The annual Focus on 5 survey by the National Council of Compensation Insurance (NCCI) yielded the following issues that are keeping workers comp executives up at night:
Will insurers be able to react quickly enough to preserve rate adequacy if loss costs start to rise after a sustained period of decline?
How does an aging and changing workforce affect industry drivers like claims frequency and severity, along with wage and employment levels?
What does the future hold for medical care costs, given variables like emerging healthcare technology and treatments, issues related to opioids and marijuana in the workplace, and mega-claims associated with seriously ill or injured workers?
Will the gig economy ever grow to the extent that it affects workers comp premium levels? And will insurers develop innovative products to serve that market?
How will rapidly changing workplace technology affect American jobs and the workers comp industry? Can regulation and legislation keep pace?
“It is critically important that we stay on top of the issues affecting our industry,” said Bill Donnell, NCCI president and CEO. “With a better understanding of the concerns of these leaders we can focus on key topics and provide insights that enable more informed decision making across the workers compensation system.”
I’m looking forward to attending my first Insurance Information Institute Joint Industry Forum next week. The agenda for the January 16 event at the Marriott Marquis Hotel in New York City is packed with impressive speakers from across the insurance industry, as well as influencers from media, academia, and the world of politics and policy:
Triple-I CEO Sean Kevelighan will interview award-winning broadcast journalist and CBS Face the Nation host Margaret Brennan about current issues and the 2020 elections;
Former U.S. Council of Economic Advisers Chairman Glenn Hubbard will discuss events and trends shaping the insurance business environment with Wall Street Journal chief economics correspondent Jon Hilsenrath; and
Phil Klotzbach, research scientist in the Department of Atmospheric Science at Colorado State University and Triple-I non-resident scholar will lead a panel on extreme weather that includes the Weather Channel’s Dr. Rick Knabb.
Other panels include:
The Future of Insurance Marketing;
A 21st Century Workforce That Reflects Communities We Serve; and
An interactive discussion:JIF 2020 Crystal Ball—What Does the Future Hold?
The full-day event will wrap up with a cocktail reception with Dr. Hubbard. The entire event will be a fun, informative opportunity to learn and network with peers, subject-matter experts, and industry influencers.
I hope to see you there; if you haven’t signed up, please note: Registration closes at 5:00 p.m. (ET) Friday, January 10, 2020.
The Insurance Information Institute (Triple-I) 2020 Insurance Fact Book is now available.
The 234-page digital publication features facts, figures, statistical tables, and charts on U.S. and global insurance markets. It also includes detailed data on direct premiums written and factors affecting U.S. auto, homeowners, and business insurance costs.
Three unique insurance risks—cybersecurity, extreme weather, and social inflation—are highlighted in a new section called Emerging and Evolving Insurance Issues. Other new components include:
“As we welcome a new decade, the challenges before the insurance industry are vast,” said Triple-I CEO Sean Kevelighan. “The catastrophic shock and losses from the last few years, from California wildfires and the Atlantic hurricane season, are telling. What the last decade has foreshadowed could be, as some say, the new abnormal. Our new Insurance Fact Book reflects the new risks insurers face.”
The 2020 Insurance Fact Book is available for purchase from the Triple-I’s online store. Copies may be obtained free of charge by Triple-I member companies and associate members via the Triple-I’s members-only website. Previous editions have been popular with policymakers, journalists, academics, business leaders, and others.
Car insurance premiums have risen steadily since 2009 at a faster pace than inflation, according to a recent paper in the Journal of Insurance Regulation.
Transportation is essential to opportunity in the United States. Cost of driving, therefore, isn’t a trivial issue.
When you hear a stat like that, what’s your instinctive response? To blame “greedy insurers” who are making money hand over fist and still aren’t satisfied? It might be, if you don’t follow insurance profitability trends. If you do, you know they’ve been losing money on auto insurance for years, despite increasing rates.
Rising rates have caused some to call for regulation to help make car insurance more affordable. Transportation is essential to opportunity in the United States, and most Americans rely on cars. Cost of driving, therefore, isn’t a trivial issue.
The year 2009 was the beginning of the end of the “Great Recession.” In a recovering economy, more people drive – to work, stores, restaurants, et cetera. More vehicles traveling more miles means more accidents and more insurance claims.
The insurance term for this is “frequency.” In addition to more cars on the road, the report finds, distracted driving due to use of digital devices may contribute to increased accident frequency.
In an improving economy, more cars are on the road. More vehicles mean more accidents and insurance claims. Distracted driving due to use of hand-held digital devices also may contribute to increased accident frequency.
Another key term is “severity” – the average cost of claims. Severity has been high for several reasons:
Safety and fuel efficiency are expensive. Cars are safer and cheaper to operate than ever before – thanks to sensors and computers and new materials, all of which are expensive to repair or replace after an accident. This affects loss costs, which are reflected in premiums.
Medical costs are on the rise – especially for hospitalization. The paper cites U.S. Bureau of Labor Statistics data showing that medical and auto insurance inflation growth track closely and hospital cost inflation by far outstrips both. Since many crash victims wind up in the hospital, it’s possible these costs aren’t fully reflected in insurance rates. The paper also cites research indicating that hospitals may charge insurers more than other payers.
Litigation and generous juries. The report doesn’t go into detail about litigation, but the trend known as “social inflation” – marked by growing jury awards and “litigation funding,” in which investors pay plaintiffs to sue large companies in return for a share in the settlement – is well documented.
These factors drive up rates as insurers seek a return that justifies risk taking and operational spending. Nevertheless, the report finds no correlation between rising rates and insurer profitability.
Cracking the affordability nut
Literature on insurance affordability is diverse, with little consensus on the key term. The paper cites research that strongly suggests aggressive rate regulation actually reduces affordability.
“When rate regulation suppresses costs for the riskiest insureds,” the study states, “average premiums, losses, and injuries increase.”
So, what might improve auto insurance affordability?
Some contributors to rising rates – such as repair costs – “should partially self-correct over time,” the paper says. Others, like medical costs and “non-economic” damages (pain and suffering awards) could be addressed through changes in personal injury protection (PIP) laws, antifraud efforts, transparency in medical pricing, or civil justice reform. Stricter “distracted driving” laws and improved enforcement of existing ones could help reduce losses and premiums.
Insurers are investing in technology and improved analytics to streamline their workflows, improve service, and bolster their bottom lines. Some are even discussing getting out of auto entirely – which, should it become a trend, would not bode well for affordability or availability.
ABC News in North Carolina reports that a driver in the state looked up and saw a bird carrying a huge fish.
“It was one of those slow-motion moments in life. I saw the fish and I saw him drop it,” said Rhesa Walston of Beaufort, North Carolina.
The catfish smashed straight into her windshield.
It happened so quickly she didn’t have time to react.
“There was glass all over my front seat…glass on my lap,” Walston told ABC News.
After making sure her daughter in the back seat was safe, Walston contacted her family and her insurance company. Family members tracked down the fish (apparently, catfish dropped from high altitudes bounce) and took pictures to corroborate her catch.
Walston told ABC News she will have to pay the $250 deductible on her comprehensive auto policy — not a huge price for a story the family will be telling for years to come. Animal damage is covered if you have optional comprehensive coverage. If you only have collision coverage, then you’re not covered.
It’s getting harder for California homeowners in fire-prone areas to buy and keep insurance.
Homeowners insurance non-renewals were on many listeners’ minds during last week’s Insurance Information Institute (I.I.I.) radio satellite media tour (SMT) on the aftermath of the 2017-18 California wildfires.
With 20 media outlets throughout the state participating, I.I.I. CEO Sean Kevelighan, Head of Media and Public Affairs Michael Barry, and Director of Strategic Communications Janet Ruiz were on hand to answer questions from journalists.
As the frequency and cost of California wildfires increase, it’s getting harder for homeowners in fire-prone areas to buy and keep insurance. In August 2019, the California Department of Insurance released data showing insurers are non-renewing an increasing number of residents in areas with high wildfire risk.
The guidance the I.I.I. provided to Californians faced with this dilemma included:
If your insurer says they won’t renew your policy, ask them to reconsider. Your situation may involve factors they don’t know about.
Try another insurer. The insurance market is competitive, and insurers don’t profit from not writing business. Risk appetites and underwriting vary.
When all else fails, California’s Fair Access to Insurance Requirements (FAIR) plan is available as an insurer of last resort, after “a diligent effort to obtain coverage in the voluntary market has been made.”
The I.I.I.’s speakers also emphasized during the SMT that property owners can make their homes more resilient to wildfires by mitigating their own risks; how California’s insurers disbursed nearly $25 billion to their customers to help them recover financially from the 2017-18 wildfires; and how state regulators are working with insurers to price accurately the risks of covering homes in wildfire-prone communities.
Within hours of I.I.I.’s SMT, California Insurance Commissioner Ricardo Lara announced mandatory protections from insurance non-renewals extending into new areas of Northern and Southern California. The one-year moratorium covers residential policies in ZIP codes adjacent to recent wildfire disasters. The law cited by Commissioner Lara (Senate Bill 824) protects homeowners adjacent to a declared wildfire emergency who didn’t suffer a total loss — recognizing the disruption non-renewals cause in communities after wildfire disasters.
Below is a list of the participating radio stations and podcasters who taped the I.I.I. conversations for either broadcast or streaming in January 2020:
KCAA 1050-AM/KRLA 870-AM/KSPA 1510-AM Los Angeles/KDIA 1640-AM/KFAX 1100-AM Radio San Francisco-Oakland-San Jose “Bill Martinez Live”
Business Radio X-IND Podcast National, “The Mark Bishop Podcast”
KOCI 101.5-FM Los Angeles/Liberty Express Radio Network-AM/FM Radio Syndicated “School for Startups”
KSZL 1230-AM Radio Los Angeles “America Tonight with Kate Delaney”
KMET 1490-AM Los Angeles – KEST 1450-AM Radio San Francisco-Oakland-San Jose, “Talk! With Audrey”
Transformation Talk Radio-Online Podcast National, “The Dr. Pat Show”
KVTA 1590-AM Radio Los Angeles, “The Kim Pagano Show”
KSTE 650-AM Radio Sacramento-Stockton-Modesto, “The Chad Benson Show”
On Tuesday, December 17, the House approved a package of bills that includes a seven-year reauthorization of the Terrorism Risk Insurance Act (TRIA) and funding for the National Flood Insurance Program until September 30, 2020.
Numerous insurance industry groups applauded the extension of TRIA. The act has been an important support in the effort to supply terrorism insurance through the private market. Since it was enacted, the percentage of companies purchasing terrorism insurance has risen to 80 percent, and the price of coverage has fallen more than 80 percent.
The $1.4 trillion spending package also includes:
Federal funding ($25 million) for gun violence research for the first time in 20 years.
A repeal of Obamacare taxes, including a 2.3 percent excise tax on medical devices, a health insurance industry fee that would have taken effect in 2020, and the 40 percent “Cadillac” excise tax on the most expensive health-insurance plans.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, which features provisions that make it easier for smaller employers to join open multiple-employer plans, ease non-discrimination rules for frozen defined benefit plans, and add a safe harbor for selecting lifetime income providers in defined contribution plans.
The bill is expected to pass the Senate and be signed by President Trump before government funding expires on December 20.
The most primal ones – those associated with wind, fire, and water – often travel in pairs. Modern, more complicated risks – supply chain, business interruption, cyber, political, and financial – are like tapestries so tightly woven that any effort to address this or that hazard can threaten to unravel much of what you’re trying to protect.
A new report from Verisk looks at complex emerging risks and why they matter to insurers and risk managers.
Between 1990 and 2008, natural hazards were the cause of 16,600 hazardous material releases.
“Accidents in the industrial sector can be catastrophic, and up to five percent of all accidents in this sector are caused by natural events,” writes Alastair Clarke of Verisk’s AIR Worldwide in an article titled “Where Climate Change and Natech Risk Meet.”
Between 1990 and 2008, Clarke reports, natural hazards were the cause of 16,600 reported hazardous releases.
“In each case,” he writes, “a natural event triggered a technological malfunction that led to the release of hazardous material.”
That’s a natech, and the insurance implications are significant.
Many examples exist of catastrophic casualty claims from natechs. The report cites the 2010 collapse of a dam at the Ajka alumina plant in Hungary. The dam broke after days of heavy rain, releasing toxic sludge and causing 10 deaths and 150 injuries, along with the contamination.
In 2005, Hurricane Katrina triggered 200 hazmat releases. When storm surge ruptured a storage tank at a Louisiana oil refinery, Clarke writes, “the release of 25,000 barrels of crude oil affected 1,800 homes and resulted in a $330 million settlement.”
“Natechs show how liability can arise from natural events that can be traced back to the suppliers of a faulty service,” Clarke writes. “With climate change, the threads are deeply tangled. ”
IoT unites us, for better and worse
Globalization has connected the world through commerce and culture as never before, and the Internet of Things (IoT) aims to finish the job. But supply-chain risks – already subject to the vagaries of weather, politics, and global finance – only become more complex as machines whisper among themselves.
Utilities alone are expected to deploy more than 800 million connected IoT devices by the end of 2019. Each one is a potential cyberattack portal.
In “Cyber Risks Loom Large in an Interconnected World,” Tim Campbell of Verisk Maplecroft and Kamban Parasuraman of AIR report that a survey of more than 1,000 U.K. and U.S. risk professionals indicated the average company shares confidential information with about 583 third parties. Of those surveyed, 59 percent experienced a data breach linked to a vendor or other third party in 2018.
“Just as companies need to be aware of the cyber risks introduced by third parties in their supply chains,” Campbell and Parasuraman write, “insurers may need to consider how the insureds within its own book of business are interconnected. In fact, the lack of full visibility into each insured’s interdependencies may create risks that are unidentifiable from an underwriting standpoint.”
Utilities alone are expected to deploy more than 800 million connected IoT devices by the end of 2019, reports Ben Kellison of Verisk’s Wood Mackenzie in “Power Utilities Face Emerging Cyber Threats.”
Each one is a potential cyberattack portal.
“The power grid is also becoming more decentralized,” Kellison writes. “Tens of millions of small generators and loads are being integrated into more power markets and local power systems that may or may not be owned or operated by the utility.”
The risks go on
The Verisk report, produced by the data and analytics provider’s ISO Emerging Issues team, examines these and other risk areas. As I reflect on these articles in the context of many hours spent reading about, discussing, and listening to others discuss risk and insurance, it becomes clear – from a resilience perspective – that a more holistic, epidemiological approach to risk management is needed.
Your building can be designed and built well above code; if your neighbors’ buildings aren’t, you’re at risk when a tornado turns their HVAC units into projectiles. This reality becomes more insidious when your billing system is threatened by malware introduced through a customer’s “smart” lightbulb.
