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From the I.I.I. Daily: Our most popular content, May 31 to June 6

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Here are the 5 most clicked on articles from this week’s I.I.I. Daily newsletter.

To subscribe to the I.I.I. Daily email daily@iii.org.

 

Catastrophes

How bad is the storm damage? Ask Waffle House

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Some people keep an eye on the S&P 500 index. Others, on the Waffle House Index.

It all apparently began with former head of the Florida Department of Emergency Management, William Craig Fugate. Fugate would use the Waffle House diner chain as a proxy for how businesses and communities in the surrounding area were recovering after a disaster.

The Index (WHI) is pretty simple, as a FEMA blog post explains:

  • If a Waffle House is open and serving its full menu: green. That means the diner probably has power or is running on a generator.
  • If a Waffle House is open but serving a limited menu: yellow. The diner probably doesn’t have electricity or running water but can still cook on a gas stove.
  • If a Waffle House is closed: red. The disaster is bad enough that not even Waffle House is serving eggs and grits.

The WHI is a good proxy because the Waffle House – open 24/7, 365 days a year – has excellent risk management procedures in place and often stays open during natural disasters. If even the Waffle House is closed, then you know the situation is bad and the broader community is likely severely impacted.

The I.I.I.’s own Lynne McChristian was once able to grab dinner thanks to a code yellow WHI. “During the 2004 hurricanes in Florida, the disaster response team I was leading lined up outside Waffle House for dinner, as it was the only place open,” McChristian said. She fed six people for $30. Not bad.

The WHI is so good a proxy, in fact, that even FEMA keeps an eye on the index during a natural disaster.

Back in 2016, the WHI went red before Hurricane Matthew hit Florida. As FiveThirtyEight reported, it sparked a, well, colorful reaction:

Waffle House announced Oct. 6 that it was pre-emptively closing some restaurants on a 90-mile stretch of Interstate 95 between Fort Pierce and Titusville in Florida. (In the next few days, as the storm churned up the coast and flooded North Carolina, it would close 98 all told.) And as soon as the announcement went out, media tracking the storm, and customers on social media, invoked the closings as a sign of the apocalypse.

The Miami Herald: “When Waffle House surrenders to a hurricane, you know it’s bad.” The Washington Post: “Hurricane Matthew is so scary even the always-open eatery is evacuating.” A faithful customer on Twitter: “GOD IN HEAVEN THIS IS THE END!”

For those in the path of natural disasters (including tornadoes): stay safe and keep close watch on the WHI to see if you can still get an All-Star Special after the storm is over.

Insurance Industry

Updated 2019 Atlantic hurricane forecast

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Dr. Phil Klotzbach, an atmospheric scientist at Colorado State University (CSU), and his team released their updated forecast for the 2019 Atlantic Hurricane season which began on June 1 and continues through November 30.

The team adjusted their original forecast which predicted a slightly below average season, and now call for an average season. The new estimate calls for about 6 hurricanes (average is 6.4), 14 named storms (average is 12.1), 55 named storm days (average is 59.4), 20 hurricane days (average is 24.2), 2 major (Category 3-4-5) hurricanes (average is 2.7) and 5 major hurricane days (average is 6.2). These numbers include Subtropical Storm Andrea which formed in May.

“We …believe that 2019 will have approximately average activity. There remains considerable uncertainty as to whether El Niño conditions will persist through the Atlantic hurricane season. The tropical Atlantic has warmed slightly faster than normal over the past few weeks and now has near-average sea surface temperatures. We anticipate a near-average probability for major hurricanes making landfall along the United States coastline and in the Caribbean,” said Dr. Klotzbach.

As is the case with all hurricane seasons, coastal residents are reminded that it only takes one hurricane making landfall to make it an active season for them. They should prepare the same for every season, regardless of how much activity is predicted.

Dr. Phil Klotzbach is a non-resident scholar at the Insurance Information Institute.

Auto Insurance, Insurers and the Economy

Tariffs and Auto Insurance

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By Dr. Steven Weisbart, Chief Economist, Insurance Information Institute 

 

Thursday’s announcement of escalating tariffs on Mexico could further squeeze auto insurers by making replacement parts more expensive.

In an action to deter the flow of asylum-seekers on the southern border, President Donald Trump announced that the U.S. would impose escalating tariffs on all Mexican imports beginning June 10 at 5 percent, growing steadily to 25 percent on October 1, if Mexico does not comply.

A tariff effectively acts as a sales tax on goods entering the country, so it drives up the price of those goods.

The property/casualty industry has previously noted a 25 percent tariff on Chinese goods could raise collision repair costs by 2.7 percent, or $3.4 billion. China is the No. 2 exporter of auto parts to the United States – about $20 billion worth in 2018, according to data AutomotiveAftermarket.org culled from federal databases. Mexico is No. 1. It sends us nearly three times as much – $59 billion last year. Together, the two countries make up just over half the $158 billion in auto parts imported.

Even before tariffs, the rising cost of repairs is already an issue for auto insurers. A headlight assembly can easily top $1,000; a bumper with anti-crash sensors can cost $4,000 to replace, as we discuss in this presentation on auto costs.

Insurers bear the immediate impact of the tariffs. If the tariffs remain, they will have to raise rates to cover the increased cost. Tariffs on Mexico would also increase the cost of new cars, as the higher cost of components is passed through to consumers. This could slow the economy, and – since new cars generally cost more to insure than used ones – retard growth in personal auto premiums.

A specialty insurance line, political risk, provides coverage and protection against some government actions such as expropriation, regulatory risk, and restrictions on cross border trade. U.S. companies routinely use this coverage to protect against actions by foreign governments such as the impositions of import and export tariffs sizable enough to be debilitating to their operations and profitability. However, this coverage is not yet available in the domestic U.S. market.

There could be implications for the larger economy. On August 1 the economy will likely set a record for the longest continuation expansion ever recorded in the United States, but it may be is limping across that finish line. The Federal Reserve Bank of Atlanta forecasts just 1.2 percent growth in the seasonally adjusted annual rate of real GDP for second quarter, down from 3.1 percent last quarter. Higher tariffs place a drag on the economy, the same way any tax increase would. Rescinding the tariffs could help rekindle the economy, the same way a tax decrease would.

 

 

Insurance Industry

From the I.I.I. Daily: Our most popular content, May 24 to May 30

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Here are the 5 most clicked on articles from this week’s I.I.I. Daily newsletter.

To subscribe to the I.I.I. Daily email daily@iii.org.

 

 

 

 

Insurance Industry

NICB: Watercraft theft sank in 2018

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The official start of summer is just a few weeks away, and for many that means leisure time spent on the water. Boating is a very popular pastime with an estimated 141.6 million Americans going boating in 2016.  Sales of recreational watercraft (powerboats, personal watercraft and sailboats) reached a high of $39 billion in 2017, up 6.5 percent from 2016.

Like cars, boats are often stolen. But the boat owners among us will be happy to know that watercraft theft was down by 8 percent in 2018 over the prior year. According to the National Insurance Crime Bureau’s (NICB) 2018 watercraft theft report, a total of 4,499 watercraft were reported stolen in the U.S. between January 1 and December 31, 2018.

Florida was the top state for watercraft theft, followed by California, Texas, Louisiana and North Carolina. According to the NICB report, personal watercraft were the most likely type of watercraft to be stolen followed by runabouts, utility boats, cruisers and sailboats,.

You can do a lot to help prevent someone stealing your boat. The NICB recommends the following tips to protect watercraft from theft:

  • When you “dock it, lock it” and secure it to the dock with a steel cable
  • Remove expensive equipment when not in use
  • Chain and lock detachable motors to the boat
  • Do not leave title or registration papers in the craft
  • Disable the craft by shutting fuel lines or removing batteries
  • Use a trailer hitch lock after parking a boat on its trailer
  • Install a kill switch in the ignition system
  • Ensure your marine insurance policy includes your equipment, boat and trailer
  • Take photos of the boat and mark it with a Hull Identification Number (HIN)

 

 

Auto Insurance, Insurers and the Economy

Auto insurance prices and overall inflation

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By Dr. Steven Weisbart, Chief Economist, Insurance Information Institute 

There is remarkable good news on the auto insurance front— auto insurance prices have been trending downward since February 2018, and are now below the general inflation rate, but no one seems to have noticed.

The vast majority of consumers in America buy auto insurance, so the Bureau of Labor Statistics calculates a price component for it each month as part of the various versions of the Consumer Price Index (CPI).[1]

But insurance, like many products and services, is a difficult product for which to calculate a price. Ideally, one would want to determine only the change in the amount a consumer would pay to buy the exact same thing today as he/she would have paid in a prior time period. The challenge, with auto insurance as with many other products, is matching “the exact same thing” from a prior period. With cars, BLS tries to remove the effect on price changes of changes in features in new models that differ from prior models.

With auto insurance, the main reason premiums change from one period to another is insurers expectations for claims in the policy period. Obviously, changes can also be affected by expected investment results and by expense issues such as reinsurance prices. BLS has no way to account for these effects. It does try to standardize its calculation by using a hypothetical group of policyholders applying for a specified set of coverages and asking a panel of insurers to provide quotes for them.

So when, in 2016 and 2017, claims frequency ended its long downward trend and spiked upward, it was not surprising to see the BLS auto insurance price index rise as well. Figure 1 shows what this looked like (comparing prices in the current month to the same month in the prior year, seasonally adjusted by BLS):

Figure 1

The peak price change reached 9.7 percent in February 2018. But the spike in frequency ended, and you can see in Figure 1 that year-over-year price changes for auto insurance started trending down, ending the year at an increase rate of 4.7 percent.

The downward trend has continued into 2019. Figure 2 shows the results through April:

 

Figure 2

BLS says that the April 2019 auto insurance price is only 1.4 percent above the price in April 2018. This is not only below the rate of general inflation which, depending on how you measure it, has been running at roughly 2 percent for several years, but it is also the lowest year-over-year increase in auto insurance prices in over a decade (the last time the rate of increase was this low was in March 2008—also 1.4 percent).

So where are the headlines?

[1]The most familiar index is the Consumer Price Index for All Urban Consumers (CPI-U)—prices as experienced by all urban consumers, but BLS also publishes CPI-W (prices as experienced by urban wage earners and clerical workers).

Insurance Industry

From the I.I.I. Daily: Our most popular content, May 17 to May 23

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Here are the 5 most clicked on articles from this week’s I.I.I. Daily newsletter.

To subscribe to the I.I.I. Daily email daily@iii.org.

 

 

Highway Safety

Memorial Day weekend road safety tips

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The Memorial Day weekend brings masses of holiday travelers out on the road, and that unfortunately means more accidents. One recent study found that Memorial Day is the deadliest of all holidays, with drivers and passengers four times as likely to die in a traffic accident over the holiday weekend as over a regular weekend. And while these grim statistics should not dissuade you from traveling by car this weekend, here are some driving safety tips to keep in mind:

  • Don’t drive if you’re drunk or high; that’s a no-brainer. But also ask yourself if you are tired, sick or drowsy. If you’re impaired in any way, do not hit the road.
  • Make sure your car is in good condition. Are you up-to-date on maintenance, are your tires inflated properly and does your windshield give you a clear view?
  • Practice defensive, safe driving tactics including: buckling your seatbelt; stay aware of other drivers; maintain a safe distance from the car in front of you; and observe speed limits and traffic signals.
  • Be ready to focus on driving.  Distracted driving accounts for an increasing number of crashes.  Whether it’s talking to passengers, switching radio stations or texting, anything that takes your concentration from the task at hand can lead to an accident.
  • Be prepared. What is the weather like? Is a storm likely? Do you have emergency supplies in the car like water, a first-aid kit, flashlight, blanket, map and a roadside safety kit? Here is a checklist of items you should keep in your car.

Have a safe holiday weekend, all!

 

Specialty Coverage

How to insure your college tuition

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The most tangible benefit of insurance is to make someone whole after a loss. Sometimes that means paying for a new roof. Other times that means cutting a check after a car is totaled.

If you have “tuition insurance,” it could also mean refunding your college tuition if you have to withdraw during the semester.

To learn more about this kind of insurance, I spoke with Paul D. Richardson, Liberty Mutual’s managing director for tuition insurance distribution. The 2018 – 2019 academic year is Liberty’s first foray into offering tuition insurance.

Refunding tuition in case the unexpected happens

Tuition insurance is a simple concept: it will refund college costs if a student has to withdraw from school at any point during the semester because of an unforeseen event, like an illness, accident or mental health issue. Those costs include tuition, room and board, and any mandatory fees assessed on the student.

The student (or, more likely, parents) just needs to buy the coverage before the semester starts. Premiums are usually about 1 percent of the total costs. Not a bad deal if you can recover $25,000 for $250.

Richardson pointed out that this isn’t really a new concept. But traditionally, tuition insurance was only available through a few select universities. Parents might not have even known it existed. And if they did, they were often under the (incorrect) impression that the university would refund their costs if their kid withdrew – so why buy insurance on top of the already-exorbitant cost of college?

University refunds are not guaranteed

“A lot of parents and students are unaware of how university refund policies work,” Richardson said. “Usually they operate on a sliding scale.” But if the student has to withdraw a month or so into the semester, in many cases they might not get any money back at all.

That’s where tuition insurance comes in. “Tuition insurance covers the gap,” Richardson said. Whatever the university doesn’t refund gets picked up by the policy to make sure that reimbursement is 100 percent. It’s a relatively affordable way to protect a significant financial investment.

The nitty-gritty details

Obviously, it’s not that simple. Like any policy, there are terms and conditions to tuition insurance. A key aspect is that the student has to withdraw entirely from the academic semester. “To qualify for reimbursement, they can’t earn any academic credit as a result of the withdrawal,” said Richardson. Tuition insurance wouldn’t be needed if a student misses a few weeks of class and then returns to pass their final exams, since they would not be out any tuition dollars.

It also doesn’t apply during summer break. “The policy period is the first day of classes and ends the last day of classes,” Richardson said.

Tuition insurance also comes with exclusions. For example, while pre-existing medical conditions are generally covered, there are some situations where coverage would not apply.  Poor academic performance is not covered, unsurprisingly.

Sports injuries are probably covered, since they’re usually within the scope of a student’s academic life. But there is no coverage for professional sports, like if you’re getting paid to participate in an intramural Ultimate Frisbee tournament.

And not all recreational injuries are covered. “Activities that come with an upfront serious potential for a major accident are often excluded,” Richardson said. “We look at each case individually but generally we draw the line at something that would cause an accident that is an extremely high risk. Like skydiving, that’s actually a named exclusion in the policy.”

Customizable coverage

Every student’s needs are unique. That’s why the Liberty Mutual tuition insurance product is highly customizable. Living off-campus? Then you’ll probably get a cheaper premium that doesn’t cover room and board. Have a scholarship? Depending on the terms of the grant, you may be able to cover that as well. “We’re trying to allow students and families to customize their price point based on their financial needs,” said Richardson.

You can learn more about Liberty Mutual’s program here.

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