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Insurance Industry

New IRC Report:
Personal Auto Insurance
State Regulation Systems

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By William Nibbelin, Senior Research Actuary, Triple-I 

According to a new study by the Insurance Research Council (IRC), the rate filing process for personal auto insurance has become more inefficient and ineffective, taking longer to achieve rate approval with higher occurrence of approved rate impact lower than filed rate impact and a larger disparity between the rate impact approved and the rate impact filed.

The report, Rate Regulation in Personal Auto Insurance: A Comparison of State Systems, analyzes Personal Auto Insurance industry data from 2010 through 2023 across all states and the District of Columbia. Key findings:

  • There were approximately 10,200 rate filings each year without much variance during the period.
  • The average number of days to approval grew from 39 to 54 days.
  • The number of filings withdrawn increased from 1,900 to 3,200.
  • The percentage of filings receiving less rate impact than requested grew 10 points.
  • The disparity in approved rate impact grew by more than 2 points.
  • Market concentration (as measured by the Herfindahl-Hirschman Index, or HHI) increased by 9 percent.
  • A strong-to-moderate correlation exists between net underwriting losses and premium shortfalls within states and across time.
  • Filing process measures and market outcomes vary by regulatory systems.

During this same period from 2010 through 2023, the personal auto insurance industry experienced a direct combined ratio over 100 in 11 of the 14 years. Combined ratio is a key measure of underwriting profitability for insurance carriers, calculated as losses and expenses divided by earned premium plus operating expenses divided by written premium. A combined ratio over 100 represents an underwriting loss. The report includes the determination of a strong correlation between underwriting loss and premium shortfalls, defined as the potential dollar difference between the effective filed rate impact and approved rate impact.

Overview of Rate Regulation

Insurance is regulated by the states. This system of regulation stems from the McCarran-Ferguson Act of 1945, which describes state regulation and taxation of the industry as being in “the public interest” and clearly gives it preeminence over federal law.

While the regulatory processes in each state vary, three principles guide every state’s rate regulation system (Regulation | III): that rates be adequate (to maintain insurance company solvency) but not excessive (not so high as to lead to exorbitant profits) nor unfairly discriminatory (price differences must reflect expected claim and expense differences).

According to the NAIC (NAIC Auto Insurance Database Report, p. 193), the primary regulatory approaches include:

  • Prior Approval System: Insurance companies must file their rates and get approval from the state insurance department before using them.
  • Flex Rating: States allow insurers to change rates within a pre-established range (often a percentage increase or decrease) without needing approval. Larger changes, however, require prior approval.
  • File-and-Use System: Insurers can file rates with the state and begin using them immediately or after a set period. The rates can still be reviewed by regulators, but they do not require prior approval.
  • Use-and-File System: Insurers can implement new rates without prior approval but must file them with the state within a certain period after they start being used. Regulators can review and potentially disapprove them later.
  • No Filing: In some states, insurers do not have to file rates for certain lines of insurance. The idea is that competition among insurers will keep rates in check. However, regulators still have authority to intervene if rates are deemed unreasonable.

Regulatory Systems

IRC used National Association of Insurance Commissioners (NAIC) definitions to segment states into four regulatory systems: Prior Approval, File and Use, Use and File (including No Filing states), and an additional segment, Rate Cap, for Flex Rating states and any state with an explicit rate impact cap on rate filings per state regulations.

The report then highlights key findings and other market outcomes across these four regulatory environment systems. For example, the study determined underwriting profitability in personal auto insurance was weakest in Rate Cap states across the period from 2010 through 2023 with the highest average direct combined ratio of any regulatory environment system in 2023. Prior Approval states had the second highest.

Below are some of the results of this study for California personal auto, which performs worse on several key rate filing process measures.

California

California has an explicit rate cap of 7 percent (California Insurance Code Article 161.05) and is therefore classified as a Rate Cap regulatory environment system in the IRC study. California only rivals Colorado for the highest average number of days to approval over the past seven years and has the highest average number of days to approval for 2023 at 246 compared to the next highest, Colorado, at 167.

California also has the highest average withdrawn rate across all states at 14.1 percent from 2010 to 2023. From 2010 to 2023, California achieved a Direct Combined Ratio under 100 four times, and the most recent three-year direct combined ratio is 110.4, compared to the countrywide 106.4. The residual market has grown in California from 0.01 percent in 2010 to 0.09 percent in 2021 which is higher than the countrywide average of 0.07 percent.

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

Disaster Preparedness, Disaster Resilience, Flood Insurance, Floods

Triple-I Brief Highlights Rising Inland Flood Risk

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The devastation wrought by Hurricane Helene in September 2024 across a 500-mile swath of the U.S. Southeast highlighted the growing vulnerability of inland areas to flooding from both tropical storms and severe convective storms, according to the latest Triple-I “State of the Risk” Issues Brief.

These events also highlight the scale of the flood-protection gap in non-coastal areas. Private insurers are stepping up to help close that gap, but increased homeowner awareness and investment in flood resilience across all co-beneficiary groups will be needed as more and more people move into harm’s way.

Helene dumped 40 trillion gallons of water across Florida, Georgia, the Carolinas, Virginia, and Tennessee, causing hundreds of deaths and billions in insured losses. Much of the loss was concentrated in western North Carolina, with parts of Buncombe County – home to Asheville and its historic arts district – left virtually unrecognizable. Less than 1 percent of residents in Buncombe County had federal flood insurance when Helene struck.

The experience of these states far inland echoed those of New York, New Jersey, and Pennsylvania in August 2021, when remnants of Hurricane Ida brought rains that flooded subways and basement apartments, with more than 40 people killed in those states.

“The whole swath going up the East Coast” that Hurricane Ida struck in the days after it made landfall “had less than 5 percent flood insurance coverage,” said Triple-I CEO Sean Kevelighan at the time. 

Then, in July 2023, a series of intense thunderstorms resulted in heavy rainfall, deadly flash floods, and severe river flooding in eastern Kentucky and central Appalachia. Flooding led to 39 fatalities and federal disaster-area declarations for 13 eastern Kentucky counties. According to the Federal Emergency Management Agency (FEMA), only a few dozen federal flood insurance policies were in effect in the affected areas before the storm. 

Low inland take-up rates largely reflect consumer misunderstandings about flood insurance. Though approximately 90 percent of all U.S. natural disasters involve flooding, many homeowners are unaware that a standard homeowners policy doesn’t cover flood damage. Similarly, many believe flood coverage is unnecessary unless their mortgage lenders require it. It also is not uncommon for homeowners to drop flood insurance coverage once their mortgage is paid off to save money.

Private insurers stepping up

More than half of all homeowners with flood insurance are covered by NFIP, which is part of FEMA and was created in 1968 – a time when few private insurers were willing to write flood coverage. In recent years, however, insurers have grown more comfortable taking on flood risk, thanks in large part to improved data and analytics capabilities.

The private flood market has changed since 2016, when only 12.6 percent of coverage was written by 16 insurers. In 2019, federal regulators allowed mortgage lenders to accept private flood insurance if the policies abided by regulatory definitions. The already-growing private appetite for flood risk gained steam after that. Private insurers are gradually accounting for a bigger piece of a growing flood risk pie.

Insurance necessary – but not sufficient

Insurance can play a major role in closing the protection gap, but, with increasing numbers of people moving into harm’s way and storms behaving more unpredictably, the current state of affairs is not sustainable. Greater investment in mitigation and resilience is essential to reducing the personal and financial losses associated with flooding.

Such investment has paid off in Florida, where the communities of Babcock Ranch and Hunters Point survived Hurricanes Helene and Milton relatively unscathed. Babcock Rance made headlines for sheltering thousands of evacuees from neighboring communities and never losing power during Milton, which devastated numerous neighboring cities and left more than three million people without power.

Both of these communities were designed and built in recent years with sustainability and resilience in mind.

Incentives and public-private partnership will be critical to reducing perils and improving insurability in vulnerable locations. Recent research on the impact of removing development incentives from coastal areas can improve flood loss experience in the areas directly affected by the removal of such incentives, as well as neighboring areas where development subsidies remain in place.

Learn More:

Executive Exchange: Using Advanced Tools to Drill Into Flood Risk

Accurately Writing Flood Coverage Hinges on Diverse Data Sources

Lee County, Fla., Towns Could Lose NFIP Flood Insurance Discounts

Miami-Dade, Fla., Sees Flood-Insurance Rate Cuts, Thanks to Resilience Investment

Milwaukee District Eyes Expanding Nature-Based Flood-Mitigation Plan

Attacking the Risk Crisis: Roadmap to Investment in Flood Resilience

Disaster Preparedness, Disaster Resilience, Lightning

The Importance
of Protecting
Critical Facilities
From Lightning Strikes

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By Kelley Collins, Director of Business Development and Communications, Lightning Protection Institute

We rely on critical facilities not only in our day-to-day lives but also during emergencies and natural disasters. As defined by government agencies, such as FEMA, critical facilities include fire stations, police stations, hospitals, and emergency operation centers, among others. But here’s the question: Are these essential facilities in your community adequately protected from the destructive impact of lightning?

The Impact of Lightning on Structures

Lightning, though less publicized than other weather events, is equally destructive and must be understood so we can take preventive measures. Lightning strikes happen continuously, with approximately 100 strikes per second globally. Each strike unleashes a tremendous amount of electricity, with millions of volts and temperatures soaring higher than the surface of the sun. When a structure is struck, the surge of electricity travels through its pipes, electrical systems, and infrastructure. While lightning often causes fires, the less visible damage can be just as severe. Computers, communication devices, security systems, and other critical electronics can be rendered useless, leading to loss of data, revenue, and the ability to provide vital services.

A strike to a critical facility can prevent essential services from being available when they’re needed most.

A single lightning strike can have devastating effects on individuals, homes, businesses, and entire communities, including critical facilities. A lightning strike to a critical facility can prevent essential services, such as emergency response or medical care, from being available when they are needed most. A well-designed and properly installed lightning protection system can prevent these consequences.

Whether you are a homeowner, business owner, or part of the design and construction industry, it’s essential to understand the impact of lightning and the steps necessary to mitigate the risk. The Lightning Protection Institute has started to advocate for stronger regulations for critical facilities, particularly in high-risk areas where the potential for lightning strikes is greater.

The Need for Regulatory Requirements

Despite the constant threat of lightning, regulatory requirements for lightning protection systems in critical facilities remain minimal. A historical look at other life safety actions could give us the foundation to protect critical facilities from lightning, which we know can create fires.

When looking to safeguard individuals and buildings from fire, fire alarms and sprinkler systems have been implemented. Fire alarms alert individuals of smoke and/or fire to ensure that they exit the building. Sprinkler systems were designed to minimize the spread of a fire and damage to the structure. Depending on states, either or both, fire alarms and sprinkler systems are required in commercial properties and/or homes.

Just as fire alarms and sprinkler systems are mandated to prevent building destruction and protect lives, lightning protection systems should be required for the same reasons. Lightning protection systems protect both lives and structures.

There are government documents that outline what is considered a critical facility and what structures are encompassed in our critical infrastructure. In addition, these federal agencies clearly see the need for higher standards in critical facilities and critical infrastructures due to their guidelines for protecting against potential flooding. Yet, there is not a mandate to protect either facilities or infrastructure from lightning strikes. 

Lightning: Second Only to Floods

Lightning is the second most damaging natural hazard after floods, impacting both individuals and communities. The same level of consideration given to flood prevention should apply to mitigating the risks of lightning. Installing lightning protection systems in critical facilities ensures these buildings remain operational during and after a strike, safeguarding the community.

Introducing regulatory requirements for lightning protection in high-risk areas would ensure that critical facilities continue to function during emergencies, providing vital services when they are needed most.

Conclusion: Lightning Deserves Our Attention

With the potential for destruction that lightning carries, it deserves as much attention as hurricanes, floods, and fires, which often dominate the headlines. We’ve taken significant steps to prepare for and protect against these natural disasters through regulations and personal actions.

The design and construction industries continue to innovate with new materials and techniques to increase the safety of individuals and communities when building new structures. Fire alarms and earthquake-resistant buildings are now standard safety measures, and hurricane-resilient homes are being built with new designs. These advancements result from collaboration across industries.

The next collaboration should be the initiative to protect communities from the impact of a lightning strike. This initiative involves implementing regulatory measures for lightning protection systems to safeguard critical facilities. Lightning protection systems intercept a lightning strike and safely disperse the energy along the conductors to ground. When properly installed by certified lightning protection contractors, these systems are scientifically proven to mitigate risks for homes, businesses, and critical facilities and infrastructure.

Several industries have the opportunity to provide their insight and expertise to protect communities: Architects, Engineers, Insurance Providers, Risk Assessors, Weather Researchers, Local Governments as well as Lightning Protection Professionals. As experts in various fields, we can protect our communities by raising awareness of lightning risks and advocating for the installation of certified lightning protection systems.

The next time you pass by a fire station, police station, or hospital in your community, take a moment to look up. Is there a lightning protection system installed? It’s critical to ensure these essential facilities are protected, especially in high-risk areas, so they can continue serving individuals and communities during and after a storm.

Learn More:

Lightning-Related Claims Up Sharply in 2023

Assess, Measure, Mitigate Your Lightning Risk

Lightning: Quantifying a Complex, Costly Peril to Support Resilience

Beyond Fire: Triple-I Interview Unravels Lightning-Risk Complexity

Lightning Sparks More Than $1 Billion in Homeowners Claims Over Five Years

Catastrophes, Coastal Property, Disaster Resilience, Floods, Homeowners Insurance

Resilience Investments Paid Off in Florida
During Hurricane Milton

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By Lewis Nibbelin, Contributing Writer, Triple-I

Babcock Ranch – a small community in southwestern Florida dubbed “The Hometown of Tomorrow” – made headlines for sheltering thousands of evacuees and never losing power during Hurricane Milton, which devastated numerous neighboring cities and left more than three million people without power.

Hunters Point, a subdivision on Florida’s Gulf Coast, remained similarly unscathed during both Hurricanes Helene and Milton. Though the development is only two years old, it’s already been through four major hurricanes. Its homes were designed with an elevation high enough to avoid severe flooding and materials that make them as sturdy as possible in high winds. When the power goes out, each home turns to its own solar panels and battery system.

For residents of both communities, this news comes as no surprise; their flood-resistant infrastructure and solar panel power systems have helped them survive several storms and hurricanes with only minor damages, demonstrating the utility of disaster resilience planning.

Such planning is expensive to implement. Homes in either community can run for over a million dollars. But, as the combined costs of Hurricanes Helene and Milton rise to the tens of billions, it’s hard to overstate the long-term benefits. Every dollar invested in disaster resilience could save 13 in property damage, remediation, and economic impact costs, suggesting risk mitigation and recovery strategies will become even more essential as natural catastrophe severity increases.

Incentivizing investment

The National Flood Insurance Program (NFIP) Community Rating System (CRS) – a voluntary program that rewards homeowners with reduced premiums when their communities invest in floodplain management practices that exceed NFIP minimum standards – aims to encourage resilience. Class 1 is the program’s highest rating, qualifying residents for a 45 percent reduction in their premiums. Of the nearly 23,000 participating NFIP communities, only 1,500 participate in the CRS. Of those 1,500, only two – Tulsa, Okla., and Roseville, Calif. – have achieved the highest rating.

High ratings are difficult to secure and maintain. Homeowners in Lee County, which borders Babcock Ranch, nearly lost their discounts earlier this year due to improper post-Hurricane Ian monitoring and documentation within flood hazard areas.

Discounts in lower-rated jurisdictions, however, still equate to large premium reductions. Miami-Dade County, Fla., for instance, earned a Class 3 rating after extensive stormwater infrastructure upgrades, saving the community an estimated $12 million annually. Residents sustained minimized flooding from Hurricane Milton under these improvements, further justifying their cost.

Local mitigation efforts offer targeted resilience solutions and resources to alleviate community risks. The insurance industry-funded Strengthen Alabama Homes provides homeowners grants to retrofit their houses along voluntary standards for constructing buildings resistant to severe weather. Completed retrofits reduce post-disaster claims and qualify grantees for substantial insurance premium discounts, prompting flood-prone Louisiana to replicate the program.

Other nature-based planning exploits local flora as a source of natural hazard protection. Previous studies support conserving natural wetlands and mangroves to impede the rate and flow of flooding, leading many communities – including Babcock Ranch, which is 90 percent wetlands – to invest in green infrastructure. Reforestation and wetland restoration projects undertaken by the Milwaukee Metropolitan Sewerage District (MMSD) also promise to store or capture millions of gallons of storm and flood water, enabling risk management alongside improved quality of life for citizens.

Most resilience projects are impossible to fund or operate without stakeholder partnerships and advanced data and analytics. Insurers, who have long assessed and measured catastrophe risk utilizing cutting-edge data tools, are uniquely positioned to confront these evolving risks and present a framework for successful preemptive mitigation.

Learn More:

Hurricane Helene Highlights Inland Flood Protection Gap

Removing Incentives for Development From High-Risk Areas Boosts Flood Resilience

Executive Exchange: Using Advanced Tools to Drill Into Flood Risk

Accurately Writing Flood Coverage Hinges on Diverse Data Sources

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

Lee County, Fla., Towns Could Lose NFIP Flood Insurance Discounts

Coastal New Jersey Town Regains Class 3 NFIP Rating

Catastrophes, Disaster Preparedness, Disaster Resilience

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

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By Lewis Nibbelin, Contributing Writer, Triple-I

Earlier this year, baseball-sized hailstones in Denver totaled vehicles and pummeled homes and businesses during the second-costliest hailstorm in Colorado history, equating to billions in damages. Melon-sized stones hit Texas the same month, downing power lines and requiring snow plows to reopen roads.

Hail – a sub-peril of severe convective storms (SCS), which also include thunderstorms with lightning, tornadoes, and straight-line winds – is among the most destructive natural catastrophes in the United States, behind as much as 80 percent of SCS claims in any one year. Yet hailstorms remain ill-monitored and highly unpredictable due to a lack of public and industry attention.

“These are death-by-1000-paper-cut perils,” explained Triple-I’s Non-Resident Scholar Dr. Victor Gensini, meteorology professor at Northern Illinois University and leading expert in convective storm research, in an interview for the All Eyes on Research podcast. “In general, we’re seeing hail on 200 out of 365 days of the year.”

While individual SCS events generating losses on the multi-billion-dollar scale of Hurricane Andrew or Katrina don’t happen, over the course of a given year the losses add up quickly.

SCS, which are rising in frequency and severity – accounted for 70 percent of insured losses globally the first half of 2024, at a billion-dollar sum 87 percent higher than the previous decade average. And in 2023, U.S. insured SCS-caused losses exceeded $50 billion for the first time on record for a single year, propelled by thousands of major hailstorms impacting more than 23 million homes.

Gensini – who was motivated to study atmospheric science after a tornado impacted his high school – shifted his focus away from tornadoes “because hail is way more common across the United States every year, and it has a much larger socioeconomic impact – whether you’re talking about agricultural losses…or just rooftop damage to your asphalt shingles,” he told host and Triple-I Economic Research Analyst Marina Madsen.

“When you take a step back and look at the thunderstorm perils producing the greatest number of insured losses, it’s hail.”

Urbanization and inflation drive these losses, as more people populate disaster-prone areas and the value of their assets and the costs to repair them have increased. The expanding presence of solar farms, spread throughout flat, originally uninhabited plains, are especially susceptible to SCS damage, with one 2019 hailstorm causing $70 million in damages to a solar energy project in Texas.

Another explanation for greater hail-related losses is our warming climate. A Climate and Atmospheric Science study led by Gensini projects that, while higher temperatures will melt more hailstorms overall, increasingly large hailstones will become more common. Stronger updrafts fueled by higher temperatures can suspend stones in the air for longer, spurring further growth.

Such trends do not bode well for insurance premium rates, but upcoming research efforts promise actionable insight into hailstorm detection and prediction. The In-situ Collaborative Experiment for the Collection of Hail in the Plains – or ICECHIP – will send Gensini and several other researchers into the Great Plains to chase and collect granular data from hailstorms next year. Backed by the National Science Foundation with more than $11 million in funding, the field study aims to reduce hail risk through improved hailstorm forecasting, enabling residents to better protect themselves and their belongings before a hailstorm touches down.

A newer initiative – the Center for Interdisciplinary Research on Convective Storms, or CIRCS – is a prospective academic industry consortium to develop multidisciplinary research on SCS risk, fostering resilience and recovery strategies informed by diverse stakeholder partnerships.

“As you can imagine, the greatest interest right now in our research is in the insurance and reinsurance verticals,” Gensini said. “Hopefully, as we continue to build relationships…the [CIRCS] center will serve as a hub for information and knowledge creation for industry members. It’s a really unique consortium and a lot of potential lines of business could benefit from it.”

Listen to Podcast: Spotify, Audible, Apple

Insurance Industry

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

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According to a new survey conducted by the Insurance Research Council (IRC), most consumers believe attorney advertising increases the number of claims and lawsuits and the cost of auto insurance.

The report, Public Opinions on Attorney Involvement in Claims, analyzes consumer opinions on attorney involvement in insurance claims and expands prior research. Overall, 60 percent of 2000 respondents in this latest nationwide online survey from IRC said that attorney advertising increases the number of claims, and 52 percent said that advertising increases the cost of insurance. Most respondents (89 percent) reported seeing attorney advertising in the past year, and about half reported seeing an increase in the amount of attorney advertising.

The IRC endeavored to gauge perceptions of attorney advertising and its impact on the cost of insurance, consumer awareness and understanding of litigation financing practices, and decisions about consulting attorneys about auto insurance claims. The main lines of inquiry in the survey revolved around:

  • How has the public experienced attorney advertising, and what do they think of the impact?
  • Are they aware of litigation financing, and after being given a description, what do they think of it?
  • Would they be more likely to hire an attorney to help settle an insurance claim or to settle directly with an insurer?
  • What was their previous history with auto insurance claims and their experience with consulting a lawyer to help settle an injury claim?

Results indicate that consumers are exposed to more attorney advertising across most mediums – particularly in outdoor ads, with auto accident advertisements being the most prevalent medium – compared to three years ago. While billboard advertising has experienced the most growth over the past three years, TV is the most recalled medium, with 65 percent of respondents recalling seeing TV ads in the past year.

The study reveals the awareness of litigation financing has risen significantly, but most respondents remain neutral in their opinions. Nonetheless, results show consumers want transparency around the involvement of third-party litigation funding in a case. When asked, “To what extent do you agree or disagree that the participants in a lawsuit should be informed when outside investors are financing the litigation,” 69 percent said they agree.

How might increased attorney advertising fuel legal system abuse?

IRC’s findings support a “significant statistical correlation between whether respondents consulted an attorney and their exposure to advertising. Among those who reported seeing attorney advertising, 74 percent consulted an attorney, compared to 48 percent among those who had not seen attorney advertising.”

The American Tort Reform Association (ATRA) estimates that in 2023, over $2.4 billion was spent on local legal services advertising through television, radio, print ads, and billboards across the United States.  Meanwhile, only 47 percent of respondents in a 2023 American Bar Association (ABA) survey said their firm had an annual marketing budget – a decline from 57 percent in 2022. About 80 percent of the solo practitioners in the study did not have a marketing budget, and only 31 percent of firms of 2-9 lawyers had one. 

Therefore, excessive advertising isn’t universal across the legal industry, and the saturation of advertising channels can more likely be attributed to large firms reaping substantial profits from certain practice areas or firms bolstered by third-party litigation financing. In many instances, both of these conditions factors may be involved. For example, data that ranks the leading legal services advertisers in the United States in 2023 by spending reveals a list dominated by large law firms and attorney conglomerates specializing in mass tort, accident, and personal injury litigation.

The Wall Street Journal reported earlier this year on the ties between advertising surge and the growth in mass product-liability and personal-injury cases, along with the rising involvement from a particular segment of the investment industry in these types of litigation. Nearly 800,000 television advertisements for mass tort cases ran in 2023, costing over $160 million. According to the WSJ, the ads shown most frequently that year included those soliciting individuals who might have been exposed to contaminated water at the Camp Lejeune Marine base. This particular mass tort ranks high on the previously mentioned list of top spenders.

The average dollar amount of third-party litigation funder (TPLF) loans provided to individual law firms ranges from $20 million to $100 million. Given that prospective returns for TPLF loans reportedly reach as high as 20 percent for the riskier mass tort litigation, connecting the surge in advertising for recruiting plaintiffs to the TPLF cash stream may not be such a big leap. Yet, over the years, studies have shown that attorney involvement can increase claims costs and the time needed to resolve them, even while reducing value for claimants.

Insurance claims litigation is a growing concern in several states, including Georgia, Louisiana, and Florida, threatening coverage affordability and availability. In Georgia, for example, data indicates that auto coverage affordability for Georgians has been waning faster than in any other state. An August 2024 report, Personal Auto Insurance Affordability in Georgia, issued by IRC, ranked Georgia 47th in terms of auto insurance affordability, while the state tops the most recent list of places that the American Tort Reform Foundation (ATRF) believes judges in civil cases systematically apply laws and court procedures generally to the disadvantage of defendants.

Triple-I and key insurance industry stakeholders define legal system abuse as policyholder or plaintiff attorney practices that increase costs and time to settle insurance claims, including situations when a disputed claim could have been fairly resolved without judicial intervention. Insurers’ legal costs for claims can mount with the increasing number of lawsuit filings, extended litigation, and outsized jury awards (awards exceeding $10 million).

To join the discussion, register for JIF 2024. Follow our blog to learn more about trends in insurance affordability and availability across the property and casualty market.

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

Inflation Continues
to Drive Up Consumers’ Insurance Costs

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By William Nibbelin, Senior Research Actuary, Triple-I

Insurance is priced to reflect the underlying risk of every policy. When more claims are filed and the average amount paid of those claims increases, insurance becomes more expensive. A measure of underwriting profitability for insurance carriers is the combined ratio calculated as losses and expense divided by earned premium plus operating expenses divided by written premium. A combined ratio over 100 represents an underwriting loss. When expected losses increase, an insurance carrier must increase premiums by raising rates to maintain a combined ratio under 100.

Commercial auto insurance has recorded a net combined ratio over 100 nine times out of 10 between 2014 and 2023, and, according to the latest forecasting report by Triple-I and Milliman, continues to worsen in 2024. According to the Triple-I Issues Brief, personal auto insurance has had a net combined ratio over 100 for the past three years, with a 2023 net written premium (NWP) growth of 14.3 percent, which was the highest in over 15 years.

From 2014 through 2023 economic and social inflation added $118.9 billion to $137.2 billion in auto liability losses and defense and cost containment (DCC) expenses. This represents 9.9 percent to 11.5 percent of the $1.2 trillion in net losses and DCC for the period and an increase of 24 percent to 31 percent from the previous analysis on years 2013 through 2022.

A new study – “Increasing Inflation on Auto Liability Insurance – Impact as of Year-end 2023” – is the fourth installment of research on the impact of economic and social inflation on insurer costs and claim payouts. Compared to the prior study, Commercial Auto Liability loss and DCC is 20.7 percent to 27.0 percent ($43 billion to $56 billion) higher due to increasing inflation. Personal auto liability loss and DCC is 7.7 percent to 8.2 percent ($76 billion to $81 billion) higher from increasing inflation.

Key Takeaways

  • The compound annual impact of increasing inflation ranges from 2.2 percent to 2.9 percent for commercial auto liability, which is higher than the personal auto liability estimate of 0.7 percent. However, the impact of increasing inflation from a dollar perspective is much higher for personal auto liability compared to commercial auto liability. This is due, in part, to the underlying size of the line of business.
  • Frequency of auto liability claims per $100 million GDP for 2023 is unchanged for commercial auto liability and lower for personal auto liability compared to 2020, when frequency dropped at the onset of the COVID-19 pandemic for both lines.
  • Severity of auto liability claims continues to increase year over year and has increased more than 70 percent from 2014 to 2023 for both lines.

Researchers Jim Lynch, FCAS, MAAA, Dave Moore, FCAS, MAAA, LLC, Dale Porfilio, FCAS, MAAA, Triple-I’s chief insurance officer, and William Nibbelin, Triple-I’s senior research actuary used a similar methodology as prior studies. Loss development patterns were used to identify inflation for selected property/casualty lines in excess of inflation in the overall economy. The new study extends the model with annual statement data through year-end 2023.

Commercial Auto Liability

The prior study indicated claim severity (size of losses) had risen 72 percent overall from 2013 to 2022, with the median annual increase at 6.3 percent. The new study indicates an additional annual increase of 6.6 percent from 2022 to 2023. The report compares the compound annual growth rate of 6.6 percent from 2014 through 2023 to the compound annual increase in the consumer price index (CPI) of 2.8 percent during this same time. With a flat frequency trend combined with an increasing severity trend in recent years for commercial auto liability, this comparison calls out the higher inflation faced by insurers beyond just general inflation trends.

Personal Auto Liability

While replacement costs remain flat to negative providing relief to personal auto physical damage, personal auto liability represents approximately 60 percent of the overall personal auto line. Similar to commercial auto liability – but slightly lower – claim severity for personal auto liability has increased at a compound annual rate of 6.3 percent from 2014 through 2023. However, unlike commercial auto liability, the frequency for personal auto liability has declined slightly in 2022 and 2023, with 85 claims per $100 million GDP in 2023 compared to 90 in 2022 and 100 in 2021.

Limitation of industry data

The report relies on industry data as reported by insurers to the National Association of Insurance Carriers (NAIC) and made available through different reporting suppliers, such as S&P Global Market Intelligence. As such, different individual inflationary elements – whether economic, social, or otherwise – cannot be determined using the underlying actuarial methodologies.

However, like prior studies the bulk of increasing inflation before 2020 is attributed to social inflation, while social inflation and economic inflation dominate increasing inflation together beginning in 2020.

Triple-I continues to foster a research-based conversation around social inflation as part of legal system abuse. For an overview of the topic and other helpful resources about its potential impact on insurers, policyholders, and the economy, check out our knowledge hub.

Auto Insurance, Business Insurance, Business Risk, Highway Safety, Insurers and the Economy, Market Conditions

Improved Commercial Auto Underwriting Profitability Expected After Years of Struggle

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The commercial auto insurance line has struggled to achieve underwriting profitability for years, even before the inflationary conditions that have been affecting property/casualty lines more recently. This trend has been accompanied by steady growth in net written premiums (NWP).

This weakness in underwriting profitability has been driven by several causes, according to a new Triple-I Issues Brief. One is the fact that vehicles – both commercial vehicles and personal vehicles they collide with – have become increasingly expensive to repair, thanks to new materials and increased reliance on sensors and computer systems designed to make driving more comfortable and safer. This well-established trend has been exacerbated by supply-chain disruptions during COVID-19 and continuing inflation in the pandemic’s aftermath.

Distracted driving and litigation trends also have played a role.

However, Triple-I sees some light on the horizon for commercial auto in terms of the line’s net combined ratio – a standard measure of underwriting profitability calculated by dividing the sum of claim-related losses and expenses by earned premium. A ratio under 100 indicates a profit and one above 100 indicates a loss.

As the chart below shows, the estimated 2024 net combined ratio for commercial auto insurance has improved slightly since 2023, and further improvement is expected over the next two years.

These projected improvements are based on an expectation of continued premium growth – due more to aggressive premium rate increase than to increased exposure – as the rate of insured losses levels off.

Catastrophes, Disaster Preparedness, Disaster Resilience, Flood Insurance

Hurricane Helene Highlights Inland
Flood Protection Gap

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By Lewis Nibbelin, Contributing Writer, Triple-I

Spanning over 500 miles of the southeastern United States, Hurricane Helene’s path of destruction has drawn public attention to inland flood risk and the need for improved resilience planning and insurance purchase (“take up”) to confront the protection gap.

Extreme rainfall and wind inflicted a combination of catastrophic flooding, landslides, and extreme rainfall and wind gusts dumped an unparalleled 40 trillion gallons of water across Florida, Georgia, North Carolina, South Carolina, Virginia, and Tennessee, causing hundreds of deaths and billions in insured losses.

Most losses are concentrated in western North Carolina, with much of Buncombe County – home to Asheville and its historic arts district – left virtually unrecognizable. Torrential rain and mountain runoff submerged Asheville under nearly 25 feet of water as rivers swelled, while neighboring communities were similarly flattened or swept away.

Rebuilding will take years, especially as widespread lack of flood insurance forces most victims to seek federal grants and loans for assistance, slowing recovery. Compounding these challenges, misinformation about assistance from the Federal Emergency Management Agency (FEMA) has impeded aid operations in certain areas, leading FEMA to issue a fact sheet clarifying the reality on the ground.

A persistent protection gap

Less than 1 percent of residents in Buncombe County had federal flood insurance as Helene struck, as illustrated in the map below, which is based on National Flood Insurance Program (NFIP) take-up rate data. Inland flooding isn’t new, and neither is the inland flood-protection gap.

In August 2021, the National Weather Service issued its first-ever flash-flood warning for New York City as remnants of Hurricane Ida brought rains that flooded subway lines and streets in New York and New Jersey. More than 40 people were killed in those states and Pennsylvania as basement apartments suddenly filled with water.

Then, in July 2023, a series of intense thunderstorms resulted in heavy rainfall, deadly flash floods, and severe river flooding in eastern Kentucky and central Appalachia, with hourly rainfall rates exceeding four inches over the course of several days. Subsequent flooding led to 39 fatalities and federal disaster-area declarations for 13 eastern Kentucky counties. According to FEMA, only a few dozen federal flood insurance policies were in effect in the affected areas before the recent storm. 

“We’ve seen some pretty significant changes in the impact of flooding from hurricanes, very far inland,”  Keith Wolfe, Swiss Re’s president for U.S. property and casualty, told Triple-I CEO Sean Kevelighan in a Triple-I Executive Exchange. “Hurricanes have just behaved very differently in the past five years, once they come on shore, from what we’ve seen in the past 20.”

Need for education and awareness

Low inland take-up rates largely reflect consumer misunderstandings about flood insurance. Though approximately 90 percent of all U.S. natural disasters involve flooding, many homeowners are unaware that a standard homeowners policy doesn’t  cover flood damage. Similarly, many believe flood coverage is unnecessary unless their mortgage lenders require it.  It also is not uncommon for homeowners to drop flood insurance coverage once their mortgage is paid off to save money.

More than half of all homeowners with flood insurance are covered by NFIP, which is part of the FEMA and was created in 1968 – a time when few private insurers were willing to write flood coverage.

In recent years, insurers have grown more comfortable taking on flood risk, thanks in large part to improved data and analytics capabilities. This increased interest in flood among private insurers offers hope for improved affordability of coverage at a time when NFIP’s  Risk Rating 2.0 reforms have driven up flood insurance premium rates for higher-risk property owners.  

New tools and techniques

New tools – such as parametric insurance and community-based catastrophe insurance – also offer ways of improving flood resilience. Unlike traditional indemnity insurance, parametric structures cover risks without the complications of sending adjusters to assess damage after an event. Instead of paying for damage that has occurred, it pays out if certain agreed-upon conditions are met – for example, a specific wind speed or earthquake magnitude in a particular area. If coverage is triggered, a payment is made, regardless of damage.

Speed of payment and reduced administration costs can ease the burden on both insurers and policyholders. Alone, or as part of a package including indemnity coverage, parametric insurance can provide liquidity that businesses and communities need for post-catastrophe resilience.

While localized insurance approaches can support flood resilience, coordinated investments in public education and preemptive mitigation are crucial to reducing risk and making insurance more available and affordable. Intergovernmental collaboration with insurers on development zoning and building codes, for instance, can promote the creation of safer and climate-adaptive infrastructure, lowering human and economic losses.

Learn More:

Removing Incentives for Development From High-Risk Areas Boosts Flood Resilience

Miami-Dade, Fla., Sees Flood Insurance Rate Cuts, Thanks to Resilience Investment

Attacking the Risk Crisis: Roadmap to Investment in Flood Resilience

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