All posts by Tasha Williams

Careers and Employment, Insurance Industry

Advancing diversity requires insurers and prospects to adopt a proactive mindset

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Tiara Wallace recently accepted her role as the Director of Risk for Invesco US and can’t seem to hide her contagious excitement for her profession. After announcing in a recent interview with Triple-I that she is a new “dog mom,” she proudly revealed that she is a parent to a 20-year-old “who is in college and recently switched his major to risk management.”

She had explained to her son how some activities in his current (but unrelated) campus job, such as “reviewing contracts and determining if the appeal process is working,” could be a good foundation for a future role in the field.

Wallace’s advocacy for careers in risk management doesn’t stop with her family. Having spent some time as an adjunct professor at the University of Oklahoma, she delights in frequently sharing with young people the benefits and opportunities they might find in her profession. She tells them that “insurance and risk management is such a great and lucrative career,” welcoming people from various backgrounds.

“Some folks have college, some people just have experience in the industry. But you’re able to make it into whatever you need for your life. And there’s so many routes you can go down.”

She launched her journey by working in claims adjustment for ten years. Then she decided it was time for a change. “Do I pivot now and make the change into something else?” she asked herself. 

A friend remarked on her talent for educating people and understanding what drives claims. “Have you ever thought about safety or risk management?” her friend asked.

Wallace says a risk management major wasn’t available to her as an undergraduate. “So I did what any typical millennial does and I got on the Internet and started to look up jobs.”

She was surprised to discover she was already familiar with the foundations. She thought, “This is what we all do day-to-day, right – managing our decisions and determining where our risk appetite is?

She gives ample credit to her mentor, who has since become a family friend, for giving her a transformational opportunity. “He was the VP of Risk for a privately held bank in Oklahoma,” she says. He hired her as the risk manager for a family group of 20 ultra-high-net-worth individuals.

The job suited her well. “It was never mundane…and that really spoke to me and really started the journey into risk management for me.”

Years later, Wallace eventually relocated to Dallas and is now in her role working with commercial real estate and private equity at Invesco. The knowledge and skills she acquired working with the private firm are helping her excel in a publicly traded company, where she continues to grow.

“I’m learning a ton, and there’s a lot coming at me, but I enjoy the challenge.”

When asked what changes she’s witnessed in her field over the years regarding diversity, Wallace is candid, pragmatic, and hopeful.

“Going from a call center and claims where you see all types of people to these areas where it’s on the commercial side, and I’m going to different conferences. Sometimes, you can see the same type of person that fills the role.”

Wallace describes her firsthand account of an issue that is widely documented by various organizations – from the Bureau of Labor Statistics (BLS) to key players in the risk management field, such as  Marsh.

For example, BLS data on Black and African American representation in the insurance industry shows that representation is increasing, with 14.6% employees in the field, up from 9.9% in 2014. Black professionals held 19.2% of insurance claims and processing clerk roles. However, as of 2020, only 1.8% (just three out of 168) of executive employees in the industry are Black, according to data sourced by Reuters

 “In the last three or four years, I think what I’ve began to see, just from the different generations entering in, is there is a more of a push for that diversity,” Wallace says. She notes that the diversity sought is not only in race, ethnicity, gender, and other identities but also in neurodiversity and professional backgrounds.

“I think that we still have a long way to go. But we’re starting to see more where the realization is, hey, we need a diverse candidate pool because here in the next what, 5 to 10 years, we’re gonna have an exodus in this market.”

Wallace admits that, as a long-standing industry, insurance can take some time to catch up while technology, demographics, and other structural factors are rapidly changing the game for the entire economy.

“We have not traditionally, and we’re still currently, not always quick to jump on thinking proactively or moving forward.” Nonetheless, Wallace says she is taking an active role in creating the future she wants to see.

“And so I think the thing that I started to realize is… I’m gonna be part of this change. So let me get involved in organizations.” Her educational experience likely played a role in this outlook.

She recalls how her college business fraternity leader asked her to “Go find three people that look like you. And three people that do not look or come from where you come from and recruit them.”

Wallace took up the challenge, of course. “That was one of the most phenomenal years because I got to learn so much. So I brought that mindset into this industry,” she says.

When Wallace was studying for her master’s degree years ago, a professor encouraged the class to be “agents of social change, like go in and be a disruptor.”

Now, when she advises people on connecting with diverse prospects, she asks whether they are searching beyond their personal networks and traditional spaces. “Are you going to HBCUs (Historically Black Colleges and Universities)? Are you going to different candidate pools? Are you going to rural cities and towns where maybe people have not historically gone into? Are you also talking to veterans?”

Wallace also recognizes that the work environment will be as critical to diversity success as recruiting tactics. For example, she asks, “Are our spaces friendly and inviting to those that maybe have disabilities?”

She encourages aspiring professionals to think beyond the cliche of an insurance job to see where they may fit.  “Are you good at marketing? Because these insurance companies need marketing departments. Are you handy on the Internet? Oh, well, great. There’s a place in cyber or also IT (Information Technology) infrastructure.” The goal, she says, is “just having these conversations to get different people into this space…in the industry.”

“Some of you are gonna be strategic, too, you know, to implant yourselves in areas that traditionally have not allowed you to enter.”

Wallace says she would tell her younger self that being bolder and assertive in asking for what she needs will be crucial.

“As a woman, you better be able to sell yourself and brag on yourself and not and not take a step back and just assume that’s what everyone is doing. Make the ask because you can get paid for what it is. But you have to be bold enough — whether that’s a sale, whether that’s a salary, whether that’s you need staffing in your department, or you need help. Make the ask because you are the one that is in there working it day to day.”

Auto Insurance, Emerging Risks, Homeowners Insurance, Insurance Industry

New Triple-I Issue Brief Takes a Deep Dive into Legal System Abuse

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The increasing frequency and severity of claims costs beyond insurer expectations continue to threaten insurance coverage and affordability. Triple-I’s latest Issue Brief, Legal System Abuse – State of the Risk describes how trends in claims litigation can drive social inflation, leading to higher insurance premiums for policyholders and losses for insurers.

Key Takeaways

  • Insured losses continue to exceed expectations and surpass inflation, notably impacting coverage affordability and availability in Florida and Louisiana.
  • In promoting the term “legal system abuse”, Triple-I seeks to capture how litigation and related systemic trends amplify social inflation.
  • Progress has been made toward increased awareness about the risks of third-party litigation funding (TPLF), but more work is needed.

What we mean when we talk about legal system abuse

Legal system abuse occurs when policyholders, plaintiff attorneys, or other third parties use fraudulent or unnecessary tactics in pursuing an insurance claim payout, increasing the time and cost of settling insurance claims. These actions can include illegal maneuvers, such as claims inflation and frivolous or outright fraudulent claims. Unscrupulous contractors, for example, seek to profit from Assignment of Benefits (AOBs) by overstating repair costs and then filing lawsuits against the insurer – sometimes even without the homeowner’s knowledge. Filing a lawsuit to reap an outsized payout when it’s evident the claims process will likely provide a fair, reasonable, and timely claim settlement can also be considered legal system abuse.

The latest brief provides a round-up of several studies Triple-I and other organizations conducted on elements of these litigation trends. The report, “Impact of Increasing Inflation on Personal and Commercial Auto Liability Insurance,” describes the $96 billion to $105 billion increase in combined claim payouts for U.S. personal and commercial auto insurer liability. The Insurance Research Council highlighted the dire lack of affordability for personal auto and homeowners insurance coverage in Louisiana, along with the state’s exceptionally high claim litigation rates.

Readers will also find an update on the discussion of legal industry trends associated with increased claims litigation. The lack of transparency around TPLF arrangements and the fear of outside influence on cases are attracting the attention of legislators at the state and federal levels. The brief also describes how some law firms may use TPLF resources to encourage large windfall-seeking lawsuits instead of speedy and fair claims litigation. Research findings suggest that consumers have become aware of how ubiquitous attorney ads can influence the frequency of lawsuits, increasing claims costs.

Florida: a case study in the consequences of excessive litigation

While several states, such as California, Colorado, and Louisiana, are experiencing a drastic rise in the cost of homeowners’ insurance, this brief discusses Florida. Property insurance premiums there rank the highest in the nation. Several insurers facing insurmountable losses have stopped writing new policies or left the state in the last few years. In some areas, residents are leaving, too, because of skyrocketing premiums.

Excessive claims litigation isn’t a new issue for insurers, but it can work with other elements to shift loss ratios and disrupt forecasts, rendering cost management more challenging. In Florida, factors such as the rise in home values and frequency of extreme weather events play a significant role, along with the challenges homeowners face in the aftermath: soaring construction costs, supply chain bottlenecks, and new building codes. However, Florida also leads the nation in litigating property claims. While 15 percent of all homeowners claims in the nation originate in the state, Floridians file 71 percent of homeowners insurance lawsuits.

In Florida and elsewhere, increasing time to settle a claim puts a financial strain on insurers, which is passed on to policyholders in the form of higher premiums. Legal system abuse activities are difficult (if not impossible) to forecast and mitigate, hampering insurers’ ability to remain in the market. Therefore, legal system abuse could be one of the biggest underlying drivers of social inflation. Without preventive measures, such as policy intervention and increased policyholder awareness, coverage affordability and availability is at risk.

Triple-I remains committed to advancing the conversation and exploring actionable strategies with all stakeholders. Learn more about legal system abuse and its components, such as third-party litigation funding by following our blog and checking out our social inflation knowledge hub.

Careers and Employment

Exploring the DEI Toolbox: Employee Engagement

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Safiya Reid took a professional journey that demonstrates career diversity. Her first job out of college was with Pfizer as a pharmaceutical sales representative. Later, she worked on the Rickey Smiley Morning Show as a production intern and at a chain dine-in restaurant while in graduate school. Eventually, after landing in insurance, “I kind of just never left,” she said.  

Reid sat down with Triple-I to discuss how her Assistant Vice President of Employee Engagement role at Pure insurance fits into the larger picture of Diversity, Equity, and Inclusion (DEI) and how this work can enable a more robust organization and industry. 

When asked why DEI should be an essential strategic objective for the insurance industry, she addresses the myth that DEI benefits a small portion of employees. 

“When you think about women, when you think about people of color, that is the majority of the organization.” 

“I look at employee engagement as kind of the health and wellness of the employee population.”   

Reid uses data and various tools, such as engagement polls, proactive strategies, and best practices, to understand how the people in her organization experience their work and the challenges they face. As she sees it, her mission is to ensure that “everyone can have the resources that they need to be successful in the organization and outside of it.” 

Ultimately, Reid aims to monitor “the pulse”, how employees (including the aforementioned majority) experience their work.  

Understanding this pulse and how strategic DEI success can shape it is mission-critical. “If not, it’s just a matter of time before it starts to affect the business–if it isn’t already,” she said. 

In the face of a growing trend of political pushback that has even led to disinvestment at some high-profile organizations and agencies, she and her colleagues remain undaunted in their DEI mission. “I think it’s important that we not go back to square one and start relitigating why DEI matters.” 

She believes it’s vital to have measurements in place to track progress. “We know the commitment that we made. We’re going to keep marching forward to the next milestone until you know it’s time to set a new milestone.” 

Reid spoke in detail about how she thinks the intense stream of events over the past five years – the COVID pandemic, protest movement for George Floyd , #Metoo, the rise of remote work, etc. – may have impacted diverse representation in the industry and across the workforce. Many people grappled with unprecedented personal challenges, such as caregiving for young children or adult family members while working remotely and simultaneously coping with mass grief as communities lost scores of loved ones. Boundaries that people relied on to preserve their emotional well-being were breached and erased in some ways. 

“We were so used to leaving everything outside, whether at the bus stop, when the train starts, or the car,” she explained. “You know, we were all at a point where the,  ‘messiness’ of our lives, we could no longer leave that at the door. 

In her observation, attempts to cope ignited more discussion and a drive to understand “the pieces of ourselves that we would leave outside.” She says, “There’s a term for this behavior called covering.” 

Specifically, people may “cover” by hiding or downplaying aspects of their identity in the workplace. These aspects are typically those associated with an impact on their chances of career survival or advancement. For example, a single mother may avoid sharing stories or photos of her children because she fears being passed over for opportunities if colleagues fear she won’t be able to balance parenting with increased professional obligations.  

Reid says her team learned about this concept from the Neuroscience Leadership Institute in 2020. However, the term was coined in 1963 by sociologist Erving Goffman. 

For employees to feel at home and be their authentic selves, there needs to be an environment that fosters inclusion. Which compels the question, What might be necessary for ensuring that employees feel welcome and supported? 

Possibly, the answer lies in forging open and honest communication. “We’ve built a place where when something is wrong, there are channels in a place where you can talk to somebody about that and get that resolved in a timely fashion,” said Reid.  

More data about the DEI landscape in an organization or industry-wide can increase the capacity to make progress. Reid agrees that data is valuable, but she said what we do with it can be more important than having it. 

“I would want to first know how we are planning on using that. There may be additional data points that we need to tell a larger story,” she said. Specifically, the outcome needs to involve “figuring out who the audience is of this data and what change or what action we want them to do because of it. And then making sure all of that is connected and aligned.” 

The challenges to move the needle on DEI can be complex, involving a multi-pronged approach and long-term investment. The ultimate goal is not only increased representation but retention. As such, there are low-hanging fruit opportunities that insurance organizations can consider to make employees feel more included in a team that values them.  

“I would say first and foremost, make sure you take care of the ones you got first,” Reid said. “If you are cultivating a toxic environment, bringing in more people, particularly folks that have less advantages and throwing them into it… that’s not helpful. Everybody’s not going to be happy.” 

Reid offers a solution for organizations that need help approaching the issue. They can use “engagement surveys to find out what the pulse is.” She recommends promoting a way for employees to voice their concerns in a manner that can be heard equitably. 

And what advice would she give her younger self when starting in the industry? “Get here a lot sooner!” 

Cyber Risk, Insurance Industry

Cyber insurance market continues rapid growth as risk management strategies improve

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As the number of cyber security breaches soars, direct written premiums (DPW) for cyber insurance worldwide could rise to $23 billion by 2025, with U.S. businesses paying about 56 percent of the total, according to Triple-I’s latest Issues Brief.

Cyber Insurance: State of the Risk, published last week, says the most recent data shows standalone policies have emerged as the preference for larger insureds, accounting for more than 70 percent of DPW – an increase of 61.5 percent from the prior year. These growth trends may signify that businesses recognize the growing threat of cyber risk requires mitigation beyond the typical coverage limitations of packaged options. Loss ratios also improved over 2021 rates, with declines of 23 percentage points, to 43 percent, on standalone policies and 18 percentage points, to 48 percent, on packaged policies. These improvements are evidence of improved cost-containment strategies. 

A two-edged sword

The brief outlines how technology can foster opportunities for cyber attackers and deliver ways for cybersecurity managers to predict, prevent, and manage threats. Increased use of cloud storage, remote working, and the “bring your own device” IT approach has amplified points of organizational vulnerability. And, as more companies and their employees are increasingly leveraging AI to boost operational efficiency, cyber attackers have created large language models (LLMs) to mimic the functionalities of ChatGPT and Google’s Bard to aid in phishing and malware attacks. 

Even the smallest businesses face threats that can incapacitate an organization. However, organizations can manage breaches more efficiently using AI for faster breach detection and implementing requirements for two-factor authentication, VPN use on external Wi-Fi networks, and data-wiping processes for lost or stolen devices.

Cyber insurance has become an integral part of robust prediction and prevention.

The bulk of cyber insurance claims by volume and frequency stem from ransomware and extortion-based attacks, according to an October 2023 report from Allianz. The report also says the annual proportion of cases in which data is stolen has consistently risen from “40 percent of cases in 2019 to around 77 percent of cases in 2022, with 2023 on course to surpass last year’s total.”  

The Allianz report highlights the growing need for businesses to improve prediction and prevention strategies, internally and with external partners and supply chain relationships. It makes practical sense that indemnification for cyber risk has become a common requirement for vendors doing business with frequently targeted sectors.  

The Triple-I brief states that as insurers refine policy terms to make the scope of coverage more understandable, business risk managers are better able to comprehend how cyber insurance can mitigate their risks. In turn, insurers may have been able to gain improvements in cost containment and rate stability. 

Triple-I supports increased awareness of the threat landscape

Cyber insurance can play a pivotal role in liability management. Sean Kevelighan, Triple-I’s CEO, participated on a panel during the Small Business Cyber Summit, a series hosted by the U.S. Small Business Administration (SBA). Discussions offered insights and tips for cybersecurity risk managers and other experts. Kevelighan explained how cyber insurance can allow “businesses to more strategically allocate their resources” in the battle against cyber threats.

Kevelighan participated in another fall 2023 cyber risk panel hosted by The Institutes Griffith Foundation in collaboration with Indiana University. The presentation, Cyber Risk: Exploring the Threat Landscape and the Role of Risk Management, focused on risks to national infrastructure and companies. Accordingly, panelists discussed how regulators and businesses have responded to the inevitable threat of cyberattacks. Speakers shared expertise in three core areas:

  • the Cyber Threat Landscape
  • ransomware and insurer solvency; and
  • eminent challenges for cyber risk insurance.
Insurance Industry

Surge in U.S. auto insurer claim payouts due to economic and social inflation

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The latest Insurance Information Institute (Triple-I) research indicates that between 2013 and 2022, economic and social inflation fueled a $96 to $105 billion increase in combined claim payouts for U.S. personal and commercial auto insurer liability.  

The report “Impact of Increasing Inflation on Personal and Commercial Auto Liability Insurance” outlines Triple-I’s continued exploration of the impact of social inflation on insurer costs and claim payouts. The study proposes that increasing inflation drove loss and DCC (defense containment costs) higher in both insurance lines– by 6.5 percent ($61 billion) of total loss and DCC for personal auto and by 19 to 24 percent ($35 to $44 billion) for commercial auto. 

Key Takeaways 

  • Estimates place the average annual impact of increasing inflation at 0.6 percent for personal auto and 2.7 percent for commercial auto. 
  • The accident rate (claim frequency) declined, and claim severity (size of losses) increased dramatically for personal and commercial lines. 
  • Increasing inflation was mainly driven by social inflation factors before 2021, and since that year, it has continued as a product of economic and social inflation. 

Researchers Jim Lynch, FCAS, MAAA, Triple-I’s former chief actuary, Dave Moore, FCAS, MAAA, president, Moore Actuarial Consulting, LLC, and Dale Porfilio, FCAS, MAAA, Triple-I’s chief insurance officer, approached the topic in a manner similar to their prior collaborations (in 2022 and early 2023). They used loss development patterns to identify inflation for selected property/casualty lines in excess of inflation in the overall economy. However, they extended their methodology in this project to use annual statement data through year-end 2022. Also, in this report, the authors use the term “inflation” for the first time to convey the operative mix of social and economic inflation on insurers’ costs. 

Commercial Auto Liability 

Data indicates that commercial auto liability faces its share of challenges, too, as losses have outpaced the growth rate of the overall economy. Claim severity (size of losses) has risen 72 percent overall since 2013, with the median annual increase at 6.3 percent. The report compares this change to the annual median increase of 2.1 percent in the Consumer Price Index, an observation offered as evidence that before 2020, social inflation may have been a primary factor in loss trends.  

Researchers estimate that from 2013 to 2022, increasing inflation drove losses up by between $35 billion and $44 billion, or between 19 percent and 24 percent. The pandemic brought significant change to commercial auto liability, decreasing claim frequency while increasing claim severity more dramatically. Researchers contend the loss development factors for this line of business signal an ongoing problem of inflationary factors. 

Personal Auto Liability 

This line took in four times the net earned premiums in 2022 as commercial auto liability. However, multimillion-dollar personal auto settlements are rare; consequently, the cases have less impact on insured losses or development patterns. Premiums and insurer losses in this line fluctuated over the prior two decades but continue to increase, albeit more slowly than the overall economy. In recent years, however, losses have been growing faster than premiums. Since 2020, premiums fell 13 percent, while losses rose 15 percent. And, after 2019, severity increased dramatically, with the compound annual increase holding 3.0 percent from 2013 to 2019, then tripling to 9.2 percent compounded annually. 

 
The double whammy of economic inflation and social inflation 

The report describes the nuanced findings of personal and commercial auto liability –understandably different as these markets differ in many aspects, including size and risk factors. The analysis reveals some trends in common, however. Findings in commercial and personal auto liability indicate that the overall accident rate (claim frequency) declined during the early pandemic years, yet the severity (size of losses) increased more dramatically.  

The earliest study in this series looked at insurance trends through the end of 2019, focusing on loss development factors (LDFs). Since economic inflation was stable, but LDFs were increasing steadily during that time, the researchers concluded that economic inflation was likely not the cause of rising costs. Then, beginning in 2021, a sizable uptick in the CPI-All Urban signaled a rise in overall economic inflation.  

The resulting implications for underlying insurer costs can be observed in factors that impact claim payouts, such as replacement costs. The report states that since 2008, replacement costs for commercial and personal auto insurance have outpaced overall prices in the economy by 40 percent. Since 2019, these costs have risen almost three times faster than prices overall. Thus, for the years prior, researchers continue to attribute the bulk of losses for both lines primarily to social inflation but propose that social inflation and increasing overall economic inflation share the credit beginning in 2020. 

Triple-I plans to continue to foster a research-based conversation around social inflation. For an overview of the topic and other helpful resources about its potential impact on insurers, policyholders, and the economy, check out our knowledge hub, Social inflation: hard to measure, important to understand.  

Insurance Industry

National Black Business Month – Dale Sharpe Jenkins, M.S., CIC, AINS, Owner, The Jenkins Agency Incorporated, Celebrates 25 Years in Business

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By Kris Maccini, Head of Digital Distribution, Triple-I

Dale Sharpe Jenkins, M.S., CIC, AINS, principal/owner, The Jenkins Agency Incorporated, is quick to point out that she didn’t choose a career in insurance – insurance chose her. A first-generation college graduate, Jenkins sought a profession that would provide her and her family with opportunities. She began her career in life insurance at a small company in Columbus, Ohio before moving on to Progressive Insurance and opening its first claims office in Phoenix, Arizona. 

“Insurance plays an important role in our lives. The insurance industry has allowed me to make a great living and help people with their needs at the same time.” 

Eventually, Jenkins moved into a senior construction underwriter position at St. Paul Insurance Companies (now Travelers) and made the shift from claims to underwriting. While it was a rewarding position, Jenkins started a family and wanted more flexibility in her career. In 1998, she leveraged her experience in construction to build The Jenkins Agency Incorporated, an independent agency based in Arlington, Texas, specializing in commercial underwriting for construction, religious organizations, and other non-profits. 

“We write property/casualty, life, health, and group benefits. Most of our customers are small Black-owned businesses, and we are minority certified. I’m proud of what our agency has been able to do for the Black business community. Their success is our success.” 

Diversity has been at the epicenter of Jenkins’ career. The Dallas Black Chamber has recognized the agency for its work in the Black community; the Dallas-Fort Worth (DFW) Airport named The Jenkins Agency Incorporated as its Diversity Champion of 2023 at the SOAR Awards this year; and Business Insurance Magazine has also acknowledged the agency for its diversity efforts.  

In 2008, Jenkins joined the National African American Insurance Association (NAAIA), where she was a member of the founding Board of Directors and served as president of the Dallas chapter for three years. Since 2011, the NAAIA DFW Scholarship Foundation has provided financial awards to high school and college students interested in careers in insurance, finance, and marketing. 

“I’m very focused on providing [insurance] industry awareness to young people starting out or trying to discover a career for themselves. I was on the receiving end early in my career, and it’s nice to give back now.” 

The Jenkins Agency Incorporated celebrates its 25th anniversary this year. Reflecting on the past two decades, Jenkins feels blessed to be in her current position. She founded her company on her own without a book of business and built it from the ground up, relying on referrals. Her husband, Jeff, joined the business in 2000. 

“In the early years, we were in survival mode. We realized if we could make it to five years, we could make it to 10. Hiring our first employees was a highlight, and most of them have been with us for over a decade.” 

Like every small business, The Jenkins Agency experienced challenges in its initial years. Jenkins remembers the difficult transition from working in a large company to running her own business and maintaining a work/life balance. 

“Whether working for yourself or others, flexibility is very important when you are working and raising a family. Having my own business granted me that flexibility. I was able to work around my daughters’ schedules and still manage responsibilities at the office. Having your own business doesn’t mean you work less; in my experience, you work more but with the advantage is being able to manage your day.” 

To this day, Jenkins cites her two daughters as inspiration, along with other up-and-coming professionals. Both of her daughters have successful careers–her youngest daughter as a risk manager for a municipality in Texas and her oldest daughter as a business owner in California and a college professor. Entrepreneurship runs in the family. Jenkins’ father was also a business owner.  

Jenkins, who teaches risk management at the University of Texas in Arlington, is also motivated by her students. “My inspiration comes from the younger generation and how they embrace diversity and balance work and home. I’m also impressed with their talent.” 

Regarding the ongoing efforts to push for diversity, equity, and inclusion in the industry, Jenkins is cheering on this generation and asks young Black professionals not to lose ground.  

“My generation had to maneuver in a different way. We tried to fit in in any way we could–from hair to speech. This generation has a voice, and they are not afraid to be heard. To them I say…Keep your skills sharp so there is no question whether you can do the job and be proud of who you are.” 

Looking to participate in discussions around addressing disparities and working towards a more inclusive and equitable insurance landscape? Sign up for Empowering the Community: The Importance of Insurance in the Black Community, hosted on September 12 by The Black Insurance Industry Collective (BIIC).

Dale Sharpe Jenkins, M.S., CIC, AINS is an academic member of the Insurance Information Institute through her affiliation with the University of Texas at Arlington. 

Cyber Risk

New U.S. Cyber Strategy Heralds Major Shift for Addressing Attacks

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By Max Dorfman, Research Writer

A maturing Internet of Things (IoT) calls for measures to increase cybersecurity at the national, international, and private sector levels, according to a recent report by the White House.  

The new National Cybersecurity Strategy comes as cyberattacks continue to wreak havoc across the world, causing billions of dollars in damages. Furthermore, autocratic states such as China, Russia, and North Korea have ramped up aggressive cyber abilities to disrupt other nations’ interests and “broadly accepted international norms.”  

Key Takeaways 

The White House report aims to “build and enhance collaboration” for cybersecurity around five main tenets: 

  1. Defending critical infrastructure, involving mandatory requirements for cybersecurity, as the marketplace insufficiently rewards and even hinders who invest in measures to protect against cyberattacks. 
  1. Disrupting and dismantling threat actors, including diplomatic, military, and law enforcement measures to negate these attacks. 
  1. Shaping market forces to drive security and resilience through driving adoption of best practices in cybersecurity and resilience, utilizing the market to enhance capabilities. 
  1. Investing in a resilient future by engaging strategic public interests involving innovation, R&D, and education to ensure U.S. leadership in these areas. 
  1. Forging international partnerships to pursue shared goals through working with international institutions to identify and progress state behavior in cyberspace, including building peacetime norms and confidence-building measures through the U.N.  

Reimaging collaboration as partnerships and investment 

 According to the report, adhering to these principles require two fundamental changes in how the U.S. “allocates roles, responsibilities, and resources in cyberspace.” 

The first shift involves rebalancing the responsibility to defend cyberspace. The report states that end users are often tasked with far too much responsibility for lowering cyber risks. With small businesses, state and local governments possessing limited resources, a single individual’s failure to judge these risks can have national security consequences—which must be rectified. 

With this in mind, the report states that the government must protect its systems, while safeguarding private entities, particularly critical infrastructure. Further, “core government functions” like diplomacy, intelligence, imposing economics costs, law enforcement, and interrupting cyber threats are all essential to counteracting the threat of cyberattacks.    

The second shift involves realigning incentives to favor long-term investments. This entails defending current systems, while simultaneously advancing a digital ecosystem that is more defensible and resilient. This includes rewarding security and resilience with market forces and public programs, embracing designed security and resilience, and investing in research and development for cybersecurity in a strategic manner.  

While the implementation of these strategies is complex, the National Security Council (NSC), alongside the Office of Management and Budget (OMB), will lead efforts to implement a cohesive strategy, reviewing existing policy and assessing the need for new policy. The Federal Government will also use a data-driven approach to evaluate its efficacy, a much-needed move as cyberattacks continue to threaten the safety and economy of nations around the world.  

Rising cybercrimes create risks for insurers and consumers 

In 2022, 1,802 data compromises affected approximately 422 million people, according to a report by the Identity Theft Resource Center. Although data compromises remained even from 2021, the number of overall breaches has continued to rise. Additionally, losses continue to rise from cybercrime complaints, resulting in 10.3 billion in damages in 2022, according to the Internet Crime Complaint Center.  

As these issues present major problems for consumers, the global cyber insurance market continues to grow, with an estimated reach of over 91.22 billion by 2031. This represents a compound annual growth rate of 23.78 percent from 2023 to 2031. 

This market poses challenges and opportunities for insurers, as more cyber security professionals are needed to examine and prevent these threats. These risks can be addressed through training in cyber intelligence – but it will take significant investment to achieve this market’s expansion.  

Read more: 

Cyber liability risks | III 

Insurers and the Economy, Legal Environment, Market Conditions, Regulation

U.S. Study of 3rd-party litigation funding cites market growth and scarce transparency

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At the end of 2022, the U.S. Government Accountability Office (GAO) released a report, Third-Party Litigation Financing: Market Characteristics, Data and Trends. Defining third-party litigation financing or funding (TPLF) as “an arrangement in which a funder who is not a party to the lawsuit agrees to help fund it,” the investigative arm of Congress looked at the global multibillion-dollar industry, which is raising concerns among insurers and some lawmakers.  

The GAO findings summarize emerging trends, challenges for market participants, and the regulatory landscape, primarily focusing on the years between 2017 and 2021. 

Why a regulatory lens on TPLF is important 

The agency conducted this research to study gaps in public information about the industry’s practices and examine transparency and disclosure concerns. Three Republican Congress members – Sen. Chuck Grassley (IA), Rep. Andy Barr (KY), and Rep. Darrell Issa (CA) — led the call for this undertaking.  

However, as GAO exists to serve the entire Congress, it is expected to be independent and nonpartisan in its work. While insurers, TPLF insiders, and other stakeholders, including Triple-I, have researched the industry (to the extent that research on such a secretive industry is possible), the legislative-based agency is well positioned to apply a regulatory perspective.  

Example of Third-Party Litigation Financing for Plaintiffs

The report methodology involved several components, many of which other researchers have applied, such as analysis of publicly available industry data, reviews of existing scholarship, legislation, and court rules. GAO probed further by convening a roundtable of 12 experts “selected to represent a mix of reviews and professional fields, among other factors,” and interviewing litigation funders and industry stakeholders. Nonetheless, like researchers before them, GAO faced a lack of public data on the industry.  

Third-party litigation funding practices differ between the consumer and the commercial markets. Comparatively smaller loan amounts are at play for consumer cases. The types of clients, use of funds, and financial arrangements can also vary, even within each market.  

While most published discussions of TPLF center on TPLF going to plaintiffs, as this appears from public data to be the norm, GAO findings indicate: 1) funders may finance defendants in certain scenarios and 2) lawyers may use TPLF to support their work for defense and plaintiff clients.

How the lack of transparency in TPLF can create risks 

Overall, TPLF is categorized as a non-recourse loan because if the funded party loses the lawsuit or does not receive a monetary settlement, the loan does not have to be repaid. If the financed party wins the case or receives a monetary settlement, the profit comes from a relatively high interest payment or some agreed value above the original loan. Thus, the financial strategy boils down to someone gambling on the outcome of a claim or lawsuit with the expressed intention of making a hefty profit.  

In some deals, these returns can soar as high as 220%–depending on the financial arrangements–with most reporting placing the average rates at 25-30 percent (versus average S&P 500 return since 1957 of 10.15 percent). The New Times documented that the TPLF industry is reaping as much as 33 percent from some of the most vulnerable in society, wrongly imprisoned people.

Usually, this speculative investor has no relationship to the civil litigation and, therefore, would not otherwise be involved with the case. However, the court and the opposing party of the lawsuit are typically unaware of the investment or even the existence of such an arrangement. On the other hand, as the GAO report affirms, knowledge about the defendant’s insurance may be one of the primary reasons third-party financers decide to invest in the lawsuit. This imbalance in communication and the overall lack of transparency spark worries for TPLF critics. GAO gathered information that highlighted some potential concerns. 

Funded claimants may hold out for larger settlements simply because the funders’ fee (usually the loan repayment, plus high interest) erodes the claimant’s share of the settlement. Attorneys receiving TPLF may be more willing to draw out litigation further than they would have – perhaps in dedication to a weak cause or a desire to try out novel legal tactics – if they had to carry their own expenses.  

Regardless, typically neither the court, the defendant, nor the defendant’s insurer would be aware of the factors behind such costly delays, so they would be unable to respond proactively. However, insurance consumers would ultimately pay the price via higher rates or no access to affordable insurance if an insurer leaves the local market. 

As the report acknowledges, a lack of transparency can lead to other issues, too. If the court does not know about a TPLF arrangement, potential conflicts of interest cannot be flagged and monitored. Some critics calling for transparency have cited potential national security risks, such as the possibility of funders backed by foreign governments using the funding relationship to strategically impact litigation outcomes or co-opting the discovery process for access to intellectual property information that would otherwise be best kept away from their eyes for national security reasons. 

Calls for TPLF Legislation 

GAO findings from its comparative review of international markets reveal that the industry operates globally, essentially without much regulation. The report points out that while TPLF is not specifically regulated under U.S. federal law, some aspects of the industry and funder operations may fall under the purview of the SEC, particularly if funders have registered securities on a national securities exchange. Some states have passed laws regulating interest charged to consumers, and, in rarer instances, requiring a level of TPLF disclosure in prescribed circumstances.  

Active, visible calls from elected officials for regulatory actions toward transparency come mostly from Republicans, but, nonetheless, from various levels of government. Sen. Grassley and Rep. Issa have tried to introduce legislation, The Litigation Funding Transparency Act of 2021, requiring mandatory disclosure of funding agreements in federal class action lawsuits and in federal multidistrict litigation proceedings. In December of 2022, Georgia Attorney General Chris Carr spearheaded a coalition of 14 state attorney generals that issued a written call to action to the Department of Justice and Attorney General Merrick Garland.  

“By funding lawsuits that target specific sectors or businesses, foreign adversaries could weaponize our courts to effectively undermine our nation’s interests,” Carr said. 

Triple-I continues to research social inflation, and we study TPLF as a potential driver of insurance costs. To learn more about third-party litigation funding and its implication for access to affordable insurance, read Triple-I’s white paper, What is third-party litigation funding and how does it affect insurance pricing and affordability? 

Insurance Industry

Pay Equity In The Insurance Industry: It Makes Good Business Cents

By Loretta L. Worters, Vice President, Media Relations, Triple-I

The gender pay gap is a sensitive topic we need to spotlight. We’ve seen it in every industry, from entertainment – when Patricia Arquette called for wage equality in her 2015 Oscars acceptance speech – to Wall Street, when CNBC reported in 2019 that Citibank admitted that its female employees earned 29% less than its male employees globally.   

In the United States, the gender pay gap is 18%, which means that on average, in 2022, women made 82 cents for every dollar men earned in any industry, according to a recent Pew Research Center study —a rate that hasn’t significantly changed for two decades. Women of color continue to suffer the most severe gender wage gap in this country. Black women are paid 63 cents for every dollar white men are paid and must work an additional 214 days to catch up to what white men made in 2020 alone. Native women are paid about 60 cents and Hispanic women only 57 cents for every $1 earned by white men. In the insurance industry, women fared worse, earning just 62 cents on the dollar in 2020. As a result, women cannot build savings, withstand economic downturns, and achieve financial stability. This earnings gap widens during a woman’s career.  

Older women bear the brunt of ageism  

We’re all familiar with the phrases “past their prime,” “put them out to pasture,” and “not enough runway,” but often ageism is gender specific, targeting older women. Data from the Bureau of Labor Statistics shows that American men don’t typically start to make less money until they’re over 65. In contrast, women’s median pay decreases when they enter the 45–54-year age group.  

Inequity can drive retirement insecurity 

Lower lifetime earnings also reduce the amount of retirement capital women can accumulate from 401ks to defined benefit pension plans to social security. Women’s retirement contributions are, on average, 30% less than those made by men, according to a recent Goldman Sachs survey.  

A 2020 report from the National Institute for Retirement Security (NIRS) finds that women can remain at a disadvantage with their retirement savings. Years spent out of the workforce for caregiving responsibilities—for children, spouses, and aging parents—significantly impact women’s total retirement savings and income. In fact, women are more likely to leave the workforce or take part-time jobs to shoulder those responsibilities – something we saw after the coronavirus struck.  

Women tend to live longer than men, too, and thus often have a greater chance of exhausting their sources of income. According to the U.S. Centers for Disease Control, the average American man will live to age 76, while the average woman in America will live to be age 81.   

Not only are women paid less, but men continue to dominate the top roles and highest-paying professions. Some folks say women need to be more confident and negotiate raises better. However, in 2019, The Wall Street Journal surveyed 2,000 graduates of an elite U.S. business school and found that 64% of the women versus 59% of the men asked for raises and promotions, but women were turned down twice as often.  

Diversity brings value 

With fewer women in top positions at insurance companies, insurers are missing out on critical sources of talent, according to McKinsey & Company. They referenced Harvard Business Review research which showed that diverse teams are more effective at solving difficult problems and reaching diverse markets and customer segments. Insurance companies need effective and diverse teams at all levels to grow and keep their competitive edge—meaning more women and women of color.  

Transparency laws help close the gender pay gap  

Wage transparency laws can close the gender pay gap, reduce discrimination, and promote fairer compensation practices. By requiring employers to disclose pay scales, job applicants can have a better sense of what to expect in terms of pay before they apply and negotiate salaries more effectively. This practice may also help women already in those jobs know what factors go into their pay and determine whether it is fair.  

The insurance industry is making strides toward equity 

Insurers are increasingly taking the initiative to transform their commitments into meaningful actions regarding pay equity based on gender, race, and overall diversity and inclusion. These organizations recognize that this is not only the right thing to do, of course. But they also realize that these practices are also good for business.  

Triple-I believes that acknowledging and celebrating those organizations working to make a difference is important. Below is a highlight of what some of our member companies are accomplishing in the DEI and pay equity space. We encourage others who have a story to tell to let us know and we’ll include them in this celebration:  

  • Allstate’s performance in workplace diversity meets or exceeds external benchmarks. As of Dec. 31, 2021, women made up approximately 57% of their workforce, and 42% of their employees were racially or ethnically diverse. Minimum compensation increased in 2022 to $17/hour and $20/hour, based on geographic differentials, the second increase in the last two years. Racial equity is a pillar of The Allstate Foundation, and it aims to close the racial opportunity gap for careers with thriving wages. As of January 2023, Allstate proactively added salary ranges to 100% of its job descriptions to be transparent and show its commitment to equitable pay practices.   
  • American Family, recognizing the structural barriers in society that keep people from achieving their dreams, is doing its part to break down these barriers, committed to tackling systemic problems that impede equity and believes everyone deserves the freedom to dream fearlessly. For 2022, American Family received the Best of the Best Awards from the Professional Woman’s Magazine, among other awards. Their diversity and inclusion efforts are grounded in equity — believing fair treatment starts with giving people the proper systems, support, opportunities and access needed to achieve their professional success and advancement.  
  • AmericanAg™ has undertaken several steps to increase both the diversity of their workforce and communication in their business communities, including the use online platforms, media outlets, and search firms to recruit top talent with diverse backgrounds, not tolerating gender gap compensation issues among employees. They have initiated all-employee discussion sessions concerning diversity, equity, and inclusion to bolster communication and education.  
  • Argo Group is committed to cultivating an authentic, inclusive and respectful workplace where all employees feel comfortable bringing their whole selves to work with equal opportunities to be successful. They developed their first year report on the gender pay gap in 2020 among their team in the U.K., but the company has been tracking the pay gap and working on improvements since 2017.  
  • CSAA Insurance Group, a AAA insurer, has been named to Seramount’s sixth annual Inclusion Index, which recognizes leaders in creating an inclusive workplace. Chubb engages in pay equity analysis to ensure equal pay between employees in similar roles. The objective of this practice is to determine whether pay differences are driven by fair and compensable factors, such as location or tenure, and not by unjustifiable factors, such as gender or race. It has been a success at the organization. 
  • Farmers Insurance, ranked as a Best Employer for Women by Forbes, is partnering with Women Back to Work to support the career re-entry of women in tech. Women at Farmers Insurance have rated Team, Executive Team, and Leadership as the organization’s highest-scoring categories. Farmers Insurance ranks on Comparably in the top 5% of other companies with 10,000+ Employees for Gender Score. 
  • Grange Insurance is a proud member of CEO Action for Diversity and Inclusion™, a national initiative of more than 2,000 CEOs and Presidents who are pledging to support a more inclusive workplace for employees, communities, and society. In 2022, Grange was selected as an honoree of Columbus Business First’s Diversity in Business Award in the Outstanding Diversity Organization category. As an example of its commitment to pay equity, Grange conducts an annual gender pay equity analysis. 
  • At Hanover, measuring workforce demographics enables them to track where they stand and the work that needs to be done along their DEI (Diversity, Equity, and Inclusion) journey. This practice also helps them achieve a shared goal of attracting, retaining, and advancing a diverse workforce at all levels. For 2021, 59 % of the workforce was female.
  • Liberty Mutual was recognized by Forbes as one of America’s best employers for women every year since 2018. Liberty Mutual monitors their market competitiveness, constantly evaluating their pay practices to ensure relative parity among employees and across all business areas. They designed their compensation system to pay competitively for performance across all dimensions of diversity. Their multi-year DEI Plan includes goals to increase representation of women at all levels in the U.S. by 2025, as well as ensure progress over the long term. Delivering on these goals means that more than half of their U.S. workforce will be women.  
  • Lloyd, in its 2021 Gender and Ethnicity Pay Gap Reports, noted its mean gender pay gap is 18.6%, an improvement of 1.8% from 2020. While there is still more to do, this shows a continually improving trend since the 27.7% pay gap in their first report in 2017. Lloyd’s is working to improve pay gaps by providing career development for women; hiring one in three ethnic minorities; and having an EDGE action plan, among other objectives.  
  • MAPFRE continues reducing its gender pay gap. Its Compensation Policy lays out a compensation model that focuses on productivity and added value, contains no gender criteria, and is adapted to the competitive environment.  
  • At MetLife, they are committed to pay equity and annually review their pay practices, including compensation and benefits programs, to ensure they incent the right behaviors and provide equal pay for equal work, regardless of gender or race. Their goal is to support, reward, and compensate the entire individual.  
  • Munich Re sees diversity as the lively and active coexistence and working together of different mindsets, mentalities, experiences, and expertise. Their employees are their most valuable asset, and their diversity is the key to our success as a company. They are increasing the proportion of women in all management positions globally and Group-wide to 40 percent by the end of 2025.  
  • Seramount placed Nationwide Insurance on its Top 75 Companies for Executive Women list, which recognizes corporations that have women in top executive positions and created a culture that identifies, promotes, and nurtures successful women.   
  • In 2022 State Farm was ranked among the Top Companies for Executive Women by Seramount – and has been recognized every year since 2008. They have created the D&I Governance Council with its main objective to integrate diversity and inclusion into day-to-day business practices and how they lead their organization. They have also created learning opportunities such as Ally Skills Workshops for all employees and Inclusive Practices and Talent Decisions for recruiters and leaders. In addition, State Farm has cultivated transparency by sharing demographic data internally and externally.   
  • Swiss Re noted that they have a regularly monitored gender-neutral approach to pay across all levels of the organization. They also conduct an annual statistical analysis of base salaries and total compensation across corporate bands, job families, employee ages, and experience levels to identify gender pay differentials for comparable roles across the organization. The regression-based analysis for 2022 found no statistically significant gender pay differentials across these categories.  
  • USAA, a national insurance and financial services company focused on active military, veterans, and their families, announced its final commitment of $20 million to advance diversity, equity, and inclusion. As part of the company’s three-year, $50 million commitment made in late 2020, the latest grants to nearly 50 nonprofit organizations focus on amplifying the collaborative need to build diverse talent pipelines through education and employment programs.   
  • Utica National boasts a workforce comprised of 60% women – a figure which mirrors the percentage across the entire insurance industry, based on a survey by the U.S. Bureau of Labor Statistics. Looking back at the company’s 107-year history, their very first employee was a woman, and now women make up the majority of their workforce that keeps the company moving and growing. For five consecutive years, Utica was named a Top Insurance Workplace by Insurance Business America magazine.   
  • W.R. Berkley’s Code of Ethics and Business Conduct outlines how they address diversity and inclusion to provide equal opportunities for all Berkley employees. Many of their insurance businesses have diversity and inclusion committees that support these policies.  
  • Westfield Group’s Women’s Network works to educate, inspire and interact with women and their advocates by building a community focused on appreciating the strengths and contributions of women as leaders in the workplace. By providing advocacy and development that enables women to achieve their career goals, the network helps their organization achieve higher performance and profitability through diverse thought and voice.  
  • Zurich Insurance is committed to gender equality in the workplace and has implemented measures globally to track progress. These initiatives include the Equal Pay for Equivalent Work analysis to make sure gender is not a factor when it comes to remuneration.  

The Insurance Industry Charitable Foundation (IICF) developed Advancing Ideas into Action, based on their Inclusion in Insurance Regional Forums held in 2022, furthering conversations started by IICF in 2013 during their first Women in Insurance Global Conference (now the IICF Inclusion in Insurance Global Conference) about advancing ideas around diversity, equity, and inclusion (DEI) and innovation into action.      

In its 2013 report, Increasing Gender Diversity in Insurance Leadership: Lessons from Women Who Reached the C-Suite, Spencer Stuart, an American global executive search and leadership consulting firm based in Chicago, Illinois, noted that “increasing diversity requires clear and consistent support from the CEO and senior management, and male leaders generally. Executive leadership sets the tone that diversity is a priority and sets expectations that succession plans and candidate slates will include women.” 

Peter Miller, CPCU and president and CEO of The Institutes (of which Triple-I is affiliated), couldn’t agree more. “At the end of the day, all leaders must be deliberate and consistent in their efforts to attract and grow diverse talent,” Miller said, adding that “focusing on leadership-skills-based development is a critical factor in retaining and elevating diverse talent, which in turn helps drive pay equity.”

The Institutes has consistently been recognized as a Top Workplace over the last several years and earned national recognition as a 2023 Top Workplace. Additionally, The Institutes has been recognized for its work-life flexibility and compensation and benefits. 

Insurance Industry

Latest Research on Social Inflation in Commercial Auto Liability Reveals a $30bn Increase in Claims

Social inflation contributed to a $30 billion increase in commercial auto liability claims between 2012 and 2021, according to updated research published by the Insurance Information Institute (Triple-I), in partnership with the Casualty Actuarial Society (CAS). Most of the increase for the total review period is attributable to the newly added years 2020 and 2021 to the data set.   

Findings from the research paper, Social Inflation and Loss Development–An Update, suggest that while other factors may be in play, social inflation could be responsible for driving losses over the past 10 years up by as much as 18-20%. Results also indicate that social inflation, as a loss driver, may be outpacing inflation in the overall economy by 2 to 3% per year. The actuarial models in the paper assume that exposure in commercial auto liability grows in the long term at the same rate as the overall economy. The updated research supports the conversation that Triple-I and its industry partners have fostered over recent years to increase awareness about the phenomena and encourage solutions. Both social inflation Triple-I/CAS papers were authored by actuaries James Lynch and David Moore.  

Tracing the wake of social inflation in commercial auto liability 

Analysts in every industry may rely on economic indicators and established quantitative methodologies to adapt to cost increases caused by general inflation in the economy. According to the definition cited as the basis for the paper, the expansive scope of social inflation can pose a more complex challenge for insurers as it can include “all ways in which insurers’ claims costs rise over and above general economic inflation, including shifts in societal preferences over who is best placed to absorb risk.” The impact of some potential factors, such as increasing lawsuit verdicts and extended litigation, can be dynamic and hard to forecast, making effective risk mitigation tactics difficult.  

Still, insurers must aim to offset increasing claim costs, and that effort can include finding a way to outline the footprint of social inflation. Thus, rather than attempting to deconstruct the components of social inflation, this update to the 2022 CAS-Triple I collaboration continues to zero in on tracking evidence of it, ascertaining the potential influence on losses over time, and potentially finding clues that may link back to the culprits. Accordingly, the research stays focused on the claim size and reviews the increase in loss development factors over time.

Research raises questions, highlights a new emerging reality  

As with many industries, the COVID-19 pandemic challenges longstanding methodologies and conventional forecasting assumptions. Claim frequency, in relation to the overall economy, decreased sharply in 2020 and remained flat in 2021, even though driving appears to have returned to pre-pandemic levels. However, severity appears to have increased significantly.  

Enter loss triangles – a conventional actuarial tool that can enable comparison of loss metrics across years and see how losses develop over time. As in last year’s paper, researchers used this tool to examine the loss development patterns of net paid loss and defense and containment costs (DCC). Analysis suggests that whereas the pandemic may have dramatically impeded the ability to file new litigation for a brief period, it may also have created more enduring repercussions by hampering the timely and, thus, more cost-effective settlement of outstanding claims.  

Even as social inflation amplifies losses for commercial auto liability, existing methods to pinpoint where general inflation ends and social inflation begins may become less dependable. In addition to covering the pandemic shocks of the shutdown, the newly added data spanned into the economic recovery and was impacted by much of what came with it – demand booms, stressed supply and labor resources, and, of course, the eventual soaring of the Consumer Price Index (CPI) for all urban consumers. In 2021, the CPI increased by a formidable 4.7 percent, the fastest inflation growth rate this century. These and other changes in the economic environment may have dampened the effectiveness of the testing and modeling framework. In any case, calculations for loss emergence revealed that for the first time in a decade, actual emergence was less than expected emergence in 2020 and 2021, reversing observations made in the previous paper about the reliability of conventional actuarial estimates.  

The importance of understanding social inflation 

It’s important to remember that although insurers are often called upon to help businesses and communities bounce back from natural disasters or other unexpected events, social inflation is arguably a human-made crisis that already looms large in the marketplace. A 2020 study by the American Transportation Research Institute found that, from 2010 to 2018, the size of jury verdict awards grew 33 percent annually, as overall inflation grew by 1.7 percent each year within this same timeframe and healthcare costs increased by 2.9 percent.  

As losses grow much faster than premiums, insurers can resort to any combination of methods to contain costs, including limiting the amount of coverage offered, increasing premiums, or discontinuing certain types of coverage. For policyholders that need to mitigate their commercial auto liability exposure, expensive coverage or lack of coverage can threaten the ability to stay competitive or even remain in operation, particularly for those in tight-margin industries.  

Unprecedented times call for new ways of collecting and reviewing claims data. The paper relies on new ways of using old-school methods and discusses how the reliability for some metrics could be improved by utilizing other data sources. A paper by the same researchers included similar observations for the medical malpractice liability sector. Key takeaways from the findings of these papers, along with an emerging body of research on social inflation, can be helpful in exploring actionable strategies, such as curbing lengthy litigation. 

For a quick summary of social inflation and other helpful resources about its potential impact on insurers, policyholders, and the economy, check out our knowledge hub, Social inflation: hard to measure, important to understand.