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Insurance Industry Overview and Outlook:
Trends, Challenges and Opportunities
2016 Coastal Risk Retreat
East Carolina University
April 6, 2016
Download at www.iii.org/presentationsJames Lynch, FCAS MAAA, Vice President & Chief Actuary
Insurance Information Institute 110 William Street New York, NY 10038
Tel: 212.346.5533 Cell: 917.359.3908 [email protected] www.iii.org
2
Insurance Industry:Financial Update & Outlook
2015 Was a Reasonably Good Year and Similar to 2014
2016: Could Be Similar to 2015
2
P/C Industry Net Income After Taxes1991–2015E 2005 ROE*= 9.6%
2006 ROE = 12.7%
2007 ROE = 10.9%
2008 ROE = 0.1%
2009 ROE = 5.0%
2010 ROE = 6.6%
2011 ROAS1 = 3.5%
2012 ROAS1 = 5.9%
2013 ROAS1 = 10.2%
2014 ROAS1 = 8.4%
2015E ROAS = 8.8%
•ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 8.2% ROAS in 2014, 9.8% ROAS in 2013, 6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009; 2015E is annualized figure based actual figure through Q3 of $44.0
Sources: A.M. Best, ISO; Insurance Information Institute
$1
4,1
78
$5
,84
0
$1
9,3
16
$1
0,8
70
$2
0,5
98
$2
4,4
04 $3
6,8
19
$3
0,7
73
$2
1,8
65
$3
,04
6
$3
0,0
29
$6
2,4
96
$3
,04
3
$3
5,2
04
$1
9,4
56 $
33
,52
2
$6
3,7
84
$5
5,5
01
$5
8,7
12
$3
8,5
01
$2
0,5
59
$4
4,1
55
$6
5,7
77
-$6,970
$2
8,6
72
-$10,000
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15E
Net income in 2015 is on par
with 2014
$ Millions
-5%
0%
5%
10%
15%
20%
25%
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
E
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2015E
*Profitability = P/C insurer ROEs. 2011-14 figures are estimates based on ROAS data. Note: Data for 2008-2014 exclude
mortgage and financial guaranty insurers.
Source: Insurance Information Institute; NAIC, ISO, A.M. Best, Conning
1977:19.0%1987:17.3%
1997:11.6% 2006:12.7%
1984: 1.8% 1992: 4.5% 2001: -1.2%
9 Years
History suggests next ROE
peak will be in 2016-2017
ROE
1975: 2.4%
2013 9.8%
2014 8.2%
2015E: 8.8%
5
ROE: Property/Casualty Insurance by Major Event, 1987–2015E
* Excludes Mortgage & Financial Guarantee in 2008 – 2014. Sources: ISO, Fortune; Insurance Information Institute.
-5%
0%
5%
10%
15%
20%
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15E
P/C Profitability Is Both by Cyclicality and Ordinary Volatility
Hugo
Andrew
Northridge
Lowest CAT Losses in 15 Years
Sept. 11
Katrina, Rita, Wilma
4 Hurricanes
Financial Crisis*
(Percent)
Record Tornado Losses
Sandy
Low CATs
Modestly higher CATs
6
Insured Catastrophe Losses
2013/14 and 2015 Experienced Below
Average CAT Activity After Very High CAT
Losses in 2011/12
Winter Storm Losses Far Above Average in
2014 and 20156
7
$1
3.0
$1
1.3
$3
.9
$1
4.8
$1
1.9
$6
.3
$3
5.8
$7
.8
$1
6.8
$3
4.7
$1
0.9
$7
.7
$3
0.1
$1
1.8
$1
4.9
$3
4.6
$3
6.1
$1
3.1
$1
5.5
$1
5.0
$75.7
$1
4.4
$5
.0 $8
.2
$3
8.9
$9
.1
$2
7.2
$0
$10
$20
$30
$40
$50
$60
$70
$80
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15*
U.S. Insured Catastrophe Losses
*Estimate through 12/31/15 in 2015 dollars.
Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01 ($25.9B 2011 dollars). Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B ($15.6B in 2011 dollars.)
Sources: Property Claims Service/ISO; Insurance Information Institute.
2013/14/15 Were Welcome Respites from 2011/12, among the Costliest Years for Insured Disaster Losses in US History. Longer-term Trend is for
more—not fewer—Costly Events
2012 was the 3rd most expensive year ever for
insured CAT losses
$15B in insured CAT losses though
12/31/15 (est.)
($ Billions, $ 2015)
7
8
Combined Ratio Points Associated with Catastrophe Losses: 1960 – 2015E*
*2010s represent 2010-2015E.
Notes: Private carrier losses only. Excludes loss adjustment expenses and reinsurance reinstatement premiums. Figures are adjusted for losses ultimately paid by foreign insurers and reinsurers.
Source: ISO (1960-2009); A.M. Best (2010-15E) Insurance Information Institute.
0.4
1.2
0.4 0
.8 1.3
0.3
0.4 0.7
1.5
1.0
0.4
0.4 0.7
1.8
1.1
0.6
1.4 2
.01
.32
.00
.50
.5 0.7
3.0
1.2
2.1
8.8
2.3
5.9
3.3
2.8
1.0
3.6
2.9
1.6
5.4
1.6
3.3
3.3
8.1
2.7
1.6
5.0
2.6
4.6
9.6
8.0
3.5 4
.03
.13.6
0.9
0.1
1.1
1.1
0.8
0
2
4
6
8
10
12
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
The Catastrophe Loss Component of Private Insurer Losses Has Increased Sharply in Recent Decades
Avg. CAT Loss Component of theCombined Ratio
by Decade
1960s: 1.04 1970s: 0.85 1980s: 1.31 1990s: 3.39 2000s: 3.52 2010s: 5.46*
Combined Ratio Points Catastrophe losses as a share of all
losses reached a record high in 2011
9
Top 16 Most Costly Disastersin U.S. History—Katrina Still Ranks #1
(Insured Losses, 2014 Dollars, $ Billions)
$8.1 $9.0 $9.4 $11.4$13.8
$19.3
$24.6 $25.3$26.4
$50.2
$7.7$7.3$6.9$5.8$5.7$4.6
$0
$10
$20
$30
$40
$50
$60
Irene (2011) Jeanne
(2004)
Frances
(2004)
Rita
(2005)
Tornadoes/
T-Storms
(2011)
Tornadoes/
T-Storms
(2011)
Hugo
(1989)
Ivan
(2004)
Charley
(2004)
Wilma
(2005)
Ike
(2008)
Sandy*
(2012)
Northridge
(1994)
9/11 Attack
(2001)
Andrew
(1992)
Katrina
(2005)
Storm Sandy in 2012 was the last mega-CAT
to hit the US
Includes Tuscaloosa, AL,
tornado
Includes Joplin, MO, tornado
12 of the 16 Most Expensive Events in US History Have Occurred Since 2004
Sources: PCS; Insurance Information Institute inflation adjustments to 2014 dollars using the CPI.
10
Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1995–20141
0.1%
1.5%5.4%
0.1%
6.2%
6.8%
39.2%
40.7%
1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2014 dollars.
2. Excludes snow.
3. Does not include NFIP flood losses
4. Includes wildland fires
5. Includes civil disorders, water damage, utility disruptions and non-property losses such as those covered by workers compensation.
Source: ISO’s Property Claim Services Unit.
Hurricanes & Tropical Storms, $161.2
Fires (4), $6.0
Events Involving Tornadoes (2), $154.9
Winter Storms, $26.9
Terrorism, $24.5
Geological Events, $0.5
Wind/Hail/Flood (3), $21.4
Other (5), $0.2
Wind losses are by far cause the most catastrophe losses,
even if hurricanes/TS are excluded.
Tornado share of CAT losses is
rising
Insured cat losses from 1995-2014
totaled $395.6B, an average of $19.8B per year or $1.65B
per month
Winter storm losses were much above average in 2014/15 are
will push this share up
11
Number of National Flood Insurance Program
Policies in Force at Year-End, 1980-2015*
Source: National Flood Insurance Program.
* As of July, 2015
2.1
04
2.0
17 2.4
78
3.4
77
4.3
69 4
.96
2
5.6
56
5.6
84
5.7
00
5.6
45
5.6
46
5.6
20
5.5
69
5.3
51
5.1
51
0
1
2
3
4
5
6
1980 1985 1990 1995 2000 2005 2007 2008 2009 2010 2011 2012 2013 2014 2015*
(milli
on
s)
The number of NFIP policies in force has
plunged by 549,000 or 9.6% since 2009, even
as coastal development surges and sea levels rise
12
12% 14%
40%
52%62%
87%95% 99%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
CA
Earthquake
Flood Renters Cyber Terrorism Pvt.
Passenger
Auto
Home Workers
Comp
Sources: CA Earthquake (WSJ, http://www.wsj.com/articles/california-pushes-homeowners-to-insure-against-earthquakes-1440980138 ); Flood and Renters (I.I.I. June 2015 Pulse Survey); Cyber (Advisen, 2015); Terrorism (Marsh Global Analytics, 2014 Terrorism Risk Insurance Report, April 2014; data for 2013); Pvt. Passenger Auto (Insurance Research Council, Uninsured Motorists, 2014 Edition, data for 2012); Home and Workers Comp (I.I.I. estimates); Insurance Information Institute research.
Take-Up Rates for Various Types of Insurance in the U.S.
Take-Up Rate
Take-up rates vary widely
by type of coverage
13
Policyholder Surplus, 2006:Q4–2015:Q4E
Sources: ISO, A.M .Best.
($ Billions)
$487.1
$496.6
$512.8
$521.8
$478.5
$455.6
$437.1 $463.0 $
490.8 $511.5 $
540.7
$530.5
$544.8
$559.2
$559.1
$538.6
$550.3
$567.8
$583.5
$586.9 $607.7
$614.0
$624.4 $
653.4
$671.6
$673.9
$674.7
$672.4
$670.0
$662.0
$570.7
$566.5
$505.0
$515.6
$517.9
$400
$450
$500
$550
$600
$650
$700
06:Q
4
07:Q
1
07:Q
2
07:Q
3
07:Q
4
08:Q
1
08:Q
2
08:Q
3
08:Q
4
09:Q
1
09:Q
2
09:Q
3
09:Q
4
10:Q
1
10:Q
2
10:Q
3
10:Q
4
11:Q
1
11:Q
2
11:Q
3
11:Q
4
12:Q
1
12:Q
2
12:Q
3
12:Q
4
13:Q
1
13:Q
2
13:Q
3
13:Q
4
14:Q
1
14:Q
2
14:Q
3
14:Q
4
15:Q
2
15:Q
4
2007:Q3Pre-Crisis Peak
Surplus as of 12/31/15 stood at a near-record high $670B
2010:Q1 data includes $22.5B of
paid-in capital from a holding
company parent for one insurer’s
investment in a non-insurance
business .
The industry now has $1 of surplus for every $0.73 of NPW,close to the strongest claims-paying status in its history.
Drop due to near-record 2011 CAT losses
The P/C insurance industry entered 2016in very strong financial condition.
14
-5%
0%
5%
10%
15%
20%
25%
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15E
16F
Net Premium Growth (All P/C Lines): Annual Change, 1971-2016
(Percent)
1975-78 1984-87 2000-03
2015E: Estimate; 2015F: Forecast. Shaded areas denote “hard market” periodsSources: A.M. Best, St. Louis Federal Reserve (Fred), Blue Chip Economic Indicators (January 2016).
Hard Market: Prices Rise Faster Than
Economic Growth.
2015E: 2.7%
2014: 4.3%
2013: 4.4%
2012: +4.4%
Nominal GDP Growth
In Soft Market, Premium Grows
Slower Than Economy.
15
P/C Insurance Industry Combined Ratio, 2001–2015 (Est.)*
* Excludes Mortgage & Financial Guaranty insurers 2008--2014. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2; 2013: = 96.1; 2014: = 97.0.
Sources: A.M. Best, ISO; Figure for 2010-2015E is from A.M. Best P&C Review and Preview, Feb. 16, 2016.
95.7
99.3101.1
106.5
102.5
96.497.4 98.0
101.0
92.6
100.8
98.4100.1
107.5
115.8
90
100
110
120
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15E
As Recently as 2001, Insurers Paid Out
Nearly $1.16 for Every $1 in Earned Premiums Relatively
Low CAT Losses, Reserve Releases
Heavy Use of Reinsurance Lowered Net
Losses
Relatively Low CAT Losses, Reserve Releases
Higher CAT
Losses, Shrinking Reserve
Releases, Toll of Soft
Market
Cyclical Deterioration
Sandy Impacts
Lower CAT
Losses
Best Combined
Ratio Since 1949 (87.6)
Avg. CAT Losses,
More Reserve Releases
Loss Trends
Outstrip Rate
Changes
A 100 Combined Ratio Isn’t What ItOnce Was: Investment Impact on ROEs
Combined Ratio / ROE
* 2008 -2015 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2014 combined ratio including M&FG insurers is 97.0; 2013 = 96.1; 2012 =103.2, 2011 = 108.1, ROAS = 3.5%.
Source: Insurance Information Institute from A.M. Best and ISO Verisk Analytics data.
97.5
100.6 100.1 100.8
92.7
101.299.5
101.0
96.7 97.2 98.0
102.4
106.5
95.7
14.3%
15.9%
12.7%
10.9%
7.4%7.9%
4.7%
6.2%
8.8%
8.2%9.6%
8.8%
4.3%
9.8%
80
85
90
95
100
105
110
1978 1979 2003 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E
0%
3%
6%
9%
12%
15%
18%
Combined Ratio ROE*
Combined Ratios Must Be Lower in Today’s DepressedInvestment Environment to Generate Risk Appropriate ROEs
A combined ratio of about 100 generates an ROE of ~7.0% in 2012/13, ~7.5% ROE in 2009/10,
10% in 2005 and 16% in 1979
Lower CATs helped ROEs
in 2013
17
RNW All Lines, 2005-2014 Average:Highest 25 States
19
.9
19
.0
14
.0
13
.3
13
.2
13
.0
11
.9
11
.7
11
.7
11
.5
11
.3
11
.1
11
.0
10
.9
10
.8
10
.6
10
.6
10
.5
10
.3
10
.0
9.9
9.6
8.9
8.9
8.8
8.3
0
2
4
6
8
10
12
14
16
18
20
22
HI AK VT ME ND FL WY NH VA ID UT NC WA MA SC OH WV OR DC CA RI CT MD NM SD MT
The most profitable states over the past decade are
widely distributed geographically, though none
are in the Gulf region
Source: NAIC; Insurance Information Institute.
Profitability Benchmark: All P/C
US: 7.7%
(Percent)
18
7.8
7.8
7.7
7.5
7.5
7.4
7.3
7.3
7.1
7.1
7.0
6.9
6.8
6.5
6.3
6.2
6.1
5.5
5.1
5.1
4.7
4.1
3.4
1.7
-7.4
-9.4
-11
-9
-7
-5
-3
-1
1
3
5
7
9
PA WI US IL TX IA KS MN AR NE IN CO AZ KY MO TN NV NJ GA NY DE AL MI OK MS LA
RNW All Lines, 2005-2014 Average:
Lowest 25 States
Source: NAIC; Insurance Information Institute.
Some of the least profitable states over the past decade
were hit hard by catastrophes
(Percent)
INVESTMENTS: THE NEW REALITY
19
Investment Performance is a Key Driver of Profitability
Depressed Yields Will Necessarily Influence Underwriting & Pricing
19
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
50
52
54
56
58
60
62
64
66
68
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
16*
*Through March 28, 2016.
Source: NYU Stern School of Business: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html Ins. Info. Inst.
Tech Bubble
Implosion
Financial
Crisis
Annual Return
Energy Crisis
2016*:
+0.14%
S&P 500 Index Returns, 1950 – 2016*
Fed Raises Rate
Stock market is off to its worst start in years but volatility is endemic to stock markets—and may
be increasing—but there is no persistent downward trend over long periods of time
Property/Casualty Insurance Industry Investment Income: 2000-2015E1
$38.9$37.1 $36.7
$38.7
$54.6
$51.2
$47.1 $47.6$49.2
$48.0 $47.3$46.2 $46.5
$39.6
$49.5
$52.3
$30
$40
$50
$60
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15E
Due to persistently low interest rates,investment income fell in 2012, 2013 and 2014.
1 Investment gains consist primarily of interest and stock dividends. *2015 figure is estimated based on annualized data through Q3.Sources: ISO; Insurance Information Institute.
($ Billions)Investment earnings are still below their 2007 pre-crisis peak
Distribution of Invested Assets: P/C Insurance Industry, 2014
Stocks, 22%
Bonds, 61%All Other, 11%
Cash, Cash Equiv. &
ST Investments, 6%
Source: Insurance Information Institute Fact Book 2016, A.M. Best.
Total Invested Assets = $1.5
Trillion
23
U.S. Treasury Security Yields:A Long Downward Trend, 1990-2016*
*Monthly, constant maturity, nominal rates, through February 2016.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research (recession dates); Insurance Information Institute.
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16
Recession2-Yr Yield10-Yr Yield
Yields on 10-Year U.S. Treasury Notes have been essentially below 5% for a full decade.
Since roughly 80% of P/C bond/cash investments are in 10-year or shorter durations, most P/C insurer portfolios will have low-yielding bonds for years to come.
Despite the Fed’s December 2015 rate hike, yield
remain low though short-
term yields have seen some gains
23
24
Interest Rate Forecasts: 2015-2021
2.2%
2.9%
3.8%4.0% 4.0% 4.0%
3.1%3.1%3.1%
2.8%
1.5%
0.6%
0%
1%
2%
3%
4%
5%
16F 17F 18F 19F 20F 21F 16F 17F 18F 19F 20F 21F
A full normalization of interest rates is unlikely until 2019, more than a decade after the onset of the financial crisis.
Yield (%)
Sources: Blue Chip Economic Indicators (3/16 for 2016 and 2017; for 2018-2021 10/15 issue); Insurance Info. Institute.
3-Month Treasury 10-Year Treasury
The end of the Fed’s QE program in 2014
and its first rate increase in Dec. 2015
have yet to push longer-term yields
much higher
25
The Falling Investment Curve
Source: National Council on Compensation Insurance.
What Insurers Earn on Current Portfolio.
The Long, Slow Decline In Rates Will Continue to Drag on Investment Portfolios Even After Rates Start Rising.
What Insurers Earn on the Next
Dollar They Invest
25
26
Loss and Inflation Trends
26
Frequency/Severity, Long Dormant, May Be Returning
The Norm in Auto Insurance: Frequency Falls, Severity Rises
183
1,1431,288
7,553
3,231
15,443
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
Property Damage Bodily Injury
Cla
im S
everity
Severity
1963 1988 2013
UP 1,251%
UP 1,666%!
27
Sources: Insurance Institute for Highway Safety, Insurance Services Office, Insurance Information Institute.
Down 55%!
Safer Cars . . . . . . . That Cost More to Repair.
28
Collision Coverage: Severity & Frequency Trends Are Both Higher in 2015*
2.8%
1.3%
4.2%
1.5%
5.5%
-1.8%
-3.6%
2.5%
-2.4%-1.4%
4.2%
1.2%2.1%
2.6%3.9%
3.1%
0.1% 0.5%
-2.3%
-0.1%-1.4%
-0.5%
0.9%
2.3%
-6%
-4%
-2%
0%
2%
4%
6%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015* NC-
2015*
Severity Frequency
Annual Change, 2005 through 2015*
The Recession, High Fuel Prices Helped Temper Frequency and Severity, But this Trend Has Clearly Reversed, Consistent with
Experience from Past Recoveries
*2015 figure is for the 4 quarters ending with 2015:Q3.
Source: ISO/PCI Fast Track data; Insurance Information Institute
29
Frequency: Miles Driven is Climbing
*Moving 12-month total. Data through July 2015.Note: Recessions indicated by gray shaded columns.
Sources: Federal Highway Administration (http://www.fhwa.dot.gov/policyinformation/travel_monitoring/tvt.cfm); National Bureau of Economic Research (recession dates); Insurance Information Institute.
Billions of Miles
In Past 18 Months,
Miles Driven Have
Soared – More
Accidents, More
Exposures
29
30
Frequency: As More People Work, They Get in More Accidents
Sources: Seasonally Adjusted Employed from Bureau of Labor Statistics; Rolling Four-Qtr Avg. Frequency from Insurance Services Office; Insurance Institute for Highway Safety; Insurance Information Institute.
Number Employed,Millions
138
140
142
144
146
148
150
06
:Q1
06
:Q3
07
:Q1
07
:Q3
08
:Q1
08
:Q3
09
:Q1
09
:Q3
10
:Q1
10
:Q3
11
:Q1
11
:Q3
12
:Q1
12
:Q3
13
:Q1
13
:Q3
14
:Q1
14
:Q3
15
:Q1
15
:Q3
5.5
5.6
5.7
5.8
5.9
6.0
Number Employed (left scale) Collision Claim Frequency (right scale)
Overall Collision Claims Per 100 Insured Vehicles
When people are out of work, they drive less. When they get jobs,they drive to work, helping drive claim frequency higher.
Recession
Severity: Driving Fatalities Are Rising
Sources: National Safety Council, Insurance Information Institute.
Driving Has Been Getting Safer For Decades, But Recent Trend Is Discouraging—38,300 Deaths in 2015
Severity: Chg in Auto Fatalities by State
7%
11%
12%
16%
22%
-1%
8%
-5% 0% 5% 10% 15% 20% 25%
GA (1,394)
SC (954)
KY (748)
NC (1,396)
USA (38,300)
VA (755)
TN (961)
SOURCE: Estimates from National Safety Council.
2015 vs. 2014
Fatalities in Southeast Rising Faster Than USA
as a Whole
Severity: Driving Fatalities Are Rising
Sources: National Safety Council, Insurance Information Institute.
On Track for Most Auto Fatalities Since 2007.
34
Severity: Loss Trend vs. Inflation
3.7
%
5.5
%
3.7
%
3.2
%
2.3
%2.9
%
1.6
%
1.6
% 2.1
%
3.3
%
5.3
%
4.3
%
3.7
%4.5
%
0.8
%
4.0
%
1.5
%
1.8
%
1.5
%
3.2
% 3.8
%
2.3
%
2.7
% 3.4
%
3.2
%
1.5
%
-0.4
%
2.9
%
-1%
0%
1%
2%
3%
4%
5%
6%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Auto Loss Trend CPI
Annual Change, 2005 through 2014
Source: Towers Watson Claim Cost Index, Insurance Information Institute.
Trend, CPI Converged
Around 2011. . .
. . . And Starting to
Diverge Again
If Loss Trends Return to the Norm, Upward Pressure Will Be Applied to Loss Costs.
Normally Trend > CPI
Loss Trends vs. CPI: Not Just Auto
Source: Insurance Information Institute calculation from Towers Watson data.
In Recent Years, Claim Costs Have Risen at About the Inflation Rate. If We Return to the Norm, Claim Costs Will Rise.
RATES & LOSS TRENDS
36
Commercial Lines Roughly Flat; Personal Auto Rates Feeling
Upward Pressure
36
37
Commercial Lines Rate Change by Qtr (vs. Year Earlier)
Sources: Towers Watson Commercial Lines Insurance Pricing Survey, Insurance Information Institute.
Decreases: WC, Property, D&O. ‘Meaningful’ Increases: Commercial Auto.
20 consecutive quarters of rate increases
Commercial Lines Rate Change by Month (vs. Year Earlier) Since 6/09
38
SOURCE: MarketScout, Insurance Information Institute.
Rate Decline Has Leveled Off a Bit. Decreases in All Lines But EPLI (Flat) – Even Commercial Auto.
Rates in The Southeast, Q4 2015*
39
* AL, FL, GA, KY, LA, MS, NC, SC, TN, VA, WV.
SOURCE: Council of Insurance Agents & Brokers.
Rates Can Vary Significantly Within States, Lines of Business or Individual Markets.
By Account Size
By Line of Business
Down > 10% Down 1-10% No Change Up 1-10% Up > 10% N/A
Commercial Auto 0.00% 0.00% 25.00% 68.75% 6.25% 0.00%
Commercial Property 12.50% 68.75% 18.75% 0.00% 0.00% 0.00%
D&O 0.00% 12.50% 81.25% 6.25% 0.00% 0.00%
Flood Insurance 0.00% 12.50% 75.00% 6.25% 6.25% 0.00%
General Liability 6.25% 68.75% 25.00% 0.00% 0.00% 0.00%
Terrorism 0.00% 12.50% 75.00% 0.00% 0.00% 12.50%
Umbrella 0.00% 62.50% 25.00% 12.50% 0.00% 0.00%
Workers Compensation 6.25% 62.50% 25.00% 6.25% 0.00% 0.00%
Down > 10% Down 1-10% No Change Up 1-10% Up > 10% N/A
Small (<25K) 0.00% 43.75% 43.75% 6.25% 0.00% 6.25%
Medium (25-100K) 0.00% 62.50% 18.75% 12.50% 0.00% 6.25%
Large (100K+) 0.00% 75.00% 6.25% 12.50% 0.00% 6.25%
This Survey is
Based on
Agent
Estimates.
40
Profitability and Growth in North Carolina P/C Insurance
Markets
Analysis by Line and Nearby State Comparisons
41
All Lines DWP Growth: NC vs. U.S., 2005-2014
Source: SNL Financial.
2.3
% 3.4
%
0.5
%
-2.1
%
0.0
%
3.7
% 4.6
% 5.5
%
4.4
%
6.3
%
4.5
%
3.9
%
-0.2
%
-1.1
%
2.8
%
4.7
%
4.7
%
3.6
%
-3.3
%
-3.1
%
-4%
-2%
0%
2%
4%
6%
8%
05 06 07 08 09 10 11 12 13 14
US DWP: All Lines NC DWP: All Lines
(Percent)Average 2005-2014
US: 1.9%
NC: 2.6%
NC Has Lagged U.S. in Recent
Years
42
Comm. Lines DWP Growth: NC vs. U.S., 2005-2014
Source: SNL Financial.
2.6
%
4.6
%
-0.1
%
-4.0
%
-7.3
%
-2.5
%
5.1
%
5.1
% 6.1
%
4.3
%5.3
% 6.4
%
4.0
%
-3.4
%
-9.3
%
-2.5
%
3.7
%
6.8
%
4.6
%
3.3
%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
05 06 07 08 09 10 11 12 13 14
US DWP: Comm. Lines NC DWP: Comm. Lines
(Percent)
Average 2005-2014
US: 1.4%
NC: 1.9%
43
Personal Lines DWP Growth: NC vs. U.S., 2005-2014
Source: SNL Financial.
2.2
%
2.3
%
1.2
%
-0.1
%
1.1
%
2.5
%
2.2
%
4.2
%
5.1
%
4.8
%
7.5
%
2.7
% 3.4
%
2.6
% 3.2
%
0.1
%
1.5
%
2.9
%
5.1
%
4.5
%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
05 06 07 08 09 10 11 12 13 14
US DWP: Pers. Lines NC DWP: Pers. Lines
(Percent)
Average 2005-2014
US: 2.6%
NC: 3.4%
44
Private Passenger Auto DWP Growth: NC vs. U.S., 2005-2014
Source: SNL Financial.
0.5
%
0.4
%
0.0
%
-0.3
%
-0.1
%
1.5
%
1.5
%
3.5
% 4.6
%
4.9
%
7.6
%
1.4
%
2.0
%
1.8
%
2.3
%
-1.8
%
0.6
%
3.3
%
3.5
%
3.8
%
-4%
-2%
0%
2%
4%
6%
8%
10%
05 06 07 08 09 10 11 12 13 14
US DWP: PP Auto NC DWP: PP Auto
(Percent)
Average 2005-2014
US: 1.6%
NC: 2.5%
Exposures Fall:
Weak Economy
45
Homeowner’s MP DWP Growth: NC vs. U.S., 2005-2014
Source: SNL Financial.
7.4
%
7.4
%
4.2
%
0.5
%
3.8
%
4.9
%
3.8
%
5.7
% 6.2
%
4.4
%
7.1
%
6.5
% 7.2
%
4.8
% 5.4
%
4.9
%
3.4
%
1.9
%
8.6
%
6.2
%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
05 06 07 08 09 10 11 12 13 14
US DWP: HO Lines NC DWP: HO Lines
(Percent)
Average 2005-2014
US: 4.8%
NC: 5.6%
Reaction to 2011
Catastrophes (filed,
OKd in 2012)
46
RNW All Lines: NC vs. U.S., 2005-2014
Sources: NAIC.
-5%
0%
5%
10%
15%
20%
05 06 07 08 09 10 11 12 13 14
US All Lines NC All Lines
P/C Insurer profitability in NC is above that of the US
overall over the past decade
US: 7.7%
NC: 11.1%
(Percent)
Hurricane
Irene,
Tornadoes
Hurricane Irene Over NC.
47
RNW Comm. Auto: NC vs. U.S.,2005-2014
Sources: NAIC.
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
05 06 07 08 09 10 11 12 13 14
US Comm Auto NC Comm Auto
(Percent)
Commercial Auto profitability in NC is
generally above the US average
Average 2005-2014
US: 8.1%
NC: 11.4%
48
RNW Comm. Multi-Peril: NC vs. U.S.,2005-2014
Sources: NAIC.
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
05 06 07 08 09 10 11 12 13 14
US Comm M-P NC Comm M-P
(Percent)
Average 2005-2014
US: 8.9%
NC: 15.4%
Irene, 6
Tornadoes of
EF-3 or Higher
49
RNW Homeowners: NC vs. U.S.,2005-2014
Sources: NAIC.
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
05 06 07 08 09 10 11 12 13 14
US HO NC HO
(Percent)Average 2005-2014
US: 7.6%
NC: 11.5%
6 Tornadoes
of EF-3 or
Higher
Katrina,
Rita, Wilma
Ike,
Financial
Crisis
Tornado Approaches Raleigh.
50
RNW Workers Comp: NC vs. U.S.,2005-2014
Sources: NAIC.
0%
2%
4%
6%
8%
10%
12%
05 06 07 08 09 10 11 12 13 14
US WC NC WC
(Percent)
Average 2005-2014
US: 6.8%
NC: 5.1%
HB79 passed--
Caps TT Benefits
at 500 Weeks,
Tightens Def. of
Suitable
Employment
Growing Hospital
Costs Drive
Profitability Down
All Lines: 10-Year Average RNW NC & Nearby States
6.2%
7.7%
10.8%
11.1%
11.7%
5.1%
6.5%
0% 5% 10% 15%
Virginia
North Carolina
South Carolina
U.S.
Kentucky
Tennessee
Georgia
Source: NAIC, Insurance Information Institute
2005-2014
North Carolina All Lines
profitability is above the US and regional
averages
Comm. Auto: 10-Year Average RNW NC & Nearby States
6.8%
8.3%
8.8%
10.8%
11.4%
5.2%
8.1%
0% 2% 4% 6% 8% 10% 12%
North Carolina
Virginia
South Carolina
Tennessee
U.S.
Kentucky
Georgia
Source: NAIC, Insurance Information Institute
2005-2014
North Carolina Comm. Auto
profitability is above the US and regional
averages
Comm. M-P: 10-Year Average RNW NC & Nearby States
5.5%
8.9%
10.8%
15.4%
19.0%
4.7%
6.4%
0% 5% 10% 15% 20%
Virginia
North Carolina
South Carolina
U.S.
Kentucky
Tennessee
Georgia
Source: NAIC, Insurance Information Institute
2005-2014
North Carolina Comm. M-P
profitability is above the US and regional
averages
Homeowners: 10-Year Average RNW NC & Nearby States
-8.4%
7.6%
11.5%
18.4%
18.4%
-11.2%
-4.0%
-20% -10% 0% 10% 20%
Virginia
South Carolina
North Carolina
U.S.
Kentucky
Georgia
Tennessee
Source: NAIC, Insurance Information Institute
2005-2014
North Carolina Homeowners profitability is above the US and regional
averages
Mid-South States Hurt by
Tornado/Hail 2008-2012
55
Top Ten Most Expensive And Least Expensive States For Homeowners Insurance, 2013 (1)
Rank Most
expensive statesHO average
premium RankLeast
expensive statesHO average
premium
1 Florida $2,115 1 Idaho 561
2 Texas (2) 1,837 2 Oregon 568
3 Louisiana 1,822 3 Utah 609
4 Oklahoma 1,654 4 Wisconsin 665
5 Mississippi 1,395 5 Washington 676
6 Kansas 1,343 6 Nevada 687
7 Rhode Island 1,334 7 Delaware 709
8 Alabama 1,323 8 Arizona 724
9 Connecticut 1,274 9 Ohio 763
10 Massachusetts 1,263 10 Maine 776
(1) Includes policies written by Citizens Property Insurance Corp. (Florida) and Citizens Property Insurance Corp. (Louisiana), Alabama Insurance
Underwriting Association, Mississippi Windstorm Underwriting Association, North Carolina Joint Underwriting Association and South Carolina
Wind and Hail Underwriting Association. Other southeastern states have wind pools in operation and their data may not be included in this chart.
Based on the HO-3 homeowner package policy for owner-occupied dwellings, 1 to 4 family units. Provides “all risks” coverage (except those
specifically excluded in the policy) on buildings and broad named-peril coverage on personal property, and is the most common package written.
(2) The Texas Department of Insurance developed home insurance policy forms that are similar but not identical to the standard forms. In addition,
due to the Texas Windstorm Association (which writes wind-only policies) classifying HO-1, 2 and 5 premiums as HO-3, the average premium for
homeowners insurance is artificially high.
Note: Average premium=Premiums/exposure per house years. A house year is equal to 365 days of insured coverage for a single dwelling. The NAIC
does not rank state average expenditures and does not endorse any conclusions drawn from this data.
Source: ©2016 National Association of Insurance Commissioners (NAIC). Reprinted with permission. Further reprint or distribution strictly prohibited
without written permission of NAIC.
North Carolina ranked as the 23rd most expensive state for homeowners insurance in 2013, with an average expenditure of $1,008.
Workers Comp.: 10-Year Average RNW NC & Nearby States
4.7%
6.8%
6.9%
7.2%
7.3%
4.1%
5.1%
0% 2% 4% 6% 8%
Virginia
Tennessee
Kentucky
U.S.
North Carolina
Georgia
South Carolina
Source: NAIC, Insurance Information Institute
2005-2014North Carolina Workers Comp profitability is below the US and regional
averages
Source: James Madison Institute, February 2008.
ME
NH
MA
CT
PA
WV
VA
NC
LA
TX
OK
NE
ND
MN
MI
IL
IA
ID
WA
OR
AZ
HI
NJ
RI C+
DE
AL
VT
NY
MD
SC
GA
TN
AL
FL
MS
ARNM
KYMOKS
SDWI
IN
OH
MT
CA
NV
UT
WY
CO
AK
= A= B= C= D= F= NG
Source: R Street Insurance Regulation Report Card, December 2015
B+ A
B
A-
B+
B
A
A-
C
C
BB
D
F
C
C+
A C-
B
D
C
C
BC
A
B
B
A
B
B
C+
B
B
B+
C
B
B
A-
C+
C
C
CD
B
D+
D
D
D
D
2015 Property and Casualty InsuranceRegulatory Report Card
Not Graded: District of Columbia
Rated Worst Regulatory
Environment
R Street Institute is “A Free-Market Think Tank” on the Political Right.
About North Carolina’s Regulatory Grade
Cons
Elected Insurance Commissioner
Huge Auto Residual Market
Growing Property Residual Market
Lack of Flexibility
– Regulatory
– Ratemaking
– Product Design
58
Pros
Competitive Workers Comp Market
Transparent Rule-Making Process
Source: R Street Insurance Regulation Report Card, December 2015
NORTH CAROLINA AUTO INSURANCE
59
A Look at the State and Its Reinsurance Facility, the
Nation’s Largest Residual Market
59
60
How Big Is NC Personal Auto Residual Market?
All data as of 2012, excludes commercial exposures.Source: AIPSO.
North Carolina Has More Autos and A Greater Percentage of Autos in Residual Market Than Any Other State.
61
Personal Auto: Size of Residual Market
Liability coverage only.Source: AIPSO.
(Written Car Years)
North Carolina’s Residual Market is 2,000 Times Larger Than All Surrounding States Combined.
62
Number of Autos in Residual Market, 1994-2012
Source: AIPSO.
1,2
30
1,2
18
1,2
69
1,2
93
1,3
00
1,2
33
1,2
23
1,2
72
1,3
33
1,4
50
1,5
53
1,5
46
1,5
79
1,5
07
1,4
68
1,3
93
1,5
43
1,6
03
1,5
88
5,901
5,403
4,420
3,8563,440
2,4702,208
2,711
2,180 1,8751,905
1,8172,664
1,9361,734
2,4942,769
2,373
1,983
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
NC USA
(Thousands of Written Car-Years)
U.S. Residual Market Has Shrunk
As Regulators Remove Subsidies,
Allow More Dynamic Pricing
Rest of Nation is Shrinking Their Residual Markets. NC Market is Slowly Growing.
63
Top Ten Most Expensive And Least Expensive States For Automobile Insurance, 2013 (1)
RankMost
expensive statesAverage
expenditure RankLeast
expensive statesAverage
expenditure
1 New Jersey $1,254.10 1 Idaho $553.38
2 D.C. 1,187.49 2 Iowa 572.14
3 New York 1,181.86 3 South Dakota 580.99
4 Louisiana 1,146.29 4 Maine 592.82
5 Florida 1,143.83 5 North Dakota 604.58
6 Michigan 1,131.40 6 Wisconsin 621.05
7 Delaware 1,101.12 7 Indiana 621.71
8 Rhode Island 1,066.25 8 North Carolina 624.76
9 Connecticut 1,011.27 9 Nebraska 638.74
10 Massachusetts 1,007.98 10 Wyoming 639.71
(1) Based on average automobile insurance expenditures.
Source: © 2016 National Association of Insurance Commissioners.
North Carolina ranked 8th as the least expensive state in 2013, with an average expenditure for auto insurance of $624.76.
64
Personal Auto Premiums, 2013
Source: National Association of Insurance Commissioners, Insurance Information Institute.
(Average Expenditure)
North Carolina’s Has Lowest Expenditure of Surrounding States, About 11 Percent Lower Than Any Other.
Does Regulatory Market Keep Rates
Lower?
65
Personal Auto: Average Premium by Coverage, 2013
Source: National Association of Insurance Commissioners.
(Average Premium)
Strong Rate Regulation or Contributory
Negligence Rule?
North Carolina’s Liability Rates, Based on State’s Rates, Are Much Lower Than Neighboring States. (NCRF Only Covers
Liability.)
66
RNW PP Auto: NC vs. U.S., 2005-2014
Source: National Association of Insurance Commissioners.
0%
2%
4%
6%
8%
10%
12%
14%
05 06 07 08 09 10 11 12 13 14
US PP Auto NC PP Auto
Average 2005-2014
US: 6.2%
NC: 6.4%
Irene, 6
Tornadoes of
EF-3 or Higher
NC Slightly
More Profitable
Than Rest of
USA
PP Auto: 10-Year Average RNW NC & Nearby States
5.0%
5.8%
6.2%
6.4%
9.0%
4.7%
5.8%
0% 2% 4% 6% 8% 10%
Virginia
North Carolina
U.S.
Tennessee
South Carolina
Kentucky
Georgia
Source: NAIC, Insurance Information Institute
2005-2014
North Carolina PP Auto
profitability is above the US and regional
averages
Reinsurance Facility Doesn’t Appear to Reduce Profitability.
68
RNW PP Auto Liability: NC vs. U.S., 2005-2014
Source: National Association of Insurance Commissioners.
0%
2%
4%
6%
8%
10%
12%
05 06 07 08 09 10 11 12 13 14
US PP Auto Liability NC PP Auto Liability
Average 2005-2014
US: 4.9%
NC: 3.7%
Liability Less
Profitable Than
Rest of USA
69
RNW PP Auto PhysDam: NC vs. U.S., 2005-2014
Source: National Association of Insurance Commissioners.
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
05 06 07 08 09 10 11 12 13 14
US NC
Average 2005-2014
US: 9.5%
NC: 11.4%
Physical
Damage More
Profitable Than
Rest of USA
Physical Damage Tends to Be More Profitable Everywhere
Because of Catastrophe Risk. More Risk→Greater Return.
70
Personal Auto: Property Damage, 2012
Source: National Association of Insurance Commissioners.
(Severity [Claim Size] $$$) (Frequency [Claim/100 Car-Yr])
NC Property Damage Liability Is Similar to Nearby States in Claim Size and Claim Frequency. System Doesn’t Prevent Accidents or
Make Them Less Severe.
Average of Neighbors
Freq: 3.77
Severity: $3,019
71
Personal Auto: Bodily Injury, 2012
Source: National Association of Insurance Commissioners.
(Severity [Claim Size] $$$) (Frequency [Claim/100 Car-Yr])
NC Bodily Injury Frequency is Close to That of Neighbors, But It Has Lowest Claim Size.
FLOOD INSURANCE
72
The South Carolina Deluge; Is Anyone Buying?
72
Flood Insurance Claims by State, FY2015
73
SOURCE: National Flood Insurance Program.
‘An Atmospheric River’
74
Low Pressure Over Florida Got Stuck, Funneling Incredibly Moist Air Over South Carolina—Again and Again.
Epic Rains Cause Epic Floods
75
SOURCE: NASA, via The Washington Post.
Epic Rains Cause Epic Floods
A 1,000-Year Event
(Katrina was a 500-Year Event)
$1.5 billion total damages
$300 million insured loss, including
3,521 Flood Claims
$115.0 Million in Paid Flood Losses
$32,676 per Claim
76
SOURCES: Image--National Weather Service, via blog.weatherflow.com. Likelihood of event from NWS and nola.com. Flood loss
statistics from National Flood Insurance Program. Other data from Swiss Re sigma 1/2016.
77
Flood Insurance Exposures, by Year
Source: National Flood Insurance Program, Insurance Information Institute.
Changes to Flood Insurance Program Have Driven Policy Counts Down, Both in Carolinas and Rest of USA.
(Thousands of Policies in Force) Slight Spike: El Niño Initiative
in CA
Public Understandingof Flood Insurance
78
Nearly One Quarter of Homeowners Incorrectly Thought
Homeowners Policy Covers Flood Damage.
SOURCE: Insurance Information Institute.
Flood Insurance Take-up Rates
79
The percentage of homeowners
purchasing Flood insurance has
remained consistent
The South Has the Highest
Proportion of Homeowners with
Flood Insurance
SOURCE: Insurance Information Institute.
National Flood Insurance Reforms
2012: Biggert-Waters Flood Insurance Reform Act:
Eliminated Many Rate Subsidies (Discounts) that Many Property-Owners in High-Risk Areas Receive
Attempted to Make Program Self-Sufficient
2014: Bigger-Waters Recalibrated:
Many Rate Increases Rescinded.
Annual Increases Capped: 25% (subsidized) 18% (other).
Surcharges Policyholders to Help Pay for Subsidies
– $25 Primary homeowners
– $250 Vacation homes and nonresidential property
80
April 2016 Changes
Updated Premium Rates (Year 2 of Increases) – 9% on Average (excluding surcharges)
25% Increase for subsidized non-residential businesses in many high-risk areas
Eliminate subsidy for certain policies that lapsed and are reinstated in many high-risk areas
Details at: http://nfipiservice.com/Stakeholder/FEMA7/W-15046.html
81
On the Horizon
Current Authorization Expires in 2017
Last Time: 17 Extensions, 4 Lapses, Took 4 Years
This Time: Smoother Sailing?
Proposals
Flood Insurance Market Parity and Modernization Act (HR 2901)
– Encourages Private Market (Lets Lenders Recognize Private Insurance for Mortgages)
– Passed Financial Services Committee
Are Private Insurers Entering the Market
82
TECHNOLOGY, DISRPTORS AND INSURANCE
83
Applications of Technology in P/C Insurance Have Gripped the Media as
Have Industry Solutions
83
84
Interest in Technology Issues and Insurance Is Surging: Presents Opportunity
Insurers are at the intersection of many of the most important technological innovations of the early 21st century
ProblemSolutionOpportunity
Industry is too often depicted as a technology laggard
I.I.I. is highlighting the industry as being on the technological cutting edge—an innovative, nimble industry with solutions for managing countless new risks of the current era:
Sharing economy Cyber Auto Technology
Supply Chain Climate Risk Drones
Wearable devices The “Internet of Things”
85
CYBER RISK AND INSURANCE
Cyber Risk is a Rapidly Emerging Exposure for Businesses Large and
Small in Every Industry
Data Breaches 2005-2015, by Number of Breaches and Records Exposed
# Data Breaches/Millions of Records Exposed
Source: Identity Theft Resource Center (updated as of Jan. 6, 2016);http://www.idtheftcenter.org/images/breach/ITRCBreachReport2015.pdf
157
321
446
656
498
419
470
614
781783
662169.1
85.692.0
17.522.9
35.7
19.1
66.9
222.5
16.2
127.7
100
200
300
400
500
600
700
800
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
0
20
40
60
80
100
120
140
160
180
200
220
# Data Breaches # Records Exposed (Millions)
The 781 reported data breaches in 2015 was virtually unchanged form the record 783 reported in 2014. The number of exposed records
soared to 169.1 million, and increase of 97.5%.
Millions
Data/Privacy Breach:Many Potential Costs Can Be Insured
Source: Zurich Insurance; Insurance Information Institute
Data Breach Event
Costs of notifying affecting
individuals Defense and settlement
costs
Lost customers and damaged
reputation
Cyber extortion payments
Business Income Loss
Regulatory fines at home & abroad
Costs of notifying
regulatory authorities
Forensic costs to discover
cause
87
88
$1.5$2.0
$7.5
$0
$1
$2
$3
$4
$5
$6
$7
$8
2014 2015E 2020F
Estimated Cyber Insurance Premiums Written, 2014 – 2020F
Cyber insurance premiums written could more than
triple to $7.5 billion by 2020
Source: Advisen (2014 est.); PwC (2015, 2020); Insurance Information Institute.
$ Billions
I.I.I.’s Cyber Risk paper issued
Oct. 2015
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THE SHARING (ON-DEMAND) ECONOMY
Area of Extreme Interest—And Insurers Are Providing Solutions for this
Dynamic Economic Segment
Tiny, but Growing
90
91
Sharing/On-Demand/Peer-to-Peer Economy Impacts Many Lines of Insurance
The “On-Demand” Economy is or will impact many segments of the economy important to P/C insurers
Auto (personal and commercial)
Homeowners/Renters
Many Liability Coverages
Professional Liability
Workers Comp
Many insurance questions have arisen
Insurance solutions are increasingly available to fill the many insurance gaps that arise
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Labor on Demand: Huge Implications for the US Economy, Workers & Insurers
Source: ISO.
Ridesharing Regulation/Legislation and Status of ISO Filings as of 9/30/15
93
Status of ISO FilingsStatus Ride Sharing
Legislation/Regulation
TNC: Transportation Network Companies.
94
AUTO TECHNOLOGY &
THE FUTURE OF AUTO INSURANCE
Technology Promises Safer Cars and Highways, BUT Some Analysts, Media
and Many in Silicon Valley Are Predicting Doom for Auto Insurers
95
When Computers Take the Wheel . . .
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This is a Test . . . On the Street
Delphi prototype
“Road-runner”
SF to NYC in Nine
Days (4/2015)
3,400 Miles – All
but 50
Autonomous
Issues:
‘Unmarked Lanes,
Heavy
Roadworks,’
When Sun Was
Low in Sky
All Major Manufacturers Are Developing These Safety Devices. Autopilot Features Are Imminent.
When Will This Happen?
1%
10%
30%
50%
4%
30%
50%
80%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2020s 2030s 2040s 2050s
Percent of Miles Driven
97
Expensive
SOURCE: Autonomous Vehicle Implementation Predictions, Victoria Transport Policy Institute, 2015.
Expensive
Minimal
Price
Standard
Equipment
98
Why Will It Take So Long?
11.211.4 11.4 11.5 11.6 11.6 11.7
10.910.6
10.310.110.09.9
8.0
8.5
9.0
9.5
10.0
10.5
11.0
11.5
12.0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
E
2017
E
2018
E
Sources: U.S. Department of Transportation, Polk, January 2015 Survey, IHS Automotive July 2015; Insurance Information Institute.
Average Light Vehicle
Age (Years)
98
Recession Hangover – People Struggling to Afford Major Purchase; Cars Are Built Better, Last Longer.
Why Will It Take So Long?
99
Q. Would you be willing to ride in a driverless car?
Source: Insurance Information Institute Annual Pulse Survey.
The Percentage Willing to Ride in a Driverless Car Rose Slightly. 69 Percent of People Over 64 Were Unwilling to Ride.
May 2015November
2015
Meanwhile, Other Important Tech Improvements Are Coming to Autos
100
Source: Highway Loss Data Institute and Insurance Institute for Highway Safety presentation by Matthew Moore, Measuring Crash Avoidance System Effectiveness with Insurance Data,” January 30 2013; Insurance Information Institute.
Property Damage
Liability Claim Frequency by Manufacturer
Collision Claim
Frequency by Manufacturer
Forward collision warning systems have a material
impact on PD liability claim frequency, especially when
paired with auto braking
Collision frequency
falls as well
Auto Insurance: Frequency vs. Severity
183
1,1431,288
7,553
3,231
15,443
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
Property Damage Bodily Injury
Cla
im S
everity
Severity
1963 1988 2013
101
Sources: Insurance Institute for Highway Safety, Insurance Services Office, Insurance Information Institute.
Auto Claims Have Grown Faster Than Inflation for 50 Years
102
Percentage Change, 1963-2013
103
Who Is Responsible?
Q. Who should be responsible if an accident occurred involving a driverless car?
Source: Insurance Information Institute Annual Pulse Survey.
Half of Respondents Think a Driverless Car’s Manufacturer Should Bear Responsibility in Case of an Accident.
6%
9%
11%
50%
24%
Car’s Manufacturer
Car’s Owner
Don’t Know
Car’s Occupant
Car’s Insurer
104
Who Is Responsible?
Q. Would you be willing to pay more for your car to cover the manufacturer’s liability in case of an accident?
Source: Insurance Information Institute Annual Pulse Survey.
Only a Quarter of Americans Would Be Willing to Pay More for a Driverless Car to Cover the Manufacturer’s Liability in Case of an
Accident.
2%
26%
72%
Yes
No
Don’t Know
105
Media is Obsessed with Driverless Vehicles: Often Predicting the Demise of Auto Insurance
By 2035, it is estimated that 25% of new vehicle
sales could be fully autonomous models
Source: Boston Consulting Group; Insurance Information Institute.
Questions
Are auto insurers monitoring these trends?
How are they reacting?
Will take over the industry? (cars/sales)
Will the number of auto insurers shrink?
How will liability shift?
106
I.I.I. Poll: Telematics
Q. I’m going to ask you a question about your opinion of insurance companies
collecting information about how and when you drive in order to set your auto
insurance premium. Please tell me which statement you agree with. Would you…1
1Asked of those who auto insurance.
Source: Insurance Information Institute Annual Pulse Survey.
More Than Half of Auto Policyholders Would Allow Their Insurer to Collect Their Driving Information In Order to Set Premiums.
Don’t know
Allow if premium went
down
Allow whether or not premium went down
Would not allow
107
Send in the Drones: Potential Rapid Adoption in Industry; Media Loves It
Drones or Unmanned Aerial Vehicle (UAV) technology is seeing rapid adoption rate in many industries, including insurance
FAA granting Section 333 exemptions for commercial use and testing of UAS
At least 5 insurers have received permission to test
Wide variety of applications: claims, pre-event property inspections…
Insurers partnering with construction industry to guide R&D and regulation of UAV use via Property Drone Consortium: www.propertydrone.org
Summary
2015 Was Profitable for the P/C Industry
Low Interest Rates Present a Challenge
Rate Changes Flat, Perhaps Lower
Loss Trends Accelerating, Especially in Auto
NC Mirrors Most U.S. Trends (except Residual Market)
Flood Insurance: Is Anyone Buying?
Disruptors Loom, but Industry Appears Ready
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www.iii.org
Thank you for your timeand your attention!
Twitter: twitter.com/III_Research
Download at www.iii.org/presentations
Insurance Information Institute Online:
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