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Industry Financials, Insurers and the Economy

Triple-I Global Outlook: Continued Pressure on Investments & Premiums

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The COVID-19 pandemic continues to depress economic growth around the world, with nearly every country experiencing declines in gross domestic product (GDP) – the total value of goods and services produced. GDP growth for the world’s 10 largest insurance markets is expected to decrease by 6.99 percent in 2020, compared to Triple-I’s previous estimate of a 4.9 percent decrease. 

Forward-looking growth proxies, such as interest rates, government spending, equity markets, and commodity prices, are sending mixed to negative messages about growth into 2021. 

Against this backdrop, Triple-I experts report, the global insurance industry has continued to issue new policies, service existing ones, and process and pay claims. While the final numbers on the extent of the pandemic and recession’s impact on the industry won’t be clear until 2021-2022, early indicators point to flat premium growth in 2020 globally and to significant differences in how the pandemic, monetary policy, and the recession are affecting insurers in the United States versus abroad. 

In its Global Macro and Insurance Outlook for the third quarter, published this week, Triple-I noted that global central banks kept benchmark interest rates mostly on hold in the third quarter at an average of 0.6 percent, reflecting the limits imposed by near-zero interest rates policies. 

Concerns about lower long-term interest rates are increasing as global central banks have pushed rates even lower during the pandemic, the report says. In a recent survey, about 33 percent of U.S. insurers said they assume flat long-term benchmark rates, while 50 percent reported having changed, or say they are in the process of changing, their investment strategy. These changes are likely to accelerate now that the U.S. Federal Reserve officially changed the focus of its monetary policy and central banks around the world follow.  

Interest rates matter because insurers get the bulk of their profits from investment earnings. U.S. insurers, in particular, rely on fixed-income financial instruments like corporate and government bonds.  If lower interest rates put pressure on insurers’ investment earnings, they will have to compensate by raising premiums paid by policyholders or adjusting their risk profiles to reduce claim payouts.   

“COVID-19 and lower economic activity continue to hinder premium growth in property, workers compensation, and auto,” the report says, “while a recent survey indicates that COVID-19 led to a reduction in life premium.” 

The report says it’s too early to determine whether increasing demand for warranty, indemnity, and cyber coverage and a surge of interest in captive insurers will make up for  downward pressure on premium growth across the industry. 

Catastrophes, Disaster Preparedness, Disaster Resilience

Battling Fires, California Also Struggles to Keep Homeowners Insured

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The Los Angeles office of the National Weather Service predicted prolonged, potentially record-setting heat and dangerous weather conditions throughout California this summer – and, some experts expect it to continue for some time beyond.

“If you like 2020, you’re going to love 2050,” said Michael Gerrard, director of Columbia University’s Sabin Center for Climate Change Law, in a recent Los Angeles Times article.

These conditions can only exacerbate this year’s atypical wildfire activity in the state. So, it should be no surprise that California is grappling with how to stop insurers from abandoning fire-prone areas, leaving countless homeowners at risk.

“Years of megafires have caused huge losses for insurance companies, a problem so severe that, last year, California temporarily banned insurers from canceling policies on some 800,000 homes in or near risky parts of the state,” The New York Times reports. “However, that ban is about to expire and can’t be renewed, and a recent plan to deal with the problem fell apart in a clash between insurers and consumer advocates.”

Insurers are widely expected to continue their retreat.

“The marketplace has largely collapsed” in high-risk areas, said Graham Knaus, executive director of the California State Association of Counties. “It’s a very large geographic area of the state that is facing this.”

California, where regulations lean toward consumer protection, is particularly challenged. The state doesn’t let insurers set premiums based on what they expect in future damages. They can only set rates based on prior losses. They also aren’t allowed to pass along reinsurance costs to policyholders – costs that are expected to rise as fire risks worsen.

State lawmakers introduced a bill to let insurers writing coverage in wildfire-prone areas incorporate climate predictions and other costs into their rate requests in return for making coverage more available and offering discounts to people who take steps to reduce their home’s vulnerability.

Insurers supported the change, as did the counties association and the union representing firefighters. But the bill faced strong opposition from consumer groups, who ultimately prevailed. Last month, the state senate stripped most of the provisions from the bill and directed the insurance commissioner to review the current rules and report back to the legislature in two years.

The legislature ended its session without acting on the revised version. Insurance Commissioner Ricardo Lara said his focus now is working with high-risk communities to reduce their wildfire risk enough that insurers will keep offering coverage without big rate increases.

“If Californians do our part to protect homes from wildfire,” Lara said, the industry should respond by agreeing to insure those homes.

Janet Ruiz, Triple-I’s director of strategic communications, said, “Insurers in California are working with legislators and the California Department of Insurance to find solutions to keep homeowners insured in wildfire risk areas. The industry supports mitigation efforts, the California FAIR Plan, and the proposed IMAP program.”

Catastrophes, Disaster Preparedness, Disaster Resilience

Laura Loss Estimates:$4 Billion to $13 Billion

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This blog post has been updated based on new information received since it was first published on September 4, 2020.

Hurricane Laura may have caused as little as $4 billion of insured damage or as much as $13 billion, according to early estimates.

Property information, analytics and data provider CoreLogic said residential and commercial insured losses from Hurricane Laura in Louisiana and Texas will come in at between $8 billion and $12 billion. Most of the property damage occurred in southwest Louisiana, where Laura made landfall early as a Category 4 hurricane with 150 mph winds.

Catastrophe risk modeler RMS puts the range between $9 billion and $13 billion. This includes wind and storm surge losses of between $8.5 billion and $12 billion, inland flood losses of $100 million to $400 million, and National Flood Insurance Program (NFIP) losses of $400 million to $600 million.

Catastrophe risk modeling firm Air Worldwide said it expects losses related to Laura to fall in the $4 billion to $8 billion range. The combination of the storm’s track through less-populated areas and its relatively small “Rmax” – the distance from the center of the storm to the location of the maximum winds – should keep insured losses down somewhat, the company said.

Cat risk modeler Karen Clark & Co. estimates insured onshore property losses from wind and storm surge will likely amount to $8.7 billion in the U.S. and $200 million in the Caribbean. Its estimate includes the privately insured wind and storm surge damage to residential, commercial, and industrial properties and automobiles but not losses covered by the NFIP or losses to offshore assets.

All estimates are subject to change as more information becomes available.

Corporate Social Responsibility, Insurance Industry

Insurers Respond to COVID-19 (9/2/2020)

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U.S. insurers and their foundations by June 2020 had donated about $280 million in response to COVID-19, the Insurance Information Institute (Triple-I) estimates based on information collected by the Insurance Industry Charitable Foundation (IICF)

International insurers and their foundations donated an additional $150 million.

U.S. auto insurers have  returned more than $14 billion to their customers nationwide in response to reduced driving during the pandemic, according to a Triple-I estimate.

Individual companies are working to alleviate the crisis by donating to global relief efforts and easing the financial burden on their customers. We reported on some of these activities in April.

Below is list of what just a sample of Triple-I’s member companies have contributed to ease a wide array of community needs.

The Allstate Foundation contributed $5 million to help domestic violence victims, youth in need and first responders.

American Family Insurance, along with the American Family Insurance Dreams Foundation, announced more than $4 million in support for COVID-19 pandemic relief and other non-profit efforts. Additional support from the Steve Stricker American Family Insurance Foundation is expected to push the total support to more than $6.8 million.

Chubb is focusing its global pandemic relief efforts on organizations that provide emergency medical supplies to healthcare facilities, to food banks helping the vulnerable and hungry, and for scientific research to treat and prevent this disease. The company announced $12.5 million in grants toward these efforts.

Liberty Mutual’s philanthropy program has committed $15 million in crisis grants to community partners helping respond to the coronavirus;  given donations to over 800 nonprofits they  partner with in their  employee volunteering program; supported employees’  donations with company gifts; and created an employee phone outreach program to call those in the community who are socially isolated.

MetLife Foundation announced that it is committing $25 million to the global response to COVID-19 in support of communities impacted by the pandemic. The grant funding from MetLife Foundation will span all regions where MetLife operates and address both short- and longer-term relief efforts. 

MAPFRE is allocating 54 million euros to support customers and suppliers. This is in addition to 5 million euros recently donated to accelerate COVID-19 research in Spain.

Nationwide Foundation is making $5 million in contributions to local and national charities to support medical and economic response efforts.

In addition to delivering $4.2 billion in savings to its customers, State Farm is donating millions to pandemic relief efforts.

The Hanover is donating $500,000 to local community nonprofits to provide pandemic-related assistance, including, $350,000 to local United Way, Boys & Girls Club and Chamber of Commerce organizations in Massachusetts and Michigan where the company employs large concentrations of employees

The Hartford committed $1 million in donations focused on responding to urgent human needs, the health care crisis and the city of Hartford through organizations that have been critical in addressing the humanitarian issues caused by this crisis.

Travelers pledged $5 million to assist families and communities across North America, the United Kingdom and the Republic of Ireland. The money goes to charities that provide essential services, pays wages and health benefits for eligible third-party contract employees, and contributes toward an employee donation matching program.

USAA has committed an additional $30 million to benefit 24 organizations assisting military families during these challenging economic times. The donation is part of USAA’s long-standing mission to support military and veterans’ families and recognizes the specific impact the health crisis has had on the military community.

Westfield Insurance will contribute nearly a million dollars toward nonprofit partners whose work became infinitely more challenging with this pandemic. The company is working with the Akron Canton Foodbank, Cleveland Foodbank, United Way of Cleveland, Feeding Medina County and Feeding America. Additionally, the Westfield Insurance Foundation is matching dollar for dollar up to $50 for every  employee who gives to a local foodbank or United Way.

Tell us how your company is contributing to the pandemic relief efforts in the comments below.

Careers and Employment, Insurance Industry

Insurance Careers Corner: Q&A with Tasha Fuller, FloodFrame USA

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By Kris Maccini, Social Media Director, Triple-I

Triple-I’s “Insurance Careers Corner” series was created to highlight trailblazers in the insurance industry and to spread awareness on the career opportunities within the industry.

This month we interviewed, Tasha Fuller, CEO & Co-Founder, FloodFrame USA, a Houston-based company that provides homes and businesses with a waterproof cloth barrier against damage from flooding. Tasha shared her insights as a woman entrepreneur in STEM and how past flooding experiences and a background in civil engineering inspired her business.

Tasha Fuller, CEO & Co-Founder, FloodFrame USA

You started your career as a civil engineer. What led you to eventually build your own business, FloodFrame USA?

As an engineer, I wanted to do more for the community. I was designing big projects around Houston, oftentimes office buildings or huge industrial buildings, but I got into engineering to help the world in some way. It was always in the back of my mind to figure out how to best use my talents for this.

My primary focus was hydraulics and hydrology – how water works and how storms work. Then flooding happened in Houston. My family and I went to Denmark about six months after [Hurricane] Harvey to visit family, and we were introduced to FloodFrame on the news. Immediately, I knew this was something that needed to be in Houston. I contacted the Danish engineers, who developed the technology, to discuss how to bring it to the U.S. This led to six months of conversations with the engineers, myself, and my Dad, who is also my business partner. Initially, we were pursuing this [opportunity] on the side, and it was a huge leap of faith when we realized this company needed a full-time champion in order to work in the U.S.

What was the transition like from engineer to entrepreneur?

It was a huge risk, and it was scary. I’d wake up in the morning and wonder if I made the right decision. I left a corporate environment where everything was lined up for me, and I had colleagues to ask questions. The pattern of the day was figured out. As an entrepreneur, each day you ask yourself what’s the best thing for your company. Not having colleagues, it’s all on you, and it can feel like you never turn off.  I’ve been doing this for almost two years now, and I’ve most recently learned to find the balance.

What advice would you give to aspiring women entrepreneurs looking to build a STEM business?

On the days where you feel like giving up, just don’t. You are going to have days when you doubt if you have the potential. I read a quote the other day that resonated with me, ‘when you’re tired, learn to rest not quit.’ I’ve been using that for myself because I have tough days too. I recommend going for a walk or doing something that you enjoy. Go back to the challenge after that rest. Things will look a lot brighter than when you were in the moment.

In my previous job, I was the only woman and the only person under 40 in the room. I had to learn to stand my ground and feel comfortable in that situation. I would say to view that situation as an advantage to stand out and have your message heard versus blending into the room.

As a resident of Houston, you’ve experienced several severe storms including Harvey. How did you these experiences influence the business?

We wouldn’t have started this company if we didn’t see the impact of water on our community and how destructive flooding can be. During Hurricane Harvey, I remember watching the water inch towards my parents’ house. It was such a hopeless feeling, because we couldn’t stop this force of nature at the time. I remember thinking that there must be some solution out there for people who want to protect their homes. That’s really where the seed was planted and why meeting the FloodFrame engineers clicked during our trip to Denmark. My family would have been in a different position if we had the protection on our house.

2020 is expected to be one of the worst hurricane seasons on record and the pandemic will bring about new challenges in disaster prep. How have these challenges impacted your business?

We have installations already in the ground in the Greater Houston area. Our primary goal is to educate as many people as possible [in the area] about risk mitigation and property protection. The biggest hurdles have been reaching the people that really need it and educating the community overall. Pre-disaster mitigation is important. Floods will continue to happen, but protection can help people spend a fraction of cost to rebuild a flooded house. I’ve been leveraging digital platforms and accelerator programs like the Resilience Accelerator to find the right partners and get the word out on risk mitigation. We’re in this unusual time, but people realize that their homes are important and need the tools to protect themselves. Even though we are in a pandemic, that doesn’t mean the flooding will stop.

Catastrophes, Disaster Preparedness, Disaster Resilience, Flood Insurance

Hurricane Season:More Than Wind & Water

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Under the best of circumstances, the Atlantic hurricane season is a challenging time. Despite improved forecasting and analytical tools, pre-storm communication, and engineering, hurricane-related losses continue to climb.

But the 2020 season hasn’t come during the best of circumstances. This extremely active season arrived on the heels of a pandemic that hasn’t ebbed, accompanied by civil unrest and atypical wildfire activity that could draw attention and resources away from preparation and post-storm aid.

And, as if that wasn’t enough, it falls in the middle of what is arguably the most contentious, chaotic U.S. election year in modern history.

To say these new variables complicate resilience would be a gross understatement in a year whose (to use the technical insurance phrase) “general weirdness” would be difficult to overstate.

So, in a paper published today we review the current state of hurricane resilience – how forecasting, modeling, preparation, and mitigation have evolved – and how the insurance industry is working to help communities bounce back from hurricanes.

Demographics more than climate change

Nine of the 10 costliest hurricanes in U.S. history have occurred since 2004, and 2017, 2018, and 2019 were the largest back-to-back-to-back insured property loss years in U.S. history. Many would instinctively chalk up such numbers to climate change. But a careful look at the data suggests climate change isn’t the predominant driver of losses.

U.S. Census Bureau data indicate that the number of housing units in the United States increased most dramatically since 1940 in areas that are most vulnerable to weather-related damage. They also show that new homes are bigger and more expensive than in past decades.

Bigger homes full of more valuables, more cars and infrastructure in disaster-prone locales – these, more than climate trends, seem to be the dominant factors driving losses.

Not more, but wetter

Hurricanes may not be more frequent or significantly more intense due to climate change, but they seem to be getting wetter. Inland flooding has caused more deaths in the United States in the past 30 years than any other hurricane-related threat.

Early in the 2020 season, Tropical Storm Cristobal made landfall along southeastern Louisiana and triggered flash flooding as far inland as northwest Wisconsin.  

“As the atmosphere continues to warm, storms can hold more moisture and bring more rainfall,” said Triple-I non-resident scholar and Colorado State University atmospheric scientist Dr. Philip Klotzbach. This trend could be exacerbated if, as some experts expect, storms begin traveling more slowly, adding to the moisture they would pick up from the ocean and drop over land.

This is why experts we talk with say, “Get flood insurance.”

We’ve come a long way – and have further to go

Our paper also looks at the evolution of hurricane modeling and forecasting, as well as developments in preparation and mitigation.

Better data and improved modeling have made private insurers comfortable writing coverage, like flood insurance, that was previously considered “untouchable” and enabled the creation of entirely new types of insurance products.

But challenges remain. Experts disagree as to which models are best, and the proprietary nature of these models can make it hard for regulators to determine whether filed rates based on them are unfairly discriminatory.

Hurricane preparation and damage mitigation have benefited from improved communication and public planning.

“Many people still don’t evacuate the way they should,” says Todd Blachier of Church Mutual Insurance, “but states like Louisiana, Florida, Alabama and Mississippi have gotten much better in terms of shutting down inbound roads and creating one-way egress to facilitate evacuation.”

He says officials are acting much more quickly and communicating more effectively, thanks in large part to improved information from the National Oceanic and Atmospheric Administration (NOAA) and other resources.

One area in which improvements could boost resilience is building codes and standards. A recent Federal Emergency Management Agency (FEMA) study quantified the losses avoided due to buildings being constructed according to modern, hazard-resistant codes and standards. In California and Florida — two of the most catastrophe-prone states — FEMA found adopting and enforcing modern codes over the past 20 years led to a long-term average future savings of $1 billion per year for those two states combined.

Disaster Preparedness, Webinars

Webinar: Wildfires are here—be CA wildfire ready with tips to protect property and finances

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With another catastrophic wildfire season again underway in California, join this press conference to hear from fire science and insurance experts on practical steps homeowners and renters can take to reduce their risk from wildfires. Learn where to start and what actions communities need to take first to continue to adapt to wildfire and stay protected.

Register now to join experts from the American Property Casualty Insurance Association, the Triple-I, the Insurance Institute for Business Home and Safety and the National Fire Protection association on September 3, 2020, 10:00 a.m.-11:00 a.m. PT. Register now

Homeowners Insurance

If the power goes out, can you get reimbursed for spoiled food?

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Following a major disaster like Hurricane Laura extended power outages are common. Nearly 800,000 customers in Louisiana and Texas were without power after the storm hit. However, most electric utility companies do not offer their customers reimbursement for food spoilage caused by long-term power outages.

In the areas of Louisiana and Texas affected by Hurricane Laura, none of the power companies serving those areas provide such reimbursements, according to Bill Davis of Triple-I .

Insurance companies will usually cover up to $500 of food that spoils from a power outage caused by a covered peril under standard homeowners insurance policies. Homeowners insurance deductibles will apply to food spoilage coverage, however, so a $500 deductible, which most policyholders carry, would mean that the policy would only pay if the policyholder suffered more than $500 in food spoilage losses. Some insurers offer food spoilage coverage with a separate deductible for an additional premium.

Disaster Preparedness, Disaster Resilience

Hurricane Laura Update: 8/27/2020

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Damage reports from Hurricane Laura are coming in. Lake Charles, La., was especially hard hit, and there are reports of a chemical leak nearby.

Laura made landfall near Cameron, La., as an “extremely dangerous” Category 4 hurricane. The National Hurricane Center (NHC) said in an early-morning bulletin that Laura had weakened to a Category 3 hurricane, with rapid weakening forecast, and the storm has since been downgraded to a Category 1 as it heads northward.

“Lake Charles experienced severe wind damage but seems not to have seen the amount of storm surge that was feared,” said Triple-I non-resident scholar and Colorado State University atmospheric scientist Dr. Philip Klotzbach.  

Despite the downgrade, the hurricane still had sustained winds of more than 100 mph. Heavy rain is predicted to be widespread across the west-central Gulf Coast, with five to 10 inches falling over a broad area, and locally up to 18 inches, leading to flash flooding.

The storm is now tracking inland across western Louisiana with damaging winds and is an inland flood risk as far north and east as Arkansas and the Ohio and Tennessee valleys. 

“The threat of tornadoes today and even tomorrow also exists as the storm recurves into the Tennessee Valley,” Klotzbach said. 

Catastrophes, Disaster Preparedness

Hurricane Laura set to develop into Cat 4 storm

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The National Hurricane Center forecasts Hurricane Laura to reach Category 4 intensity later today.  A ‘life-threatening’ storm surge of 10 to 15 feet is predicted, one of the worst in years, along with destructive winds. The storm is poised to strike the upper Texas coast and western Louisiana.  Hurricane and storm surge warnings have been issued for much of this zone.

If you live in an area ordered to evacuate, leave now. Do not attempt to ride out the storm.  Take your insurance contact information and home inventory with you.

In an analysis based on the assumption that Hurricane Laura would come ashore on the Louisiana coast as a Category 3 storm, CoreLogic, a catastrophe modeling firm, warns that nearly 432,000 single-family and multi-family homes along the coasts of Texas and Louisiana could be damaged from storm surge. According to the analysis, Laura threatens approximately 431,810 homes with a combined reconstruction value of approximately $88.63 billion.

Said Tom Larsen, principal, insurance solutions at CoreLogic, “The coincidence of two catastrophes—a damaging hurricane season and the ongoing global pandemic—underscores the importance of the correct valuation of reconstruction cost, one of the core tenets of property insurance.”

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