The Insurance Information Institute (Triple-I), an affiliate of The Institutes, has released its 2021 InsuranceFact Book, an essential resource for anyone who needs up-to-date information on insurance.
This year The Insurance Fact Book has new content to address many of the past year’s events, in such areas as: insurer response to the pandemic; civil disturbances; and homeowners high-risk markets.
Highlighted in the “Emerging and Evolving Insurance Issues” section are five unique insurance risks that have been impacted by the COVID-19 pandemic: business income (interruption) insurance; workers compensation; extreme weather; social inflation; and cyber.
“2020 provided a good illustration not only ofhow the disruption continuum is evolving, but also how the insurance industry is able to adapt and lead,” said Sean Kevelighan, CEO, Triple-I. “While the year began fairly normally, we very quickly encountered a global pandemic that still rages; a 2020 Atlantic hurricane season for the record books; and Western wildfires that burned their way through homes and businesses. All the while claims for covered catastrophes were paid in new and innovative ways, and many customers experienced premium rebates and returns from auto insurers, given the lack of driving during economic lock-downs.”
The 2021 Insurance Fact Book is a digital publication available for purchase from the Triple-I online store. It is available free of charge to Triple-I members. The Insurance Fact Book, issued annually since the Triple-I’s inception in 1960, helps inform the decisions of policymakers and business leaders and is an essential resource for journalists, researchers, and academics, among others.
The Fact Book includes thousands of facts, figures, statistical tables, and charts documenting primarily the property/casualty insurance industry in the U.S. and worldwide. The publication offers details on auto, homeowners, and business insurance markets, with data on direct premiums written and the factors impacting the cost of these coverages. Additionally, there is voluminous information on the life/annuity insurance and reinsurance industries.
So far, the impact of COVID-19 on workers compensation has not been as great as first feared. The National Council on Compensation Insurance (NCCI) reported that as of the second quarter 2020, out of every 100,000 active workers comp claims, COVID-19 medical claims accounted for only about 200, depending on the jurisdiction.
Still, the pandemic presents uncertainties and concerns for workers compensation, just as it does for many other sectors.
NCCI’s annual survey found that COVID-19 was the top concern of workers compensation executives going into 2021. Executives worry about uncertainty surrounding the duration of the pandemic, the size and number of claims that could develop, recovery time for workers sickened by COVID-19 and whether there would be long-term needs or lasting adverse effects.
Executives also mentioned state compensability presumptions that have arisen during the pandemic. These presumption rules, passed by various states, say that COVID-19 infections in certain workers are presumed to be work-related and covered under workers compensation. This presumption places the burden on the employer and insurer to prove that the infection was not work-related making it easier for those workers to file successful claims.
The executives surveyed by the NCCI expressed concern about the variations developing across states and the complexity of legislation and regulations that adds to the challenge of the rapidly evolving environment. Several noted issues and questions related to reinsurance for presumptive claims. Others are anticipating that compensability presumptions for contagious diseases, such as those instituted for COVID-19, will be widely adopted and permanently enacted or even expanded, in some cases, to include other common diseases.
In many states, immigrants are eligible for workers compensation benefits regardless of their legal status. A recent blog post by a legal expert showed how a decision by the Supreme Court of Nevada reiterated that the state’s workers’ compensation statutes clearly and unambiguously protected every person in the service of an employer, whether lawfully or unlawfully employed. The high court affirmed the judgment of the state district court that denied judicial review to an appeals officer’s decision awarding permanent total disability benefits to an undocumented worker.
2021 is already looking brighter. Triple-I is presenting not one, but two, Joint Industry Forums in 2021! We’re kicking off the year with our virtual forum—Virtually Together: Insuring Our Way Forward—on Jan. 28. Then we’re making plans to gather in June in Washington, DC.
Registration for our first virtual Joint Industry Forum is complimentary. Plus, attendees to the virtual Forum receive a discounted registration for the in-person event.
Our virtual Forum focuses on the industry’s shared work to insure and protect. We have three sessions on tap for the day featuring dynamic industry thought leaders.
Trade Winds Navigation: More Rough Waters or Smooth Sailing Ahead?
Climate Change Risk & Resilience: Facing the Facts
CEO Perspectives
Confirmed Speakers (with more to be announced soon!)
• Tim Adams, President and CEO, Institute of International Finance
• Charles Chamness, President and CEO, National Association of Mutual Insurance Companies
• Sean Kevelighan, CEO, Insurance Information Institute
• Peter Miller, President and CEO, The Institutes
• Frank Nutter, President, Reinsurance Association of America
•David Sampson, President and CEO, American Property Casualty Insurance Association
Parametric insurance appears to have received increased interest in 2020.
A recent Artemis article says growing awareness of and demand for these products seems to be driven by this year’s pandemic-related volatility as insurers and insureds “are increasingly focused on solutions that can rapidly deliver cash and enable better business continuity.”
According to the article, Aon’s Innovation and Solutions team has seen “a dramatic increase” in the number of clients seeking to understand how they might supplement or replace existing risk-transfer program with parametric structures “to potentially improve cashflow following a loss event.”
Unlike traditional indemnity insurance, parametric structures cover risks without the complications of sending adjusters to assess damage after an event. Instead of paying for damage that has occurred, it pays out if certain agreed-upon conditions are met – for example, a specific wind speed or earthquake magnitude in a particular area. If coverage is triggered, a payment is made, regardless of damage.
Speed of payment and reduced administration costs can ease the burden on both insurers and policyholders. Alone, or as part of a package including indemnity coverage, parametric insurance can provide liquidity that businesses and communities need for post-catastrophe resilience.
Parametric approaches are being discussed as part of insuring against future pandemics and are being used to protect hard-to-insure natural assets like coral reefs and mangrove forests. SwissRe and Understory offer parametric insurance for hail-prone geographies.
Aon told Artemis about a U.S.-based telecommunications company that replaced its entire traditional property indemnity insurance program with a $300 million parametric hurricane insurance solution. Artemis says such deals are increasingly coming to market, “with reports of a number of large transactions in the hundreds of millions of dollars this year, as parametric triggers are increasingly embedded within large corporate risk transfer programs.”
Please join the Insurance Industry Charitable Foundation (IICF) on December 9, at 6 p.m. ET, for their annual benefit event highlighting the insurance industry’s charitable work in communities and honoring the philanthropic leadership of Gallagher Global.
To view details about the virtual program click on this link. On the evening of the program, you will click on the same page to view the event.
Speakers include John K. Mara, President and CEO of the New York Giants.
The global pandemic and costly natural catastrophes will contribute to a projected 101.7 combined ratio for the U.S.’s property/casualty (P/C) insurers in 2020, higher than the 98.8 the industry posted last year, according to the latest Underwriting Projections: 2020-2022 report from Insurance Information Institute (Triple-I) and Milliman.
The combined ratio is the percentage of each premium dollar a P/C insurer spends on claims and expenses. An increase in the combined ratio means financial results are deteriorating, while a decrease means they are improving.
For 2020, insurers are projected to pay nearly $1.02 (101.7) in claims and expenses for every premium dollar they collected. In 2019, they paid about 99 cents (98.8) on every premium dollar in claims and expenses.
The latest report is somewhat rosier than prior projections. For 2020, P/C insurer annual premium growth is projected to be 1.5%, an improvement from the decline of 0.5% projected three months ago, the report noted.
“Our estimates of premium growth are tied pretty tightly to economic indicators. Estimates of 2020 nominal GDP, while still showing shrinkage, have improved. That, plus a more nuanced understanding of how insurers booked the personal auto givebacks, helped us revise our premium estimates,” said Jason B. Kurtz, FCAS, MAAA, Principal & Consulting Actuary, Milliman.
In addition, the latest report incorporates more information as to how the industry is performing financially year-to-date. Filed first-half results provide a good idea of how premium and insured loss trends are impacting results.
“We can compare loss ratios for this year against last year and prior years and, after a couple of quarters, we can fine-tune our projection,” Kurtz said. “And we know a lot more about catastrophe losses, which are usually the biggest wildcard, and the third quarter is when the hardest catastrophes generally hit.”
For most lines of business, the forecast changed little from three months ago. Premium forecasts for lines like general liability and commercial auto insurance were affected because of the economic forecast.
“In commercial auto, for example, we thought the increase in online shopping would affect exposures more than it appears to have done. But as to the underwriting result, we didn’t change things much. Rates are higher, as we expected, and those lines are still fighting social inflation,” said James Lynch, FCAS, MAAA, Senior Vice President and Chief Actuary, Triple-I.
The report forecasts U.S. P/C insurance industry premium growth of 5 to 6 percent for 2021-22, slightly lower than the prior forecast released by Triple-I and Milliman.
What to Watch for
There’s still a lot of uncertainty when it comes to the pandemic. “The industry continues to grapple with how big the impact will be,” said Lynch. “There’s more certainty than three months ago, but that still leaves a whole lot of uncertainty,” he said. “Our stance remains where it was – the net loss impact will be the equivalent of a major hurricane – but as industry veterans know, some major hurricanes hit harder than others.”
Also, the path the economy takes as a result of the pandemic matters, added Kurtz. “Gross domestic product (GDP) rose the fastest in U.S. history last quarter, but the resurgence of COVID cases could mean another lockdown – perhaps softer than what we saw in the spring, but any lockdown triggers a slowdown. So, we might see a double-dip recession, and that suppresses premium growth.” He noted that a K-shaped recovery would be good for some segments of the U.S. economy while not being good for others.
Another wild card: government and regulatory responses. Another Coronavirus Aid, Relief, and Economic Security (CARES) Act that puts money in the hands of individuals and businesses is likely to buoy the economy as it did in the spring, the report states. Liability protections for reopening businesses would be favorable for the industry. “Congress may deal with that in the lame duck session or next year, but we will see,” said Kurtz.
The quarterly report was presented on November 17 at an exclusive members only virtual webinar moderated by Sean Kevelighan, Chief Executive Officer, Triple-I.
“This webinar series is another example of how the Insurance Information Institute is modernizing and innovating,” Kevelighan said. “Under the leadership of our chief actuary, James Lynch, the Triple-I is now giving its members timely, data-driven, and unique insights on insurance industry underwriting projections.”
The world’s 10 largest insurance markets are cumulatively expected to see their Gross Domestic Product (GDP) decrease by 4.5 percent in 2020 compared to 2019 because of COVID-19, according to Triple-I’s Global Macro and Insurance Outlook: Q4 2020 report.
“All things being equal, higher economic activity drives premium growth higher while lower economic activity drags premium growth down. Going into Q4, economic activity, expressed as year-over-year change in GDP for the world’s 10 largest insurance markets, is expected to decrease by -4.5% in 2020,” writes the report’s author, Dr. Michel Léonard, CBE, Vice President & Senior Economist, Triple-I.
The world’s 10 largest insurance markets, in order, as defined by total premium written in 2018-2019, are: the United States, China, Japan, the United Kingdom, France, Germany, South Korea, Italy, Canada, and Taiwan. The Triple-I’s projection of a 4.5 percent GDP decrease in the world’s 10 largest insurance markets in 2020 as compared to 2019 was weighted based on the total premium written in each one.
“The extent of new lockdowns, the success of vaccine trials and the efficacy of vaccine distribution will determine the pace of economic recovery in 2021, with consensus pointing to Q3 or Q4 2020 as rounding the corner out of the pandemic part of the recession. However, economic activity will not heal and recover until well into 2021 and early 2022,” Dr. Léonard states, adding, “Under best scenarios, economic growth will not start to fully recover until Q2 and Q3 2021 in advanced economies and Q3 and Q4 in developing economies.”
Global GDP is expected to contract between -5.5% and -6.5% in 2020, the report said, citing benchmark forecasts such as the ones issued recently by the International Monetary Fund (IMF) and the Organisation of Economic Co-operation and Development (OECD).
GDP represents the value of the total goods and services an economy produces in a single year whereas premium is the price paid for an insurance policy. Beyond premiums, insurers also generate revenue through investment income.
The Institutes, the leading provider of risk management and insurance education and research, today announced plans to finalize its affiliation with the Insurance Information Institute (Triple-I) on November 16, 2020. Triple-I is a long-standing, trusted source of unique, data-driven research and insights on insurance. Both organizations are not-for-profit entities committed to benefiting society at large.
“Together, the Triple-I and The Institutes will be better equipped and empowered to serve both the information and education needs of those interested in risk management and insurance,” said Peter L. Miller, CPCU, president and chief executive officer of The Institutes. “We see this as a great opportunity to provide a more synergized information platform for insurance knowledge and to bring further efficiencies to our organizations.”
“This affiliation is the culmination of several years of strategic dialogue at the Triple-I and with The Institutes,” said Sean Kevelighan, chief executive officer of the Triple-I. “It will further unify our collective efforts, grant both the Triple-I and The Institutes greater access to a deeper bench of resources and expertise, and improve value for the Triple-I’s member companies across the country.”
For the Triple-I, this affiliation finalizes its pursuit of a modern, transparent, and team-oriented structure that reflects the diversity and breadth of its more than 60 insurance company members—which include regional, super-regional, national, and global carriers. The Triple-I is the largest online source of insurance information dedicated to empowering consumers with objective, fact-based research they can use to make educated decisions, manage risk, and understand the value of insurance.
The Institutes, in turn, will gain additional insights and resources based on data-driven primary research. It will leverage these to support its wide range of offerings in professional education, research, publications, events, and career development.
Triple-I will retain its offices in New York City and Arlington, Virginia, and also maintain staff throughout the country, and its employees will now become employees of The Institutes.
The pandemic affected almost every link in the property/casualty value chain, but the industry weathered the stress well, according to Triple-I’s chief actuary, James Lynch.
“The U.S.’s property/casualty (P/C) insurers provided premium relief, retained employees, and weathered a capital market downturn while navigating this year’s COVID-19 pandemic,” he said at the Casualty Actuarial Society’s (CAS) virtual annual meeting on November 10.
“Private-passenger auto insurers returned around $14 billion in premiums this year to the nation’s drivers as miles driven dropped dramatically in the pandemic’s early months. This resulted in a five percent reduction in the cost of auto insurance for the typical driver in 2020 as compared to 2019. At the same time, the U.S.’s auto, home, and business insurers continued to employ two million-plus Americans as the industry responded to numerous natural disasters as well as the aftermath of civil unrest.”
This year’s record-setting hurricanes and wildfires, coupled with civil disorders in multiple states, have caused insured loss payouts totaling tens of billions of dollars. The policyholders’ surplus—the amount of money remaining after the industry’s cumulative liabilities are subtracted from its assets—stood at $826 billion as of June 30, 2020, down from a record-high $848 billion as of Dec. 31, 2019.
The economic uncertainty in the U.S.’s capital markets in 2020’s first-quarter caused unrealized capital losses (stock declines) in insurer investment portfolios, Lynch said. Insurers who have faced lawsuits related to pandemic-caused losses also have faced the financial challenges of defending themselves, he added.
“Business income (BI) insurance coverage disputes captured media attention. Yet lawmakers nationwide have to date resisted calls to rewrite these policies retroactively as insurers faced a steady stream of lawsuits over their unwillingness to pay these claims,” Lynch said, explaining how BI coverage, also known as business interruption insurance, is generally triggered only when a business incurs direct physical damage to the business’ property.
Triple-I’s chief actuary, James Lynch, gave this talk on the changes that COVID-19 is bringing to the automobile insurance business, at the American Academy of Actuaries Annual Meeting last week.
“Thanks for inviting me to be part of such an august panel. I wanted to spend a few moments talking about what Insurance Information Institute research indicates are significant changes happening in the sector right now and what may lie ahead.
Not surprisingly, the pandemic has had an enormous influence. Triple-I estimates that insurers will return $14 billion to customers because of the dramatic decrease in driving. Even with that, most insurers have shown improved results.
A good rule of thumb is that insurers returned about 15 percent of second quarter premiums. Fast Track data show that loss costs in the second quarter were between 7 and 40 percent lower than a year earlier, depending on coverage.
A closer look at the numbers show what might be a disturbing long-term trend. Frequency was way down in every coverage, but some coverages showed disturbing spikes in claim severity. Property damage frequency was down more than 30 percent from a year earlier, but severity was up almost 20 percent. This was likely caused by faster driving.
Since the spring lockdowns have eased, customers are driving more again, but they still haven’t returned to the levels of a year ago. Right now people are driving about 12 percent fewer miles than they did a year ago.
However, there is ample evidence that drivers are still going faster than they did, particularly at rush hours. That’s why mileage driven this year is down 12 percent, but traffic fatalities are up 4 percent. The concern is that frequency patterns will return to the norm, but fast driving will keep claim severity high, putting upward pressure on rates.
There’s good news for insurers though. Telematic information was an important reason insurers could return money quickly to their customers, and that fact seems to have brought positive attention to usage-based insurance. Research by Arity shows that 58 percent of drivers surveyed this year are comfortable with insurers monitoring distracted driving to price insurance, up from 39 percent a year ago. There were similar increases for monitoring miles driven, speed and where a person drives.
There are lots of other questions about where the industry is going, and I guess I’ll step back and let us talk about those as a group.”
