Category Archives: Market Conditions

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

Even With Recent Rises, Auto Insurance Is More Affordable Than During Most of Century to Date

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You read that right. As a percentage of median household income, personal auto insurance premiums nationally were more affordable in 2022 (the most recent data available) than they have been since the beginning of this century.

And even the premium increases of the past two years are only expected to bring affordability back into the 2000 range, according to the Insurance Research Council (IRC).

A new IRC report – Auto Insurance Affordability: Countrywide Trends and State Comparisons – looks at the average auto insurance expenditure as a percent of median income. The measure ranges from a low of 0.93 percent in North Dakota (the most affordable state for auto insurance) to a high of 2.67 percent in Louisiana (the least affordable).

The pain is real

This is not to downplay the pain being experienced by consumers – particularly those in areas where premium rates have been rising while household income has been flat to lower.  It’s just to provide perspective as to the diverse factors that come into play when discussing insurance affordability.

Between 2000 and 2022, median household income grew somewhat faster than auto insurance expenditures, causing the affordability index to decline from 1.64 percent in 2000 to 1.51 percent in 2022. In other words, auto insurance was somewhat more affordable in 2022 than in 2000.

“With the recent increases in insurance costs, affordability is projected to deteriorate in 2023 and 2024,” said Dale Porfilio, FCAS, MAAA, president of the IRC and chief insurance officer at Triple-I. “The affordability index is projected to increase to approximately 1.6 percent in 2023 and 1.7 percent in 2024, a significant increase from the low in 2021 but still below the peak of 1.9 percent in 2003.”

In other words, we’ve been here before; and, if risks and costs can be contained, so can premium growth in the long term.

Cost factors vary by state

Auto insurance affordability is largely determined by the key underlying cost drivers in each state. They include:

  • Accident frequency
  • Repair costs
  • Claim severity
  • Tendency to file injury claims
  • Injury claim severity
  • Expense index
  • Uninsured and underinsured motorists
  • Claim litigation.

These factors vary widely by state, and the IRC report looks at the profiles of each state to arrive at its affordability index.

Reducing risk and costs is key

Porfilio noted that “while state-level data cannot directly address affordability issues among traditionally underserved populations, collaborative efforts to reduce these key cost drivers can improve affordability for all consumers.”

Continued replacement-cost inflation is likely to maintain upward pressure on premium rates. Tariffs could exacerbate that trend, as well as hurting household income in areas dependent on industries likely to be affected by them.

At the same time, some states are working hard to ameliorate other factors hurting affordability.  Florida, for example, was the second least affordable state for auto insurance in 2022; however, the state has made recent progress to reduce legal system abuse, a major contributor to claims costs in the Sunshine State. In 2022 and 2023, Florida passed several key reforms that have led to significant decreases in lawsuits. As a result, insurers have been writing more business in the state after a multi-year exodus. This increased competition puts downward pressure on rates, which should be reflected in the IRC’s next affordability study.

Learn More:

IRC Report: Personal Auto Insurance State Regulation Systems

IRC Report: U.S. Consumers See Link Between Attorney Involvement in Claims and Higher Auto Insurance Costs

Florida Reforms Bear Fruit as Premium Rates Stabilize 

What Florida’s Misguided Investigation Means for Georgia Tort Reform

Florida Bills Would Reverse Progress on Costly Legal System Abuse

Inflation Continues to Drive Up Consumers’ Insurance Costs

Improved Commercial Auto Underwriting Profitability Expected After Years of Struggle

Louisiana Is Least Affordable State for Personal Auto Coverage Across the South and U.S.

Georgia Is Among the Least Affordable States for Auto Insurance

Report: No-Fault Reforms Improved Michigan’s Personal Auto Insurance Affordability

Auto Insurers’ Performance Improves, But Don’t Expect Rates to Flatten Soon

Insurance Industry, Insurance News, Market Conditions, Regulation, Specialty Coverage

South Carolina Analysis Shows Liquor Liability Insurance Market in Crisis

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South Carolina’s liquor liability insurance market is in crisis, with insurers losing an average of $1.77 for every $1.00 of premium earned since 2017, while claim frequencies significantly outpace neighboring states, according to a recent study by the state’s Department of Insurance.

The comprehensive analysis, initiated following a 2019 request by the South Carolina Senate Judiciary Committee, reveals a deeply troubled marketplace where insurers are losing money.

“The data seem to confirm the anecdotal assertions, made by both insurance companies and small businesses, of a very troubled and challenged marketplace,” the report stated.

Current Market Landscape

The liquor liability insurance market in South Carolina has maintained a relatively stable number of participants in recent years. Since 2019, the number of insurance groups operating in this sector has held steady at around 48 participants. This consistency in market players suggests a mature, albeit challenging, insurance environment.

Despite the overall stability in participant numbers, the market is characterized by the dominance of three major insurance groups.

Premium Trends

While the number of market participants has remained relatively constant, earned premiums have experienced remarkable growth over a five-year period. From 2017 to 2022, earned premiums in the South Carolina liquor liability insurance market more than doubled to $17.0 million from $7.6 million.

This dramatic surge in premiums can be attributed to various factors, but rising insurance rates play a crucial role, the report noted.

Profitability Crisis in South Carolina

Since 2017, liquor liability insurers have lost about $1.77 for every $1.00 of premium earned over the six years observed. In the best performing of those six years (2018), the industry lost roughly $0.91 per $1.00 of premiums earned, while losing about $2.60 per $1.00 of premiums earned in the worst performing year, 2022.

“Combined ratios for the industry make it clear that this sub-line of insurance is being written at massive underwriting losses,” the report’s authors stated.

Source: South Carolina Department of Insurance

The severity of South Carolina’s liquor liability insurance crisis becomes even more apparent when compared to their neighboring states, where these same insurers have realized a net profit over time, the report noted.

Over the same 2017-2022 period analyzed, for example, North Carolina’s estimated liquor liability combined ratio ranged between 45% and 76%. In 2022, when South Carolina’s estimated combined ratio hit 290%, North Carolina’s stood at 62%.

Claims Severity and Frequency

The liquor liability insurance market in South Carolina also has experienced significant fluctuations in claim severity over recent years. In 2022, the average incurred claim per $1 million of earned premium reached $281,071, a substantial increase from $121,761 the previous year. This figure, however, falls within a broader historical context of volatility. The state witnessed its highest average claim of $338,244 in 2017, followed by a dramatic drop to $121,761 in 2021.

Despite these fluctuations, recent data suggests that South Carolina’s claim severity is aligning more closely with neighboring states in recent years, according to the report.

While severity trends show signs of alignment with regional norms, claim frequency in South Carolina presents a more pressing challenge.

From 2019 to 2022, South Carolina’s claim frequency (number of incurred claims per $1 million of earned premium) has outpaced that observed in the other states considerably. The claims frequency rate was nine in 2022, 13 in 2021, 10 in 2020 and 12 in 2019. During that same period, none of its neighboring states — Florida, Georgia and North Carolina — reported a claims frequency rate higher than five.

View the full South Carolina report here.

Auto Insurance, Homeowners Insurance, Legal Environment, Market Conditions

Louisiana Reforms: Progress, But More
Is Needed to Stem
Legal System Abuse

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Reforms put in place in 2024 are a positive move toward repairing Louisiana’s insurance market, which has long suffered from excessive claims litigation and attorney involvement that drive up costs and, ultimately, premium rates.

But more work is needed, Triple-I says in its latest Issues Brief.

Research by the Insurance Research Council (IRC) – like Triple-I, an affiliate of The Institutes – shows Louisiana to be among the least affordable states for both personal auto and homeowners insurance.

In 2022, the average annual personal auto premium expenditure per vehicle in Louisiana was $1,588, which is nearly 40 percent above the national average and nearly double that of the lowest-cost Southern state of North Carolina ($840), IRC said. Louisianans also pay significantly more for homeowners coverage than the rest of the nation, with an average annual expenditure of $2,178, representing 3.81 percent of the median household income in the state – 54 percent above the national average.

Louisiana’s low average personal income relative to the rest of the nation contributes to its personal auto insurance affordability challenges, which are exacerbated by its litigation environment.

Louisiana Insurance Commissioner Tim Temple has championed a series of legislative changes that he has said will encourage insurers to return to Louisiana, especially in hurricane-prone areas.

“There are fewer companies willing to write property insurance in Louisiana, and that’s a lot of what our legislation is designed to do,” Temple said. “To help promote Louisiana and change the marketplace so that companies feel like they are going to be treated fairly.”

In June 2024, Gov. Landry signed into law S.B. 355, which puts limitations on third-party litigation funding – a practice in which investors, with no stake in claims apart from potentially lucrative settlements, fund lawsuits aimed at entities perceived as having deep pockets. Third-party litigation funding drives up claims costs and delays settlements, which end up being passed along to consumers in the form of higher premiums.

This progress was undermined when Landry vetoed H.B. 423, which would have reformed the state’s “collateral source doctrine” that allows civil juries to have access to the “sticker price” of medical bills and the amount actually paid by the insurance company.

“In addition to creating more transparency and helping lower insurance rates, this bill would have brought more fairness and balance to our civil justice system,” said Lana Venable, director of Louisiana Lawsuit Abuse Watch in a statement regarding the veto. “Lawsuit abuse does not discriminate – everyone pays the price when the resulting costs are passed down to all of us.”

Continued reforms in 2025 will be necessary to help prevent legal system abuse and promote a more competitive insurance market that leads to greater affordability for consumers, Triple-I says in its brief.

Learn More:

Louisiana Is Least Affordable State for Personal Auto Coverage Across the South and U.S.

Despite Improvements, Louisiana Is Still Least Affordable State for Auto Insurance

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

Louisiana Litigation Funding Reform Vetoed; AOB Ban, Insurer Incentive Boost Make It Into Law

Louisiana’s Insurance Woes Worsen as Florida Works to Fix Its Problems

Hurricanes Drive Louisiana Insured Losses, Insurer Insolvencies

Industry Financials, Insurers and the Economy, Market Conditions

P&C Underwriting Profitability Prospects for 2024 Remain Firm

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By William Nibbelin, Senior Research Actuary, Triple-I

The U.S. Property & Casualty insurance market is expected to continue its trajectory of improving underwriting results in 2024 into 2025 and 2026, according to the latest projections by actuaries at Triple-I and Milliman. The latest report – Insurance Economics and Underwriting Projections: A Forward View – was released during Triple-I’s January 16 members-only webinar.

Year-over-year gains in net written premium increases and quarter-over-quarter loss ratios are primarily due to better-than-expected Q3 performance in personal auto.

The 2024 underlying economic growth for P&C ended slightly below U.S. GDP growth at 2.3 percent versus 2.5 percent year over year. A further economic milestone occurred in 2024, with the number of people employed in the U.S. insurance industry surpassing three million.

Michel Léonard, Ph.D., CBE, chief economist and data scientist at Triple-I, noted P&C underlying economic growth is expected to remain above overall GDP growth in 2025 (2.3 percent versus 2.1 percent) and 2026 (2.6 percent versus 2.0 percent) as lower interest rates continue to revive real estate and contribute to higher volume for homeowners’ insurance and commercial property.

“This is an improvement on our 2025 P&C underlying growth expectations from second half of 2024,” Léonard said. “The pace of increase in P&C replacement costs is expected to overtake overall inflation in 2025 (3.3 percent versus 2.5 percent). This aligns with our earlier expectations from the second half of last year.”

Personal vs. commercial lines performance

The 2024 net combined ratio for the P&C industry is projected to be 99.5, a year-over-year improvement of 2.2 points, with a net written premium (NWP) growth rate of 9.5 percent. 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. Personal lines 2024 net combined ratio estimates improved by nearly 1 point, while the commercial lines 2024 estimates worsened by 1.2 points.

Dale Porfilio, FCAS, MAAA, Triple-I’s chief insurance officer, expanded upon the dichotomy of commercial and personal lines results.

“Commercial lines continue to have better underwriting results than personal lines, but the gap is closing,” Porfilio said. “The impact from natural catastrophes such as Hurricane Helene in Q3 2024 and Hurricane Milton in Q4 2024 significantly impacted commercial property. The substantial rate increases necessary to offset inflationary pressures on losses have driven the improved results in personal auto and homeowners.”

Personal auto and homeowners are each projected to have improved 6.1 points over 2023, with a 2024 net combined ratio of 98.8 and 104.8, respectively. NWP growth rate for personal lines is expected to surpass commercial lines by 9 points in 2024, with personal auto leading at 14.0 percent, the second highest in over 15 years.

Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman – a premier global consulting and actuarial firm – elaborated on profitability concerns within commercial lines.

“Commercial auto continues to remain unprofitable,” he said. “The 2024 direct incurred loss ratio through Q3 is only marginally improved relative to 2023 and is the second highest in over 15 years.”

Hurricane Milton is projected to be the worst catastrophic event for commercial property since Hurricane Ian in 2022 Q3, driving higher-than-expected losses and subsequently increasing the commercial property projected 2024 net combined ratio up 3.3 points to 91.2, which is also 3.3 points worse than 2023. During the webinar, commercial property forecasts were also shared for the fire and allied and inland marine sub-lines.

Continued worsening in general liability

General liability’s projected 2024 net combined ratio of 103.7 is 3.6 points worse than actual 2023 experience. Kurtz said the line has seen significantly worsening, with each quarterly loss ratio in 2024 worse than 2023 year over year.

“The 2024 direct incurred loss ratio through Q3 is the highest in over 15 years,” Kurtz said. “As a result, we have increased our expectations for 2025 and 2026 net written premium growth, as the industry responds to the worsening 2024 performance.”

Continuing the discussion on general liability, Emma Stewart, FIA, chief actuary at Lloyds added that U.S. general liability has experienced material deterioration in loss ratios and a slowing down of claims development.

“A large driver of this has been the post-underwriting emergence of heightened social inflation, or more specifically, legal system abuse and nuclear verdicts,” Stewart said. “If these trends continue to increase, reserves on this class can be expected to deteriorate further.”

Workers comp loss-cost preview

Ending with workers compensation, Donna Glenn, FCAS, MAAA, chief actuary at the National Council on Compensation Insurance, provided a preview of this year’s average loss-cost changes and discussed the long-term financial health of the workers compensation system. 

“The 2025 average loss cost decrease of 6 percent is moderate, which will inevitably have implications on the overall net written premium change,” Glenn said.  She added that the –6 percent average loss cost level change in 2025 is notably different than the -9 percent average seen in 2024, the largest average decrease since before the pandemic.

“Payroll for 2025 will develop throughout the year resulting from both wage and employment levels.  Therefore, overall premium will become clearer as the year progresses,” she said.

Business Risk, Insurance Industry, Market Conditions, Risk Management

Triple-I Brief: Commercial Property Insurance Shows Signs of Improvement, Stable Growth

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While rising premiums have been the primary driver for commercial property insurance growth for years, a 25-quarter rate increase streak broke in early 2024. Strong risk-adjusted capitalization and adequate liquidity may sustain the stable outlook, notwithstanding formidable risks, according to Triple-I’s latest insurance brief Commercial Property: Trends and Insights.

The brief focuses on several core trends shaping opportunities and threats to the commercial property insurance segment:

  • Mounting climate and natural catastrophe risks
  • Increasing capacity in the reinsurance market
  • Lurking undervaluation risk
  • Rise of AI and technology in risk mitigation

According to a recent McKinsey report, data involving global figures for 25 primary commercial lines carriers indicate a combined ratio of 91 percent for 2023, down from a high of 102 in 2020 but holding steady from the prior year. Commercial property comprised $254 billion (or 26 percent) of premiums across these carriers.

Before 2024, the overall U.S. P&C commercial market experienced hard market conditions going back to 2018, according to NAIC data and analysis. Double-digit rate increases were the norm, particularly for properties in high-risk regions or with poor loss histories. A Marsh McLennan report shows that in Q4 2023, rate increases averaged 11 percent for more considerable commercial property risks and even higher for accounts with loss history challenges or catastrophic exposure.  Carriers have delivered steady quarterly increases since 2017 “to offset pressures from catastrophes and economic and social inflation.” Capacity constraints, driven by increased reinsurance costs, compounded this hardening, creating challenges for insurers and policyholders.

However, commercial insurers benefited from underwriting margins that outperformed the long-term average despite slowing year-over-year growth in direct premiums written, according to the 2024 S&P Global Market Intelligence U.S. Property and Casualty Industry Performance Rankings report. The top 50 of the 100 evaluated carriers was dominated by commercial line providers, with insurers focusing primarily on commercial property lines capturing three of the top 10 spots. In comparison, only two personal lines carriers ranked in the top 50.

AM Best, which maintains that insured losses in recent years have been driven primarily by secondary perils such as severe convective storms, issued its “Market Segment Outlook: US Commercial Lines” report. The analysts predict a stable market segment outlook for the U.S. commercial lines insurance sector in 2025. The company expects the commercial lines segment “will remain profitable in the aggregate and will be resilient in the face of near- and longer-term challenges.” However, relatively high claims costs, the multi-year impact of social inflation, and geopolitical risks may pose threats. The latest AM Best report focused solely on the commercial property segment (dated March 2024) advises that the Excess and Surplus (E&S) market has absorbed some of the higher risks. Still, overall secondary perils continue to be a significant “offsetting factor” for commercial property.

The damage of weather events and natural catastrophes tend to make big headlines (and rightly so), but the overall risk for commercial property isn’t limited to the destruction wrought by each disaster. It also extends to the interactions between the event outcomes and human systems. Specifically, these events can strain regional economic systems, such as decreasing the availability of rebuilding materials and labor while simultaneously amplifying demand for these same inputs. In turn, property replacement costs can soar.

Reinsurance

In 2023, major changes in reinsurance policy structures and price increases compelled insurers to decrease limits and absorb higher retentions. The policy restructurings also meant primary insurers had to retain more losses from increased secondary perils, such as floods, wildfires, and severe convective storms, that they could not cede to the reinsurance market. The insurers’ retention of loss may have allowed the incubation of increased capacity in the reinsurance market, improving late in 2023 and into early 2024.

By mid-year 2024 renewals, reinsurance appetite had grown with easing in some loss-free areas and, as applicable, underwriting scrutiny held firm in others areas. Analysts observed “flat to down mid-to high-single digits” reinsurance risk-adjusted rates for global property catastrophes. A Marsh McLennan report noted modest growth in investment and capital due to increased market capacity and underwriting interest from carriers. Late 2024 catastrophic events and any similar activities in the coming year will likely remain a primary drivers for reinsurance costs, along with the increasing cost of capital, financial market volatility, and economic inflation.

To learn more about Triple-I’s take on these and other commercial property insurance trends, read the issue brief and follow our blog.

Disaster Preparedness, Disaster Resilience, Flood Insurance, Floods, Insurers and the Economy, Market Conditions, Regulation, Risk Management

JIF 2024: What Resilience Success Looks Like

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By Lewis Nibbelin, Contributing Writer, Triple-I

The efficacy of collaboration and investment by “co-beneficiaries” in resilience initiatives was a dominant theme throughout Triple-I’s 2024 Joint Industry Forum – particularly in the final panel, which celebrated leaders behind recent real-world impacts of such investments.

Moderated by Dan Kaniewski, Marsh McLennan (MMC) managing director for public sector, the panelists discussed how their multi-industry backgrounds inform their innovative mindsets, as well as their knowledge on the profound ripple effects of targeted resilience planning.

The panel included:

  • Jonathan Gonzalez, co-founder and CEO of Raincoat;
  • Bob Marshall, co-founder and CEO of Whisker Labs;
  • Dawn Miller, chief commercial officer of Lloyd’s and CEO of Lloyd’s Americas; and
  • Lars Powell, director of the Alabama Center for Insurance Information and Research (ACIIR) at the University of Alabama and a Triple-I Non-Resident Scholar.

Productive partnership

Kaniewski – who spent most of his career in emergency management, previously serving as the second-ranking official at the Federal Emergency Management Agency (FEMA) and the agency’s first deputy administrator for resilience – kicked off the panel by raising the question “how do we define success?”

He characterized success as “putting theory into practice” and “having elected officials taking steps to reduce risk and transfer some of this risk from federal, state, or local taxpayers.”

But, as participants in earlier panels and this one made clear, government efforts can only go so far without private-sector collaboration. 

“It doesn’t matter who makes that investment, whether it’s the homeowner, the business owner, or the government,” Kaniewski explained. “The reality is we all benefit from that one investment. If we can acknowledge that we benefit from those investments, we should do our best to incentivize them.”

Kaniewski and Raincoat’s Gonzalez were both integral in the development of community-based catastrophe insurance (CBCI), developed in the wake of Superstorm Sandy in 2012.

“A lot of the neighborhoods that experienced flooding due to Sandy didn’t have access to insurance prior to the flooding – and then, post flooding, the government really had to step up to figure out how to keep those families in those houses,” Gonzalez said.

In collaboration with the city, a nonprofit called the Center for NYC Neighborhoods developed the concept of buying parametric insurance on behalf of these communities, with any payouts going toward helping families stay in their homes after disasters. Unlike traditional indemnity insurance, a parametric policy pays out if certain agreed-upon conditions are met – for example, a specific wind speed or earthquake magnitude in a particular area – regardless of damage.  Parametric insurance eliminates the need for time-consuming claim adjustment. Speed of payment and reduced administration costs can ease the burden on both insurers and policyholders.

In this case, Kaniewski said, success was reflected in the fact that the pilot program received sufficient funding not only for renewal but expansion, bringing needed protection to even more vulnerable communities.

Powell reinforced this sentiment in explaining ACIIR’s research on the FORTIFIED method, a set of voluntary construction standards created by the Insurance Institute for Business and Home Safety (IBHS) for durability against severe weather. The insurance industry-funded Strengthen Alabama Homes program issues grants and substantial insurance premium discounts to homeowners to retrofit their houses along these guidelines, prompting multiple states to replicate the program.

Such homes in Alabama sustained 54 to 76 percent reduced loss frequency from Hurricane Sally compared to standard homes, Powell reported, and an estimated 65 to 73 percent could have been saved in claims if standard homes were FORTIFIED.

Incentivizing contractors to learn FORTIFIED standards was especially critical, Powell explained, because they further advertised these skills and expanded the presence of FORTIFIED homes beyond the grant program.

“A lot of companies have said for several years, ‘we don’t know if we’re comfortable writing these…we haven’t seen it on the ground,’” Powell said. “Well, now we’ve seen it on the ground. We need to have houses that don’t burn down or blow over. We know how to do it, it’s not that expensive.”

Addressing concerns to drive adoption

Miller described how Lloyd’s Lab works to ease that discomfort by creating a space for businesses to nurture and integrate novel insights and products without fear. With mentor support, companies are encouraged to test new ideas while free from the usual degree of financial and/or intellectual property risks attached to innovation investments.

“It’s about having an avenue out to try,” Miller said. “Having that courage, as we continue to work together, to try to understand what’s working, what’s not, and being brave to say, ‘this isn’t working, but we can course correct.’”

Whisker Labs’ Marshall noted that numerous insurance carriers have taken a chance on his company’s front-line disaster mitigation devices, Ting, by paying for and distributing them to their customers.

Ting plug-in sensors detect conditions that could lead to electrical fires through continuous monitoring of a home’s electrical system. Statistically preventing more than 80 percent of electrical fires, communities benefit – not only by preventing individual home fires but also by providing data about the electrical grid and potentially heading off grid-initiated wildfires.

“There are so many applications for the data,” Marshall said, but “to have a true impact on society…we have to prove that we’re preventing more losses than the cost, and we have to do that in partnership with insurance carriers.”

Everyone wins if everyone plays

Cultivating innovative solutions is pivotal to enhancing resilience, the panelists agreed – but driving them forward requires more than just the insurance industry’s support.

He pointed to a project last year – funded by Fannie Mae and developed by the National Institute of Building Science (NIBS) – that culminated in a roadmap for resilience investment incentives, focusing on urban flooding. 

The co-authors of the project, including Triple-I subject-matter experts, represented a cross-section of “co-beneficiary” groups, such as the insurance, finance, and real estate industries and all levels of government, Kaniewski said.

Implementation of the roadmap requires participation from communities and multiple co-beneficiaries. Triple-I and NIBS are exploring such collaborations with potential co-beneficiaries in several areas of the United States.

Learn More:

Outdated Building Codes Exacerbate Climate Risk

Rising Interest Seen in Parametric Insurance

Community Catastrophe Insurance: Four Models to Boost Resilience

Attacking the Risk Crisis: Roadmap to Investment in Flood Resilience

Mitigation Matters – and Hurricane Sally Proved It

Catastrophes, Disaster Preparedness, Disaster Resilience, Floods, Homeowners Insurance, Market Conditions, Risk Management, Wildfire

JIF 2024: Collective,
Data-Driven Approaches Needed to Address Climate-Related Perils

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The need for collective action to address the property/casualty risk crisis was a recurring theme throughout Triple-I’s Joint Industry Forum in Miami – particularly during the panel on climate risk and  resilience. The discussion focused heavily on what’s currently being done to address this evolving area of peril.

The panel, moderated by Veronika Torarp – a partner in PwC Strategy’s insurance practice – consisted of subject-matter experts representing a cross section of natural perils, from hurricanes and floods to wildfires and severe convective storms. They were:

  • Dr. Philip Klotzbach, research scientist in the Department of Atmospheric Science at Colorado State University;
  • Matthew McHatten, president and CEO at MMG Insurance and chairman of Triple-I’s Executive Leadership Committee;
  • Emily Swift, sustainable business framework senior manager at American Family Insurance; and
  • Heather Kanzlemar, consulting actuary at Milliman.

Part of the reason for this need to build coalitions is the diverse and overlapping causes of climate-related events and the related losses. Torarp cited a PwC study that projects the global protection gap in 2025 at $1.9 trillion, though she acknowledged that number may turn out to be “an understatement”.

Warmer, wetter, riskier

Running through the discussions of the various perils was the dynamic nature of evolving threats and the protection gap. Examples included increased inland flooding, such as the devastation caused in the rural southeast by Hurricane Helene, and damage inflicted by surprisingly intense tornadoes spun off by Hurricane Milton.

Dr. Klotzbach discussed the “very busy” 2024 Atlantic Hurricane season with its surprising impact on Asheville, N.C., and surrounding communities from Helene.

“It’s important to understand that the inland flooding threat is extremely problematic,” he said.

MMG’s McHatten emphasized the complexity of addressing flood risk, given the environmental forces driving it.

“Warmer planet, warmer ocean, more precipitation, more wind,” he said, “as well as this dynamic of atmospheric rivers and what happens to them as they start to hit higher elevations.” He pointed out how such conditions – which led to cataclysmic rains in Ashville as well as in MMG’s home state of Maine and the mountains of Vermont – are exacerbated by population trends.

“People live near water because that’s where economy and commerce was,” he said. “The ability to adapt to dynamic conditions that are changing rapidly is super-difficult. We can’t just say, ‘Raise every house six feet’ that’s near a body of water.”

Hope amid the perils

American Family’s Emily Swift discussed the state of severe convective storm risk, which she said is tending to migrate from its historic domain of the U.S. Midwest toward the Southeast.

“As we’re seeing the impact of hurricanes move further west and severe convective storms move further east, that means a lot more risk exposure to our customers who are living in those regions,” she said. “However, I think there’s a lot of hope.”

Swift talked about emerging partnerships between the insurance industry and academia — particularly work being done through Industry-University Cooperative Research Centers (IUCRC) funded by the National Science Foundation (NSF) to better understand severe convective storms and develop innovative ways of addressing the risks they pose.

“I’m optimistic that, although we don’t know quite the direction where severe convective storms are heading, we at least have diversified our risks to better manage them” – thanks, in part, to the learnings derived from these partnerships, Swift said.

Kanzlemar reinforced Swift’s optimistic tone in discussing Milliman’s work around wildfire risk. In the midst of a growing insurance availability and affordability crisis in fire-prone states – particularly California – Milliman is partnering with the Insurance Institute for Building and Home Safety (IBHS) and and stakeholders in its Wildfire Prepared Home program to gather data to help inform insurance underwriting, as well as mitigation and prevention at the community level.

“Most insurers have data on type of structure, what the roof material is, the number of stories,” Kanzlemar said, “but a lot of the granular data around eave enclosures, ember-resistant vents, that data is typically not available, and almost no insurers had that data at a community level to account for adjacent risk.”

That’s the bad news, she said, but “the good news is in the kinds of solutions we’re working toward. Most insurers were willing to consider a contributory data model like a comprehensive loss-underwriting exchange for [wildland-urban interface (WUI)] data as long as there’s sufficient participation and reciprocity. That’s an effort that we’re calling the ‘WUI Data Commons’. ”

All the panelists agreed that such collaborative, data-driven approaches that respect consumer needs and interests at the community level were going to be key to solving natural catastrophe risk in our rapidly changing future.

Learn More:

Triple-I “State of the Risk” Issues Brief: Flood

Triple-I “State of the Risk” Issues Brief: Wildfire

Triple-I “State of the Risk” Issues Brief: Hurricane

Triple-I “State of the Risk” Issues Brief: Convective Storms

Resilience Investments Paid Off in Florida During Hurricane Milton

Hail: The “Death by 1,000 Paper Cuts” Peril

Accurately Writing Flood Coverage Hinges on Diverse Data Sources

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

JIF 2024: What’s In a Name? When It Comes to Legal System Abuse, A Lot

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By Lewis Nibbelin, Contributing Writer, Triple-I

From “social inflation” to “tort reform” to, simply, “fraud,” settling upon uniform terminology to describe  litigation trends that drive up costs – including insurance premiums – for all Americans is a primary challenge to addressing them, according to participants at Triple-I’s 2024 Joint Industry Forum.

“As we’re trying to raise awareness of this problem with consumers, ‘social inflation’ doesn’t work,” said discussion moderator and Triple-I’s Chief Insurance Officer Dale Porfilio. Though Triple-I previously favored “social inflation,” consumer testing was done that suggested a better name was needed. “That’s when we landed on ‘legal system abuse.’”

“The name absolutely matters,” said Viji Rangaswami, senior vice president and chief public affairs officer for Liberty Mutual. “When you talk to a legislator, whether that’s in Kansas or in Washington, D.C., and you say the words, ‘social inflation,’ they don’t know what you’re talking about. But when you say the words ‘legal system abuse,’ you see the lightbulb go off.”

Louisiana Insurance Commissioner Tim Temple – a self-described “unicorn” among insurance regulators, given his decades-long background in the industry as an agent, broker, and company president – even renamed programs to address “legal system abuse” when he assumed office in January. This shift exemplifies Temple’s commitment to using his experience to shape a regulatory and statutory environment that enhances the attractiveness of Louisiana’s insurance market.

“We’re getting more buy-in now, people understand it,” Temple said. “That’s part of transparency – talking about what it truly is.”

Clear communication is key

Opaque, ill-defined language empowers predatory “billboard attorneys” to define these terms themselves, contributing to pervasive policyholder distrust, said Jeff Sauls, Farmers Insurance head of legislative affairs.

“There’s this perception of the insurance industry amongst the public – and plaintiffs’ attorneys help portray this – as a high-margin business,” he said, when, in reality, “we compete with grocery stores for who can make less money in an average year.”

Attorney advertising – estimated to total over $2.4 billion across the U.S. last year – has commandeered the messaging once associated with insurers, noted Temple, who encouraged the industry to “take back that high ground” of providing “dependability and stability during the worst days of people’s lives” without overuse of brand mascots or jingles.

“We have to remind the public why we exist,” Rangaswami added. “We want to pay claims as expeditiously as possible…. We’re on the side of the consumer, whereas the plaintiffs’ attorney is often on their own side or the investor’s side.”

Third-party litigation funding

With her reference to “investors,” Rangaswami took aim at a little-known, rapidly growing practice called third-party litigation funding (TPLF), in which investors with no stake beyond potential profit step in to fund lawsuits against corporate entities perceived as having deep pockets. As of last year, such investors retained an estimated $15.2 billion in assets for U.S. litigation alone.

Only a handful of states require mandatory disclosure of TPLF, which enables hedge funds and other foreign funders to compound and profit from protracted and even fraudulent U.S. court cases. Secrecy surrounding TPLF prevents insurers and regulators from identifying, let alone mitigating, the risks of increased costs and time to resolve claims disputes.

Preventing adversaries to the U.S. from exploiting TPLF to influence settlement outcomes and access sensitive defense information is another concern.

“We’re looking at TPLF as potentially exacerbating national security risk,” said Jerry Theodorou, policy director for finance, insurance, and trade at the R Street Institute. “Most people don’t know what TPLF is and the way it can insidiously impact the economy, our businesses, our jobs.”

Everyone is affected

Legal system abuse costs the highly litigious states Louisiana and Georgia over 175,000 jobs combined and thousand-dollar “tort taxes” for each resident per year, earning both states recurring spots on the American Tort Reform Foundation’s list of “Judicial Hellholes.” They also rank among the least affordable places for auto and homeowners’ insurance by the Insurance Research Council – an affiliate of The Institutes, like Triple-I.

Louisiana recently enacted a law enforcing some oversight over TPLF, Temple noted, as well as repealed a unique “three-year rule” that impeded actuarially-sound underwriting. But as the state’s bodily injury claims climb well over the national average, more reform is needed to return insurance profitability to the state.

“One thing I would look to is importing some of the good things Florida has done,” Theodorou suggested, explaining that reform curtailing contingency and one-way attorneys’ fees “have brought down the number of lawsuits against insurance companies by 24 percent” for the second consecutive three-quarter period. “Notice of intention to sue is also down by double digits. It’s working, so let’s learn from that.”

Considering the fact that the former “poster child” for legal system abuse generated over 70 percent of all homeowners insurance litigation nationally in 2022 – despite accounting for only about 15 percent of total homeowners claims – Florida’s reduced premium growth and nine new property insurers this year reveal the likely efficacy of such reforms in other states.

Education and coalition building

But such reform requires advocacy, which requires consumer education and coalition building across diverse stakeholder groups, Rangaswami pointed out.

Fixing “an economy-wide problem,” she explained, requires an “economy-wide coalition.”

The end goal is not a “tilted playing field,” Sauls emphasized. “We’re trying to get to a place where we are all on level footing, without being exploited by plaintiffs’ attorneys.”

Legal system abuse “is going to be a pressure point for the industry moving forward,” stressed Fred Karlinsky, shareholder and global chair of Greenberg Traurig, LLP. “No state is immune from what we’ve seen in Florida.”

Karlinsky emphasized that spreading normalization of “nuclear” (over $10 million) and an emergent class of “thermonuclear” (over $100 million) verdicts will stall reform in newly targeted states.

Rangaswami pointed out that not all the news has been bad.

“We had some great wins in 2024,” she said, citing Florida’s improved insurance market and legislation introduced at both the federal and state levels as movement in a promising direction. “But we have to keep this momentum up.”

Learn More:

Triple-I Issues Brief: Legal System Abuse

Agents Play Critical Role in Navigating Impacts of Legal System Abuse on Customers

Legal System Abuse/Social Inflation Adds Costs and Challenges for US Casualty Insurance: AM Best

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

Legal Reforms Boost Florida Insurance Market; Premium Relief Will Require More Time

How Georgia Might Learn From Florida Reforms

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

Inflation Continues to Drive Up Consumers’ Insurance CostsTriple-I Launches Campaign to Highlight Challenges to Insurance Affordability in Georgia

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

Climate Resilience and Legal System Abuse Take Center Stage In Miami

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

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

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

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

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

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

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

Legal Environment, Market Conditions, Regulation

How Georgia Might Learn From Florida Reforms

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By Lewis Nibbelin, Contributing Writer, Triple-I

Georgia – frequently featured on the American Tort Reform Foundation’s list of “Judicial Hellholes” – may want to consider imitating its neighbor Florida in pursuing legal system abuse reforms, Triple-I CEO Sean Kevelighan suggested in a recent  interview for WBS News/Talk Radio. 

In 2022 – the year Category 4 Hurricane Ian tore through the southeast United States – over 70 percent of all homeowners insurance litigation nationally was generated in Florida, when the state accounted for only about 9 percent of total homeowners claims.

“We actually saw six insurers go insolvent even before Ian hit,” Kevelighan said. 

An exodus of insurance carriers, paired with an estimated $10 billion loss in post-Ian litigated claims, prompted Florida policymakers to enact laws targeting excessive one-way attorney fees and prohibiting assignment of benefits (AOB) to curtail gratuitous or fraudulent litigation.

Legal system abuse drives up costs for everyone

Such litigation increases the costs and time to settle insurance claims, which insurers must account for when predicting loss trends and setting rates. 

“The price of insurance is the price of the risk,” Kevelighan explained. “If you have a high-litigation area, that’s risky, and it’s going to be more expensive.” 

Costly, protracted claims disputes – especially ones involving unnecessary judicial intervention – can outprice consumers and insurers, leading many to cease offering coverage in the state or to declare insolvency.

Insurance costs in Florida have stabilized since legislators passed legal system abuse reforms in 2022 and 2023, reducing premium growth and attracting nine new property insurers to the market this year, Kevelighan said.

Under these reforms, “the risk level is getting lower and that allows the cost of insurance to go down,” he said. Underwriting losses in 2023 reflected this trend, as Florida’s property insurance market recorded a much smaller loss than in recent years. Most Florida carriers have filed for no rate increases – or even decreases – this year, Kevelighan said.

Though Hurricanes Helene and Milton will likely constrain Florida’s 2024 underwriting profitability, insurers are well-equipped to settle claims more quickly, with some industry experts suggesting the market could sufficiently cover another hurricane later this season.

Lessons for Georgia

Plaintiffs’ attorneys who profited from claim fraud in Florida have transferred their exploitative practices and billboard marketing to states with fewer and/or antiquated regulations – especially Georgia, recently ranked one of the least affordable states for auto insurance by the Insurance Research Council (IRC), a division of The Institutes.

“The litigation is just creeping across the border into Georgia,” he said. “It’s estimated that the GDP of legal system abuse impacts the economy about $13 billion annually in Georgia alone.”

In Georgia, Kevelighan said, unfettered anchoring tactics – which “anchor” juries to extraordinary non-economic damage awards as a baseline – propel Georgia’s abnormally high rate of excessive verdicts.

Profuse and inflated litigation impedes coverage affordability and availability and creates undue “tort taxes” that cost individual Georgians $1,372 per year, even as trial attorneys in the state invested hundreds of millions into advertising in 2023.

A new IRC survey supports a positive correlation between consumers who consult attorneys and those who are exposed to attorney advertising. Though most consumers believe this advertising increases the cost of auto insurance, most also remain impartial. Greater public outreach and tort reform are needed to stop and prevent legal system abuse.

While amending a court system hostile to defendants requires extensive coordinated efforts, Florida’s recent legislative reforms have already improved the state’s insurance landscape, demonstrating the efficacy of passing similar laws in other areas. To advocate for tort reform in Georgia, the Triple-I recently launched a multi-faceted campaign that includes highway and digital bus shelter billboards promoting an educational consumer website.

“We want to inform consumers that litigation doesn’t need to be a first step in claim disputes, but should be more of a last resort,” Kevelighan said. “We’re trying to help raise awareness so that reform does pass, and that we can reduce the risk level, so that we can reduce the price levels.”

Georgia Gov. Brian Kemp’s interest in addressing tort reform during the 2025 Georgia General Assembly promises “more movement,” Kevelighan added.

It’s not too late to register for Triple-I’s “Joint Industry Forum” in Miami November 19th and 20th, where legal system abuse will be a major topic of conversation.

Learn More:

Triple-I Launches Campaign to Highlight Challenges to Insurance Affordability in Georgia

Georgia Is Among the Least Affordable States for Auto Insurance

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