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Auto Insurance, Emerging Risks, Homeowners Insurance, Insurance Industry

New Triple-I Issue Brief Takes a Deep Dive into Legal System Abuse

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The increasing frequency and severity of claims costs beyond insurer expectations continue to threaten insurance coverage and affordability. Triple-I’s latest Issue Brief, Legal System Abuse – State of the Risk describes how trends in claims litigation can drive social inflation, leading to higher insurance premiums for policyholders and losses for insurers.

Key Takeaways

  • Insured losses continue to exceed expectations and surpass inflation, notably impacting coverage affordability and availability in Florida and Louisiana.
  • In promoting the term “legal system abuse”, Triple-I seeks to capture how litigation and related systemic trends amplify social inflation.
  • Progress has been made toward increased awareness about the risks of third-party litigation funding (TPLF), but more work is needed.

What we mean when we talk about legal system abuse

Legal system abuse occurs when policyholders, plaintiff attorneys, or other third parties use fraudulent or unnecessary tactics in pursuing an insurance claim payout, increasing the time and cost of settling insurance claims. These actions can include illegal maneuvers, such as claims inflation and frivolous or outright fraudulent claims. Unscrupulous contractors, for example, seek to profit from Assignment of Benefits (AOBs) by overstating repair costs and then filing lawsuits against the insurer – sometimes even without the homeowner’s knowledge. Filing a lawsuit to reap an outsized payout when it’s evident the claims process will likely provide a fair, reasonable, and timely claim settlement can also be considered legal system abuse.

The latest brief provides a round-up of several studies Triple-I and other organizations conducted on elements of these litigation trends. The report, “Impact of Increasing Inflation on Personal and Commercial Auto Liability Insurance,” describes the $96 billion to $105 billion increase in combined claim payouts for U.S. personal and commercial auto insurer liability. The Insurance Research Council highlighted the dire lack of affordability for personal auto and homeowners insurance coverage in Louisiana, along with the state’s exceptionally high claim litigation rates.

Readers will also find an update on the discussion of legal industry trends associated with increased claims litigation. The lack of transparency around TPLF arrangements and the fear of outside influence on cases are attracting the attention of legislators at the state and federal levels. The brief also describes how some law firms may use TPLF resources to encourage large windfall-seeking lawsuits instead of speedy and fair claims litigation. Research findings suggest that consumers have become aware of how ubiquitous attorney ads can influence the frequency of lawsuits, increasing claims costs.

Florida: a case study in the consequences of excessive litigation

While several states, such as California, Colorado, and Louisiana, are experiencing a drastic rise in the cost of homeowners’ insurance, this brief discusses Florida. Property insurance premiums there rank the highest in the nation. Several insurers facing insurmountable losses have stopped writing new policies or left the state in the last few years. In some areas, residents are leaving, too, because of skyrocketing premiums.

Excessive claims litigation isn’t a new issue for insurers, but it can work with other elements to shift loss ratios and disrupt forecasts, rendering cost management more challenging. In Florida, factors such as the rise in home values and frequency of extreme weather events play a significant role, along with the challenges homeowners face in the aftermath: soaring construction costs, supply chain bottlenecks, and new building codes. However, Florida also leads the nation in litigating property claims. While 15 percent of all homeowners claims in the nation originate in the state, Floridians file 71 percent of homeowners insurance lawsuits.

In Florida and elsewhere, increasing time to settle a claim puts a financial strain on insurers, which is passed on to policyholders in the form of higher premiums. Legal system abuse activities are difficult (if not impossible) to forecast and mitigate, hampering insurers’ ability to remain in the market. Therefore, legal system abuse could be one of the biggest underlying drivers of social inflation. Without preventive measures, such as policy intervention and increased policyholder awareness, coverage affordability and availability is at risk.

Triple-I remains committed to advancing the conversation and exploring actionable strategies with all stakeholders. Learn more about legal system abuse and its components, such as third-party litigation funding by following our blog and checking out our social inflation knowledge hub.

Careers and Employment

Exploring the DEI Toolbox: Employee Engagement

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Safiya Reid took a professional journey that demonstrates career diversity. Her first job out of college was with Pfizer as a pharmaceutical sales representative. Later, she worked on the Rickey Smiley Morning Show as a production intern and at a chain dine-in restaurant while in graduate school. Eventually, after landing in insurance, “I kind of just never left,” she said.  

Reid sat down with Triple-I to discuss how her Assistant Vice President of Employee Engagement role at Pure insurance fits into the larger picture of Diversity, Equity, and Inclusion (DEI) and how this work can enable a more robust organization and industry. 

When asked why DEI should be an essential strategic objective for the insurance industry, she addresses the myth that DEI benefits a small portion of employees. 

“When you think about women, when you think about people of color, that is the majority of the organization.” 

“I look at employee engagement as kind of the health and wellness of the employee population.”   

Reid uses data and various tools, such as engagement polls, proactive strategies, and best practices, to understand how the people in her organization experience their work and the challenges they face. As she sees it, her mission is to ensure that “everyone can have the resources that they need to be successful in the organization and outside of it.” 

Ultimately, Reid aims to monitor “the pulse”, how employees (including the aforementioned majority) experience their work.  

Understanding this pulse and how strategic DEI success can shape it is mission-critical. “If not, it’s just a matter of time before it starts to affect the business–if it isn’t already,” she said. 

In the face of a growing trend of political pushback that has even led to disinvestment at some high-profile organizations and agencies, she and her colleagues remain undaunted in their DEI mission. “I think it’s important that we not go back to square one and start relitigating why DEI matters.” 

She believes it’s vital to have measurements in place to track progress. “We know the commitment that we made. We’re going to keep marching forward to the next milestone until you know it’s time to set a new milestone.” 

Reid spoke in detail about how she thinks the intense stream of events over the past five years – the COVID pandemic, protest movement for George Floyd , #Metoo, the rise of remote work, etc. – may have impacted diverse representation in the industry and across the workforce. Many people grappled with unprecedented personal challenges, such as caregiving for young children or adult family members while working remotely and simultaneously coping with mass grief as communities lost scores of loved ones. Boundaries that people relied on to preserve their emotional well-being were breached and erased in some ways. 

“We were so used to leaving everything outside, whether at the bus stop, when the train starts, or the car,” she explained. “You know, we were all at a point where the,  ‘messiness’ of our lives, we could no longer leave that at the door. 

In her observation, attempts to cope ignited more discussion and a drive to understand “the pieces of ourselves that we would leave outside.” She says, “There’s a term for this behavior called covering.” 

Specifically, people may “cover” by hiding or downplaying aspects of their identity in the workplace. These aspects are typically those associated with an impact on their chances of career survival or advancement. For example, a single mother may avoid sharing stories or photos of her children because she fears being passed over for opportunities if colleagues fear she won’t be able to balance parenting with increased professional obligations.  

Reid says her team learned about this concept from the Neuroscience Leadership Institute in 2020. However, the term was coined in 1963 by sociologist Erving Goffman. 

For employees to feel at home and be their authentic selves, there needs to be an environment that fosters inclusion. Which compels the question, What might be necessary for ensuring that employees feel welcome and supported? 

Possibly, the answer lies in forging open and honest communication. “We’ve built a place where when something is wrong, there are channels in a place where you can talk to somebody about that and get that resolved in a timely fashion,” said Reid.  

More data about the DEI landscape in an organization or industry-wide can increase the capacity to make progress. Reid agrees that data is valuable, but she said what we do with it can be more important than having it. 

“I would want to first know how we are planning on using that. There may be additional data points that we need to tell a larger story,” she said. Specifically, the outcome needs to involve “figuring out who the audience is of this data and what change or what action we want them to do because of it. And then making sure all of that is connected and aligned.” 

The challenges to move the needle on DEI can be complex, involving a multi-pronged approach and long-term investment. The ultimate goal is not only increased representation but retention. As such, there are low-hanging fruit opportunities that insurance organizations can consider to make employees feel more included in a team that values them.  

“I would say first and foremost, make sure you take care of the ones you got first,” Reid said. “If you are cultivating a toxic environment, bringing in more people, particularly folks that have less advantages and throwing them into it… that’s not helpful. Everybody’s not going to be happy.” 

Reid offers a solution for organizations that need help approaching the issue. They can use “engagement surveys to find out what the pulse is.” She recommends promoting a way for employees to voice their concerns in a manner that can be heard equitably. 

And what advice would she give her younger self when starting in the industry? “Get here a lot sooner!” 

Catastrophes, Disaster Preparedness, Disaster Resilience, Risk Management

Insurers Engage
as Climate Perils
Drive Up Costs

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By Max Dorfman, Research Writer, Triple-I

2023 was another year with high-risk climate and weather-related challenges, with 2024 positioned to pose its own challenges.

Indeed, 2023 was the warmest year for the globe since 1850 — when these records were first made. The temperature in 2023 was over two degrees Celsius above the 20th Century average, with the 10 warmest years in recorded history occurring from 2014-2023. Record-setting temperatures hit areas across Canada, the southern United States, Central America, South America, Africa, Europe, Asia, as well as parts of the Atlantic Ocean, the Indian Ocean, and South Pacific Ocean.

These shifts in global weather – combined with changing population and other dynamics – have played a powerful role in the risk of disasters.

Costs are high

In the United States, Allianz estimates, extreme weather events now cost the country $150 billion a year, making these perils “key threats” for organizations. However, larger companies are leading a response to these risks by transforming their business models to low carbon, while also creating new and improved plans to respond to climate events. Allianz notes that supply-chain resilience is a crucial area of focus for the coming year.

“Although this year’s Allianz Risk Barometer results on climate change show that reputational, reporting, and legal risks are regarded as lesser threats by businesses,” said Denise De Bilio, ESG Director, Risk Consulting, Allianz Commercial, “many of these challenges are interlinked.”

According to Allianz, exposure remains highest for utility, energy, and industrial sectors. Last year’s wildfires in Canada limited oil and gas output to 3.7 percent of national production. Water scarcity is now also considered to be a threat.

Promising developments

As Triple-I reported in late 2023, despite all the concern regarding climate risk, certain weather-related disasters actually declined in the past year. This includes U.S. wildfire, which saw its lowest frequency and severity in the past two decades, despite catastrophic losses in Washington State, Hawaii, Louisiana, and elsewhere, according to a Triple-I Issues Brief. California – a state often considered synonymous with wildfire – last year experienced its third mild fire season in a row.

Homeowners insurance rates in California, as elsewhere in the United States, have been rising.  Some of this trend is due to wildfires and construction in the wildland-urban interface, which put increased amounts of expensive property at risk. According to Cal Fire, five of the largest wildfires in the state’s history have occurred since 2017. 

Much of California’s problem, however, is related to a 1988 measure – Proposition 103 – that severely constrains insurers’ ability to profitably insure property in the state. Late in 2023, California Insurance Commissioner Ricardo Lara announced a package of executive actions aimed at addressing some of the challenges included in Proposition 103.

Flood remains a severe and increasing peril in the United States. While the federal government remains the main source of insurance coverage through FEMA’s National Flood Insurance Program (NFIP), the private insurance market is increasingly stepping up to assume more of the risk. As Triple-I has reported, between 2016 and 2022, the total flood market grew 24 percent – from $3.29 billion in direct premiums written to $4.09 billion – with 77 private companies writing 32.1 percent of the business.  As the charts below make clear, private insurers are accounting for a bigger piece of a growing pie.

This is an important development, as the growing private-sector involvement in flood can reasonably be expected to result, over time, in greater availability and affordability of flood insurance as the peril increases and NFIP – through increased reliance on risk-based pricing – spreads the cost of coverage more fairly among property owners. Historically, the system often subsidized coverage for higher-risk homes, to the detriment of lower-risk property owners. With NFIP premium rates rising to more accurately reflect the risk assumed, private insurers – armed with increasingly sophisticated data and analytical tools – are better equipped than ever to identify opportunities to write more business.

Much yet to be done

Growing awareness and action to address climate-related risk is promising, but the crisis is far from over. In several U.S. states, insurance affordability and even availability are being affected, and much of the conversation around this topic confuses cause with effect. Rising insurance rates and constrained underwriting capacity is a result of the risk environment – not a cause of it.

Investment in mitigation and resilience is necessary, and this will require collective responsibility from the individual and community levels up through all levels of government. It will require public-private partnerships and appropriate alignment of investment incentives for all co-beneficiaries.

Learn More:

Triple-I Issues Brief: Flood

Triple-I Issues Brief: Wildfire

FEMA Reauthorization Session Highlights Importance of Risk Transfer and Reduction

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

It’s Not an “Insurance Crisis” — It’s a Risk Crisis

Cyber Risk, Insurance Industry

Cyber insurance market continues rapid growth as risk management strategies improve

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As the number of cyber security breaches soars, direct written premiums (DPW) for cyber insurance worldwide could rise to $23 billion by 2025, with U.S. businesses paying about 56 percent of the total, according to Triple-I’s latest Issues Brief.

Cyber Insurance: State of the Risk, published last week, says the most recent data shows standalone policies have emerged as the preference for larger insureds, accounting for more than 70 percent of DPW – an increase of 61.5 percent from the prior year. These growth trends may signify that businesses recognize the growing threat of cyber risk requires mitigation beyond the typical coverage limitations of packaged options. Loss ratios also improved over 2021 rates, with declines of 23 percentage points, to 43 percent, on standalone policies and 18 percentage points, to 48 percent, on packaged policies. These improvements are evidence of improved cost-containment strategies. 

A two-edged sword

The brief outlines how technology can foster opportunities for cyber attackers and deliver ways for cybersecurity managers to predict, prevent, and manage threats. Increased use of cloud storage, remote working, and the “bring your own device” IT approach has amplified points of organizational vulnerability. And, as more companies and their employees are increasingly leveraging AI to boost operational efficiency, cyber attackers have created large language models (LLMs) to mimic the functionalities of ChatGPT and Google’s Bard to aid in phishing and malware attacks. 

Even the smallest businesses face threats that can incapacitate an organization. However, organizations can manage breaches more efficiently using AI for faster breach detection and implementing requirements for two-factor authentication, VPN use on external Wi-Fi networks, and data-wiping processes for lost or stolen devices.

Cyber insurance has become an integral part of robust prediction and prevention.

The bulk of cyber insurance claims by volume and frequency stem from ransomware and extortion-based attacks, according to an October 2023 report from Allianz. The report also says the annual proportion of cases in which data is stolen has consistently risen from “40 percent of cases in 2019 to around 77 percent of cases in 2022, with 2023 on course to surpass last year’s total.”  

The Allianz report highlights the growing need for businesses to improve prediction and prevention strategies, internally and with external partners and supply chain relationships. It makes practical sense that indemnification for cyber risk has become a common requirement for vendors doing business with frequently targeted sectors.  

The Triple-I brief states that as insurers refine policy terms to make the scope of coverage more understandable, business risk managers are better able to comprehend how cyber insurance can mitigate their risks. In turn, insurers may have been able to gain improvements in cost containment and rate stability. 

Triple-I supports increased awareness of the threat landscape

Cyber insurance can play a pivotal role in liability management. Sean Kevelighan, Triple-I’s CEO, participated on a panel during the Small Business Cyber Summit, a series hosted by the U.S. Small Business Administration (SBA). Discussions offered insights and tips for cybersecurity risk managers and other experts. Kevelighan explained how cyber insurance can allow “businesses to more strategically allocate their resources” in the battle against cyber threats.

Kevelighan participated in another fall 2023 cyber risk panel hosted by The Institutes Griffith Foundation in collaboration with Indiana University. The presentation, Cyber Risk: Exploring the Threat Landscape and the Role of Risk Management, focused on risks to national infrastructure and companies. Accordingly, panelists discussed how regulators and businesses have responded to the inevitable threat of cyberattacks. Speakers shared expertise in three core areas:

  • the Cyber Threat Landscape
  • ransomware and insurer solvency; and
  • eminent challenges for cyber risk insurance.
Careers and Employment

There’s Never a Dull Moment Working in the Insurance Industry

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By Loretta Worters, Vice President, Media Relations, Triple-I

The insurance industry employs about 2.9 million people in the United States — more, if you include people in insurance functions who work at non-insurance companies.  But the industry is confronted by major changes as the U.S. population enters a new demographic stage — “Peak 65” — that it will have to navigate.

About 4.1 million Americans will reach 65 years old this year, according to an analysis by Jason Fichtner, executive director of the Retirement Income Institute and chief economist at the Bipartisan Policy Center. That is about 11,200 a day, compared with the 10,000 daily average from the previous decade, he says. 

This creates a unique opportunity for people at the start of their careers and mid-career employees looking for a change as many of these aging Baby Boomers retire. Insurance Careers Month is a reminder of the number of organizations recruiting and retaining insurance industry professionals.

Insurance careers span a wide range of skills and talents—from actuaries and analysts to data scientists and marketers to drone pilots and engineers.  Without insurers and the thousands of professions supporting it, businesses wouldn’t be able to build factories and offices. Concerts, sporting events, the film industry, even universities, libraries, and parks—all are made possible, in part, by the careful management of risk.

“As the backbone to economic growth and prosperity, a career in insurance provides a wealth of career opportunities,” said Triple-I CEO Sean Kevelighan. “ Whether just starting out in the workforce or thinking about a career change, talented individuals should explore the world of insurance and risk management. Insurance Careers Month is a great reminder that this industry is filled with potential.”

To raise awareness about insurance as a potential career path, the Triple-I continues to partner with the HBCU I.M.P.A.C.T Initiative, Inc.® (IMPACT), a campaign aimed at recruiting students at historically Black colleges and universities (HBCUs) to the insurance industry. The Black Insurance Industry Collective (BIIC), a non-profit affiliated with The Institutes, is focused on accelerating the advancement of Black insurance professionals.

The Institutes also offers student programming at a variety of their events and partners with colleges and universities through a collegiate studies program that enables students to earn credits towards the CPCU designation, among other initiatives.

“The risk management and insurance landscape is evolving rapidly, with advancements in generative AI, offering students entering the workforce the chance to be at the forefront of exciting and innovative solutions,” said Peter L. Miller, CPCU, President and CEO of The Institutes.  “With new approaches and skillsets needed—in a field that prioritizes continuous learning—there are countless opportunities for career growth and development.  A career in the RMI field opens the door to a diverse network of professionals who are problem solvers, strategic thinkers, and invaluable contributors to the global economy.”

The Insurance Industry Charitable Foundation’s (IICF’s) Mentoring Alliance is another initiative that partners with companies across the insurance industry to share a wider range of experiences.

“Our IICF Mentoring Alliance pairs emerging leaders from underrepresented communities with diverse role models and allies within the Insurance Industry,” said Barbara Reilly, senior vice president, Amwins, and a member of the IICF’s IDEA (Inclusion, Diversity, Equity, and Accessibility) Council.  “We are in our second year, and we doubled our mentee/mentor participation,” she said. Mentees appreciate having a mentor from outside their own company but within our Industry, as it provides a safe space to share perspectives and receive valuable guidance.”

“Connecting our high potential nontraditional employees with relatable mentors as they move into their first managerial roles is critical,” added Elizabeth (Betsy) Myatt, vice president and chief program officer, IICF.  “It’s not enough to attract new talent.  We need to keep talent in the industry and ensure success,” she said.

As part of Insurance Careers Month, the sixth annual Emerging Leaders Conference was held between Feb. 4-6, 2024, in San Antonio, Texas.  Hosted by the American Property Casualty Insurance Association (APCIA), AM Best, and the Insurance Careers Movement, it gives younger industry professionals access to executive thought leadership, provides networking opportunities across job functions, and offers an agenda that focuses on professional and personal development. 

The Insurance Council of Texas Education Foundation also is promoting Insurance Careers Month through social media and member communications. Their focus is to raise awareness of career opportunities within the property and casualty industry.

“Through various strategic initiatives, the foundation encourages college students to explore careers in P&C by offering scholarships and financial support at partner universities,” said Richard Johnson, Director of Communications and Public Affairs, Insurance Council of Texas.  “By fostering education and financial assistance, we strive to cultivate a diverse and skilled workforce in the insurance and develop the future leaders of the industry,” he said.

“The insurance industry is facing the most competitive labor market in decades, making retaining and developing talent a top priority,” said Marguerite Tortorello, managing director of Insurance Careers Movement, an industrywide initiative designed to raise awareness of the diverse career options that risk management and insurance offer. “Together, we can help reach broader pools of job seekers around the globe and share strong career opportunities in insurance.”

Learn More:

HBCU Impact: Bridging the Insurance Talent Gap

Church Mutual President: Getting, Keeping Talent is Number One Challenge”

Captain of Her Own Ship: Anne Marie Elder

Insurance Careers: Opportunities in Risk

This Just In: Insurance Isn’t Boring

Insurance Industry, Legal Environment

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

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Legal system abuse in Louisiana costs every one of its citizens more than $1,100 annually, according to the American Tort Reform Association (ATRA). The state’s litigation environment was also cited by the Insurance Research Council (IRC) when reporting how Louisiana is the least affordable U.S. state for both auto and homeowners insurance. And then there’s shadowed Third-Party Litigation Financing (TPLF) continuing to sneak its way into this costly conundrum, with virtually no one understanding who’s behind it and what ulterior motives they may have.

Louisiana’s state lawmakers passed a measure (Senate Bill 196) last year aimed at reducing legal system abuse and litigation costs, but the measure was vetoed by former Governor John Bel Edwards.  The Litigation Financing Disclosure and Security Protection Act would have required plaintiffs to disclose whether their legal fees were being financed by a third-party with no obvious stake in the civil court case’s outcome, other than financial gain, or even worse foreign manipulation of America’s legal system.

Third-party litigation financing (TPLF), a multi-billion-dollar asset class which provides the financial resources for plaintiffs to file lawsuits, is growing exponentially because the U.S. legal system has increasingly become a place to secure huge paydays. Much like other shadowed banking tactics, financiers prefer to stay anonymous to avert regulatory scrutiny. However, beyond the financial gains, evidence is pointing toward foreign, even tax-free sovereign investments footing the bills.

Louisiana’s own U.S. House Speaker Mike Johnson (R-LA) is keenly aware of the potentially problematic foreign investment issues of TPLF, introducing federal legislation weeks before his recent election and being handed the leadership gavel. If passed into law, The Protecting Our Courts from Foreign Manipulation Act would stop foreign entities and governments from financing litigation in U.S. courts and shine a light on a shadowy part of this nation’s legal system. Similar legislation was introduced in the U.S. Senate and co-authored by another Louisianan, Senator John Kennedy (R-LA).

Much as Louisiana’s federal elected officials are working to address issues involving legal system abuse, such as TPLF, the State of Louisiana will benefit more directly by focusing on what’s happening in its own back yard. There is a simple formula to what combining increased climate risk with legal system abuse does – it creates a crisis in terms of affordability and availability of insurance.

The price of insurance is the effect of increased risk, not the cause. Louisiana’s high legal costs are driving up prices on virtually all goods and services for its citizens. Taking important steps toward litigation (and litigation financing) reform should be a top consideration in 2024.

A condensed version of this op-ed was published as a letter to the editor by Triple-I CEO Sean Kevelighan in February 2024 in The Baton Rouge Advocate and the New Orleans Times-Picayune.

Catastrophes, Disaster Resilience, Flood Insurance, Insurers and the Economy

FEMA Reauthorization Session Highlights Importance of Risk Transfer and Reduction

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If there was a recurring theme in last week’s Senate Banking Committee hearing on reauthorization of FEMA’s National Flood Insurance Program (NFIP), it was the need for:

  • Congress to reauthorize NFIP, and
  • Communities, businesses, and government at all levels to invest in mitigating flood risk and in improving resilience.

It’s important to amplify this message, especially in light of a recent proposal by Rep. Adam Schiff that would, among other things, disband NFIP and require property/casualty insurers to provide “all-risk policies” based on coverage thresholds and rating factors dictated by a board in which the insurance industry is only nominally represented. Last year’s budget uncertainty – in which a potential government shutdown was threatened – left open the very real possibility of funding for NFIP expiring if Congress failed to reach a deal.

“Federal policies and programs, including NFIP, are essential,” said Daniel Kaniewski, managing director, public sector, for Marsh McLennan in his testimony. “But all disasters are local, and so too are resilience investment decisions.”

Before joining Marsh McLennan, Kaniewski was the second-ranking official at FEMA, where he was the agency’s first deputy administrator for resilience.

“To increase the resilience of communities against the pervasive risk of flooding,” Kaniewski testified, “we believe that risk transfer— including from the NFIP, private flood insurance, reinsurance, and parametric insurance — should be paired with risk reduction.”

In this regard, Kaniewski emphasized NFIP’s Community Rating System (CRS), which encourages and rewards community floodplain management practices that exceed the NFIP’s minimum requirements. He cited Tulsa, Okla., as one of two U.S. communities to have achieved the highest CRS rating (the other is Roseville, Calif.), making residents eligible for the program’s greatest flood insurance discount of 45 percent.

Even without achieving the maximum rating, citizens save on flood insurance when their communities invest in resilience. For example, Miami-Dade County, Fla., recently became the latest jurisdiction in the hurricane- and flood-prone state to benefit from CRS program. The county’s new Class 3 rating will result in an estimated $12 million savings annually by giving qualifying residents and business owners in unincorporated parts of the county a 35 percent discount on flood insurance premiums.  

Last year, 17 other Florida jurisdictions achieved Class 3 ratings. In Cutler Bay – a town on Miami’s southern flank with about 45,000 residents – the average premium dropped by $338. Citywide, that represented a savings of $2.3 million.

Unfortunately, only 1,500 communities nationwide participate in CRS, underscoring the importance of awareness-building, education, and collaboration.

Kaniewski also highlighted the opportunity presented by community-based catastrophe insurance (CBCI), which uses parametric insurance to provide coverage to local government entities that wish to cover a group of properties. Such programs enhance financial resilience by simultaneously providing affordable coverage and creating incentives for risk reduction.

“Our recent CBCI pilot in New York City was developed in partnership with the City of New York and several nonprofit and insurance industry partners and funded by the National Science Foundation,” Kaniewski said. “It provides a level of financial protection for low-to-moderate-income households that previously lacked flood insurance.”

Kaniewski called on other industries – such as finance and real estate – to encourage flood resilience investments, along with the insurance industry and all levels of government. He cited the recent roadmap for resilience incentives issued by the National Institute of Building Sciences (NIBS) – funded by Fannie Mae and co-authored by representatives of a cross-section of “co-beneficiary industries” – that focused on residential structures prone to flooding. Triple-I subject-matter experts were co-authors on the NIBS project.

Sen. Tim Scott of South Carolina, committee co-chair – along with Sen. Sherrod Brown of Ohio – spoke from the perspective of a former insurance professional who has sold flood insurance about his state’s recent investment in mitigation.

“In 2023, the state’s budget included significant funding for mitigation efforts that would reduce flood damage from future storms,” Scott said.“Backing up that investment, the South Carolina Office of Resilience released a nationally praised Statewide Risk Reduction Plan, identifying the communities most vulnerable to floods and targeting mitigation resources to protect those residents. These are local solutions to local challenges – and they will make a huge difference in the lives of South Carolinians.”

While solutions that work in South Carolina might not work in other states, Scott said, “I’m confident that similar, locally based solutions and approaches could make a huge difference.”

Sen. Katie Britt of Alabama invited Kaniewski to elaborate on her state’s Strengthen Alabama Homes program, which provides grants and insurance discounts to homeowners who make qualifying retrofits to their houses. Britt cited research that found the program had “directly resulted in lower insurance premiums and higher home resale values.”

Kaniewski spoke in detail about Alabama’s efforts, including Strengthen Alabama Homes – which, he pointed out, is now being emulated by other states, including hurricane- and flood-prone Louisiana. He also cited by name the author of the research Britt referenced – Dr. Lars Powell, executive director of the Alabama Center for Insurance Information and Research at the University of Alabama and a Triple-I Non-resident Scholar – for producing “the first study that I’ve seen that gives empirical data — real evidence that mitigation pays.”

Steve Patterson, mayor of Athens, Ohio, described a range of nature-based solutions his city has taken – from rerouting the Hocking River, which runs through the middle of the city, to removing invasive plants and restoring native trees along the bank.

“That’s been very effective in reducing flooding in different neighborhoods throughout the city,” Patterson said. “There are a lot of things cities and villages can do.”

The work done by Athens – like green infrastructure work by the Milwaukee Metropolitan Sewerage District in Wisconsin and municipal entities – offers opportunities to reduce flood risk while improving quality of life for citizens. But, as Patterson points out, not all municipalities have the financial capacity to engage in such projects.

That is where the engagement of co-beneficiaries of resilience investment as partners becomes so crucial.

Learn More:

Triple-I Issues Brief: Flood

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

Proposed Flood Zone Expansion Would Increase Need for Private Insurance

FEMA Incentive Program Helps Communities Reduce Flood Insurance Rates for Their Citizens

FEMA Names Disaster Resilience Zones, Targeting At-Risk Communities for Investment

Shutdown Threat Looms Over U.S. Flood Insurance

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

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

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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.”  

Catastrophes, Disaster Preparedness, Disaster Resilience, Homeowners Insurance

FEMA Highlights Role
of Modern Roofs
in Preventing
Hurricane Damage

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By Max Dorfman, Research Writer, Triple-I

Homes with more modern roofs were able to avoid significant damage from Hurricane Ian, compared with those with older roofs, according to a recent study by the Federal Emergency Management Agency (FEMA).

Of the 200 homes surveyed, 90 percent with roofs installed before 2015 had roof damage, as opposed to 28 percent for those installed after 2015, when Florida imposed new ordinances regarding how roofs are attached to houses and how waterproof they need to be. Indeed, when Hurricane Ian made landfall at Cayo Costa, a barrier island in Lee County, Fla., on Sept. 28, 2022, it damaged 52,514 homes and other structures in the area, causing an estimated $55 billion in insured losses in 2024 dollars.

Some of this damage, according to the data, could have been mitigated by updated roofs.

History tells the same story

After the devastation of Hurricane Andrew in 1992, Florida took the initiative to develop innovative plans to prevent hurricane damage. These changes further came into effect in 2002, with a new focus on roofing. However, there were inconsistencies in the quality of the roofing.

“The 1970s-era homes performed better than some of the post-2002 new building code homes because of the sealed roof deck,” Leslie Chapman-Henderson, president of the Federal Alliance for Safe Homes, told The Miami Herald. “It was a nominal cost (to reinforce the roof) and a simple thing to do, but it made a huge difference.”

Now, with a renewed focus on metal sheet roofs—which bear the brunt of storms more resiliently than asphalt shingle roofs—FEMA’s data could drastically change the way in which homes are built, and how insurers are responding to fraudulent claims.

Insurance scams set progress back

Insurers are forced to raise the price of coverage in hurricane-prone areas in Florida because of a rash of schemes to deliberately damage roofs to qualify them for insurance claims, a persisting trend.

“Fraud drives insurance rates up and harms all Florida policyholders,” Citizens Property Insurance CEO Tim Cerio said. Still, implementing the changes suggested by the FEMA study may help alleviate some of the concerns posed by insurers—and help homeowners.

“When you’re looking at a home and evaluating its ability to survive a hurricane, the health of the roof is the first question to ask,” said Chapman-Henderson. “It not only increases your performance in the hurricane itself, but in the current environment it can help save you money on your insurance.”

Learn More:

Lawsuits Threaten to Swell Hurricane Ian’s Pricetag

Triple-I Issues Brief: Hurricanes

Auto Insurance, Technology

Cellphones Leading Cause of Distracted Driving; Telematics Can Help

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By Max Dorfman, Research Writer, Triple-I

Distracted driving—which has significantly increased since the coronavirus pandemic—is most significantly affected by cellphone use, according to a new Issues Brief by Triple-I.

The report, Distracted Driving: State of the Risk, states that cellphone use–which includes dialing, texting, and browsing–was among the most ubiquitous and highest-risk behaviors found in governmental and private sector studies. According to a 2022 national observational survey from the National Highway Traffic Safety Administration (NHTSA), a total of 2.5 percent of drivers stopped at intersections were talking on hand-held phones at any moment during the day in 2021.

The brief also found that the U.S. personal auto insurance industry’s combined ratio—a measure that represents underwriting profitability—increased dramatically from 2022, to 112.2. A combined ratio below 100 indicates an underwriting profit, while one above 100 indicates an underwriting loss.

“As drivers returned to the roads following the pandemic, distracted driving surged, causing higher rates of accidents, injuries, and deaths. This high-risk behavior has worsened in the years since, having huge implications for the insurance industry and their policyholders,” stated Dale Porfilio, chief insurance officer, Triple-I.

The report notes that telematics and usage-based insurance can potentially help insurers—and their policyholders—better understand a driver’s risk profile and tailor auto insurance rates based on individual driving habits.

Indeed, according to an Insurance Research Council survey in 2022, 45 percent of drivers said they made significant safety-related changes in how they drove after participating in a telematics program. An additional 35 percent stated that they made small changes in their driving behavior. Policyholders became more comfortable with having their insurer monitor their driving behavior when it resulted in potentially lower insurance costs during the onset of the pandemic.

“If telematics can influence drivers to change behaviors and reduce the number of accidents, the nation’s roadways will be safer and auto insurance can be more affordable,” Porfilio concluded.

Learn More:

Facts + Statistics: Distracted driving | III

Louisiana Still Least Affordable State for Personal Auto, Homeowners Insurance

Surge in U.S. Auto Insurer Claim Payouts Due to Economic and Social Inflation

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