Category Archives: Market Conditions

Economic Climate Makes Understanding Insurance Increasingly Important

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 California’s outdated Proposition 103 – by barring insurers from using modeling to price risk prospectively and from taking reinsurance costs into account when setting rates – has  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 SpotifyAudible, and Apple.

Insurance Underwriting
and Economic Analysis: “Art and Science”

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.

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

Historic Florida State Capitol Building Source: Getty Images

Homeowners insurance premium growth in Florida has slowed since the state implemented legal system abuse reforms in 2022, according to a Triple-I analysis.

As shown in the chart below, average annual premiums climbed sharply after 2020. This was due in part to inflation spurred by the COVID-19 pandemic and the war in Ukraine as well as longtime challenges in the state with claim fraud and legal system abuse.

Source: Triple-I analysis of NAIC and OIR data

According to the state’s Office of Insurance Regulation (OIR), Florida accounted for nearly 71% of the nation’s homeowners claim-related litigation, despite representing only 15% of homeowners claims in 2022, the year Category 4 Hurricane Ian struck the state. In that same year, and prior to Ian making landfall in the state as a first major hurricane since 2018’s Hurricane Michael, six insurers declared insolvency. Hurricane Ian became the second largest on record by insured losses, in large part because of the extraordinary litigation costs estimated to result in Florida in the aftermath.  

The Florida Legislature responded to the growing crisis by passing several pieces of insurance reform, primarily tackling problems with assignment of benefits (AOB), bad-faith claims, and excessive fees.  For example, the new laws eliminated one-way attorney fees in property insurance litigation, forbid using appraisal awards to file a bad-faith lawsuit, and prohibited third parties from taking AOBs for any property claims. The legislation also ensures transparency and efficiency in the claims process and encourages more efficient, less costly alternatives to litigation.  

A surge in litigation

Litigation spiked when backlogged courts reopened following the pandemic, then again when the reforms were passed in 2022 and 2023, as plaintiffs’ attorneys raced to file suits ahead of implementation of the legislation.

This increase in litigation, combined with persistently strong inflation, contributed to increased loss costs and premium increases. In 2022, average homeowners premium rates rose more than 17 percent, to $3,040. Premiums continued to rise in 2023, although at a decreasing rate, as inflation has moderated and legal reforms have kicked in.

There are early signs that the reforms are beginning to bear fruit. In 2023, Florida’s defense and cost-containment expense (DCCE) ratio – a key measure of the impact of litigation – fell to 3.1, from 8.4 in 2022, according to S&P Global. In dollar terms, 2023 saw $739 million in direct incurred legal defense expenses – a major decline from 2022’s $1.6 billion. For perspective, incurred defense costs in the two largest U.S. insurance markets in 2023 were $401.6 million in California, followed by $284.7 million in Texas. As the chart below shows, Florida’s DCCE ratio – even during its best years – regularly exceeds the nation’s.

As insurers have failed or left the state, Citizens Property Insurance Corp. – the state-run insurer of last resort and currently Florida’s largest residential insurance writer – has swelled with new business and lawsuits. Citizens’ depopulation efforts to move policyholders to private insurers contributed to policy counts falling to 1.23 million by the end of 2023.

It’s important to remember that all premium estimates are based on the best information available at the time and actual results may differ due to changes in market conditions. For example, earlier Triple-I projections that average annual homeowners premiums in Florida would exceed $4,300 in 2022 and $6,000 in 2023 assumed significant rate increases would be needed to restore profitability to the state’s homeowners market. These projections did not assume legislative reform or that Citizens would become the state’s largest homeowners insurance company, with many risks priced below the admitted and excess and surplus markets. Our projections also assumed inflation would continue to grow at rates similar to those prevailing at the time.

In light of the reforms and moderating inflation, we are now reporting lower average annual premiums of $3,040 (2022) and $3,340 (2023). The Florida OIR has reported average premium rate filings are running below 2.0 percent in 2024 year-to-date in the private market. Further, OIR indicated eight domestic carriers have filed for rate decreases and 10 have filed for no increase this year. Additionally, eight property insurers have been approved to enter the Florida market, with more expected this year.

Triple-I will continue to monitor and report on the evolving property insurance market in Florida.

NCCI Event Shines a Light on Workers Comp

William Nibbelin, Senior Research Actuary, Triple-I

The recent National Council on Compensation Insurance (NCCI) Annual Insights Symposium (AIS) in Orlando, Fla., provided important context and clarity around the state of the workers compensation line of business. As a new senior research actuary for Triple-I, my prior knowledge of this line could best be summarized by the following words from one peer-reviewed study of a reserving project I conducted more than two decades ago: Long-tail, unprofitable.

I recently assumed responsibility for forecast modeling of the property/casualty industry, which includes workers comp. In this role, I’d seen the line’s 2023 net combined ratio at 87 – the lowest (ie., most profitable) in the past five years. But I did not yet have deep understanding of the underlying trends driving these numbers.

I saw the AIS as an opportunity to gain that knowledge, and the event delivered.

The net combined ratio of 87 – as reported by Triple-I using National Association of Insurance Commissioners (NAIC) data sourced by S&P Global Market Intelligence – was also the ninth straight calendar year in a row under 100. According to NCCI, the success of the workers comp line in recent years represents the convergence of three factors:

  • Payroll increases
  • Moderate severity increases, and
  • Larger-than-expected frequency declines.

 “The overall numbers for workers compensation show a financially healthy system,” said Donna Glenn, NCCI’s chief actuary.

Payroll increases

The line’s 2023 direct written premium (DWP) increased 2.6 percent nationally – due primarily to another strong year of payroll growth at 6.2 percent, according to NCCI.Rising wages contributed the most to that figure, with increases in all industry sectors resulting in a combined wage growth of 3.9 percent.  Improved job creation contributed 2.3 percent, with all sectors except transportation and warehousing seeing increased employment. Payroll growth was partially offset by state-approved premium rate decreases.

Moderate severity increases

Claim severity remains moderate year over year, at 3 percent in 2023, despite indemnity claim severity at 5 percent. Medical claim severity for 2023 trended at a low 2 percent, in line with the 20-year trend of 1.8 percent and below the 3.5 percent in 2022. Medical claims less than $500,000 increased 5 percent; however, claims above $500,000 decreased 16 percent, driven primarily by several large losses in 2022.

Also, more states have adopted physician medical fee schedules from 2012 to 2022, which has shifted medical cost category shares from more expensive inpatient claims to outpatient claims, as well as lower drug claims. Outpatient claims increased from 23 percent of all claims to 27 percent and drug claims decreased from 12 percent to 7 percent of all claims.

Larger-than-expected frequency declines

Overall claim frequency decreased 8 percent in 2023, compared to the 20-year average decrease of 3.4 percent. Workers compensation claims frequency has only increased twice in the past 20 years – once in 2010 from the destabilization in the construction sector in 2009 and again in 2021 from COVID-19 impacts in 2020.

From 2015 to 2022, workers comp claims frequency benefited from workplace safety improvements and technology advances, which helped the decline in all cause of injury categories, including the two largest shares of strain and slip/falls. During this same period, the largest decline in claim frequency by part of the body was in lower-back claims. Finally, the recent slowing employment market churn has also improved claim frequency as claims decline when job tenure rises.

Stephen Cooper, senior economist at NCCI, speaking on the state of the economy and its impact on workers comp, said job growth and steadily increasing wage rates continue to favor the workers compensation system. He also gave an overview of the contribution to labor force by age and generation from 1980 to 2030, including changes in claim share from 2020 actuals to 2030 forecasts. Overall, the double-digit growth in labor force of 24 percent in 2000 over 1980 and 18 percent in 2020 over 2000 is expected to fall to only 4 percent in 2030 over 2020.

The only age group with an expected increasing contribution to the labor force from 2020 to 2030 are those age 65 and older. The contribution to labor force for the age group 16 to 24 is expected to remain flat from 2020 to 2030 however their representative share of Workers Compensation claims has the largest expected increase from 9% to 11 percent.

Beyond the numbers

 The symposium provided valuable insight into several factors affecting workers comp, including the role of AI and innovation in workplace safety technology. In a panel moderated by Damian England, NCCI’s executive director of affiliate services, the audience got to see a demonstration of AI camera monitoring of warehouse employee activity and the use of wearable technology to highlight improper lifting techniques.

“It is clear that safety technologies will be a vital part of future safety initiatives,” England said. “They may even be a gamechanger for evaluating and improving workplaces and reducing injuries.”

AIS also touched on challenges facing today’s workers, from climate to mental health.

“Our new NCCI research shows worker injuries increase by as much as 10 percent on very hot days, as well as on wet and freezing days, compared to mild weather,” said Patrick Coate, NCCI senior economist. “High temperatures impact construction and other outdoor workers most, while cold and wet weather leads to a lot more slip and fall injuries.”

Anae Myers, assistant actuary at NCCI, focused on the difference between claims that include mental health diagnosis versus those that do not.

“New research from NCCI shows that claims exceeding $500,000 are 12 times more likely to be diagnosed with an associated mental condition during the course of treatment, underscoring the potential for the impact of mental health in large claims,” Myers said.

I left the conference with a better understanding of workers comp rate making and the indices to track for future forecasts. Many thanks to Cristine Pike and Madison White at NCCI for their hospitality and guidance, as well as to all the attendees who patiently provided their expertise and generously offered their support when I introduced myself to them and to this stunning line of insurance.

Triple-I/Milliman: Personal Lines Drag
on Underwriting Profitability Continues

By Max Dorfman, Research Writer, Triple-I

The property and casualty insurance industry posted its second consecutive year of underwriting losses, driven primarily by personal lines, according to the latest industry underwriting projections by actuaries at Triple-I and Milliman.

The net combined ratio for 2023 was 101.6, according to Insurance Economics and Underwriting Projections: A Forward View, a Triple-I members-only webinar. 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. 

The newest results are an improvement from 2022. Additionally, premium growth is expected to further improve underwriting results in 2024, with the 2024 industry net combined ratio forecast at 100.2.

Michel Léonard, PhD, CBE, Triple-I’s chief economist and data scientist, discussed how P&C replacement costs are increasing more slowly than the consumer price index (CPI).

“P&C replacement costs benefited from greater deceleration of key CPI components, such as construction material and used auto costs,” he said. “We expect this trend to continue until early 2026.”

Léonard noted that personal and commercial auto replacement costs decreased in the first four months of 2024, continuing their 2023 trend, largely due to double-digit declines in used auto prices.

“Even homeowners’ replacement cost changes – the segment subject to some of the highest replacement cost increases over the past few years – is now lower than overall CPI,” Léonard said.

Dale Porfilio, FCAS, MAAA, Triple-I’s chief insurance officer, discussed the overall P&C industry underwriting projections and premium growth.

“The overall picture from prior quarters remains the same with commercial lines performing better than personal, but to a lesser extent,” Porfilio said.

The 2023 commercial lines net combined ratio was 96.2, 1.4 points worse than the 2022 result. While still unprofitable, personal lines improved 3.2 points relative to 2022. For 2023, the personal lines expense ratio improved by almost 2 points over 2022, most dramatically in personal auto. The net written premium growth rate for personal lines surpassed commercial lines by over 7 points in 2023.

“Continued personal lines premium growth should lead to further convergence in underwriting performance in 2024,” Porfilio said.

Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman – a global consulting and actuarial firm – said that for commercial auto, the 2023 net combined ratio of 109.2 is 3.8 points higher than 2022, and 10.3 points higher than 2021​. 

“The improved underwriting results following the COVID-19 pandemic appear to have been short-lived, as the commercial auto underwriting results have once again deteriorated and adverse prior year development has returned to pre-COVID levels,” Kurtz said.

Looking at the workers compensation line, Kurtz noted that the 2023 net combined ratio of 87.3 is nearly identical to 2022 and the second lowest in over 15 years​. 

“2023 net written premium growth rate of 1 percent is expected to increase to 2 percent in 2024 and remain at that level of growth through 2026,” Kurtz said. “Favorable underwriting results are expected for our forecast horizon​, which in turn will dampen premium growth going forward.”

Donna Glenn, FCAS, MAAA, chief actuary at the National Council on Compensation Insurance (NCCI), said the workers comp system is in a period of extraordinary performance. 

“WC leads the P&C industry with the lowest combined ratio compared to all other lines of business,” Glenn said. 

Further highlighting the strong results, she said, 2023 is the tenth straight year of underwriting gains and seventh consecutive year with combined ratios under 90.

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

By Max Dorfman, Research Writer, Triple-I

Average U.S. homeowners insurance premiums have increased at a rate that has outpaced household income from 2001 to 2021, according to a new report by the Insurance Research Council (IRC). In 2021 – the latest year for which data is available – homeowners spent an average of 1.99 percent of their income on homeowners insurance, up from 1.54 percent in 2001.

Affordability varies widely from state to state, and affordability rankings have fluctuated over time. In 2021, Utah was the most affordable state and Florida was the least affordable. Kansas, New York, and Washington, D.C., have demonstrated improvements from 2015 to 2021, and California, Montana, and Wyoming saw the greatest deterioration during the same period. Florida and Louisiana have consistently been the least-affordable states in the nation.

The analysis by IRC – like Triple-I, an affiliate of The Institutes – looks at homeowners insurance affordability at national and state levels and examines underlying cost drivers by state. It does not address affordability for specific demographic or geographic risk profiles. The report found that frequency and severity of natural disasters, economic conditions, rising construction costs, and litigation all significantly contributed to rising homeowners insurance costs.

“An understanding of what drives the cost of insurance is essential for consumers navigating the current insurance market,” said Dale Porfilio, FCAS, MAAA, IRC president and chief insurance officer for Triple-I. “Efforts to promote homeowner awareness and adoption of protective measures, strengthen state and local building codes, and encourage community resilience programs can all improve insurance affordability.”

Learn More:

Louisiana Still Least Affordable State for Personal Auto, Homeowners Insurance

Homeowners Claims Costs Rose Faster Than Inflation for 2 Decades

As Building Costs Grow, Consider Your Homeowners Coverage

Triple-I/Milliman:
Severe Convective Storms Restrain P&C Growth

By Max Dorfman, Research Writer, Triple-I

Severe convective storm losses drove adverse results in 2023 underwriting profitability for the property/casualty industry, according to the latest projections by actuaries at the Triple-I and Milliman.  

The quarterly report, Insurance Economics and Underwriting Projections: A Forward View, which was presented on January 30, at a  members-only  webinar, found that the overall combined ratio is forecast to be 103.9, with commercial lines at 97.7, outperforming personal lines at 109.9. 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. 

Hard markets continue with 2023 net written premium growth forecast at 9.0 percent. 

Dale Porfilio, FCAS, MAAA, Chief Insurance Officer at Triple-I, discussed the overall P&C industry underwriting projections. 

 “The bad news is that the 2023 Q3 incurred loss ratio for homeowners, commercial auto, and commercial multi-peril exceeded our expectations, as 2023 Q3 incurred loss ratios were above historical averages.” Porfilio said.   

Porfilio elaborated on the industry’s bleak homeowners financial results, stating that, “For 2023, the net combined ratio is forecast at 112.3, the worst since 2011.”  

Porfilio added that the 2023 net written premium growth rate of 12.4 percent is the highest in over 10 years, reflecting rate increases to offset inflationary loss costs.  

“We expect personal auto and homeowners lines to improve in 2024 and 2025, but to remain unprofitable,” Porfilio added.    

Jason B. Kurtz, FCAS, MAAA, a Principal and Consulting Actuary at Milliman – a premier global consulting and actuarial firm – said commercial property and workers compensation continue to be profitable, while commercial multi-peril and commercial auto remain troubled. 

“Looking at commercial auto, underwriting losses continue, with a projected 2023 net combined ratio of 110.2, the highest since 2017,” said Kurtz. “For 2023 Q3, the incurred loss ratio was the highest in over 15 years, while the 2023 Net Written Premium growth rate of 6 percent is noticeably lower than the prior two years.” 

Turning to workers compensation, Kurtz noted that “the 2023 net combined ratio of 88.7 is in line with the five-year average of approximately 89. With anticipated net written premium growth of 2 percent per year from 2023 through 2025, growth will be modest, but the net combined ratio is expected to remain favorable for our forecast horizon.” 

Michel Léonard, Ph.D., CBE, Chief Economist and Data Scientist at Triple-I, discussed key macroeconomic trends impacting the property/casualty industry results including inflation, interest rates, and overall economic underlying growth. 

“Real (inflation-adjusted) gross domestic product in the third quarter of 2023 accelerated to 4.9 percent, but economists still expect year-over-year growth of 2.1 percent,” said Léonard, noting that for GDP, “revised Q3 numbers did not disappoint, but all eyes remain on Q4.”   

Léonard said inflation as measured by the consumer price index (CPI) continues to slow down to 3.1 percent as of November, but CPI, less food and energy prices, is still up 4.0 percent year over year.  

“Year-over-year, P&C underlying growth grew 1.3 percent in 2023 and is forecasted by Triple-I to grow 2.6 percent in 2024,” said Léonard. “This is below U.S. GDP growth in 2023 and slightly above U.S. GDP growth in 2024. Year-over-year P&C replacement costs increased by 1.1 percent in 2023 and are forecasted to increase by 2.0 percent in 2024.” 

Donna Glenn, FCAS, MAAA, Chief Actuary at the National Council on Compensation Insurance (NCCI), identified rate adequacy and medical inflation as two of the workers compensation line’s top concerns.  

“We’ve seen loss costs decline for 10 consecutive years,” Glenn said. She credits a “strong labor market and overall economy” resulting in “payroll increases outpacing loss cost declines.”  

Glenn added that the “NCCI continues to analyze the data with healthy skepticism to identify changes in trends.”  

Chubb Highlights Perils Keeping High-Net-Worth People Awake at Night

According to a recent Chubb survey of 800 high-net-worth individuals in the United States and Canada, 92 percent are concerned about the size of a verdict against them if they were a defendant in a liability case – yet only 36 percent have excess liability insurance.

When it comes to liability, Chubb says respondents are most worried about auto accidents, allegations of assault or harassment, and someone working in their home getting hurt. Damage awards are rising dramatically for a number of reasons, according to Laila Brabander, head of North American personal lines claims for Chubb.

“Economic damages historically were based on factors such as the extent of an injury and resultant medical expenses or past and future loss of income,” she said. “But we are seeing a rise in non-economic damages, such as pain and suffering and post-traumatic stress disorder, that overshadow actual economic losses.”

Brabander described a case in which a client at a yoga studio fell onto the person next to her and was sued by the injured party for pain and suffering.

“The same plaintiffs’ tactics to encourage large verdicts in commercial trucking, auto liability, product liability and medical malpractice suits are now being utilized to push for larger jury awards against our high-net-worth clients,” Brabander said.

Another factor driving up the cost of settlements is the third-party litigation funding, in which firms  provide funding to plaintiffs and their lawyers in exchange for a percentage of the settlement. These private-equity firms began in the commercial space and are now funding lawsuits against individuals and their insurers.

High-net-worth people also are deeply concerned about the threats posed to their homes by extreme weather and climate-related events. Much of this concern may be due to increased development in coastal areas vulnerable to tropical storms and flooding and in the wildland-urban interface – areas in which development places property into proximity with fire-prone wilderness (see links below).

Chubb’s findings are based on a survey of 800 wealthy individuals in the United States (650 respondents) and Canada (150 respondents). Respondents had investable assets of at least $500,000, with the majority reporting assets of $1.5 million to $50 million and 12 percent reporting assets of more than $50 million.

Learn More:

Triple-I Issues Brief – State of the Risk: Wildfire

Triple-I Issues Brief – State of the Risk: Hurricanes

What Is Third-Party Litigation Funding and How Does It Affect Insurance Pricing and Affordability?

Debt Ceiling Debate Adds Heat to P/C Insurers’ Replacement Cost Woes

Uncertainty spawned by the debt ceiling debate will likely exacerbate the replacement cost inflation that has been putting upward pressure on property/casualty insurers’ loss ratios – and, ultimately, consumers’ premium rates, according to Triple-I’s chief economist.

“Whether or not we go to five, 10, 20 days – or if we don’t have a shutdown at all – this signals to the market a dysfunction in terms of government operations,” said Dr. Michel Léonard, Triple-I chief economist and data scientist in an interview with Triple-I CEO Sean Kevelighan.  “That leads to higher interest rates…which fuels inflation and reduces growth.”

As material and labor costs rise, home and vehicle repairs become more expensive, pushing up insurers’ losses and putting upward pressure on premium rates. For a P/C industry already struggling with high replacement costs and trying to grow with the rest of the economy, Léonard said, “This [debt limit debate] adds to those challenges.”

Kevelighan – whose background includes having worked in the U.S. Treasury Department during the George W. Bush administration – called high replacement costs a “new normal.” 

“You have to look at year-over-three-years replacement costs, and they’re high,” Kevelighan said. “Personal homeowners replacement costs are up 55 percent. We’ve got personal auto replacement costs up 45 percent. And if inflation goes to a negative, we’re in an even worse place.”

Léonard pointed out that the federal government has shut down 21 times since 1976, with the shutdowns lasting as long as 35 days or as little as a few hours.  In the interview above, he explains how these have typically played out and what types of scenarios might lie ahead.

Learn More:

How Inflation Affects P/C Insurance Rates – and How it Doesn’t (Triple-I Issues Brief)

Commercial Lines Partly Offset Personal Lines Underwriting Losses in P/C 2022 Results (Triple-I Blog)

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

As Florida strives to address the issues that led to its current property/casualty insurance crisis, another hurricane-prone coastal state, Louisiana, is navigating its own insurance troubles.

The Louisiana property insurance market has been deteriorating since the state was hit by a record level of hurricane activity during the 2020/2021 seasons, Triple-I says in a new Issues Brief on the state’s insurance crisis. Twelve insurers that write homeowners coverage in Louisiana were declared insolvent between July 2021 and February 2023.

“While similarities exist between the situations in these two hurricane-prone states, the underlying causes of their insurance woes are different in important ways,” said Mark Friedlander, Triple-I’s director of corporate communications. “Florida’s problems are largely rooted in decades of litigation abuse and fraud, whereas Louisiana’s troubles have had more to do with insurers being undercapitalized and not having enough reinsurance to withstand the claims incurred during the record-setting hurricane seasons of 2020 and 2021.”

Insurers have paid out more than $23 billion in insured losses from over 800,000 claims filed from the two years of heavy hurricane activity. The largest property loss events were Hurricane Laura (2020) and Hurricane Ida (2021). The growing volume of losses also drove a dozen insurers to voluntarily withdraw from the market and more than 50 to stop writing new business in hurricane-prone parishes.

This is not to say legal system abuse is absent as a factor in the Louisiana’s crisis – quite the opposite, as highlighted by Insurance Commissioner Jim Donelon’s cease-and-desist order, issued in February, against a Houston-based law firm. According to Donelon, the firm filed more than 1,500 hurricane claim lawsuits in Louisiana over the span of three months last year.

“The size and scope of McClenny, Moseley & Associates’ illegal insurance scheme is like nothing I’ve seen before,” Donelon said. “It’s rare for the department to issue regulatory actions against entities we don’t regulate, but in this case, the order is necessary to protect policyholders from the firm’s fraudulent insurance activity.”

McClenny Moseley has since been suspended from practice in Louisiana’s Western District federal court over its work on Hurricane Laura insurance cases.

A regular on the American Tort Reform Foundation’s “Judicial Hellholes” list, Louisiana’s “onerous bad faith laws contribute significantly to inflated claims payments and awards,” according to a joint paper published by the American Property Casualty Insurance Association (APCIA), the Reinsurance Association of America (RAA), and the Association of Bermuda Insurers and Reinsurers (ABIR).

“Insurers who fail to pay claims or make a written offer to settle within 30 days of proof of loss may face penalties of up to 50 percent of the amount due, even for purely technical violations,” the paper notes. “To avoid incurring these massive penalties, which are meted out pursuant to highly subjective standards of conduct, insurers sometimes feel compelled to pay more than the actual value of claims as the lesser of two evils.”

As a result of these converging contributors, Louisiana Citizens Property Insurance Corp. – the state-run insurer of last resort – has grown from 35,000 to 128,000 policyholders over the past two years, according to the Louisiana Department of Insurance.

Learn More:

Louisiana Insurance Regulator Issues Cease & Desist Order to Texas Law Firm

Hurricanes Drive Louisiana Insured Losses, Insurer Insolvencies