Category Archives: Insurers and the Economy

Auto Insurance, Business Insurance, Homeowners Insurance, Industry Financials, Insurers and the Economy, Market Conditions

Personal Lines Underwriting Results Improve, Reducing Gap With Commercial Lines

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The U.S. property and casualty insurance industry experienced better-than-expected economic and underwriting results in the first half of 2024, according to the latest forecasting report by Triple-I and Milliman.  The report was released during a members-only webinar on Oct. 10.

The industry’s estimated net combined ratio of 99.4 represented a 2.3-points year-over-year improvement, with commercial lines continuing to outperform personal lines. Combined ratio is a standard measure of underwriting profitability, in which a result below 100 represents a profit and one above 100 represents a loss. 

Much of the overall underwriting gain was due to growth in personal lines net premiums written. Commercial lines underwriting profitability remained mostly flat.

“The ongoing performance gap between personal and commercial lines remains, but that gap is closing,” said Triple-I Chief Insurance Officer Dale Porfilio. “The significant rate increases necessary to offset inflationary pressures on losses are driving the improved results in personal auto and homeowners. With that said, the impact of natural catastrophes such as Hurricanes Helene and Milton threaten the improved homeowners results and are a significant source of uncertainty.”

During the webinar Q&A period, Porfilio provided insight on the potential impact of Hurricane Milton on the Triple-I 2024 net combined ratio forecast during the Q&A portion. One key figure regarding potential catastrophe losses is the impact on the 2024 net combined ratio forecast of adding one additional billion dollars of catastrophe losses. Each additional billion dollars of catastrophe losses is an impact of one tenth of a percent on the forecast.

Triple-I has loaded an estimate for catastrophe losses for the second half of 2024 based on historical experience, trends, economic projections, etc. prior to Milton, so there is no expectation of needing to add $30 billion to $40 billion – the recent estimate published by Gallagher Re.

If there was a need to add an additional $30 billion in catastrophe losses, that would be a +3.0-point impact on the forecast.

The net combined ratio for homeowners insurance of 104.9 was a six-point improvement over first-half 2023.  The line is expected to achieve underwriting profitability in 2026, with continued double-digit growth in net written premiums expected in 2025.   

Personal auto’s net combined ratio of 100 is 4.9 points better than 2023. The line’s 2024 net written premium growth rate of 14.5 percent is the highest in over 15 years. 

Jason B. Kurtz – a principal and consulting actuary at Milliman – elaborated on profitability concerns within commercial lines. Commercial lines 2024 net combined ratio remained relatively flat at 97.1 percent. Improvements in commercial property, commercial multi-peril, and workers compensation were offset by continued deterioration in commercial auto and general liability.

“Commercial auto expectations are worsening and continue to remain unprofitable through at least 2026,” he said. “General liability has worsened and is expected to be unprofitable through 2026.”

Michel Léonard, Triple-I’s chief economist and data scientist, said P&C replacement costs are expected to overtake overall inflation in 2025.

“P&C carriers benefited from a ‘grace period’ over a few quarters during which replacement costs were increasing at a slower pace than overall inflation,” Dr. Léonard said. “That won’t be the case in 2025.”  

It’s not too late to register for Triple-I’s Joint Industry Forum: Solutions for a New Age of Risk. Join us in Miami, Nov. 19 and 20.

Business Insurance, Business Risk, Insurers and the Economy, Market Conditions

Strike’s Duration Will Determine Impact on P/C Insurance Industry

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By Michel Léonard, Ph.D., CBE, Chief Economist and Data Scientist, Triple-I 

The International Longshoremen’s Association (ILA) went on strike on Tuesday, Oct 1. The strike is expected to affect more than 20 ports along the Eastern Seaboard and Gulf Coast, including the ports of New York and New Jersey, Baltimore and Houston.  

Focusing specifically on the strike’s impact on the property/casualty industry – and given the specific goods transiting through those ports – the impact will be most direct for homeowners, personal and commercial auto, and commercial property. More specifically, the strike may lead to increased replacement costs and delays in the supply and replacement of homeowners’ content, such as garments and furniture; of European-made vehicles and vehicle replacement parts; and of concrete, especially for commercial construction.  

However, the strike’s impact will be significantly mitigated by current inventories for each of the impacted insurable goods and the tightness of related just-in-time supply chains. At minimum, Triple-I estimates, the strike would have to last one to two weeks to trigger further sustained increases in P/C replacement costs or accelerate a current slowdown in P/C underlying growth.   

 Another way the insurance industry would be affected is from losses from coverage protecting against adverse business costs of events, such as strikes. These coverages include, but are not limited to, business interruption, political risk, credit, supply-chain insurance, and some marine and cargo. However, most such policies have waiting periods ranging from five to 10 days, and then deductibles, before payment is triggered. As a result, losses for those lines are likely to be limited if the strike lasts less than one to two weeks.  

 Using a one to two-week timeline is helpful: The last major longshoremen’s strike in the United States – at the port of Long Beach, Calif., in 2021 – lasted one week.   

Industry Financials, Insurers and the Economy

Economic & Actuarial Analyses Ensure Our
“Best Pick Is Our Last Pick”

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By Lewis Nibbelin, Guest Blogger for Triple-I

Insurance underwriting and pricing require a clear view of loss experience and reliable economic projections. Today’s dynamic environment – marked by historically high inflation, climate-related risks, and regulatory constraints that vary widely by state – complicate such projections while making them more important than ever.

“Actuarial ratemaking is prospective in nature, but you have to look at history to be able to do that,” explained Dale Porfilio, Triple-I’s Chief Insurance Officer and President of the Insurance Research Council (IRC), in an interview for the All Eyes on Economics podcast. “A core part of that actuarial ratemaking is to say, ‘How are losses different? How have they trended? How are they going to grow?’”

Current economic uncertainty – particularly via rising replacement costs and high general inflation – presents a myriad of evolving factors many actuaries may struggle to contextualize.

“It just takes a while to get through the timeline of claims occurring and losses getting paid,” Porfilio told host and Triple-I Chief Economist and Data Scientist Dr. Michel Léonard. “We can already be in a cycle of increasing or decreasing inflation, and you won’t see it in losses yet… You’re going to see it faster from economic indicators than you’re going to see it in insurance.”

For economists and actuaries alike, projections are data-driven inferences. Using multiple data sources and various forms of sophisticated analysis all strengthen the precision of those inferences.

For example, IRC – like Triple-I, an affiliate of The Institutes – is developing a database that aggregates detailed personal auto injury claims information from numerous insurers. It encompasses five and a half years’ worth of data on not only the total claim payout, but the specific injuries and care within each claim file.

A database of this magnitude has the potential to help insurance carriers improve the accuracy of pricing and underwriting. More important, this research will help policymakers and carriers identify opportunities to reduce claim costs, which can improve the affordability of personal auto insurance.

Ultimately, synthesizing diverse perspectives reduces the role of luck for insurers when setting rates. 

Triple-I works to provide a “combined wisdom,” Porfilio said, through the quarterly Insurance Economics and Underwriting Projections: A Forward View, a joint report with Milliman. The report presents an underwriting projection model which – by using P/C replacement cost indices and economic growth data as leading indicators – is both actuarially and economically sound.

Understanding economic trends is crucial, but understanding how risk influences these trends is equally important. Ongoing geopolitical risk, for instance, continues to strain global supply chains, and integrating this information into underwriting projections is one way to build resilience against disruptions.

“Learning to speak as an economist or an actuary is another language,” Porfilio said, and resources such as Triple-I’s Chart of the Week serve to simplify the sharing of economic research for insurers and consumers.

This wealth of available data analysis ensures that “our best pick is our last pick,” Porfilio said. “We’re always putting our best answer on the page to share the best insights that we can…and educate and inform as wide of an audience as possible.”

The full interview is available now on Spotify, Audible, and Apple.

Auto Insurance, Homeowners Insurance, Insurers and the Economy, Market Conditions, Workers Compensation

NCIGF Moves Ahead
to Support Insurers

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By Max Dorfman, Research Writer, Triple-I

For the last 35 years, the National Conference of Insurance Guaranty Funds (NCIGF) – an organization dedicated to serving 55 property/casualty state guaranty funds – has provided operational support; communications, education, and outreach; as well as public policy management for these organizations.

State guaranty funds make up a privately funded, nonprofit state-based national system that pays covered claims up to a state’s legally allowable limits, protecting policyholders if their insurer becomes insolvent. There are 55 such funds because some states have more than one.

“All states have a property/casualty guaranty association, and some have a workers compensation guaranty association,” NCIGF President and CEO Roger Schmelzer explained in a recent “Executive Exchange” with Triple-I CEO Sean Kevelighan.

“We’re not claims payers,” Schmelzer said, “We try to do things for our members that they wouldn’t be doing for themselves or that it’s better to be doing in one place.”

For nearly five decades, the guaranty fund system has paid out more than $35 billion to cover claims against about 600 insolvencies.

“Through the years, the system has successfully met every challenge that’s come its way, and has been instrumental in supporting the insurance promise,” Schmelzer said.

NCIGF recently announced its updated organizational strategy, which focuses on:

  • Pre-liquidation planning with regulators and receivers,
  • Understanding and preparing for the changing landscape in insolvencies, and
  • Seeking shared solutions to common problems among state associations.

“We want to understand better the trends and factors that could lead to insolvency,” Schmelzer said. “Then we want to do everything we can with our members, working through our educational arm, to make sure members are prepared for whatever those trends might bring.”

Insurers and the Economy

Economic Analysis Matters More Than Ever
in “Golden Age” of Data

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By Lewis Nibbelin, Guest Blogger for Triple-I

Though data collection and curation have always been critical to insurance underwriting, advancements in artificial intelligence and data analytics have revolutionized how data is aggregated and applied to risk assessment and pricing.

This, in turn, increases the importance of economic analysis in insurance. 

“We are able to understand correlation better and make better predictions to prevent risks that formerly we were just being reactive to,” explained Josh Landau, President of the International Insurance Society (IIS), in an interview for the All Eyes on Economics podcast.

While AI and sophisticated models can gather and organize larger, more complex data sets in more interesting ways far more quickly than ever before, they can’t make the sorts of assessments or draw the kinds of salient conclusions that economists and actuaries can. 

“Drawing a conclusion would be impossible for AI to do,” Landau told host and Triple-I Chief Economist and Data Scientist Dr. Michel Léonard. “Really understanding where these non-correlated issues are impacting each other and how they’re impacting decisions, that’s where I see the economist’s role.”

Similarly, while automation may expedite data processing, critical thinking and socioemotional skills have never been more crucial for underwriters. Adaptability to technological developments, as well as the ability to meaningfully interpret intricate datasets, are necessary within a constantly evolving insurance landscape.

For example, the use of telematics to track actual driving behavior has contributed to more accurate underwriting and pricing, supporting the emergence of usage-based auto insurance.  A 2022 survey by the Insurance Research Council found that 45 percent of drivers made significant safety-related changes in how they drove after participating in a telematics program. An additional 35 percent said they made small changes in their driving behavior.

Ethical concerns surrounding the use of AI further underscore the significance of critical interpretation by humans.

Due to its many extensive investments and ability to determine what projects to insure – or not to — the insurance industry has an “outsized influence,” Landau said.

“As a result of that awesome depth and breadth of resources,” he said, “it’s important for carriers “to understand how they navigate through this responsibility, how they interact – not only with each other, but also with industry leaders and government leaders.” 

The digitized space’s potential for inaccuracies, biases, and data breaches presents a dilemma for stakeholders at every level, so managing these risks must always take precedence. 

Human oversight, diversity in AI training datasets, transparency about use of AI, and responsiveness to stakeholder feedback are all ways for insurers to utilize automated technologies while upholding the industry’s commitment to equity and security.

IIS – like Triple-I, an affiliate of The Institutes – facilitates industry dialogue through targeted webinars and its annual Global Priorities Survey and corresponding Global Insurance Forum (GIF), the next of which is held this upcoming November in Miami, Fla., in coordination with Triple-I’s Joint Industry Forum (JIF). Registration for GIF is available here. You can register for JIF here.

The full interview is available now on Spotify, Audible, and Apple.

Homeowners Insurance, Insurers and the Economy, Legal Environment, Market Conditions

Triple-I Brief Discusses Homeowners Insurance Market Challenges

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By Max Dorfman, Research Writer, Triple-I

Homeowners insurance costs have continued to consistently rise in the wake of the pandemic, alongside several other challenges, according to a new Triple-I Issues Brief.

The COVID-19 pandemic and Russian invasion of Ukraine sparked inflation – particularly with regard to replacement costs due to material shortages. Replacement-cost inflation has been exacerbated by a tight labor market. Even before the pandemic, loss costs had been rising steadily for some time, leading to homeowners insurance premiums climbing consistently from 2001 to 2021, according to the Insurance Research Council (IRC).

These cost factors, combined with rising losses related to natural catastrophes, have contributed to insurance affordability and availability issues, which vary by state. Disaster-related losses have increased over the past 30 years, due mostly to increasing severity of hurricanes and convective storms.

The brief notes that these costs surpassed household income growth, leading to decreased insurance affordability for many U.S. consumers. As expected, disaster-prone states have the least affordable homeowners insurance. The IRC ranks Florida as the state with the least-affordable coverage in the country.

Additionally, legal system abuse, which includes false claims of damage to homes. This has been a common issue in disaster-prone areas, where claims of roof damage, in particular, have substantially increased insurance costs.

The brief states that consumers and policymakers should be cognizant of the dynamics underlying these price shifts and understand why insurers must be forward looking in their approach to pricing these policies.

Learn More

Florida Homeowners Premium Growth Slows as Reforms Take Hold, Inflation Cools

IRC: Homeowners Insurance Affordability Worsens Nationally, Varies Widely By State

Homeowners Insurance Costs Exceeded Inflation From 2000 to 2020

Facts + Statistics: Homeowners and Renters Insurance

Industry Financials, Insurers and the Economy, Market Conditions

P/C Underwriting Profitability Remains
at Least a Year Away

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By Max Dorfman, Research Writer, Triple-I

The property/casualty insurance industry is expected to achieve underwriting profitability in 2025, according to the latest research from the Triple-I and Milliman, a collaborating partner. The report, Insurance Economics and Underwriting Projections: A Forward View, which was presented at a members-only webinar on July 11, also projects a small underwriting loss in 2024.

Michel Léonard, Ph.D., CBE, chief economist and data scientist at Triple-I, discussed how P/C replacement costs continue to increase more slowly than overall inflation.

“For the last 12 months, economic drivers of insurance performance have been favorable to the industry, with P/C insurance’s underlying growth catching up to overall U.S. economic growth rates, and its replacement costs increasing at a sluggish pace compared to overall inflation,” Dr. Léonard said. “We expected this favorable window to last into 2025.”

That may not be the case anymore for two reasons, according to Léonard.

“First, U.S. economic growth slowed more than expected in Q1 2024, largely because of the Fed’s lack of clarity about the timing of interest rate cuts,” he said. “Second, global supply chains are again showing stress due to ongoing and increasing geopolitical risk, such as the tensions in and around the Suez Canal. These causes may be threatening to send inflation back toward pandemic-era levels. Geopolitical risk never left, and supply chains are on a lifeline.”

Dale Porfilio, FCAS, MAAA, Triple-I’s chief insurance officer, discussed the split between personal and commercial lines, noting that, “The ongoing performance gap between personal and commercial lines remains, but that gap is closing.”

 “This quarter, we are projecting commercial lines underwriting results to outperform personal lines premium growth by over five points in 2024,” Porfilio added. “The difference, in large part, illustrates how regulatory scrutiny on personal lines has curbed the ability for insurers to increase prices to reflect the significant amount of inflation that impacted replacement costs through and coming out of COVID.”

Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman – a global consulting and actuarial firm – points out how commercial multi-peril is one line that continues to face long-term challenges.

“While the expected net combined ratio of 106.2 is one point better than 2023, matching the eight-year average, the line has not been profitable since 2015. And with a Q1 direct incurred loss ratio of 52 percent and premium growth rates continuing to slow, we see some improvement but continuing unprofitability through 2026,” Kurtz said.

In juxtaposition, Kurtz pointed out the continuing robust performance of workers’ compensation.

“The expected 90.3 net combined ratio is nearly a one-point improvement from prior estimates and would mark 10 consecutive years of profitability for workers’ comp,” he said. “We continue to forecast favorable underwriting results through 2026.”

“Medical costs are going up, but they have not experienced the same type of inflation as the broader economy,” added Donna Glenn, FCAS, MAAA, chief actuary at the National Council on Compensation Insurance (NCCI). NCCI produces the Medical Inflation Insights report, which provides detailed information specific to workers’ compensation on a quarterly basis. “Since 2015, both workers’ compensation severity and medical inflation, as measured by NCCI’s Workers’ Compensation Weighted Medical Price index, have grown at a similar rate, a quite moderate 2 percent per year.”

Other highlights of the report include:

  • Homeowners insurance underwriting losses expected to continue for 2024-2025, but the line is expected to become profitable in 2026, with continued double-digit net written premium growth for 2024-2025.
  • Personal auto net combined ratio improved slightly from prior estimates and is on track to achieve profitability in 2025.
  • Commercial lines 2024 net combined ratio remained unchanged despite shifts in commercial property (-1 point), workers’ compensation (-1 point), and general liability (+1 point).
  • Net written premium growth rate for personal lines is expected to continue to surpass commercial lines by over 8 percentage points in 2024.
Insurers and the Economy, Legal Environment, Market Conditions, Regulation

Economic Climate Makes Understanding Insurance Increasingly Important

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By Lewis Nibbelin, Guest Blogger for Triple-I

Insurance coverage has long been “a grudge purchase – a once-or-twice-a-year transaction that many consumers didn’t want to think about,” Triple-I CEO Sean Kevelighan said in a recent episode of the “All Eyes on Economics” podcast.

But in today’s dynamic economic environment – marked by inflation the likes of which most insurance purchasers have never experienced – it has become more important than ever for consumers and policymakers to understand how insurance is underwritten and priced.

One of Triple-I’s chief objectives is “helping people understand what insurance can do for you, but also what you can do to change the situation,” Kevelighan told podcast host and Triple-I Chief Economist and Data Scientist Michel Léonard. “The narrative seems, at least from my standpoint, to be less about, ‘Why is my insurance so high?’ It’s more about, ‘What can we do to get it lower?’”

Rising insurance premium rates are the effect of risk levels, loss costs, and economic considerations like inflation. Too often, though, they’re discussed as if they were the cause.

High property/casualty premium rates are the result of numerous coalescing factors: Increased litigation, inflation, antiquated state regulations, losses from natural catastrophes, and pervasive post-pandemic high-risk behaviors, to name a few.

Every dollar invested in disaster resilience could save 13 in property damage, remediation, and economic impact costs, according to a recent joint report from Allstate and the U.S. Chamber of Commerce. As areas vulnerable to climate disasters become increasingly populated, it’s important for policyholders to develop resilience measures against the wildfire, hurricane, severe convective storm, and flood risks their property faces.

Consumer education and community involvement in mitigation and resilience offer a path toward greater control over claims.

However, regulatory barriers to fair, accurate underwriting also contribute to higher insurance costs. Despite tort reforms, rampant litigation has kept upward pressure on rates in Florida and Louisiana. California’s outdated Proposition 103 – by barring insurers from using modeling to price risk prospectively and from taking reinsurance costs into account when setting rates – has   impeded insurers from using actuarially sound insurance pricing.

Confusion around industry practices and effective mitigation is understandable, and during periods of economic instability and unforeseen disasters, blaming the insurance industry may seem the most direct way to regain control.

But rising rates are “not just an insurance problem,” Kevelighan said. “It’s a risk problem, and we all play a role in addressing that risk.”

The full interview is available now on Spotify, Audible, and Apple.

Auto Insurance, Homeowners Insurance, Insurers and the Economy, Legal Environment, Market Conditions, Risk Management

Insurance Underwriting
and Economic Analysis: “Art and Science”

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By Lewis Nibbelin, Guest Blogger for Triple-I

Home and auto insurance premium rates have been a topic of considerable public discussion as rising replacement costs and other factors – from climate-related losses to fraud and legal system abuse – have driven rates up and, in some states, crimped availability and affordability of coverage.

It’s important for policyholders and policymakers to understand the role of economic conditions and trends in setting rates.  Jennifer Kyung, Property and Casualty Chief Underwriting Officer at USAA, opens a window into the complex world of underwriting and economics in a recent episode of Triple-I’s All Eyes on Economics podcast.

Kyung told podcast host and Triple-I Chief Economist and Data Scientist Dr. Michel Léonard that economic analysis “is critical to us in underwriting and as we manage our plan.” She described economics as “part of our muscle memory as underwriters” – adding that the economic uncertainty of recent years reinforces the need for underwriters to have “a very agile mindset.”

Underwriting and economics are “a little bit art and science,” representing a balancing act between sophisticated data analytics and creative problem-solving.

“When we think about sales and premiums for homeowners, we may look at things like mortgage rates or new home starts to indicate how the market is going,” Kyung said. “In auto, we might look at new vehicle sales or auto loan rates. These, in combination, help us look at macro-economic trends and the environment and how that might interplay with our volume projections. That helps us with financial planning, as well as operational planning.”

“It’s really critical to keep these on the forefront on an ongoing basis throughout the year,” she said, “so we can adjust as needed…. As our results come in, this gives context to the results.”

Through continual analyses of external market conditions and the internal quality and growth of your business, Kyung said, underwriters “can manage and mitigate some of the volatility and risk for our organizations.”

A tool she recommends for evaluating economic indicators is Triple-I’s replacement cost indices, which track the evolution of replacement costs throughout time across various lines of insurance and geographic regions. These indices enable insurers to synthesize raw economic data and insurance market trends, providing an auxiliary framework to bolster financial and operational planning.

Kyung said Triple-I offers additional insight into “local flavor,” or “understanding what the emerging issues are…related to the local environment,” through such tools as Issues Briefs and Insurance Economics Profilers. Recent supply-chain disruptions have accentuated the relationship between local and global economies, revealing the importance of employing local economic analytics to interpretations of broader insurance market patterns.

Such fusions can help facilitate efficient planning in the face of shifts in the insurance landscape.

The full interview is available now on Spotify, Audible, and Apple.

Insurance Industry, Insurers and the Economy

New Triple-I Podcast Focuses on Intersection of Economics & Insurance

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By Marina Madsen, Research Analyst, Triple-I

Triple- I is pleased to present “All Eyes on Economics”, its new podcast series.

Hosted by Triple-I Chief Economist and Data Scientist Dr. Michel Léonard, PhD, CBE, the series equips listeners with insights to manage economic uncertainty at the intersection of economics and insurance. It features interviews with insurance practitioners, technologists, academics, educators, analysts, and economists from various industries who discuss their perspectives and how they integrate economic trends and developments into their day-to-day responsibilities.

Early episodes include discussions with:

  • Jennifer Kyung, Chief Underwriting Officer at USAA,
  • Ken Simonson, Chief Economist of the Associated General Contractors of America,
  • Dale Porfilio, Triple-I Chief Insurance Officer,
  • Sean Kevelighan, Triple-I CEO, and
  • Pete Miller, President and CEO at The Institutes.

Dr. Léonard brings more than 20 years’ expertise in senior and leadership positions as Chief Economist for Trade Credit and Political Risk at Aon; Chief Economist at JLT; Chief Economist and Data Scientist at Alliant; and Chief Data Scientist at MaKro. He also is adjunct faculty in New York University’s Economics Department.