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Insurance Industry

Will the D&O market conditions remain favorable? Allianz report says 2024 will bring its share of challenges.

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Several global challenges pose a significant threat to maintaining soft market conditions for Directors and Officers (D&O) liability coverage, according to the most recent report on the sector by Allianz.

A list of salient risks and trends to monitor during 2024 spans various areas, including:

  • Macroeconomics,
  • Geopolitical,
  • Generative AI (GenAI),
  • Environmental, Social, and Governance (ESG), and
  • Class action filings and third-party litigation funding.

According to the latest edition of Directors and Officers Insurance Insights, any of these factors could change the outlook for a competitive market this year.

The D&O market may have mostly avoided the bumps and scrapes faced by other lines of coverage in 2023. With double-digit decreases in insurance pricing worldwide, new market entrants, favorable loss ratios, and a reduction in the Initial Public Offerings (IPOs), the environment contrasts sharply with the early pandemic years of 2020 and 2021. Over 90 percent of D&O underwriters (in a separate study) expected pricing to decrease or stay the same for mature public companies in 2024.

However, Allianz (in conjunction with Munich Re) predicted business insolvencies may rise by 10 percent in 2024. In today’s dynamic environment, organizations — from startups to multi-national behemoths — may rely on D&O policies to manage liabilities arising from executive leadership decisions. Having coverage in place signifies attention to the bottom line and removes a barrier to recruiting the best leadership talent.

The 2023 economy delivered many hurdles, particularly in rising costs and interest rates, rendering the effective management of capital expenditure[DJ1]   and debt a cryptic challenge for organizations and their executives. Add to that mix insolvency activity that is starting to look similar to what followed the 2009 global financial crisis. The “likelihood of a recession in the US and UK continues to rise in 2024,” the report says.

Citing Fitch’s analysis, the report warns of threats to future profitability from “weaker pricing and the potential claims volatility from a myriad of sources.” Still, Allianz suggests that reserves from most recent years may safeguard “near-term underwriting results.”

The early 2023 banking crisis is expected to leave a mark on the D&O segment as each of the bank failures and near failures – widely attributed to substandard banking practices – resulted in a securities fraud claim. The forecasted multi-billion dollar losses in market cap and final disclosure pose an enormous threat to insurance towers, the layers of coverage spreading risk across multiple insurers and coverage levels to diversify overall risk exposure. Consequently, the report advises closely monitoring banks with large commercial property portfolios and how the Treasury plans to rebuild its cash balance from the lowest level in seven years.

The report discusses how technology advancements offer a mixed bag for the D&O segment, creating advantages for organizational efficiency and productivity but also new risks surrounding cybersecurity, regulatory requirements, transparency and governance, litigation, and investor expectations. Cybersecurity, in general, has been on the radar for several years now. However Generative AI (GenAI), a relatively new technology in the risk management spotlight, could enable more threats for cyber risk management.

Separately, Gen AI has already sparked intellectual property and privacy claims. Future claims could emerge in securities, breach of fiduciary, shareholder, and derivative lawsuits. The report states that managing risks posed by Gen AI requires the cultivation of expertise-driven best practices and protocols.

Another 21st-century issue, Environmental, Social, and Governance (ESG), appears to have permanently taken root as a factor in the D&O risk landscape. Despite the ongoing debate over its value, definition, and measurement, the ESG framework encompasses a growing list of conundrums faced by directors and officers. Organizations don’t operate in a vacuum but in communities where human rights, climate risk, and other ESG concerns can infiltrate business-as-usual operations. Tactics that avoid or incur costly regulatory sanctions can also spark lawsuits from private stakeholders.

“In a world that is becoming increasingly polarized politically and socially, the very need for directors to evaluate and address the impact of various ESG factors on corporate value creates that claims will be made…on either or both sides of any given issue,” the report states.

The specter of increased litigation costs persists as federal securities class actions climbed to 201 by early December in 2023 (up from 197 in 2022) and total settlement dollars outpaced historical levels. Figures for only the first half of 2023 exceeded the total for 2022, climbing to a ten-year record high.

The D&O segment has always been dynamic, and claims can arise from various sources, including shareholders, employees, regulatory agencies, competitors, and customers. Therefore, the product continues to play a vital role in mitigating the risks associated with corporate governance and protecting the interests of directors, officers, and the companies they serve. Overall, the market’s future will remain competitive as established insurers move to address underwriting challenges, but it’s not likely that the 2024 environment will be hospitable to new insurers lacking a substantial portfolio.

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.

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, Legal Environment

Who’s Financing Legal System Abuse? Louisianans Need to Know

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Legal system abuse in Louisiana costs every one of its citizens more than $1,100 annually, according to the American Tort Reform Association (ATRA). The state’s litigation environment was also cited by the Insurance Research Council (IRC) when reporting how Louisiana is the least affordable U.S. state for both auto and homeowners insurance. And then there’s shadowed Third-Party Litigation Financing (TPLF) continuing to sneak its way into this costly conundrum, with virtually no one understanding who’s behind it and what ulterior motives they may have.

Louisiana’s state lawmakers passed a measure (Senate Bill 196) last year aimed at reducing legal system abuse and litigation costs, but the measure was vetoed by former Governor John Bel Edwards.  The Litigation Financing Disclosure and Security Protection Act would have required plaintiffs to disclose whether their legal fees were being financed by a third-party with no obvious stake in the civil court case’s outcome, other than financial gain, or even worse foreign manipulation of America’s legal system.

Third-party litigation financing (TPLF), a multi-billion-dollar asset class which provides the financial resources for plaintiffs to file lawsuits, is growing exponentially because the U.S. legal system has increasingly become a place to secure huge paydays. Much like other shadowed banking tactics, financiers prefer to stay anonymous to avert regulatory scrutiny. However, beyond the financial gains, evidence is pointing toward foreign, even tax-free sovereign investments footing the bills.

Louisiana’s own U.S. House Speaker Mike Johnson (R-LA) is keenly aware of the potentially problematic foreign investment issues of TPLF, introducing federal legislation weeks before his recent election and being handed the leadership gavel. If passed into law, The Protecting Our Courts from Foreign Manipulation Act would stop foreign entities and governments from financing litigation in U.S. courts and shine a light on a shadowy part of this nation’s legal system. Similar legislation was introduced in the U.S. Senate and co-authored by another Louisianan, Senator John Kennedy (R-LA).

Much as Louisiana’s federal elected officials are working to address issues involving legal system abuse, such as TPLF, the State of Louisiana will benefit more directly by focusing on what’s happening in its own back yard. There is a simple formula to what combining increased climate risk with legal system abuse does – it creates a crisis in terms of affordability and availability of insurance.

The price of insurance is the effect of increased risk, not the cause. Louisiana’s high legal costs are driving up prices on virtually all goods and services for its citizens. Taking important steps toward litigation (and litigation financing) reform should be a top consideration in 2024.

A condensed version of this op-ed was published as a letter to the editor by Triple-I CEO Sean Kevelighan in February 2024 in The Baton Rouge Advocate and the New Orleans Times-Picayune.

Insurance Industry

Insurers Donated
Over $1 Billion in 2022
for Good Works

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KiDS NEED MoRE, a nonprofit dedicated to children and families coping with life-threatening illnesses and traumatic interruptions of normal childhood, is just one of the worthy organizations IICF supports.

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

The insurance industry contributed more than $1 billion to charitable endeavors in 2022, according to an independent review by the Insurance Industry Charitable Foundation (IICF).

Alongside the industry’s charitable giving, the IICF Philanthropic Giving Index revealed other community contributions in 2022, demonstrating the industry’s dedication to giving and volunteerism:

  • 137,300 nonprofit partners and causes received support
  • 7.5 million volunteer hours were served
  • 94,000 insurance professionals volunteered

These numbers were announced on November 15, National Philanthropy Day, which is celebrated by fundraising professionals, government leaders, foundations, businesses, individual donors and others who wish to honor all the contributions philanthropy has made. 

“Philanthropy Day provides an opportunity to reflect on the meaning of giving and all that the insurance industry has accomplished,” said IICF Vice President and Chief Program Officer Elizabeth (Betsy) Myatt. With research support from Triple-I, IICF reviewed data from 120 companies, representative of all sectors of the insurance industry, for this snapshot of industrywide charitable giving and supporting data.

“These collective philanthropic findings provide the industry with a remarkable numeral representation of the generous charitable giving and support by our many insurance businesses,” said Myatt, who is also the Executive Director of the Northeast Division of IICF.

IICF is a nonprofit that unites the shared strengths of the insurance industry to help communities and enrich lives through grants, volunteer service, and leadership. Established in 1994, it has served as the philanthropic voice and foundation of the industry for close to 30 years, contributing $47 million in community grants along with over 337,000 volunteer hours by more than 115,000 industry professionals. IICF reinvests locally where funds are raised, serving hundreds of charities and nonprofit organizations for maximum community impact. 

Among the many charities IICF awards grants to are:

  •  KiDS NEED MoRE, a 501(c)(3) nonprofit charitable organization dedicated to enhancing the lives of children and  families coping with life-threatening illnesses and traumatic interruptions of the normal childhood experience;
  • 180 Turn Lives Around, which provides programs and services for victims of domestic and sexual violence;
  • Boston Scores, helping to break barriers to advance racial and gender equality;
  • National Alliance on Mental Illness, whose mission is to help families and individuals affected by mental illness build better lives through education, support and advocacy.

Insurance Industry

Educate to Empower: Financial Literacy Key
to Helping Abuse Victims

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

Financial abuse occurs in 98 percent of abusive relationships and is the number one reason victims stay in or return to abusive relationships, according to the Center for Financial Security at the University of Wisconsin – Madison. Financial security and access to resources can make all the difference to domestic violence victims when deciding to leave an abusive relationship — yet 78 percent of Americans don’t recognize financial abuse as domestic violence.

Insurance is an important part of financial planning that can help survivors move forward.

The forms of financial abuse may be subtle or explicit. They include concealing information, limiting the victim’s access to assets, or reducing accessibility to family finances. Financial abuse – along with emotional, physical, and sexual abuse – includes behaviors to intentionally manipulate, intimidate, and threaten the victim and entrap them in the relationship. In some cases, financial abuse is present throughout the relationship and in others it becomes present when the survivor is trying to leave or has left the relationship.

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.

Ruth Glenn, who currently serves as president of Public Affairs for NCADV and has advocated —professionally and personally — for many policies, including reauthorizing the Violence Against Women Act and legislation involving the intersection of firearms and domestic violence. She noted that “the NCADV’s partnership with the insurance industry, and Triple-I in particular, is critical to developing tools and resources for victims and survivors of domestic violence.” 

One example of insurers that are developing such tools is The Allstate Foundation, which has been committed to ending domestic violence since 2005 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 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.

“One of the most powerful methods of keeping a survivor trapped in an abusive relationship is not being able to support themselves financially,” said Glenn, who is author of the memoir, Everything I Never Dreamed, which chronicles her own domestic violence experiences.

“That’s why insurance and financial education are so important,” she said.  “Education can save a life.”

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

IRC: Consumers Deem
Most Rating Factors Fair

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By Max Dorfman, Research Writer, Triple-I

Most consumers believe the majority of personal insurance rating factors that insurers use to underwrite and price homeowners and auto coverage are fair, according to a new survey by the Insurance Research Council (IRC) – like Triple-I, an affiliate of The Institutes.

But there was some variation regarding which variables they consider fair.

Overall, consumers were more favorable toward factors they perceived to be directly related to the risk of the insured property (condition of the home, cost of rebuilding, miles driven, vehicle information, etc.). They were less likely to rank fair on aspects connected to the insured’s personal profile.

The study, Public Perceptions Regarding the Fairness of Insurance Rating Factors, focused on homeowners and personal auto insurance. IRC found that all 19 homeowners insurance rating factors were assessed to be fair by most respondents, and the majority deemed 10 of the 14 personal auto factors.

Insurance companies use statistically predictive rating variables to assess risk and determine policy prices, helping to accurately align premiums with risk and offer coverage to higher-risk consumers. The variables consider several socioeconomic factors to determine these coverage costs, including gender, age, education, and credit-based insurance scores.

“Given how inflation and other factors have driven up the cost of auto and homeowners insurance in recent years, IRC was not surprised to learn that paying for these essential coverages has been a financial burden for a sizable number of Americans,” said IRC president and Triple-I chief insurance officer Dale Porfilio.  “Yet, at the same time, consumers expressed widespread support in our survey for the fairness of the rating factors used by insurance carriers to price their auto and homeowners policies.”

Among personal auto factors, those most likely to be deemed fair included:

  • Traffic conviction record;
  • Driver’s loss/claim history; and
  • Driving behavior data from telematics.

However, the personal auto factors that were least likely to be considered fair were:

  • Education level;
  • Marital status; and
  • Gender of the driver.

Concerning homeowners insurance, the most fair factors included:

  • The use of safety systems
  • Condition of home; and
  • The estimated cost of rebuilding.

Least agreeable factors for homeowners involved:

  • Credit history;
  • Condition of surrounding building; and
  • The data from a connected device.

Previous IRC research that focused on consumer attitudes about the use of credit history as an insurance rating factor found that skepticism about the link between credit and future insurance claims declines when the predictive power of credit-based insurance scores is explained to them.

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.