the use of certain variables, such as gender. “Variables are designed to make insurance affordable and available to everyone,” said Ken Williams, FCAS, CAS staff actuary. “When a variable is removed from rate setting, the consumer stands to lose the most because lower-risk individuals will end up subsidizing higher-risk individuals; or, insurance companies may choose to accept fewer applications from consumers who might cause them to lose money.”
The paper explains that when regulators restrict the use of a particular variable, actuaries may replace it with another variable as a “proxy,” which might not help them price policies as well.
“Imagine that male drivers have higher accident costs and are more likely to drive pickup trucks,” Williams explained. “If gender is restricted, the proxy for gender could become pickup trucks. In this scenario, rates for pickup trucks may increase while rates for other types of vehicles may decrease.”
It is important to note that all rating variables, including proxies, are regulated in every state. For example, rating variables and proxies cannot directly or indirectly impact groups based on certain characteristics, such as race.
The paper notes that the use of rating variables has resulted in a drastic reduction in the number of consumers seeking coverage in state-supported auto risk pools. Since the increased use of rating variables, the number of consumers in assigned risk pools has decreased almost 90 percent.
James Lynch, FCAS, chief actuary and vice president of research and education at the I.I.I., added, “Rating variables are regulated by state and federal authorities and they meet a variety of important criteria: they are credible, objective, and verifiable. They are an essential tool for setting accurate prices that are lower for low risk customers, higher for high risk customers, yet sufficient to cover an insurer’s costs.”
Here are a few key points from the report:
Click here to read the paper.
Here are the 5 most clicked on articles from this week’s I.I.I. Daily newsletter.
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People who work at our member companies are passionate about their jobs, and sometimes they tell us why. Here’s a story from Hadie Bartholomew who works at I.I.I. member Westfield Insurance as a Media Relations Manager.
Everyone loves a good story. But what makes a great story? As a communication professional, I have found storytelling with a purpose always adds value. A few chapters ago, before I started a career in insurance, I worked in the non-profit world to help save and heal lives through organ and tissue donation. Easy peasy! How could I not be passionate about telling captivating stories about people getting a second chance at life?! This set the bar high and, as I moved on, it was a challenge telling equally compelling stories across various industries. At times, it was tough to connect personally. So, how could I promote content if my heart wasn’t that into it?
What I learned from working at that non-profit is that I need to care about and connect to the content I am publishing and promoting. What’s more, I need to truly believe the industry I’m working in matters and is making a difference. I’ve worked in local television news, manufacturing, and technology and it was difficult to keep the fire of my passion burning bright. It was time for a change, and when I accepted a position at an insurance carrier, I’ll admit, I was a little skeptical. I bought into all those insurance stereotypes. But I was optimistic and came into my position with an open mind.
Two weeks after I started my new communications career in the insurance industry, Hurricane Irma came barreling across the Caribbean, Florida and up the coast. I quickly discovered how the insurance industry is truly a noble profession. I saw first-hand how insurance professionals put lives and communities back together and stay in the area long after the storm has passed through community giving campaigns. I travelled to Florida in the days following the storm and rode along with our catastrophic claims team. What a memorable, eye-opening experience. Watching our Claims team in action, making sure customers were safe and feeling cared for, answering their questions and providing support and guidance – it was incredibly moving. It was my ah-ha moment. I was fortunate to have this experience so quickly after starting a new job. This was a GREAT story and one that I wanted to shout from the rooftops. Seeing the compassion from the field lit my fuse. I found my passion in insurance. It’s more than insurance policies. We offer protection and help people when they need it the most. These are stories worth telling and inspire my passion.
I know I am not the first person to feel energized by what our industry means to people, families and communities. So let’s continue uncovering and discovering the stories that paint the true picture of this noble profession. Every agent, underwriter or risk manager can most likely tell dozens of stories of the customers’ lives they helped or homes and business that were restored. This industry isn’t boring, it’s life changing. We help people during some of their most difficult times, provide roadmaps to protect them and that’s a gratifying experience. For me, the key to being happy and fulfilled is seeing the positive impact a job has on my life and the lives of other people. As a content creator for Westfield, I found happiness telling the stories of how insurance makes a big difference in everyday life.
So, when I’m asked, “What do you do?” I ignore the eye rolls (or sighs) and am proud to say I work in the insurance industry. I share all my stories in my short tenure of how as insurance professionals we protect dreams and rebuild lives. It doesn’t get any better than that.