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Industry Financials, Insurance Industry, Insurers and the Economy

Triple-I/Milliman Groundhog Day Report Projects Insurer Growth, Profits In 2021

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

A pandemic, civil unrest, and weather-related catastrophes impacted the U.S. property/casualty (P/C) insurance industry in 2020, but not to the extent that was originally feared.

Few predict a repeat of the events of 2020, yet new projections from the Insurance Information Institute (Triple-I) and Milliman envision strong premium growth for 2021 with an underwriting result comparable to last year.

Despite myriad challenges, U.S. auto, homeowners, and commercial insurers are projected to realize a modest 1.9 percent growth in net premiums written and to book a combined ratio of 98.9 through year-end 2020, according to Triple-I and Milliman. This year, net premiums written will increase 6.1 percent, and the combined ratio will improve slightly, to 98.5, the two organizations project. Net premiums written are premiums written after reinsurance transactions. The combined ratio is the percentage of each premium dollar a P/C insurer spends on claims and expenses.

“We think the year ended surprisingly well, given the difficult circumstances the industry found itself in,” said James Lynch, FCAS, senior vice president and chief actuary, Triple-I.  “We project a slight underwriting profit in 2020, fairly similar to 2019. We project similar results over the next two years.”

The year-end 2020 projections, along with those for this year and next, were unveiled during a Triple-I members-only webinar on February 2, “Triple-I/Milliman Underwriting Projections 2021-2022: Groundhog Day Edition,” moderated by Triple-I CEO Sean Kevelighan.

P/C insurance industry premium growth will rebound in 2021, the Triple-I and Milliman projected, as the hard market in commercial lines will augment exposure growth from the economic recovery. Panelists also forecast continued underwriting profits through 2022, with projections for several major lines of business.

“Economists expect growth to improve this year and next, which will fuel growth in exposures in most lines,” said Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman, an independent risk management, benefits, and technology firm.

Kurtz noted, however, that recent signs of slowdown are “concerning – retail sales fell in December, adjusted for the season and new jobless claims remain stubbornly high.  So that may delay growth, as might the spread of so-called variant coronaviruses, which the CDC is expecting will dominate the cases in the spring.”

During the webinar, Dr. Michel Léonard, CBE, vice president and senior economist, Triple-I, took a preliminary look at third-quarter 2020 P/C insurance industry financial results.

The U.S. P/C insurers turned in a profitable performance in 2020’s third quarter, even as the industry’s net income dropped 26 percent for the second quarter in a row, according to Dr. Léonard.  “While it was below the 10-year average, it was overall stronger than expected given the structurally low-rate environment yields and equity market volatility.”

Léonard concluded: “Prudent asset management and sound underwriting practices ensured the continued financial stability of the industry, even as we faced a uniquely challenging year, delivering on our contribution to systemic financial stability and commitment to policyholders.”

To learn about Triple-I membership, visit iiimembership.org

Insurance Industry

Insurance Will Face COVID-19 Side-effects Even After Pandemic Ends

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A new survey from the Insurance Research Council (IRC) finds that two-thirds of respondents worked from home at least part of the time during the COVID-19 pandemic. The survey, conducted in October, also reveals half expect to continue working from home entirely or alternate between working and not working from home in the future.

Many consumers also expect to continue shopping on-line, with nearly half saying they expect to do less in-person shopping in retail stores even after the pandemic retreats. Both findings point to a continuing reduction in vehicle travel.

One-third of homeowners indicated they had undertaken substantial home improvement projects since the start of the pandemic. Significant home improvements have insurance implications to the extent that they increase the replacement cost of the home or, in some cases such as installing swimming pools, introduce additional liability risk. Other pandemic developments with possible impact on liability risk include the number of Americans adopting dogs (21 percent) or acquiring firearms (13 percent).

The study also explored attitudes toward economic conditions and steps taken in response. Half the respondents said they were concerned about their financial future; the most commonly cited actions taken were to reduce spending on travel and entertainment. A small percentage of respondents indicated that they had taken steps to reduce insurance spending, such as shopping for less expensive insurance or reducing coverage.

“This survey suggests the effects of COVID-19, including those impacting the property-casualty insurance industry, may continue even after the virus is under control,” said David Corum, CPCU, vice president of the IRC. “The results also reveal younger, urban, and lower income consumers have been more severely impacted by many economic aspects of the pandemic.”

The report, Consumer Responses to the Pandemic and Implications for Insurance, presents findings from the October 2020 survey of 2,147 adults who acknowledged some role in household insurance purchasing decisions.

For more information on the study’s methodology and findings, contact David Corum at (484) 831-9046 or by email at IRC@TheInstitutes.org.

ABOUT IRC: The Insurance Research Council (IRC) is a division of the Insurance Information Institute (Triple-I), the trusted source of unique, data-driven insights on insurance to inform and empower consumers. The IRC provides timely and reliable research to all parties involved in public policy issues affecting insurance companies and their customers. The IRC does not lobby or advocate legislative positions. It is supported by leading property-casualty insurance organizations.

Business Risk, Insurance Industry, Legal Environment

Study: Most Americans disapprove of COVID-19 lawsuits, prefer government aid for small businesses

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The vast majority of Americans believe COVID-19 relief should come via public policy solutions — and not litigation — according to polling released last week by the American Tort Reform Association (ATRA). 

 Key takeaways from the poll include:

  • 59% say those harmed by the pandemic should get assistance from policies passed by elected officials, versus just 7% who say they should get payouts from lawsuits;
  • 74% say small businesses affected by COVID-19 should be supported by government grants or loans versus 6% who say lawyers should help small businesses pursue legal claims.
Source: ATRA

More information on the polling results is available on ATRA’s website.

For information on the principles the broader insurance industry has put forth for a government-backed pandemic policy solution, click here

Business Risk, Disaster Resilience, Emerging Risks, Insurers and the Economy, Webinars

Virtual Triple-I Forum Reviews 2020, Looks Ahead at Risks, Opportunities

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Sean Kevelighan, Triple-I CEO

Insurance is a business that promotes and demands resilience, and 2020 was a year-long case study in our industry’s ability to respond rapidly to new challenges from a firm financial foundation. Triple-I’s virtual Joint Industry Forum (JIF) provided many examples from a range of industry and academic leaders, along with insightful discussions about what the industry faces in the near and longer terms.

At the 2020 JIF in New York City, it was clear from our various panels that the industry had a full plate of priorities for the year ahead. Then came COVID-19, and a whole new set of public health and economic concerns was added to the existing exposure mix. The virus brought a strong economy nearly to a halt; while officials assessed and responded to these threats, civil unrest on a scale not seen since the 1990s broke out on the streets of many cities; historic and near-historic weather and wildfire activity descended on communities whose resources were already strained by the pandemic.

And all of the above took place amid the uncertainty created by the most contentious, chaotic election year in modern U.S. history.

Through it all, as this year’s JIF speakers described, the property/casualty insurance industry managed to shine.

“Look at how our companies performed” in the real-time shift to fully remote work, noted Chuck Chamness, President and CEO of the National Association of Mutual Insurance Companies (NAMIC). “Then look at the dynamic changes in our businesses caused in large part by the pandemic, where we gave back $14 billion in premiums to policyholders and contributed a couple of hundred million dollars-plus in charitable contributions. We really did our job this year.”

David Sampson, American Property Casualty Insurance Association (APCIA) President and CEO, added that the “bulk of the industry came together to proactively work with agents and policymakers to create a solution that could work for all stakeholders to provide protection against widespread economic shutdown as a result of a viral outbreak.”

APCIA, NAMIC, and Independent Insurance Agents and Brokers of America proposed to Congress a Business Continuity Protection Plan (BCPP) that would allow businesses to buy revenue-replacement coverage for up to 80 percent of payroll and other expenses in the event of a pandemic through state-regulated insurance entities, with aid coming from the Federal Emergency Management Agency (FEMA), which would run the program.

Our industry also faced a literal existential threat in the form of efforts to require insurers to pay billions in business income (interruption) claims for which not one penny of premium had ever been paid. Thanks to industry leaders stepping up to educate policymakers and the media, much of this threat – though, by no means all of it – seems to have faded. Triple-I’s Future of American Insurance & Reinsurance (FAIR) campaign played a critical role in informing policy discussions on business interruption coverage, the uninsurability of pandemic risk, and the need for federal involvement to mitigate the financial impact of future pandemics.

Throughout this year’s virtual JIF, the emphasis on innovation is a consistent thread. Peter Miller, President and CEO of The Institutes, observed that the pandemic and its attendant operational and economic stresses forced the industry into innovation overdrive. He cited a member of The Institutes’ board saying 2020 “caused them to do 10 years of innovation in one,” adding that board members have told him work-from-home alone has saved their companies “one hundred-plus million dollars a year.”

Whether discussing the industry’s response to climate change and extreme weather or how to communicate the importance of risk-based pricing to policymakers, innovation is at the heart of solving every challenge (and seizing every opportunity) our industry faces. Peter emphasized the importance of using innovation strategically across the entire value chain – not just to solve specific problems as they emerge.

In addition to the panelists I mentioned above, the conversations featured a cross section of industry leaders, Triple-I subject-matter experts and non-resident scholars. If you weren’t able to attend, you can view and watch the panels here.

Disaster Preparedness, Flood Insurance

Californians Warned About Mudslide Riskas Winter Bears Downon Wildfire Areas

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California Insurance Commissioner Ricardo Lara is alerting citizens to review their insurance policies in order to protect themselves and their assets in anticipation of winter weather bringing the possibility of  floods, mudslides, debris flows, and other disasters to recent wildfire burn areas throughout the state.

The commissioner issued a notice to insurers reminding them of their duty to cover damage from any future mudslide or similar disaster caused by recent wildfires that weakened hillsides. In particular, the United States Geological Survey (USGS) has projected increased likelihood of debris flow for fire-scarred areas of the state in the event of heavy rainfall.

Many Californians may not be aware that homeowners’ and commercial insurance policies typically exclude flood, mudslide, debris flow, and other similar disasters—unless they are directly or indirectly caused by a recent wildfire or another peril covered by the applicable insurance policy. For insurance purposes, it’s important to understand the difference between “mudslides” and “mudflow.” 

Mudslides occur when a mass of earth or rock moves downhill, propelled by gravity. They typically don’t contain enough liquid to seep into your home, and they aren’t eligible for flood insurance coverage.  In fact, mudslides are not covered by any policy. 

Mudflow is covered by flood insurance, which is available from FEMA’s National Flood Insurance Program (NFIP) and a growing number of private insurers. Like flood, mudflow is excluded from standard homeowners and business insurance policies—you must buy the coverage separately. 

The California Department of Insurance has posted a fact sheet for consumers to answer questions about what their policies cover.

Emerging Risks, Legal Environment

What Is Social Inflation? What Can InsurersDo About It?

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A recent study by the Geneva Association on the topic of “social inflation” addresses the challenges of defining and quantifying the phenomenon. More important, it takes on the question of what insurers and reinsurers can actually do about it.

“Social inflation is a term that is widely cited in insurance debates but it is often ill-defined or at best only loosely explained,” the report begins. Broadly speaking, it “refers to all ways in which insurers’ claims costs rise over and above general economic inflation.”

Actuaries typically label such growth in claims costs “superimposed inflation,” the study says, but their measures “may not adequately account for advances in medical technology, which create new therapies, change the costs of treatment, and increase the lifespan of seriously injured claimants,” as well as other considerations.

More narrowly, the report says, “social inflation refers to legislative and litigation developments which impact insurers’ legal liabilities and claims costs.”

The definitional difficulties are well illustrated in the rendering below, from the study.

Understanding what drives these costs – and whether they are temporary phenomena or a long-term trend – is essential to adequately pricing insurers’ exposures and enabling them to pay claims.

Major drivers, possible solutions

Rollbacks in tort reforms stemming from past insurance availability and affordable crises have been implicated by some for driving social inflation. The report finds that any such correlations are “weak at best.”

More significant, the study found, are shifting judge and jury attitudes in ways favorable to plaintiffs; growing anti-corporate bias; and aggressive tactics used by plaintiff attorneys, including third-party litigation funding.  

What can insurers do to battle social inflation? The report suggests four areas of focus:

  • Engage in the public-policy debate to promote legislative changes that further level the playing field between plaintiffs and defendants;
  • Get better at defending against aggressive and increasingly well-armed plaintiffs’ attorneys;
  • Upgrade underwriting to reduce opportunities for claims surprises. “Insurers need better early-warning systems,” the report says, drawing on information from across their organizations, their own and competitor liability cases, and data from social and digital media;
  • Develop products with an eye toward mitigating social inflation. Given the scale of potential liability exposures, the report says, “co-participation arrangements” to share risks among reinsurers could help maintain and even expand the boundaries of insurability. Parametric insurance also might have a role to play.

More on social inflation, from the Triple-I Blog

LITIGATION FUNDING RISES AS COMMON-LAW BANS ARE ERODED BY COURTS

SOCIAL INFLATION AND COVID-19

LAWYERS’ GROUP APPROVES BEST PRACTICES TO GUIDE LITIGATION FUNDING

IRC STUDY: SOCIAL INFLATION IS REAL, AND IT HURTS CONSUMERS, BUSINESSES

FLORIDA’S AOB CRISIS: A SOCIAL-INFLATION MICROCOSM

Insurance Industry, Insurers and the Economy

What property/casualty insurance industrycan expect fromBiden White House

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On January 20, in a historic inauguration ceremony surrounded by U.S. soldiers guarding against domestic terrorism — before a field of 200,000 illuminated flags representing Americans who could not attend the ceremony because of the coronavirus pandemic — President Joe Biden and Vice President Kamala Harris were sworn into office.

Sean Kevelighan, CEO, Insurance Information Institute (Triple-I), today released the following statement:

“Every four years—for more than two centuries—the United States has celebrated its Constitution, and that historic document’s invocation of “We, the People,” through the orderly and peaceful transfer of power atop the government’s executive branch. With today’s inauguration of President Joseph Biden and Vice President Kamala Harris, that solemn tradition continues in our nation’s capital only two weeks after unprecedented lawlessness descended upon Washington, D.C.

The U.S. economy is facing extraordinary challenges due to the COVID-19 pandemic. Yet the U.S.’s insurance industry will continue to provide essential financial protections to individuals and businesses while at the same time employing millions of Americans and paying billions of dollars in taxes to support crucial government services. The industry-supported Insurance Information Institute congratulates the Biden-Harris administration as it takes office. We also stand ready to provide its policymakers with the Triple-I’s unique, data-driven insights on insurance to inform public policy.”

The Biden administration has listed COVID-19, economic recovery, racial equity, and climate change among its top priorities.

In coming months, the property/casualty insurance industry is likely to encounter a frenetic pace of legislative activity on many issues affecting its operations. Here are just a few:

Climate Change –  Senator Dianne Feinstein’s proposed Addressing Climate Financial Risk Act, intended to help federal regulators understand and mitigate risks from climate change within the financial system, would require a Federal Insurance Office (FIO) report on how to modernize and improve climate risk insurance regulation.

“The insurance industry is more directly affected by climate risk than other areas of the financial system,” said Feinstein’s press release. The report would be modeled on FIO’s 2013 report on modernizing state insurance regulation.

Rep. Carolyn Maloney introduced the Pandemic Risk Insurance Act, which is modeled after the Terrorism Risk Insurance Act enacted after 9/11. However, the bill has yet to gain widespread support. The insurance industry has advanced several pandemic risk mitigation proposals of its own.

Congress could deliberate reauthorizing the National Flood Insurance Program, which was last done with the Biggert-Waters Flood Insurance Reform Act of 2012.

Full federal marijuana legalization remains daunting, with a slim Democratic majority, according to Politico, but piecemeal legislation with wider bipartisan support, such as banking access for cannabis businesses and medical marijuana research, may have a better chance to advance. Conflicting state and federal laws have discouraged insurers from participating in the cannabis-related business market.

An expected increase in the corporate tax rate would mean higher tax liabilities for property/casualty insurers.

Risk-based insurance pricing is an issue that’s expected to heat up, and insurers will have to explain to a new set of legislators that the business of insurance hinges on predicting the level of risk a policyholder represents and charging a premium that corresponds with that level of risk.

On January 28, at Triple-I’s virtual Joint Industry Forum, CEOs from five major insurance industry trade associations will share their perspectives and public policy priorities for 2021. Click here to register for the complimentary event.

Disaster Preparedness, Disaster Resilience, Flood Insurance, Floods

Study Supports Casefor Flood Mitigationas World Warms

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Intensifying rainfall fueled by climate change over the past 30 years has caused nearly $75 billion in flood damage in the United States, according to a study by Stanford University researchers.

The findings, published in the journal Proceedings of the National Academy of Sciences, shed light on the growing costs of flooding and the heightened risk faced by homeowners, builders, banks and insurers as the planet warms. Losses resulting from worsening extreme rains comprised nearly one-third of the total financial cost from flooding in the U.S. between 1988 and 2017, according to the report, which analyzed climate and socioeconomic data to quantify the relationship between changing historical rainfall trends and historical flood costs.

About 90 percent of natural disasters in the United States involve flooding, and much has been written about the flood protection gap.

“On average nationwide, only 30 percent of homes in the highest risk areas have flood coverage,” according to the Risk Management and Decision Processes Center of the Wharton School at the University of Pennsylvania, a Triple-I Resilience Accelerator partner. “Less than 25 percent of the buildings flooded by Hurricanes Harvey, Sandy, and Irma had insurance. Indeed, repeatedly after floods there is evidence of the United States’ large and persistent flood insurance gap.”

To make matters worse, a recent analysis by the nonprofit First Street Foundation found the United States to be woefully underprepared for damaging floods. The foundation identifies “around 1.7 times the number of properties as having substantial risk,” compared with Federal Emergency Management Agency (FEMA) flood designation.

Flood coverage isn’t included in most homeowners insurance policies, so many may not know they don’t have it if their bank didn’t require them to buy it before providing a mortgage. Until recently, flood insurance was considered an untouchable risk for private insurers to write, so FEMA’s National Flood Insurance Program (NFIP) was the only game in town.

In recent years, however, Congress adopted new laws to support the emergence of a robust domestic private flood insurance market.  Last year, regulators provided rules that allowed private carriers to offer flood policies outside of NFIP and to qualify for the mortgage flood insurance requirement. Carriers and reinsurers are expanding their use of sophisticated models to underwrite flood risk, driving the growth of private sector flood insurance.

Triple-I has more information about flood insurance in our Spotlight on: Flood insurance article.

Auto Insurance, Insurance Industry

Auto insurance rates decline across the U.S.

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Auto insurance rates declined in 2020 for the first time in a decade, according to a recent survey by ValuePenguin.com. The survey results anticipate a 1.7 percent decline nationally.

A major factor in the decline are the pandemic-related discounts granted by insurers in 2020. These discounts have been valued at $14 billion, according to Triple-I estimates. Triple-I Chief Actuary James Lynch reported that many auto insurers are building these discounts into rates for 2021 and that driving declined by as much as 50 percent during spring lockdowns.

The estimate of just how much rates are declining depends on the metrics you use. The Consumer Price Index (CPI) report for December 2020 indicates that auto insurance rates declined by 4.8 percent nationwide compared with the same month last year. By contrast, the CPI showed the cost of new vehicles rising by 2 percent in December and by 0.5 percent for the full year 2020.

A comprehensive July 2018 assessment of the Missouri auto insurance market by the state’s Department of Insurance discovered even larger declines. It found that, when adjusted for inflation, the typical Missouri driver has seen a 17 percent decrease in auto insurance premiums since 1998.

Insurance Industry

Triple-I’s 2021 Insurance Fact Book Chronicles a Historic 2020

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The Insurance Information Institute (Triple-I), an affiliate of The Institutes, has released its 2021 Insurance Fact Book, an essential resource for anyone who needs up-to-date information on insurance.

This year The Insurance Fact Book has new content to address many of the past year’s events, in such areas as: insurer response to the pandemic; civil disturbances; and homeowners high-risk markets.

Highlighted in the “Emerging and Evolving Insurance Issues” section are five unique insurance risks that have been impacted by the COVID-19 pandemic: business income (interruption) insurance; workers compensation; extreme weather; social inflation; and cyber.

“2020 provided a good illustration not only ofhow the disruption continuum is evolving, but also how the insurance industry is able to adapt and lead,” said Sean Kevelighan, CEO, Triple-I. “While the year began fairly normally, we very quickly encountered a global pandemic that still rages; a 2020 Atlantic hurricane season for the record books; and Western wildfires that burned their way through homes and businesses. All the while claims for covered catastrophes were paid in new and innovative ways, and many customers experienced premium rebates and returns from auto insurers, given the lack of driving during economic lock-downs.”

The 2021 Insurance Fact Book is a digital publication available for purchase from the Triple-I online store. It is available free of charge to Triple-I members. The Insurance Fact Book, issued annually since the Triple-I’s inception in 1960, helps inform the decisions of policymakers and business leaders and is an essential resource for journalists, researchers, and academics, among others. 

The Fact Book includes thousands of facts, figures, statistical tables, and charts documenting primarily the property/casualty insurance industry in the U.S. and worldwide. The publication offers details on auto, homeowners, and business insurance markets, with data on direct premiums written and the factors impacting the cost of these coverages. Additionally, there is voluminous information on the life/annuity insurance and reinsurance industries.

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