Category Archives: Market Conditions

Insurers and the Economy, Legal Environment, Market Conditions, Regulation

U.S. Study of 3rd-party litigation funding cites market growth and scarce transparency

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At the end of 2022, the U.S. Government Accountability Office (GAO) released a report, Third-Party Litigation Financing: Market Characteristics, Data and Trends. Defining third-party litigation financing or funding (TPLF) as “an arrangement in which a funder who is not a party to the lawsuit agrees to help fund it,” the investigative arm of Congress looked at the global multibillion-dollar industry, which is raising concerns among insurers and some lawmakers.  

The GAO findings summarize emerging trends, challenges for market participants, and the regulatory landscape, primarily focusing on the years between 2017 and 2021. 

Why a regulatory lens on TPLF is important 

The agency conducted this research to study gaps in public information about the industry’s practices and examine transparency and disclosure concerns. Three Republican Congress members – Sen. Chuck Grassley (IA), Rep. Andy Barr (KY), and Rep. Darrell Issa (CA) — led the call for this undertaking.  

However, as GAO exists to serve the entire Congress, it is expected to be independent and nonpartisan in its work. While insurers, TPLF insiders, and other stakeholders, including Triple-I, have researched the industry (to the extent that research on such a secretive industry is possible), the legislative-based agency is well positioned to apply a regulatory perspective.  

Example of Third-Party Litigation Financing for Plaintiffs

The report methodology involved several components, many of which other researchers have applied, such as analysis of publicly available industry data, reviews of existing scholarship, legislation, and court rules. GAO probed further by convening a roundtable of 12 experts “selected to represent a mix of reviews and professional fields, among other factors,” and interviewing litigation funders and industry stakeholders. Nonetheless, like researchers before them, GAO faced a lack of public data on the industry.  

Third-party litigation funding practices differ between the consumer and the commercial markets. Comparatively smaller loan amounts are at play for consumer cases. The types of clients, use of funds, and financial arrangements can also vary, even within each market.  

While most published discussions of TPLF center on TPLF going to plaintiffs, as this appears from public data to be the norm, GAO findings indicate: 1) funders may finance defendants in certain scenarios and 2) lawyers may use TPLF to support their work for defense and plaintiff clients.

How the lack of transparency in TPLF can create risks 

Overall, TPLF is categorized as a non-recourse loan because if the funded party loses the lawsuit or does not receive a monetary settlement, the loan does not have to be repaid. If the financed party wins the case or receives a monetary settlement, the profit comes from a relatively high interest payment or some agreed value above the original loan. Thus, the financial strategy boils down to someone gambling on the outcome of a claim or lawsuit with the expressed intention of making a hefty profit.  

In some deals, these returns can soar as high as 220%–depending on the financial arrangements–with most reporting placing the average rates at 25-30 percent (versus average S&P 500 return since 1957 of 10.15 percent). The New Times documented that the TPLF industry is reaping as much as 33 percent from some of the most vulnerable in society, wrongly imprisoned people.

Usually, this speculative investor has no relationship to the civil litigation and, therefore, would not otherwise be involved with the case. However, the court and the opposing party of the lawsuit are typically unaware of the investment or even the existence of such an arrangement. On the other hand, as the GAO report affirms, knowledge about the defendant’s insurance may be one of the primary reasons third-party financers decide to invest in the lawsuit. This imbalance in communication and the overall lack of transparency spark worries for TPLF critics. GAO gathered information that highlighted some potential concerns. 

Funded claimants may hold out for larger settlements simply because the funders’ fee (usually the loan repayment, plus high interest) erodes the claimant’s share of the settlement. Attorneys receiving TPLF may be more willing to draw out litigation further than they would have – perhaps in dedication to a weak cause or a desire to try out novel legal tactics – if they had to carry their own expenses.  

Regardless, typically neither the court, the defendant, nor the defendant’s insurer would be aware of the factors behind such costly delays, so they would be unable to respond proactively. However, insurance consumers would ultimately pay the price via higher rates or no access to affordable insurance if an insurer leaves the local market. 

As the report acknowledges, a lack of transparency can lead to other issues, too. If the court does not know about a TPLF arrangement, potential conflicts of interest cannot be flagged and monitored. Some critics calling for transparency have cited potential national security risks, such as the possibility of funders backed by foreign governments using the funding relationship to strategically impact litigation outcomes or co-opting the discovery process for access to intellectual property information that would otherwise be best kept away from their eyes for national security reasons. 

Calls for TPLF Legislation 

GAO findings from its comparative review of international markets reveal that the industry operates globally, essentially without much regulation. The report points out that while TPLF is not specifically regulated under U.S. federal law, some aspects of the industry and funder operations may fall under the purview of the SEC, particularly if funders have registered securities on a national securities exchange. Some states have passed laws regulating interest charged to consumers, and, in rarer instances, requiring a level of TPLF disclosure in prescribed circumstances.  

Active, visible calls from elected officials for regulatory actions toward transparency come mostly from Republicans, but, nonetheless, from various levels of government. Sen. Grassley and Rep. Issa have tried to introduce legislation, The Litigation Funding Transparency Act of 2021, requiring mandatory disclosure of funding agreements in federal class action lawsuits and in federal multidistrict litigation proceedings. In December of 2022, Georgia Attorney General Chris Carr spearheaded a coalition of 14 state attorney generals that issued a written call to action to the Department of Justice and Attorney General Merrick Garland.  

“By funding lawsuits that target specific sectors or businesses, foreign adversaries could weaponize our courts to effectively undermine our nation’s interests,” Carr said. 

Triple-I continues to research social inflation, and we study TPLF as a potential driver of insurance costs. To learn more about third-party litigation funding and its implication for access to affordable insurance, read Triple-I’s white paper, What is third-party litigation funding and how does it affect insurance pricing and affordability? 

Auto Insurance, Legal Environment, Market Conditions

IRC Outlines Florida’sAuto Insurance Affordability Problems

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Florida is one of the least affordable states for personal auto insurance, according to a new study by the Insurance Research Council (IRC). Claims trends are pushing premium rates up nationwide, and Florida is being hit particularly hard.

In 2020, the average expenditure for auto insurance was $1,342 in Florida, more than 30 percent higher than the national average, the IRC report says, citing data from the National Association of Insurance Commissioners (NAIC). In terms of affordability, IRC says, auto insurance expenditures were 2.39 percent of the median household income for the state. Only Louisiana was less affordable.

“Efforts to improve auto insurance affordability must begin with the underlying cost drivers,” the IRC report says. In nearly every of these categories, Florida costs are well above the national average:

Accident frequency: The number of property damage liability claims per 100 insured vehicles in Florida is 10 percent above the national average.

Repair costs: For years, the average cost of a property damage claim in Florida was below the national average. However, evidence suggests repair costs are increasing faster in Florida than elsewhere.

Injury claim relative frequency: Floridians show a greater propensity to file injury claims once an accident occurs, with a relative claim frequency 40 percent higher than the national average. Florida is the only no-fault state with an above-average ratio of bodily injury to property damage claim frequency.

Injury claim severity: The median amount paid per claim for auto injury insurance claims for all injury coverages combined is much higher in Florida.

Medical utilization: Florida auto claimants are more likely than those in other states to receive diagnostic procedures, such as magnetic resonance imaging (MRI).

Attorney involvement: Florida claimants are more likely to hire attorneys. Attorney involvement has been associated with higher claim costs and delays in settlement time.

Fraud and buildup: The percentage of all auto injury claims with the appearance of claim fraud and/or buildup is evidence of Florida’s culture of fraud.

Uninsured motorists: Florida has one of the highest rates of uninsured motorists, both a symptom and a cause of affordability challenges.

Litigation climate: According to a survey of business leaders, Florida’s legal environment ranks near the bottom of state liability systems in terms of fairness and reasonableness.

“Unique features in Florida’s insurance system and a long‐standing culture of claim and legal system abuse have allowed some medical and legal professionals to generate substantial income for themselves at a significant cost to Florida drivers,” said Dale Porfilio, IRC president and Triple-I chief insurance officer. Triple-I and IRC are both affiliated with The Institutes.

Policymakers in the Sunshine State enacted substantial property insurance reform in late 2022 to address the affordability and availability crisis in homeowners’ insurance and pledged to tackle similar issues in other lines of insurance to ease the financial burden that paying for auto insurance represents for Florida drivers.

Bills being addressed by the state’s Senate and House focus on significant tort reform to stop lawsuit abuse, including the elimination of one-way attorney fees for litigated auto claims and abolition of assignment of benefits for auto insurance claims — a generator of fraud and litigation. One-way attorney fees allow drivers who successfully sue their insurer to recoup attorney fees – but not the other way around.

Learn More:

Florida Insurance Crisis Reforms Gain Momentum With Latest Proposal

Florida Auto Legislation, on Heels of 2022 Reforms, Suggests State Is Serious About Insurance Crisis Fix

Florida and Legal System Abuse Highlighted at JIF 2022

Fraud, Litigation Push Florida Insurance Market to Brink of Collapse

Why Personal Auto Insurance Rates Are Likely to Keep Rising

Florida’s AOB Crisis: A Social-Inflation Microcosm

Triple-I Issues Briefs:

Florida’s Homeowners Insurance Crisis

Addressing Florida’s Property/Casualty Insurance Crisis

Personal Auto Insurance Rates

Risk-Based Pricing of Insurance

Business Insurance, Business Risk, Legal Environment, Market Conditions, Workers Compensation

Group Captives Offer Cost-Sensitive Companies Opportunities to Savein Face of Inflation

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By Max Dorfman, Research Writer, Triple-I

Today’s inflationary conditions may increase interest for group captives – insurance companies owned by the organizations they insure – according to a new Triple-I Executive Brief.

Group captives recruit safety-conscious companies with better-than-average loss experience, with each member’s premium based on its own most recent five-year loss history. Additionally, the increased focus on pre-loss risk management and post-loss claims management can drive members’ premiums down even further by the second and third year of membership.

“Each owner makes a modest initial capital contribution,” states the paper, Group Captives: An Opportunity to Lower Cost of Risk. “The lines of coverage written typically are those with more predictable losses, such as workers compensation, general liability, and automobile liability and physical damage.”

With these benefits, the group captive model can help to control spiraling litigation costs. This is particularly important as attorney involvement in commercial auto claims – notably in the trucking industry – drives expensive litigation and settlement delays that inflate companies’ expenses.

Indeed, a 2020 report from the American Transportation Research Institute found that average verdicts in the U.S. trucking industry grew from approximately $2.3 million to almost $22.3 million between 2010 and 2018 – a 967 percent increase, with the potential for even higher verdicts looming.

Group captives can improve control over these costs through careful claims monitoring and review, often through providing additional layers of support that improves claims adjusting effectiveness and efficiency.

“Given that members’ premiums are derived from their own loss history, this is yet another way that they are able to lower their premiums, proactively managing and controlling the losses that do occur,” the Triple-I report mentions. “Group captives can provide a viable way to protect companies across several lines of casualty insurance. Their prominence is likely to grow as economic and litigation trends continue to increase costs.”

Most companies that join group captives are safety-conscious, despite often being entrepreneurial risk takers. “While they embrace the risk-reward trade-off, they’re not gamblers,” said Sandra Springer, SVP of Marketing for Captive Resources (CRI), a leading consultant to member-owned group captive insurance companies. 

“They are successful, financially stable, well-run companies that have confidence in their own abilities and dedication to controlling and managing risk,” Springer added. “They believe they will outperform actuarial projections, and a large percentage of them do.”

Learn More:

Backgrounder: Captives and Other Risk-Financing Options

Firm Foundation:  Captives by State

White Paper: A Comprehensive Evaluation of the Member-Owned Group Captive Option

Video: Executive Exchange: Triple-I and Captive Resources

From the Triple-I Blog:

Latest Research on Social Inflation in Commercial Auto Liability Reveals a $30 Billion Increase in Claims

How Inflation Affects P&C Rates and How It Doesn’t

Inflation Trends Shine Some Light for P&C, But Underwriting Profits Still Elude Most Lines

Monetary Policy Drives Economic Prospects; Geopolitics Limits Inflation Improvement

Homeowners Insurance, Industry Financials, Market Conditions

Fla. P&C Crisis Worsens As Hurricane Season Begins

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Already this year, three Florida insurers have been declared insolvent due to their failure to obtain full reinsurance as the 2022 hurricane season bears down.

“We have the potential of a massive failure of Florida insurers, probably the worst on record,” says Triple-I communications director Mark Friedlander. According to Friedlander, the $2 billion reinsurance fund created in legislation Gov. Ron DeSantis signed into law at the end of May isn’t nearly enough, and private reinsurers are pulling back from the market because of its high level of property claims and litigation.

“It needed to be at least double the amount of the funds that were allocated for reinsurance coverage for hurricane season and open to other perils as well,” Friedlander said.

Most recently, insurance rating agency Demotech announced that it had withdrawn its financial stability rating for Southern Fidelity Insurance Company after the insurer placed a moratorium on writing new business and processing renewals in Florida until it secured enough reinsurance for hurricane season. When the Tallahassee, Fla.-based insurer failed to do so by the June 1 start of the season, the OIR ordered it to “wind down operations,” indicating the company could become the fourth Florida residential insurer to fail this year, following the liquidations of St. Johns, Avatar, and Lighthouse.

Auto Insurance, Business Insurance, Catastrophes, Disaster Preparedness, Disaster Resilience, ESG, Health & Safety, Homeowners Insurance, Insurers and the Economy, Market Conditions, Risk Management

Report: Policyholders See Climate as a ‘Primary Concern’

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By Max Dorfman, Research Writer, Triple-I (06/08/2022)

Nearly three-quarters of property and casualty policyholders consider climate change a “primary concern,” and more than 80 percent of individual and small-commercial clients say they’ve taken at least one key sustainability action in the past year, according to a report by Capgemini, a technology services and consulting company, and EFMA, a global nonprofit established by banks and insurers.

Still, the report found not enough action is being taken to combat these issues, with a mere 8 percent of insurers surveyed considered “resilience champions,” which the report defined as possessing “strong governance, advanced data analysis capabilities, a strong focus on risk prevention, and promote resilience through their underwriting and investment strategies.”

The report emphasizes the economic losses associated with climate, which it says have grown by 250 percent in the last 30 years. With this in mind, 73 percent of policyholders said they consider climate change one of their primary concerns, compared with 40 percent of insurers.

The report recommended three policies that could assist in creating climate resiliency among insurers:

  • Making climate resilience part of corporate sustainability, with C-suite executives assigned clear roles for accountability;
  • Closing the gap between long-term and short-term goals across a company’s value chain; and
  • Redesigning technology strategies with product innovation, customer experience, and corporate citizenship, utilizing advancements like machine learning and quantum computing

“The impact of climate change is forcing insurers to step up and play a greater role in mitigating risks,” said Seth Rachlin, global insurance industry leader for Capgemini. “Insurers who prioritize focus on sustainability will be making smart long-term business decisions that will positively impact their future relevance and growth. The key is to match innovative risk transfers with risk prevention and assign accountability within an executive team to ensure goals are top of mind.”

A global problem

Recent floods in South Africa, scorching heat in India and Pakistan, and increasingly dangerous hurricanes in the United States all exemplify the dangers of changing climate patterns. As Efma CEO John Berry said, “While most insurers acknowledge climate change’s impact, there is more to be done in terms of demonstrative actions to develop climate resiliency strategies. As customers continue to pay closer attention to the impact of climate change on their lives, insurers need to highlight their own commitment by evolving their offerings to both recognize the fundamental role sustainability plays in our industry and to stay competitive in an ever-changing market.”

Data is key

The report says embedding climate strategies into their operating and business models is essential for “future-focused insurers,” but it adds that that requires “fundamental changes, such as revising data strategy, focusing on risk prevention, and moving beyond exclusions in underwriting and investments.”

The report finds that only 35 percent of insurers have adopted advanced data analysis tools, such as machine-learning-based pricing and risk models, which it called “critical to unlocking new data potential and enabling more accurate risk assessments.”

Industry Financials, Insurers and the Economy, Market Conditions

Triple-I/Milliman SeeP&C Loss Pressures Continuing

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Triple-I/Milliman See Loss Pressures in P&C Industry Continuing

By Max Dorfman, Research Writer, Triple-I

The latest insurance underwriting projections for property/casualty lines by actuaries at the Triple-I and Milliman – an independent risk-management, benefits, and technology firm – reveal that the industry saw the 2021 combined ratio worsen by 0.8 points from 2020, driven by deterioration in the personal auto and workers compensation lines. The report, Insurance Information Institute (Triple-I) /Milliman Insurance Economics and Underwriting Projections: A Forward View, presented at a members-only event on May 12, also found that homeowners, commercial auto, commercial multi-peril, and general liability all experienced significant improvement year-over-year.

Michel Léonard, PhD, CBE, Chief Economist and Data Scientist, and head of Triple-I’s Economics and Analytics Department, discussed key macroeconomic trends impacting the property/casualty industry results. He noted that the U.S. P&C insurance industry’s performance continues to be constrained by historically high inflation, which affects replacement costs.

“The insurance industry’s performance continues to be severely constrained by macroeconomic fundamentals,” he said “The average replacement costs for P&C lines is 16.3 percent, nearly twice the U.S. average CPI of 8.5 percent.”

Léonard noted that while the Federal Reserve forecasts U.S. inflation slowing to 4.3 percent by yearend, “Triple-I expects the transition to take longer.”

Dale Porfilio, FCAS, MAAA, Chief Insurance Officer at Triple-I, noted that 2021 had the worst full-year catastrophe losses since 2017, though Q4 actuals were materially lower than prior expectation. Kentucky tornadoes and Colorado wildfires in December were part of these losses, with homeowners suffering over 60 percent of the insured losses. Hurricane Ida was the worst single event, although multiple other billion-dollar events also contributed to the 2021 insured catastrophe losses.

“Healthy premium growth observed in 2021 is likely to continue through 2024 due to the hard market,” Porfilio said, adding, “Net expense ratio at 27.0 points was the lowest in more than a decade due to premiums growing at a faster rate than expenses.”

For the P&C industry as a whole, he said to expect loss pressures to continue due to inflation and supply chain disruption.

On the commercial side, Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman, said  the commercial multi-peril 2021 combined ratio improved 3.6 points from 2020, primarily due to strong net earned premium growth, which stood at 6.3 percent year over year, from the economic recovery and a hard market.

“Despite the improvement relative to 2020, the CMP line still experienced an underwriting loss in 2021, and we expect underwriting results in 2022-2024 will continue to be adversely impacted by inflation and CAT loss pressures,” he said.

Workers compensation had another very profitable year, Kurtz said, with the 2021 combined ratio coming in at 91.8 percent, although margins shrank in 2021 and are expected to continue to shrink through 2024.

“The workers comp line has experienced seven straight years of underwriting profitability, a remarkable turn-around after eight straight years of underwriting losses,” Kurtz said.  “Not surprisingly, rate increases have been hard to come by. Coupled with low unemployment, these forces will constrain premium growth for the foreseeable future.”   

For commercial auto, the 2021 combined ratio improved by 3.0 points from 2020 due to lower adverse development and a two point reduction in expense ratio, according to Dave Moore, FCAS, MAAA of Moore Actuarial Consulting.

“The 2021 combined ratio dipped below 100 percent for the first time since 2010 and we’ve had the lowest expense ratio in more than a decade,” he said. “Watch for social inflation loss pressure and prior year adverse loss development in 2022-2024.”

According to projections, both personal auto and homeowners lines produced underwriting losses in 2021. Prices need to reflect the underlying risk, particularly because the economic risk is quickly escalating.

Porfilio said the 2021 combined ratio for personal auto jumped up to 101.4, the worst since 2017 and 8.9 points worse than 2020.

“While miles driven are largely back to 2019 levels, riskier driving behaviors have led to increased insured losses and fatality rates,” he said.

Overall, the loss pressures from inflation, supply-chain disruption, risky driving behavior, and increasing catastrophe losses are leading to the need for rate increases to restore both homeowners and personal auto lines to an underwriting profit, which is projected to take at least two more calendar years.

Auto Insurance, Market Conditions

Why Personal Auto Insurance RatesAre Likely to Keep Rising

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Personal auto insurance premium rates have returned to pre-pandemic levels, but several trends are likely to sustain upward pressure on rates, according to a new Triple-I Issues Brief.

At the start of the pandemic, auto insurers – anticipating fewer accidents amid the economic lockdown – gave back approximately $14 billion to policyholders in the form of cash refunds and account credits. But while miles driven declined and accident frequency initially dropped, frequency and severity quickly started increasing again. Traffic fatalities also increased, after decades of steady declines.

While insurers’ personal auto loss ratios fell briefly and sharply in 2020, they have since climbed steadily to exceed pre-pandemic levels. With more drivers on the road and replacement parts climbing, this loss trend is expected to continue.

Auto premium rates reflect a range of factors that contribute to an insurer’s loss experience. In a world of perfect information, rate changes would correlate perfectly with changes in loss experience. As the chart below shows, until the pandemic these two metrics for the overall industry tracked quite closely. The disruptions of 2020 led to volatility for both, and losses have proved more volatile than pricing.

Barely profitable

To remain viable, insurers have to set premiums at levels appropriate to the risks they cover. Insurers’ underwriting profitability is measured by a “combined ratio”, which is calculated by dividing the sum of claim-related losses and all expenses by earned premium. A combined ratio under 100 percent indicates a profit. A ratio above 100 percent indicates a loss.

As the chart above shows, personal auto insurance has been a barely profitable line for the industry for years. If recent accident and replacement-cost trends persist, upward pressure on premium rates is likely to continue.  

Learn More

Facts + Statistics: Auto insurance

Why Did My Auto Insurance Costs Go Up Even When I Didn’t File a Claim?

Triple-I Offers U.S. Insights into Auto Insurer Pricing Factors

Industry Financials, Insurers and the Economy, Market Conditions, Webinars

P/C Insurers’ Profits Still Under Pressure

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The profitability of the U.S. property/casualty insurance industry is expected to remain under pressure, according to the latest underwriting projections released by Triple-I and Milliman actuaries. Speaking at a members only webinar yesterday, the actuaries said this is due to continued deterioration in personal lines.

The sector’s combined ratio – the most commonly used measure of underwriting profitability – is seen running at an estimated 101.3 combined ratio for 2021. A combined ratio under 100 percent indicates an underwriting profit, and one above 100 percent indicates a loss.

Dr. Michel Léonard, vice president, senior economist, and head of Triple-I’s Economics and Analytics Department, said the industry’s performance continues to be “significantly constrained” by higher-than-average inflation and lower underlying growth.

Dale Porfilio, Triple-I chief insurance officer, noted that the insurance industry had the worst full-year catastrophe losses since 2017 with the Texas freeze, Hurricane Ida, wildfires and tornadoes.

“Healthy premium growth in 2022 and 2023 is possible from an economic recovery and a hard market,” he said, noting however, that uncertainty from COVID-19 continues to put pressure on rates and profitability.  “Inflation, supply chain, and riskier insured behavior are also contributing to loss pressures.”

On the personal auto side, Porfilio said the 2021 estimated combined ratio has increased to 99.9 due to deteriorating non-catastrophe loss trends combined with excess catastrophe losses.

“Loss pressures forecast for 2022 and 2023 will likely result in profitability similar to pre-pandemic levels,” he said.  “Miles driven are back to 2019 levels, but with riskier driving behaviors such as speeding and impaired driving.”  

On the commercial auto side, underwriting losses are forecast to continue through 2023, but improve year-over-year said Dave Moore, president and consulting actuary at Moore Actuarial Consulting.

“We continue to observe a significant rebound in premium growth due to the economic recovery and the hard market,” Moore said. He cited a recent paper published by Triple-I, funded by a research grant from the Casualty Actuarial Society (CAS), that quantifies the impact of “social inflation” on commercial auto liability claims.

“Based on this research, we estimate that social inflation increased commercial auto liability claims by more than $20 billion between 2010 and 2019,” Moore said. “This can be influenced by a variety of factors, including negative public sentiment about larger corporations, litigation funding, and tort reform rollbacks.”

Jason B. Kurtz, a principal and consulting actuary at Milliman, said general liability underwriting losses are expected to continue, but profitability should improve due to rate increases.  Looking at the workers compensation line, Kurtz noted that underwriting profits continue, although margins continue to shrink.

“The pandemic recession, remote work, and economic recovery are still impacting volume and location of workers comp risk,” he said. “Claim frequency remains below pre-pandemic levels and if the trend of large reserve releases on prior accident years continues, 2021 is likely to be another profitable year.” 

Learn More:

What’s Happening With Auto Insurance Premiums

Trends and Insights: Drivers of Homeowners’ Insurance Rate Increases

Social Inflation and Loss Development

Catastrophes, Homeowners Insurance, Market Conditions

Triple-I Brief Explains Rising Homeowners’ Insurance Premium Rates

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Homeowners’ insurance premium rates have risen significantly since the pandemic and are likely to keep increasing. It’s important for consumers and policymakers to understand why this is happening and why it’s likely to continue, so Triple-I has published an Issues Brief on the topic.

From 2017 through 2021, premium rates are up 12.2 percent on average nationwide, according to S&P Global Market Intelligence data. Much of this can be attributed to pandemic-related supply-chain issues and labor shortages driving up the cost of home repairs and replacement.

But, as the Issues Brief shows, longer-term trends are in play – most significantly, more than 40 years of rising natural catastrophe losses. Average insured cat losses are up approximately 700 percent since the 1980s, due in part to increased frequency and intensity of events and to population shifts into disaster-prone regions. The brief cites U.S. Census Bureau data showing that the number of housing units in the United States has increased most dramatically since 1940 in areas most vulnerable to weather and climate-related damage.

It also shows that homeowners’ insurance premium rates have generally trailed increases in home replacement costs.  As a result, homeowners’ coverage has been an unprofitable business line for insurers in recent years – an unsustainable long-term trend that has been exacerbated by the pandemic’s disruption of the supply chain and the global economy.

Learn More

Flood: Beyond Risk Transfer

Hurricane Season: More Than Just Wind and Water

Fighting Wildfires With Innovation

Facts + Statistics: Homeowners’ and Renters’ Insurance

For even more resources, check out Triple-I’s Resilience Accelerator.

Disaster Resilience, ESG, Market Conditions, Risk Management

JIF C-Suite Panel: Finding Opportunity Amid Evolving Risks

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Credit for all photos in this post: Don Pollard

Insurers – beyond their traditional role as financial first responders – are helping policyholders mitigate the risks posed by natural disasters and cyber threats, panelists at a Joint Industry Forum (JIF) panel said.

The JIF’s C-Suite on Resilience panel was moderated by John Huff, president and CEO of the Association of Bermuda Insurers and Reinsurers (ABIR). It included Richard Creedon, CEO, Utica Mutual Insurance Company; Paul Horgan, Head of U.S. National Accounts, Zurich North America; John Smith, CEO, Pennsylvania Lumbermens Mutual Insurance Company; and Rohit Verma, CEO, Crawford & Co.

“2021 has been a year of risk that has certainly challenged us,” ABIR’s Huff said. “Eighteen events in the U.S. alone, with over a billion dollars an event. Just a few years ago, those types of numbers would be unheard of, not to mention the 538 deaths and significant economic losses.”

Hurricane Ida, a Category 4 storm that made landfall in Louisiana in August, and the Dixie Fire, which burned 1 million acres in California over four months, were two of the most devastating national disasters this year.

“One recurring theme that we can talk about, especially with hurricanes and wildfires, is that we have growth in population in areas that are significantly impacted by these threats,” said Phil Klotzbach, PhD, a research scientist at Colorado State University’s Department of Atmospheric Science, and a Triple-I non-resident scholar, in introductory remarks.

Huff started the discussion by noting that the notion of resilience seems to have evolved from preparedness to meet and rebound from large, single events like hurricane, earthquake, or wildfire.

“It seems we may have entered a new period for leadership to think of resilience more broadly,” he said. “I’m thinking of the interconnectedness of businesses, individuals, and communities through technology and global commerce; the supply-chain and labor-force disruptions we’ve experienced due to the pandemic; cyber risks, which is such a growing market for our industry but also a growing risk for our global economy. Have risk and resilience fundamentally changed in recent years? Or are we just having to adjust to viewing them through a new lens?”

“There’s certainly a lot more to think about,” said Utica Mutual’s Creedon. “The opportunity moment for us is that there’s market need and expertise we have to expand beyond the traditional risk-transfer product.”

He noted that the industry has historically thought about risk and resilience “in balance-sheet terms, we’re building up large reservoirs of capital and surplus for that large capital- and surplus-draining event that’s going to happen. But nowadays capital is fairly cheap and abundant – it’s almost a renewable resource – and that kind of makes the risk-transfer product more commoditized and sort of a race to the bottom on pricing and product.”

The opportunity lies in insurers’ ability to augment their traditional capabilities with risk management, loss control, and other services to have an impact for consumers, he noted.

“It’s not, in my mind, a fundamental shift in what we define as risk,” said Pennsylvania Lumbermens’ Smith. “It’s that there are so many coming at us. As I think about risk, I do a lot of listening.  That’s why I’m here today, why I’m part of [Triple-I] I want to hear different perspectives.”

Zurich’s Horgan drew a contrast between U.S. insurers and their European counterparts, which, he said, “have been focused on climate change for a much longer time. Zurich has been monitoring its environmental footprint since 2007, has been net neutral since 2014, has signed on to U.N. agreements. These are things that have been hotly debated in the U.S., but they’re buying in.”

 “Our customers are craving for insights,” Horgan continued. “These are evolving risks. Some of them are insurable, some of them are not.  [Our customers] are looking to us for data. They know where they’ve got to be, and they know they have this journey to get there.”

 “I think about resilience as being able to recover from adversity, able to recover from a loss, or prevent that loss from having any impact on you,” Crawford’s Verma said.  “It’s impressive to see what the industry has done. Where there’s a gap is, if the industry was a playing field, everyone is playing like a quarterback, and if everyone is playing like a quarterback you can’t win.”

 Verma said his concern is whether the industry is coming together as a team to “rethink the ecosystem of insurance – the brokers, the claims providers, the carriers” to have a meaningful impact on resilience.