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Business Risk, Cyber Risk, Floods, Insurance Industry

RiskScan 2024 reveals risk priorities across the insurance marketplace

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By Mary Sams, Senior Research Analyst

Cyber incidents, changes in climate, and business interruption are the chief risk concerns among key marketplace segments in the insurance industry, according to RiskScan 2024, a new survey from Munich Reinsurance America Inc. (“Munich Re US”) and the Insurance Information Institute (Triple-I) reveals.

RiskScan 2024 provides a cross-market overview of top risk concerns among individuals across five key market segments: P&C insurance carriers, P&C agents and brokers, middle-market business decision makers, small business owners, and consumers. The survey explores not only P&C risks, but also how economic, political, and legal pressures shape risk perceptions. 

Methodology

To produce a compelling snapshot of cross-market views, Munich Re US and Triple-I engaged independent market researcher RTi Research in the summer of 2024 to survey 1,300 US-based individuals.

Market surveys typically focus on a single audience, but RiskScan 2024 is a multi-segment survey offering a comprehensive view of risk perceptions and yielding comparative results between audiences. The key insights present a variety of commonalities and disparities across the five distinct target segments, covering the full range of insurance buyers and sellers across the United States.

This online survey was conducted across gender, age, geographic region, household income, business revenue, and company size. 

Two primary cohorts make up five segments of participants in the RiskScan research:

  1. consumers and small business owners (n=700) and
  1. Insurance industry participants, which included carriers, agents, and brokers as well as middle market businesses (n=600). 

Research participants were presented with various risks across five segments and then asked to select their top three risk concerns. 

Key Insights

More than one-third of respondents chose economic inflation, cyber incidents, and climate change as their top three concerns based on insurance risks and market dynamics. All three of these reflect post-pandemic news topics. Economic inflation has increased over the last several years.  Consumers and small business owners have experienced direct impacts with increased costs and industry participants have seen these impacts on increased replacement costs and P&C insurance premiums.

There are significant disparities in the ranking results between the two primary cohorts within the research. Insurance professionals tend to identify a variety of risks and have significant awareness of all risk categories, including emerging technologies. As expected, these audiences exhibit broader knowledge and awareness of risk transfer and mitigation of new and emerging risks. Consumers identified a smaller number of risks associated with more immediate and direct impacts on themselves. 

The structure of RiskScan 2024 research yields a more complete understanding of the “white space” that exists between risk perception and action. The gaps were identified along three key risk areas: 

  • Flood risk
  • cyber risks, and
  • legal system abuse

Flood risk was also indicated as one of the chief concerns for each audience. However, consumers lack awareness that flood events are typically excluded from homeowner’s policies. Industry professionals are more aware of flood coverage exclusions, the importance of purchasing flood coverage before a flood event, and the likelihood of these events occurring.

Cyber incidents are a primary concern in all five market segments. Most audiences in the research, both consumer and commercial, feel unprepared as this threat vector is constantly emerging, expanding, and changing. Many people are knowledgeable about cyber risks and are concerned about how to mitigate new cyber threats. Troubling stories have come to light as the frequency and severity of cyber threats grow.

“The knowledge gap about insurance risks demonstrates the continued need for education of consumers and businesses, especially about flood, cyber, and legal system abuse,” says Triple-I CEO Sean Kevelighan. “Increasing knowledge will be instrumental for the collective work needed to better manage and mitigate future risks.”

The report includes additional results for each of the five primary audiences: consumers (n=500), small business owners (n=200), insurance carriers (n=200), insurance agents and brokers (n=200), and middle market businesses (n=200).

Download the full RiskScan 2024 report to review the details. Triple-I aims to empower stakeholders by driving research and education on this and other key insurance topics. Follow our blog to keep abreast of these essential conversations.

Disaster Resilience, Insurance Industry, Insurers and the Economy, Legal Environment, Market Conditions, Risk Management

Climate Resilience and Legal System Abuse Take Center Stage In Miami

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Triple-I’s Joint Industry Forum this week in Miami brought together subject-matter experts from across insurance, academia, government, and the nonprofit space to discuss climate resilience, legal system abuse, and – most important – what is being done and must continue to be done to ensure insurance availability and affordability during this period of evolving perils and policy challenges.

The insight-rich and engaging panels and “Risk Takes” will be generating Triple-I blog content for weeks to come. The following is a brief wrap-up.

While our times are “riskier than ever,” Triple-I CEO Sean Kevelighan pointed out that the U.S. property/casualty insurance industry “is well poised to manage these risks.” At the same time, he and many participants noted that collaboration and coalition building are critical for long-term success.

With respect to climate resilience, such collaboration is already taking place. Veronika Torarp, a partner in PwC Strategy’s insurance practice and moderator of the Climate Resilience panel, discussed the multi-industry coalition PwC is developing with Triple-I and other partners. Marsh McLennan’s managing director for public sector Dan Kaniewski – who moderated the Success Stories panel – discussed a project funded last year by Fannie Mae and managed by the National Institute of Building Sciences (NIBS) that culminated in a roadmap to incentivize investment in urban flood resilience across “co-beneficiary” groups.. Triple-I played an integral role in the NIBS project, which is currently seeking communities and partners for implementation of the roadmap.

In the area of legal system abuse, there was much conversation around the benefits to Florida of recent reforms in terms of making the Sunshine State more attractive to insurers again by discouraging excessive and fraudulent litigation. Legal system abuse is a multi-headed monster that drives up costs for everyone – from home and car owners to businesses and taxpayers – and, although progress has been made to fight it in Florida and elsewhere, it is expanding as quickly as those states are able to advance in tamping it down. Triple-I’s Dale Porfilio moderated a lively panel on the topic that included Louisiana Insurance Commissioner Tim Temple; Farmers Insurance head of legislative affairs Jeff Sauls; Viji Rangaswami, senior vice president and chief public affairs officer for Liberty Mutual; and Jerry Theodorou, policy director for finance, insurance, and trade at the R Street Institute.

Peter Miller, president and CEO of The Institutes, moderated the Innovation panel, which included Denise Garth, chief strategy officer at Majesco; Paul O’Connor, vice president of operational excellence at ServiceMaster; Kenneth Tolson, global president for digital solutions at Crawford & Co.; and Reggie Townsend, vice president and head of the data ethics practice at SAS. These subject-matter experts discussed how generative AI and other technologies are transforming insurance strategy and operations and increasing opportunities to improve and advance this most human-centered industry.

All four panels – as well as the Risk Takes and the “Fireside Chat” featuring Kate Horowitz, executive vice president of The Institutes, and Casey Kempton, president of personal lines for Nationwide Insurance – will be reported on in greater detail in subsequent posts.

Insurance Industry

New IRC Report:
Personal Auto Insurance
State Regulation Systems

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By William Nibbelin, Senior Research Actuary, Triple-I 

According to a new study by the Insurance Research Council (IRC), the rate filing process for personal auto insurance has become more inefficient and ineffective, taking longer to achieve rate approval with higher occurrence of approved rate impact lower than filed rate impact and a larger disparity between the rate impact approved and the rate impact filed.

The report, Rate Regulation in Personal Auto Insurance: A Comparison of State Systems, analyzes Personal Auto Insurance industry data from 2010 through 2023 across all states and the District of Columbia. Key findings:

  • There were approximately 10,200 rate filings each year without much variance during the period.
  • The average number of days to approval grew from 39 to 54 days.
  • The number of filings withdrawn increased from 1,900 to 3,200.
  • The percentage of filings receiving less rate impact than requested grew 10 points.
  • The disparity in approved rate impact grew by more than 2 points.
  • Market concentration (as measured by the Herfindahl-Hirschman Index, or HHI) increased by 9 percent.
  • A strong-to-moderate correlation exists between net underwriting losses and premium shortfalls within states and across time.
  • Filing process measures and market outcomes vary by regulatory systems.

During this same period from 2010 through 2023, the personal auto insurance industry experienced a direct combined ratio over 100 in 11 of the 14 years. Combined ratio is a key measure of underwriting profitability for insurance carriers, calculated as losses and expenses divided by earned premium plus operating expenses divided by written premium. A combined ratio over 100 represents an underwriting loss. The report includes the determination of a strong correlation between underwriting loss and premium shortfalls, defined as the potential dollar difference between the effective filed rate impact and approved rate impact.

Overview of Rate Regulation

Insurance is regulated by the states. This system of regulation stems from the McCarran-Ferguson Act of 1945, which describes state regulation and taxation of the industry as being in “the public interest” and clearly gives it preeminence over federal law.

While the regulatory processes in each state vary, three principles guide every state’s rate regulation system (Regulation | III): that rates be adequate (to maintain insurance company solvency) but not excessive (not so high as to lead to exorbitant profits) nor unfairly discriminatory (price differences must reflect expected claim and expense differences).

According to the NAIC (NAIC Auto Insurance Database Report, p. 193), the primary regulatory approaches include:

  • Prior Approval System: Insurance companies must file their rates and get approval from the state insurance department before using them.
  • Flex Rating: States allow insurers to change rates within a pre-established range (often a percentage increase or decrease) without needing approval. Larger changes, however, require prior approval.
  • File-and-Use System: Insurers can file rates with the state and begin using them immediately or after a set period. The rates can still be reviewed by regulators, but they do not require prior approval.
  • Use-and-File System: Insurers can implement new rates without prior approval but must file them with the state within a certain period after they start being used. Regulators can review and potentially disapprove them later.
  • No Filing: In some states, insurers do not have to file rates for certain lines of insurance. The idea is that competition among insurers will keep rates in check. However, regulators still have authority to intervene if rates are deemed unreasonable.

Regulatory Systems

IRC used National Association of Insurance Commissioners (NAIC) definitions to segment states into four regulatory systems: Prior Approval, File and Use, Use and File (including No Filing states), and an additional segment, Rate Cap, for Flex Rating states and any state with an explicit rate impact cap on rate filings per state regulations.

The report then highlights key findings and other market outcomes across these four regulatory environment systems. For example, the study determined underwriting profitability in personal auto insurance was weakest in Rate Cap states across the period from 2010 through 2023 with the highest average direct combined ratio of any regulatory environment system in 2023. Prior Approval states had the second highest.

Below are some of the results of this study for California personal auto, which performs worse on several key rate filing process measures.

California

California has an explicit rate cap of 7 percent (California Insurance Code Article 161.05) and is therefore classified as a Rate Cap regulatory environment system in the IRC study. California only rivals Colorado for the highest average number of days to approval over the past seven years and has the highest average number of days to approval for 2023 at 246 compared to the next highest, Colorado, at 167.

California also has the highest average withdrawn rate across all states at 14.1 percent from 2010 to 2023. From 2010 to 2023, California achieved a Direct Combined Ratio under 100 four times, and the most recent three-year direct combined ratio is 110.4, compared to the countrywide 106.4. The residual market has grown in California from 0.01 percent in 2010 to 0.09 percent in 2021 which is higher than the countrywide average of 0.07 percent.

Insurance Industry

US Consumers See Link Between Attorney Involvement in Claims and Higher Auto Insurance Costs: New IRC Report

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According to a new survey conducted by the Insurance Research Council (IRC), most consumers believe attorney advertising increases the number of claims and lawsuits and the cost of auto insurance.

The report, Public Opinions on Attorney Involvement in Claims, analyzes consumer opinions on attorney involvement in insurance claims and expands prior research. Overall, 60 percent of 2000 respondents in this latest nationwide online survey from IRC said that attorney advertising increases the number of claims, and 52 percent said that advertising increases the cost of insurance. Most respondents (89 percent) reported seeing attorney advertising in the past year, and about half reported seeing an increase in the amount of attorney advertising.

The IRC endeavored to gauge perceptions of attorney advertising and its impact on the cost of insurance, consumer awareness and understanding of litigation financing practices, and decisions about consulting attorneys about auto insurance claims. The main lines of inquiry in the survey revolved around:

  • How has the public experienced attorney advertising, and what do they think of the impact?
  • Are they aware of litigation financing, and after being given a description, what do they think of it?
  • Would they be more likely to hire an attorney to help settle an insurance claim or to settle directly with an insurer?
  • What was their previous history with auto insurance claims and their experience with consulting a lawyer to help settle an injury claim?

Results indicate that consumers are exposed to more attorney advertising across most mediums – particularly in outdoor ads, with auto accident advertisements being the most prevalent medium – compared to three years ago. While billboard advertising has experienced the most growth over the past three years, TV is the most recalled medium, with 65 percent of respondents recalling seeing TV ads in the past year.

The study reveals the awareness of litigation financing has risen significantly, but most respondents remain neutral in their opinions. Nonetheless, results show consumers want transparency around the involvement of third-party litigation funding in a case. When asked, “To what extent do you agree or disagree that the participants in a lawsuit should be informed when outside investors are financing the litigation,” 69 percent said they agree.

How might increased attorney advertising fuel legal system abuse?

IRC’s findings support a “significant statistical correlation between whether respondents consulted an attorney and their exposure to advertising. Among those who reported seeing attorney advertising, 74 percent consulted an attorney, compared to 48 percent among those who had not seen attorney advertising.”

The American Tort Reform Association (ATRA) estimates that in 2023, over $2.4 billion was spent on local legal services advertising through television, radio, print ads, and billboards across the United States.  Meanwhile, only 47 percent of respondents in a 2023 American Bar Association (ABA) survey said their firm had an annual marketing budget – a decline from 57 percent in 2022. About 80 percent of the solo practitioners in the study did not have a marketing budget, and only 31 percent of firms of 2-9 lawyers had one. 

Therefore, excessive advertising isn’t universal across the legal industry, and the saturation of advertising channels can more likely be attributed to large firms reaping substantial profits from certain practice areas or firms bolstered by third-party litigation financing. In many instances, both of these conditions factors may be involved. For example, data that ranks the leading legal services advertisers in the United States in 2023 by spending reveals a list dominated by large law firms and attorney conglomerates specializing in mass tort, accident, and personal injury litigation.

The Wall Street Journal reported earlier this year on the ties between advertising surge and the growth in mass product-liability and personal-injury cases, along with the rising involvement from a particular segment of the investment industry in these types of litigation. Nearly 800,000 television advertisements for mass tort cases ran in 2023, costing over $160 million. According to the WSJ, the ads shown most frequently that year included those soliciting individuals who might have been exposed to contaminated water at the Camp Lejeune Marine base. This particular mass tort ranks high on the previously mentioned list of top spenders.

The average dollar amount of third-party litigation funder (TPLF) loans provided to individual law firms ranges from $20 million to $100 million. Given that prospective returns for TPLF loans reportedly reach as high as 20 percent for the riskier mass tort litigation, connecting the surge in advertising for recruiting plaintiffs to the TPLF cash stream may not be such a big leap. Yet, over the years, studies have shown that attorney involvement can increase claims costs and the time needed to resolve them, even while reducing value for claimants.

Insurance claims litigation is a growing concern in several states, including Georgia, Louisiana, and Florida, threatening coverage affordability and availability. In Georgia, for example, data indicates that auto coverage affordability for Georgians has been waning faster than in any other state. An August 2024 report, Personal Auto Insurance Affordability in Georgia, issued by IRC, ranked Georgia 47th in terms of auto insurance affordability, while the state tops the most recent list of places that the American Tort Reform Foundation (ATRF) believes judges in civil cases systematically apply laws and court procedures generally to the disadvantage of defendants.

Triple-I and key insurance industry stakeholders define legal system abuse as policyholder or plaintiff attorney practices that increase costs and time to settle insurance claims, including situations when a disputed claim could have been fairly resolved without judicial intervention. Insurers’ legal costs for claims can mount with the increasing number of lawsuit filings, extended litigation, and outsized jury awards (awards exceeding $10 million).

To join the discussion, register for JIF 2024. Follow our blog to learn more about trends in insurance affordability and availability across the property and casualty market.

Insurance Industry

Triple-I launches campaign to highlight challenges to insurance affordability in Georgia

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By Dale Porfilio, Chief Insurance Officer, Insurance Information Institute

As part of its ongoing work to raise awareness of the impacts of legal system abuse, the Insurance Information Institute (Triple-I) launched a multi-faceted campaign focusing on Georgia. The campaign includes an Interstate 20 billboard in Downtown Atlanta and digital billboards on bus stops and other urban panels across the Metro Atlanta area.

Georgia tops the most recent list of places that the American Tort Reform Foundation (ATRF) calls “judicial hellholes,” states and counties where the organization believes judges in civil cases systematically apply laws and court procedures generally to the disadvantage of defendants. According to ATRF, Georgia earned this ranking due to continued “high nuclear verdicts and liability-expanding decisions by the Georgia Supreme Court.” The state made the list for the first time in the report for 2019-2020, debuting at number 6. 

Triple-I and key insurance industry stakeholders define legal system abuse as policyholder or plaintiff attorney practices that increase costs and time to settle insurance claims, including situations when a disputed claim could have been resolved without judicial intervention. Insurers’ legal costs for claims can mount with the increasing number of lawsuit filings, extended litigation, and outsized jury awards (awards exceeding $10 million). Data from the Insurance Research Council (IRC) indicates that attorney involvement can increase claims costs and the time needed to resolve them, even while reducing value for claimants.

Auto insurance litigation, for example, is a growing concern in Georgia as data reveals coverage affordability for Georgians in this product area has been significantly waning faster than in any other state. An August 2024 report, Personal Auto Insurance Affordability in Georgia, issued by IRC, ranked Georgia 47th in terms of auto insurance affordability. Personal auto insurance expenditures accounted for 2.0 percent of Georgians’ median household income, compared with a 1.5 percent share nationwide. Auto insurance spending in Georgia grew at 5.6 percent annualized between 2014 and 2022, compared with 3.3 percent in the country overall.

Meanwhile, legal service providers spent over $160 million on advertising in Georgia in 2023, according to preliminary data from the American Tort Reform Association (ATRA). 

Earlier this year, a Triple-I issue brief, Legal System Abuse: State of the Risk, highlighted aspects of legal system abuse, including how law firm advertising spend for mass tort cases might play a role in increased filings nationwide. Trial attorneys and third-party litigation funders seeking more profits may use advertising to amp up recruitment for lawsuits with big payouts at the expense of policyholders. A 2023 Triple-I study, Impact of Increasing Inflation on Personal and Commercial Auto Liability Insurance, estimates 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.

Triple-I’s multi-faceted awareness campaign to help educate Georgians about the mounting costs of legal system abuse in the state also includes content such as a video statement by CEO Sean Kevelighan and interviews capturing the opinions of consumers about legal system abuse.

Coverage affordability is a growing concern for many policyholders nationwide. While several factors may impact insurance premiums, unnecessary and excessive litigation can drive higher loss ratios while posing formidable challenges to prediction and mitigation. Triple-I is committed to advancing conversations with business leaders, government regulators, consumers, and other stakeholders to attack the risk crisis and chart a path forward.

We invite you to join the discussion by registering for JIF 2024. Follow our blog to learn more about trends in insurance affordability and availability across the property and casualty market.

Corporate Social Responsibility, Health & Safety, Insurance Industry

Insurers Help Victims
of Domestic Abuse With Financial Resilience

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By Loretta Worters, Vice President – Media Relations, Triple-I

When you think about domestic violence, insurance typically isn’t top of mind.  However, financial security and access to resources can make all the difference to victims when deciding to leave an abusive relationship. And insurance is an important component of financial planning that can help survivors move forward.

One frequently hidden form of abuse perpetrated within intimate partner relationships is economic or financial abuse, a common tactic abusers use to gain power and control. The forms of financial abuse may be subtle or explicit, but generally include tactics to conceal information, limit the victim’s access to assets, or reduce accessibility to the family finances. Financial abuse – along with digital, emotional, physical, and sexual abuse – includes behaviors to intentionally manipulate, intimidate, and threaten the victim to entrap that person. In some cases, financial abuse is present throughout the relationship; in others, financial exploitation becomes present when the survivor is attempting to leave or has left.

Research indicates that financial abuse occurs in 99 percent of domestic violence cases. Surveys of survivors reflect concerns over their ability to provide for themselves and their children – one of the top reasons for staying with or returning to an abusive partner. As with all forms of abuse, financial abuse occurs across all socio-economic, educational, and racial and ethnic groups.

Survivors struggling to get back on their feet may also be forced to return to their abuser.  That’s why it’s so important survivors understand how insurance works and what a critical role it can play in gaining financial freedom and economic self-sufficiency.

Since 2005, The Allstate Foundation has been committed to ending domestic violence through financial empowerment by helping to provide survivors with the education and resources needed to achieve their potential and equip young people with the information and confidence they need to help prevent unhealthy relationships before they start. 

The Allstate Foundation offers a Moving Ahead Curriculum, a five-module program that helps prepare survivors as they move from short-term safety to long-term security. Modules of the curriculum include: Understanding Financial Abuse; Learning Financial Fundamentals; Mastering Credit Basics; Building Financial Foundations and Long-Term Planning.

In support of Domestic Violence Awareness Month, Triple-I offers financial strategies to protect victims before and after leaving an abusive relationship. They include securing financial records, knowing where the victim stands financially, building a financial safety net, making necessary changes to their insurance policies, and maintaining good credit. 

The National Coalition Against Domestic Violence (NCADV) reports that 10 million people are physically abused by an intimate partner each year, and 20,000 calls are placed to domestic violence hotlines each day. In addition, 85 percent of women who leave an abusive relationship return because of their economic dependence on their abusers. Furthermore, the degree of women’s economic dependence on an abuser is associated with the severity of the abuse they suffer.

“Home is frequently a dangerous place for survivors of domestic violence, and remote work exacerbates the circumstances, due to the abusers’ ability to further control,” said Ruth Glenn, author, survivor, and leader in the movement to end domestic violence for over 30 years. “Tactics abusers use include ruining the victim’s credit, as well as financial abuse,” said Glenn, who is president of Survivor Justice Action (SJA) and the former CEO of the NCADV.

Digital abuse is another tactic used by abusers.  It can come in many forms, with partners reading emails, checking texts and locations of social media posts, controlling who you can connect and speak with on social media; and keeping constant tabs on you through social networks, spyware, or tools like location sharing; and stealing your passwords, which can also impact you financially.

“One of the most powerful methods of keeping a survivor trapped in an abusive relationship is not being able to support themselves financially,” Glenn explained. “That’s why insurance and financial education are crucial,” she said.  “Education can save a life.”

Emerging Risks, Insurance Industry, Insurance News

Multi-Family Affordable Housing Market Challenged by Surges in Insurance Premiums

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urban apartment buildings

With ​​nearly half of all homes in the United States at risk of “severe or extreme” damage from events like flooding, high winds, and wildfire, the perfect storm of climate risk and legal system abuse creates obstacles for homeowners. It also threatens a more financially vulnerable segment of the housing market, as increased premiums and waning coverage for affordable housing providers can put millions of renters at risk of becoming rent-burdened (paying more than 30 percent of gross monthly income in gross monthly rent) or unhoused.

In June of this year, about two dozen real estate, housing, and nonprofit organizations — self-describing as a “broad coalition of housing providers and lenders” —  wrote a letter to Congress and the Biden administration urging them to address the issue of property insurance affordability. Although the coalition declared its intent to represent all stakeholders in the housing market, it called attention to special concerns of affordable housing providers and renters.

The letter referenced an October 2023 survey and report commissioned by the National Leased Housing Association (NLHA) and supported by other affordable housing organizations. The survey involved more than 400 housing providers that operate 2.7 million rental units — 1.7 million of which are federally subsidized. Findings mentioned in the letter and report about the affordable housing market include:

– Rate increases of 25 percent or more in the most recent renewal period for one in every three policies for affordable housing providers.

– Over 93 percent of housing providers said they plan to mitigate cost increases, with three most commonly cited tactics: increasing insurance deductibles (67 percent), decreasing operating expenses (64 percent), and increasing rent (58 percent).

– Respondents cited limited markets and capacity as the cause for most premium increases, followed by claims history/loss and renter population.

According to the U.S. Department of Housing and Urban Development (HUD) guidelines, affordable housing is generally defined as housing for which the occupant is paying no more than 30 percent of gross income for housing costs. These units are often regulated under various regional and nationwide programs, which typically offer some form of government subsidy to the property owners – usually either through tax credits, government-backed financing, or direct payments. Rising insurance premiums for affordable housing properties have come at a particularly challenging time for both renters and affordable housing property owners, a large share of which are non-profit organizations.

Census Data indicates that in total renters comprise around 36 percent, or about 44.2 million of the 122.8 million Census captured households. The number of rent-burdened households nationwide has hit an all-time high. The latest rental housing market figures, taken from a report issued by the Joint Center For Housing Studies Of Harvard University, counts 22.4 million rent burdened households in this category, amplifying the dire need for more affordable units. That report also reveals the proportion of “cost-burdened renters rose to 50 percent, up 3.2 percentage points from 2019.” 

Additionally, homelessness increased 12 percent in 2023. More than 650,000 people were unhoused at some point last year — the highest number recorded since data collection began in 2007. A Wall Street Journal analysis reveals the most recent counts for 2024 are already up 10 percent, putting the total number of unhoused persons on track to exceed last year’s amount.

Meanwhile, the affordable housing stock is aging and the cost of debt to acquire or build multifamily properties has risen, too. As interest rates have been high in recent years, developers must offer investors greater returns than treasury notes. The problem is complex, but the outcomes can be brutally straightforward.

Higher insurance premiums on rented properties increase costs, which, in turn, get passed on to renters. Market-rate landlords can usually raise rents to cover the increasing costs of capital and insurance premiums. However, affordable housing providers are locked into rents set by the government. These amounts are tied to regional incomes, which can be depressed by wage stagnation. Thus, renters who rely on affordable housing can experience the impact of rising premiums in the form of decreased services and lapsed maintenance (as housing providers dip into other parts of the operating budget to make up the shortfall) or a decrease in the number of units on the market as housing providers extract units or leave the market.

In July of this year, HUD convened a meeting with various stakeholders to discuss policies and opportunities to address this and related challenges while managing potential risks to the long-term viability of affordable housing. HUD has modified its insurance requirements for apartment buildings with government-backed mortgages, now allowing owners to set their deductible for wind and storm events as high as $475,000, up from $250,000. This tactic may reduce premiums but can also raise out-of-pocket costs after a storm or severe climate event. Another approach in progress is the revision of HUD’s methodology for calculating the Operating Cost Adjustment Factors (OCAF), parameters for annual percentile increases in rent, for eligible multifamily properties to better account for increasing insurance costs.

Triple-I is committed to advancing conversations with business leaders, government regulators, and other stakeholders to attack the risk crisis and chart a path forward. To join the discussion, register for JIF 2024. Follow our blog to learn more about trends in insurance affordability and availability across the property and casualty market.

Industry Awards & Events, Insurance Industry, Risk Management

Predict & Prevent Podcast Honored By Inclusion Among ‘Insurance Luminaries’

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The Institutes’ Predict & Prevent® podcast has been named to PropertyCasualty360’s Insurance Luminaries Class of 2024 in the category of Risk Management Innovation. This annual recognition celebrates people and initiatives driving meaningful progress within the insurance sector, highlighting key advancements and forward-thinking approaches.

The podcast explores new ways to respond to some of the biggest risk challenges facing society today by working to better predict and prevent losses before they occur. This proactive approach is crucial in a rapidly changing world in which traditional risk-management methods – which focus on risk financing and responding after a loss – are becoming less sufficient.

By exploring new technologies and resilience strategies, the podcast addresses the urgency of mitigating current risk landscapes and paves the way for future advancements in risk prevention.

The Institutes is a nonprofit organization made up of diverse affiliates – including Triple-I – that educate, elevate, and connect people in the essential disciplines of risk management and insurance.

As the podcast rounds out its second year, its focus remains to empower the risk-management and insurance community with actionable insights and forward-thinking strategies. Those interested in exploring innovative technology and resilience solutions can listen to podcast episodes, access articles, and subscribe to the Predict & Prevent newsletter here.

Emerging Risks, Insurance Industry, Market Conditions

Prodigious growth continues for the excess and surplus market, but how long will it last?

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The Excess and Surplus (E&S) market has grown for five consecutive years by double-digit percentage rates. While expansion appears to have slowed, ample growth likely to continue if major trends persist, according to Triple-I’s latest issue brief, Excess and Surplus: State of the Risk.

As reported by S&P Global Intelligence, total premiums for 2023 reached $86.47 billion, up from $75.51 billion in 2022. The growth rate for direct premiums in 2023 climbed to 14.5 percent, down from the peak year-over-year (YoY) increase of 32.3 percent in 2021 and 20.1 percent in 2022. The share of U.S. total direct premiums written (DPW) for P/C in 2023 grew to 9.2 percent, up from 5.2 percent in 2013.

The brief summarizes how these outcomes are driven by the niche segment’s capacity to take advantage of coverage gaps in the admitted market and quickly pivot to new product development in the face of emerging or novel risks. Analysis and takeaways, based on data from US-based carriers, highlight dynamics that may support continued market expansion:

  • The rising frequency of climate disasters and catastrophes that overwhelm the admitted market
  • The increasing number and amount of outsized verdicts (awards over $10 million)
  • The sustainability of amenable regulatory frameworks
  • Outlook for the reinsurance segment

These factors can also converge to enhance or aggravate conditions.

For example, some states, such as Florida and California, are dealing with significant obstacles to P/C affordability and availability in the admitted market posed by catastrophe and climate risk while also experiencing large respective shares of outsized verdict activity. Also, 13 of the 15 largest U.S. E&S underwriters for commercial auto liability experienced a YoY increase in 2023 direct premiums written. In contrast, eight of the largest 15 underwriters of commercial auto physical damage coverage experienced a decline. Given 2023 research from the Insurance Information Institute showing how inflationary factors from legal costs amplify claim payouts for commercial auto liability, it appears that E&S is flourishing off the struggles of the admitted market.              

At the state level, the top three states based on E&S property premiums as portion of the total property market were Louisiana (22.7 percent), Florida (21.1 percent), and South Carolina (19.4  percent) in 2023. The states experiencing the highest growth rates in E&S share of property premiums were South Carolina (9.0 percent), California (8.8 percent), and Louisiana (8.3 percent).

Since the publication of Triple-I’s brief, AM Best released its 2024 Market Segment Report on U.S. Surplus Lines. One of the key updates: after factoring in numbers from regulated alien insurers and Lloyd’s syndicates, the E&S market exceeded the $100 billion premium ceiling for the first time, climbing past $115 billion. The share size in the P/C market has more than tripled, from 3.6 percent total P/C DPW in 2000 to 11.9 percent in 2023. Findings also indicate that DPW is concentrated heavily within the top 25 E&S carriers (ranked by DPW), with about 68% of the total E&S market DPW coming from this group.

The E&S market typically provides coverage across three areas:

  • Nonstandard risks: potential liabilities that have unconventional underwriting characteristics
  • Unique risks: admitted carriers don’t offer a filed policy form or rate, or there is limited loss history information available
  • Capacity risks: the customer to be insured seeks a higher level of coverage than most insurers are willing to provide

Thus, E&S carriers offer coverage for hard-to-place risks, stepping in where admitted carriers are unwilling or unable to tread. It makes sense that the policies typically come with higher premiums, which can boost DPW.

However, the value proposition for E&S policyholders hinges on the lack of coverage in the admitted market and the insurer’s financial stability – especially since state guaranty funds don’t cover E&S policies. Therefore, minimum capitalization requirements tend to higher for E&S than for admitted carriers. Ratings from A&M Best over the past several years indicate that most surplus insurers stand secure. Robust underwriting and strong reinsurance capital positions will play a role in the market’s capacity for continued expansion.

To learn more, read our issue brief and follow our blog for the latest insights.

Cyber Risk, Insurance Industry

FBI: Elder Fraud Up; Bolsters Case for Personal Cyber Insurance

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By Neil Rekhi, Personal Cyber Product Lead, HSB

Targeting of the demographic with the most to lose increases.

In 2023, total losses reported to the FBI’s Internet Crime Complaint Center (IC3) by people over the age of 60 topped $3.4 billion, an almost 11 percent increase in reported losses from 2022. The number of complaints, the highest attributed to a single age group, increased by 14 percent. The average dollar loss per complaint was $33,915, with nearly 6,000 people losing over $100,000 per claim.

The IC3 report outlined several common cyber fraud activities that impact individuals over 60, including:

  • Call Center/Tech Support Scam
  • Confidence/Romance Scams
  • Cryptocurrency Scams
  • Investment Scams

The IC3 notes the actual figures around these and other cyber crimes targeting the elderly may be higher since only about half of the more than 880,000 total complaints it received (with total losses exceeding $12.5 billion) included age data.

A major reason for the proliferation of elder fraud may simply be that members of this age group are plentiful while also having comparatively the most to steal. Adults 65 and up are expected to make up 22 percent of the US population by 2024. Federal Reserve data indicates that their asset accumulation outpaces that of other age groups, with median and average net worth figures for adults 65-74 at $409,900 and $1.8 million, respectively, and for adults 75 and over, $335,600 and $1.6 million respectively. 

Increasing digital lives and advancing technology create new threats.

The transition to the smart mobile and app economy, along with the rise of big data and predictive analytics/AI, and (due to the pandemic) remote working, have transformed the way we engage with the world on a social, professional, and financial level. The Internet of Things (IoT) and each person’s expanding network of personal devices — smart TVs, video game consoles, appliances, home climate control systems, etc. — have propelled the digitization of our existence. All these advancements can make life easier but also increase points of cybersecurity vulnerability for people of all ages.

However, data indicates that different age groups can be susceptible to different methods of targeting by cyber scammers. For example, phishing, which relies on the human tendency to repay what another person has provided, can be more effective for targeting older vs younger adults. Also, today’s consumer under age 25 may never have the need to write a paper check, but many over 65 today have spent a significant portion of their lives handling their financial affairs that way. Thus, the trust placed in tech support people and other personnel whom they are supposed to rely on for assistance is understandable.

Unfortunately, according to the IC3, people over 60 lost more to call center and tech support scams than all other age groups combined, with this group reporting 40% of these incidents and 58% of the related financial losses (about $770 million). Common schemes involved using phone calls, texts, emails, or pop-up windows (or a combination of these) to connect with victims, manipulating them to download malicious software, reveal private account information, or transfer assets. The fallout included remortgaged homes, emptied retirement accounts, and, in some cases, suicide.

New tools and methods increase cyber security threats.

A financial services professional at a Hong Kong-based firm sent US$25 million to fraudsters after she believed she was instructed to do so by her chief financial officer on a video call that also included other colleagues. Deepfakes, one of 2024’s increasingly common cyber risks for businesses and organizations, is on track to become a major threat to personal cyber liability. A technology known as “deep” learning (hence the name) can generate images, videos, texts, or sound files specifically designed to be highly convincing despite being entirely made up.

This content can turn up anywhere on social media, the internet, or even in emails and phone calls, fooling unsuspecting humans, and, all too often, even detection software. Deepfakes aren’t always produced for malicious activities; some are used widely for entertainment. However, the growing sophistication of deepfakes and the availability of the technology needed to make it may have serious implications for cyber risk.

Cyber criminals can leverage this technology to trick victims into divulging sensitive information, transferring money, or performing other activities. Reputations can be damaged by fabricated images of victims engaged in illegal or controversial acts. This type of deep fake can also enable blackmail in exchange for not releasing the material. In addition to impersonating individuals, cyber criminals can use deep fakes to bypass biometric verification or create false advertising.

The options for managing personal cyber risk can differ in crucial ways.

Personally identifiable information (PII) is the primary driver of identity theft and most other cyber fraud. Major data breaches are becoming common place, such as the incident that happened in 2023 (but wasn’t reported until August 2024) that credit exposed 2.7 billion records. Bad actors exploit this kind of information to directly engage in fraudulent transactions or create trust with their targets in more complex schemes.

Thanks to heavy marketing and wide availability from banks and card issuers, consumers tend to be familiar with Identity Theft Protection (ITP). As the name implies, such plans revolve around the risk of stolen identity and can alleviate some of the work and costs related to monitoring and mitigating the fallout from identity theft.

In contrast, Personal Cyber Insurance (PCI) offers coverage for a broader range of losses. Covered risks, in addition to ITP, can include cyber extortion, online fraud and deceptive transfers, data breaches, cyberbullying, and more. An important aspect of PCI is that it can help provide financial reimbursment from covered “cyber scams” or related social engineering risk not directly tied to identity theft, cyber crimes which are on the rise. It also offers assistance and financial reimbursment for compromised devices. For example, if a policyholder is hacked, personal cyber insurance may help cover the costs of hiring a professional to reformat the hard drive, reinstall the operating system, and restore data from the backup.

“Social engineering and other cyber-related threats against consumers continue to grow and evolve, and insurance carriers are offering affordable personal cyber coverage that can be easily added to a homeowners or renters insurance policy,” says James Hajjar, Chief Product Officer at Hartford Steam Boiler (HSB).

HSB, which has been offering personal cyber insurance since 2015, has evolved its coverage multiple times over the years to stay ahead of cyber risk trends and the dynamic threat landscape. Given the increasing complexity of cyber risks and the rise of sophisticated scams — such as phishing and ransomware — that kind of protection shouldn’t be limited to identity theft. Robust PCI coverage safeguards against a range of other cyber-related issues and provides critical support to ensure policyholders aren’t left to deal with the financial aftermath of a cyber incident alone.

“It’s crucial that cyber insurance is specifically designed to help individuals protect themselves against these evolving threats and provides financial security and additional programs and services if someone is hacked,” Hajjar says.

Historically, ITP has been widely offered through banks, credit unions, credit card issuers, and credit reporting agencies. Either product type may be purchased as either standalone or optional add-on coverage for homeowners, rental, or condo insurance policies.

The IC3 says it receives about 2,412 complaints daily, but many more cybercrimes likely go unreported for various reasons. Complaints tracked over the past five years have impacted at least 8 million people. The 2023 Data Breach Report, which details the larger dataset of cyber crime complaints to the FBI’s Identity Theft Resource Center (ITRC), reveals that last year delivered a bumper crop of cybersecurity failures – 3,205 publicly reported data compromises, impacting an estimated 353,027,892 individuals.

A new conversation about personal cyber insurance begins.

Triple-I and HSB are teaming up to uncover ways to enhance support and resources for insurance agents while improving personal cyber insurance options for policyholders. If you are an agent, please take three minutes to help by participating in our survey. Your contribution will be invaluable in shaping the future of personal cyber insurance.