All posts by Maria Sassian

Insurance Industry

From the I.I.I. Daily: Our most popular content, May 24 to May 30

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Here are the 5 most clicked on articles from this week’s I.I.I. Daily newsletter.

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Insurance Industry

NICB: Watercraft theft sank in 2018

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The official start of summer is just a few weeks away, and for many that means leisure time spent on the water. Boating is a very popular pastime with an estimated 141.6 million Americans going boating in 2016.  Sales of recreational watercraft (powerboats, personal watercraft and sailboats) reached a high of $39 billion in 2017, up 6.5 percent from 2016.

Like cars, boats are often stolen. But the boat owners among us will be happy to know that watercraft theft was down by 8 percent in 2018 over the prior year. According to the National Insurance Crime Bureau’s (NICB) 2018 watercraft theft report, a total of 4,499 watercraft were reported stolen in the U.S. between January 1 and December 31, 2018.

Florida was the top state for watercraft theft, followed by California, Texas, Louisiana and North Carolina. According to the NICB report, personal watercraft were the most likely type of watercraft to be stolen followed by runabouts, utility boats, cruisers and sailboats,.

You can do a lot to help prevent someone stealing your boat. The NICB recommends the following tips to protect watercraft from theft:

  • When you “dock it, lock it” and secure it to the dock with a steel cable
  • Remove expensive equipment when not in use
  • Chain and lock detachable motors to the boat
  • Do not leave title or registration papers in the craft
  • Disable the craft by shutting fuel lines or removing batteries
  • Use a trailer hitch lock after parking a boat on its trailer
  • Install a kill switch in the ignition system
  • Ensure your marine insurance policy includes your equipment, boat and trailer
  • Take photos of the boat and mark it with a Hull Identification Number (HIN)

 

 

Auto Insurance, Insurers and the Economy

Auto insurance prices and overall inflation

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By Dr. Steven Weisbart, Chief Economist, Insurance Information Institute 

There is remarkable good news on the auto insurance front— auto insurance prices have been trending downward since February 2018, and are now below the general inflation rate, but no one seems to have noticed.

The vast majority of consumers in America buy auto insurance, so the Bureau of Labor Statistics calculates a price component for it each month as part of the various versions of the Consumer Price Index (CPI).[1]

But insurance, like many products and services, is a difficult product for which to calculate a price. Ideally, one would want to determine only the change in the amount a consumer would pay to buy the exact same thing today as he/she would have paid in a prior time period. The challenge, with auto insurance as with many other products, is matching “the exact same thing” from a prior period. With cars, BLS tries to remove the effect on price changes of changes in features in new models that differ from prior models.

With auto insurance, the main reason premiums change from one period to another is insurers expectations for claims in the policy period. Obviously, changes can also be affected by expected investment results and by expense issues such as reinsurance prices. BLS has no way to account for these effects. It does try to standardize its calculation by using a hypothetical group of policyholders applying for a specified set of coverages and asking a panel of insurers to provide quotes for them.

So when, in 2016 and 2017, claims frequency ended its long downward trend and spiked upward, it was not surprising to see the BLS auto insurance price index rise as well. Figure 1 shows what this looked like (comparing prices in the current month to the same month in the prior year, seasonally adjusted by BLS):

Figure 1

The peak price change reached 9.7 percent in February 2018. But the spike in frequency ended, and you can see in Figure 1 that year-over-year price changes for auto insurance started trending down, ending the year at an increase rate of 4.7 percent.

The downward trend has continued into 2019. Figure 2 shows the results through April:

 

Figure 2

BLS says that the April 2019 auto insurance price is only 1.4 percent above the price in April 2018. This is not only below the rate of general inflation which, depending on how you measure it, has been running at roughly 2 percent for several years, but it is also the lowest year-over-year increase in auto insurance prices in over a decade (the last time the rate of increase was this low was in March 2008—also 1.4 percent).

So where are the headlines?

[1]The most familiar index is the Consumer Price Index for All Urban Consumers (CPI-U)—prices as experienced by all urban consumers, but BLS also publishes CPI-W (prices as experienced by urban wage earners and clerical workers).

Insurance Industry

From the I.I.I. Daily: Our most popular content, May 17 to May 23

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Here are the 5 most clicked on articles from this week’s I.I.I. Daily newsletter.

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Highway Safety

Memorial Day weekend road safety tips

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The Memorial Day weekend brings masses of holiday travelers out on the road, and that unfortunately means more accidents. One recent study found that Memorial Day is the deadliest of all holidays, with drivers and passengers four times as likely to die in a traffic accident over the holiday weekend as over a regular weekend. And while these grim statistics should not dissuade you from traveling by car this weekend, here are some driving safety tips to keep in mind:

  • Don’t drive if you’re drunk or high; that’s a no-brainer. But also ask yourself if you are tired, sick or drowsy. If you’re impaired in any way, do not hit the road.
  • Make sure your car is in good condition. Are you up-to-date on maintenance, are your tires inflated properly and does your windshield give you a clear view?
  • Practice defensive, safe driving tactics including: buckling your seatbelt; stay aware of other drivers; maintain a safe distance from the car in front of you; and observe speed limits and traffic signals.
  • Be ready to focus on driving.  Distracted driving accounts for an increasing number of crashes.  Whether it’s talking to passengers, switching radio stations or texting, anything that takes your concentration from the task at hand can lead to an accident.
  • Be prepared. What is the weather like? Is a storm likely? Do you have emergency supplies in the car like water, a first-aid kit, flashlight, blanket, map and a roadside safety kit? Here is a checklist of items you should keep in your car.

Have a safe holiday weekend, all!

 

Insurance Industry

From the I.I.I. Daily: Our most popular content, May 10 to May 16

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Here are the 5 most clicked on articles from this week’s I.I.I. Daily newsletter.

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Auto Insurance

Auto insurance rating factors explained

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By James Lynch, Chief Actuary, Insurance Information Institute

 

 

With automobile rating factors in the news, here at Insurance Information Institute we have been fielding a number of calls on the topic. Here is some background information.

I testified May 1 before Congress, and rating factors were among the issues I was asked about. Here is that testimony. Here is a link to a webcast of the hearing.

The National Conference of Insurance Legislators has a model act on use of insurance scores that about 40 states have adopted.

Insurance scores have been thoroughly examined for around two decades, and there is no doubt that they are good at predicting the likelihood of loss. The NAIC has a roundup of scholarship here.

There is concern that the scores act as a proxy for income, a variable that insurers are banned from using. Here is recent research questioning that assumption, “Do Credit-Based Insurance Scores Proxy for Income in Predicting Auto Claim Risk” (This study “finds that insurance score does not act as proxy for income in a standard actuarial model of auto claim risk.” It is also notable because one of the authors, Daniel Schwarcz, served as consumer representative to the National Association of Insurance Commissioners from 2007 to 2014.)

And we get asked a lot why an insurance credit score can predict whether someone is likely to be in an accident. Here’s a study: “Empirical Evidence on the Use of Credit Scoring for Predicting Insurance Losses with Psycho-social and Biochemical Explanations” From the study: “The results show that credit scores contain significant information not already incorporated into other traditional rating variables (e.g., age, sex, driving history). We discuss how sensation seeking and self-control theory provide a partial explanation of why credit scoring works (the psycho-social perspective). This article also presents an overview of biological and chemical correlates of risk taking that helps explain why knowing risk-taking behavior in one realm (e.g., risky financial behavior and poor credit history) transits to predicting risk-taking behavior in other realms (e.g., automobile insurance incurred losses).”

Here is a I.I.I. background paper on insurance scores.

 

Insurance Industry

Michigan arson hotline gets a second life

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If it weren’t for the intervention of a determined National Insurance Crime Bureau (NICB) agent and the staff of the Michigan Basic Property Insurance Association (MBPIA), a valuable Michigan arson prevention program would have bitten the dust.

The Michigan Arson Hotline and Rewards Program was run by the Michigan Arson Prevention Committee (MAPC), an agency that provided many services to the state’s fire/police departments, insurance carriers, and the public. But the agency was defunded in 2017 and the hotline ceased to exist. That was unfortunate because the hotline was so successful that from 2014 through 2018, the number of arson-related suspicious claims referred to NICB from Michigan decreased by nearly 50 percent.

During its 30 years of operation the hotline paid out nearly $1 million to confidential informants whose information lead to the arrest and conviction of numerous arsonists, some of whom were involved in very high-profile arson fires within the state.

So, when the hotline was shut down, NICB Supervisory Special Agent Joseph Hanley, working with the Michigan Basic Property Insurance Association (MBPIA), decided to act to revive it. In January, 2018, Hanley and representatives of the MBPIA approached the Detroit Crime Commission (DCC) with a proposal for the DCC to assume the administrative responsibilities of the arson hotline and rewards program. Acknowledging the mutual support and success of the arson hotline, the DCC enthusiastically agreed to the proposal.

Arson is the act of deliberately setting fire to a building, car or other property for fraudulent or malicious purposes and is a crime in all states. According to the National Fire Protection Association (NFPA), there were 22,500 fires intentionally set in structures in 2017, an increase of 13 percent from 2016. The 2017 structure arson cases resulted in 280 civilian deaths and $582 million in property loss. Additionally, there were an estimated 8,500 intentionally set vehicle fires in 2017, these fires resulted in $75 million in property loss, an increase of 88 percent from 2016.

The I.I.I. has facts about arson here (members only content).

Insurance Industry

From the I.I.I. Daily: Our most popular content, April 19 to April 25

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Here are the 5 most clicked on articles from this week’s I.I.I. Daily newsletter.

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Insurance Industry

From the I.I.I. Daily: Our most popular content, April 12 to April 18

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Here are the 5 most clicked on articles from this week’s I.I.I. Daily newsletter.

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