Transcript namic-062716x - Insurance Information Institute

Trends, Challenges and
Opportunities in the P/C Insurance
Industry in 2016 & Beyond
NAMIC Management Conference
Hilton Head, SC
June 27, 2016
Download at www.iii.org/presentations
Robert P. Hartwig, Ph.D., CPCU, President & Economist
Insurance Information Institute  110 William Street  New York, NY 10038
Tel: 212.346.5520  Cell: 917.453.1885  [email protected]  www.iii.org
$55,870
$56,622
14
15
$63,784
$13,916
$33,522
$19,456
$3,043
$28,672
Net income in
Q1:2016 on an
annualized
basis was on
track to match
full-year 2015
$35,204
$62,496
$44,155
$38,501
$30,029
$20,559
$21,865
$30,773
$20,598
$10,870
$3,046
$10,000
$19,316
$20,000
$5,840
$30,000
$14,178
$40,000
$36,819
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%
2015 ROAS = 8.4%
$24,404
$ Millions 


$80,000


$70,000


$60,000


$50,000


$65,777
P/C Industry Net Income After Taxes
1991–2016:Q1
$0
16:Q1
13
12
11
10
09
08
07
06
05
04
03
02
01
99
98
97
96
95
94
93
92
91
00
-$6,970
-$10,000
•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
Profitability Peaks & Troughs in the P/C
Insurance Industry, 1975 – 2015
ROE
25%
1977:19.0%
History suggests next ROE
peak will be in 2016-2017
1987:17.3%
20%
1997:11.6%
15%
9 Years
2006:12.7%
2013
9.8%
2015:
8.4%
10%
5%
0%
2014
8.4%
1975: 2.4%
1984: 1.8%
1992: 4.5%
2001: -1.2%
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
-5%
*Profitability = P/C insurer ROEs. 2011-15 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
ROE: Property/Casualty Insurance by Major Event,
1987–2015
(Percent)
P/C Profitability Is Both by
Cyclicality and Ordinary Volatility
20%
Modestly
higher
CATs
Katrina,
Rita, Wilma
Low
CATs
15%
10%
Sept. 11
5%
0%
Hugo
Andrew,
Iniki
Lowest CAT
Losses in
15 Years
Northridge
4 Hurricanes
Financial
Crisis*
Sandy
Record
Tornado
Losses
-5%
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
* Excludes Mortgage & Financial Guarantee in 2008 – 2014.
Sources: ISO, Fortune; Insurance Information Institute.
4
P/C Insurance Industry ROE: Magnitude of
Cyclicality, Volatility Changes Over Time, 1950-2015
25%
20%
1950 - 1970
Low
Volatility
1971 - 1992
Extreme
Volatility
1993 - 2008
Moderate
Volatility
2009 - Present
Modest
Volatility
15%
10%
5%
0%
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
-5%
.
Source: Insurance Information Institute
P/C Insurance Industry
Combined Ratio, 2001–2016:Q1*
Heavy Use of
Reinsurance
Lowered Net
Losses
As Recently as 2001,
Insurers Paid Out
Nearly $1.16 for Every
$1 in Earned
Premiums
Relatively
Low CAT
Losses,
Reserve
Releases
120
115.8
110
Best
Combined
Ratio Since
1949 (87.6)
107.5
100.1
100
Avg. CAT
Losses,
More
Reserve
Releases
Cyclical
Deterioration
Sandy
Impacts
106.5
99.3
98.4
3
Consecutive
Years of U/W
Profits: First
Time Since
1971-73
Lower
CAT
Losses
102.5
101.1
101.0
100.8
Higher
CAT
Losses,
Shrinking
Reserve
Releases,
Toll of Soft
Market
Relatively
Low CAT
Losses,
Reserve
Releases
Elevated
CATs
97.8 97.3
96.4 97.0
95.7
92.6
90
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16:Q1
* 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 (2014-2015); Figure for 2010-2013 is from A.M. Best P&C Review and Preview, Feb. 16, 2016.
6
NPW Premium Growth: Peaks & Troughs in the
P/C Insurance Industry, 1926 – 2015
ROE
Post WW II Peak:
1947: 26.2%
30%
25%
20%
Start of WW II
1941: 15.8%
1970-90: Peak premium growth was much
higher in this period while troughs were
comparable. Rapid inflation, economic
volatility, high interest rates, tort
environment all played roles
Economic Shocks,
Inflation:
1976: 22.0%
Tort Crisis
1985/86: 22.2%
1988-2000:
Period of
inter-cycle
stability
15%
10%
Post-9/11
2002:15.3%
2015
3.4%
5%
-5%
-10%
-15%
-20%
1950-70: Extended period of
stability in growth and
profitability. Low interest rates,
low inflation, “Bureau” rate
regulation all played a role
Twin
Recessions;
Interest Rate
Hikes
1987: 3.7%
Great Depression
1932: -15.9% max drop
201020XX?
Postrecession
period of
stable
growth?
Great
Recession:
2010: -4.9%
26
28
30
32
34
36
38
40
42
44
46
48
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
0%
Note: Data through 1934 are based on stock companies only. Data include state funds beginning in 1998.
Source: A.M. Best; Insurance Information Institute.
$675.2
$672.4
$673.7
15:Q2
15:Q4
$673.9
$671.6
14:Q4
$624.4
$614.0
$586.9
$583.5
$567.8
$570.7
$550.3
$538.6
$559.1
$544.8
$530.5
$540.7
$511.5
$490.8
14:Q3
14:Q2
14:Q1
13:Q4
13:Q3
13:Q2
12:Q4
12:Q3
12:Q2
12:Q1
11:Q4
11:Q3
11:Q2
11:Q1
10:Q4
10:Q3
10:Q2
10:Q1
09:Q4
Surplus as of 12/31/15 stood
at a near-record high $673.7B
09:Q3
$437.1
$463.0
09:Q2
08:Q4
08:Q3
08:Q2
08:Q1
07:Q4
07:Q3
07:Q2
07:Q1
$400
06:Q4
$450
09:Q1
$455.6
$478.5
$505.0
$515.6
$517.9
$521.8
$496.6
$500
$487.1
$550
$512.8
$600
$559.2
$566.5
$650
13:Q1
$700
$607.7
Drop due to near-record
2011 CAT losses
2007:Q3
Pre-Crisis Peak
$662.0
($ Billions)
$653.4
Policyholder Surplus,
2006:Q4–2015:Q4
The industry now has $1 of surplus for every $0.76 of NPW,
close to the strongest claims-paying status in its history.
2010:Q1 data includes $22.5B of
paid-in capital from a holding
company parent for one insurer’s
investment in a non-insurance
business .
Sources: ISO, A.M .Best.
The P/C insurance industry entered 2016
in very strong financial condition.
8
INVESTMENTS:
THE NEW REALITY
Investment Performance is a Key
Driver of Profitability
Depressed Yields Will Necessarily
Influence Underwriting & Pricing
9
9
Property/Casualty Insurance Industry Investment
Income: 2000–20151
Investment earnings
are still below their
2007 pre-crisis peak
($ Billions)
$60
$54.6
$52.3
$50
$40
$51.2
$49.5
$49.2
$47.1 $47.6
$38.9
$38.7
$48.0 $47.3
$46.4
$47.2
$39.6
$37.1 $36.7
$30
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
Due to persistently low interest rates, investment income fell in
2012, 2013 and 2014 but showed a small (1.9%) increase in 2015—
a trend that may continue.
1
Investment gains consist primarily of interest and stock dividends. Sources: ISO; Insurance Information Institute.
U.S. Treasury Security Yields:
A Long Downward Trend, 1990–2016*
9%
Yields on 10-Year U.S. Treasury
Notes have been essentially
below 5% for more than a decade.
8%
7%
6%
5%
Despite the Fed’s
December 2015
rate hike, yields
remain low
though shortterm yields have
seen some gains;
Yield curve is
flattening.
4%
3%
2%
1%
Recession
2-Yr Yield
10-Yr Yield
0%
'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
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.
*Monthly, constant maturity, nominal rates, through May 20, 2016.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research
(recession dates); Insurance Information Institute.
11
11
Net Investment Yield on Property/ Casualty
Insurance Invested Assets, 2007–2016P*
(Percent)
4.6
Estimated book yield in
2016 is down about 140
BP from pre-crisis levels
4.5
4.4
4.2
4.2
4.0
4.0
3.8
3.8
3.7
3.8
3.6
3.6
3.6
3.4
3.4
3.1
3.2
3.0
07
08
09
10
11
12
13
14
15E
16P
The yield on invested assets remains low relative to pre-crisis yields. The Fed’s plan to
raise interest rates in late 2015 has pushed up some yields, albeit quite modestly.
Sources: A.M. Best; 2015E-2016P figures from A.M. Best P/C Review and Preview, Feb. 2016; Insurance Information Institute
THE ECONOMY
The Strength of the Economy Will Greatly
Influence Insurer Exposure Base
Across Most Lines
13
13
US Real GDP Growth*
Q4:2008 decline was
Real GDP Growth (%) The
the steepest since the
-7%
-0.3%
Q1 2014/15 GDP data
were hit hard by this
year’s “Polar Vortex”
and harsh winter
-8.9%
2000
2001
2002
2003
2004
2005
2006
2007
08:1Q
08:2Q
08:3Q
08:4Q
09:1Q
09:2Q
09:3Q
09:4Q
10:1Q
10:2Q
10:3Q
10:4Q
11:1Q
11:2Q
11:3Q
11:4Q
12:1Q
12:2Q
12:3Q
12:4Q
13:1Q
13:2Q
13:3Q
13:4Q
14:1Q
14:2Q
14:3Q
14:4Q
15:1Q
15:2Q
15:3Q
15:4Q
16:1Q
16:2Q
16:3Q
16:4Q
17:1Q
17:2Q
17:3Q
17:4Q
-9%
-5.3%
-5%
Recession
began in
Dec, 2007
-3.7%
-3%
-1.8%
-1%
4.6%
4.3%
2.1%
0.6%
3.9%
2.0%
1.4%
0.8%
2.4%
2.3%
2.4%
2.2%
2.3%
2.2%
2.2%
1%
-0.9%
5.0%
1.4%
2.3%
2.2%
2.6%
2.4%
0.1%
2.5%
1.3%
4.1%
2.0%
1.3%
3.1%
0.4%
2.7%
1.8%
4.5%
3.5%
3%
1.3%
5%
1.1%
1.8%
2.5%
3.6%
3.1%
2.7%
1.8%
7%
4.1%
Q1:1982 drop of 6.8%
Demand for Insurance Should Increase in 2016 as GDP Growth Continues at
a Steady, Albeit Moderate Pace and Gradually Benefits the Economy Broadly
*
Estimates/Forecasts from Blue Chip Economic Indicators.
Source: US Department of Commerce, Blue Economic Indicators 6/16; Insurance Information Institute.
14
Brexit: Potential Impacts on the Global
(Re)Insurance Industry
 Brexit is a net negative for the global
(re)insurance industry
 Fundamentally, Brexit is a protectionist measure
and antithetical to free trade; Economic negative
 Dollar appreciates
 Delays Fed rate hikes
 Free flow of financial capital, human capital and
coordinated regulatory policy across EU states is
on net good for Europe’s economy
 Concern that UK’s action could initiate a domino
effect
 Economic integration is the cornerstone of
keeping (most of) Europe free of war
 Does Brexit weaken Solvency II and efforts to
implement European-like regulations in the US?
15
The Economy, Millennials and Careers in
the Insurance Industry
Some 400,000 job openings in the insurance
industry through 2020 will need to be filled,
mostly by Millennials
I.I.I. created a video featuring actual Millennials
who work for I.I.I. member organizations
Also created individual videos profiling each
person featured
Free for you to use!
Link:
https://www.youtube.com/playlist?list=PL8QsOg2Byw0nTF6D
CUNF5McZgd4T_1WYV
16
Profitability & Politics
How Is Profitability Affected by
the President’s Political Party?
17
17
P/C Insurance Industry ROE by
Presidential Administration, 1950-2014*
16.43%
Carter
Reagan II
Obama II
Nixon
Clinton I
G.H.W. Bush
G.W. Bush II
Clinton II
Reagan I
Nixon/Ford
Truman
Eisenhower I
Eisenhower II
G.W. Bush I
Obama I
Johnson
Kennedy/Johnson
15.10%
8.93%
8.93%
8.65%
OVERALL RECORD:
1950-2015*
Democrats 7.72%
Republicans 7.85%
8.35%
8.33%
7.98%
7.68%
6.98%
6.97%
5.43%
5.03%
4.83%
4.68%
4.43%
3.55%
0%
2%
4%
6%
*Truman administration ROE of 6.97% based on 3 years only, 1950-52;.
Source: Insurance Information Institute
8%
Party of President has
marginal bearing on
profitability of P/C
insurance industry
10%
12%
14%
16%
18%
P/C insurance Industry ROE by
Presidential Party Affiliation, 1950- 2015*
Nixon/Ford
Carter
Kennedy/
Johnson
20%
Truman
25%
Eisenhower
BLUE = Democratic President
RED = Republican President
Reagan/Bush I
Clinton
Bush II
Obama
15%
10%
5%
0%
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
-5%
.
*2015 data is through Q3.
Source: Insurance Information Institute
Trump vs. Clinton:
Issues that Matter to P/C Insurers
Issue
Trump
Clinton
Economy
Supply Side-Like Philosophy:
Lower taxesFaster real GDP
growth; Deficits likely grow as tax
cuts are combined with targeted
increased spending on Homeland
Security, Defense, etc.
Keynesian Philosophy:
More government spending
on infrastructure, education,
social services; Deficits likely
increase as tax increases
likely difficult to pass
Interest Rates
May trend higher with larger
deficits; Shift from monetary
policy to fiscal focus (tax cuts,
government spending)
Status quo at the Fed; Net
impact on interest rates
unclear
Taxes
Favors lower tax rates for
corporate and personal income tax
rates; Tax code overhaul?
Unlikely to reduce taxes or
embark on major overhaul
of tax code
International
Trade
Protectionist Tendencies (appeal
primarily to manufacturing sector)
Has criticized Trans-Pacific
Partnership but is a realist
on international matters
Tort System
Doesn’t like trial lawyers but
seems to like filing lawsuits
Status Quo
Health Care
ACA should be repealed & replaced Incremental Change
20
Top Insurance Issues:
What’s Hot, What’s Not
Eclectic Mix of Issues Garnered
Media Attention So Far in 2016
Interest in Tech Issues
Remains High
22
22
I.I.I. Media Index, P/C, First Five Months
2015 vs. First Five Months* 20161
Percent Increase/Decrease from Previous Year
Wildfires
Gun Liability
Driverless Cars
Sharing Economy
Solvency
Climate Change
Price Optimization
Tort
Pay-As-You Go/Telematics
Cyber Insurance
Credit Scoring
Hurricanes
Drones and Insurance
Aviation
Homeowners
Market Conditions
Earthquakes
Workers Comp
Tornadoes
Winter Storms & Insurance
Auto
Systemic Risk
Flood Insurance
Insurance Fraud
Auto Affordability & CFA
Terrorism
Riots
871%
220%
184%
169%
122%
121%
110%
100%
90%
85%
81%
78%
73%
73%
41%
39%
39%
37%
31%
28%
27%
25%
10%
4%
I.I.I. appeared on CBS 60 Minutes
(unclaimed life insurance
benefits) and PBS Frontline
(NFIP WYO issues) in May.
-37%
-46%
-85%
-200%
*Through May 15.
1Based on a search of Meltwater News
Interest in Technology
issues impacting the
insurance industry are
surging
0%
200%
400%
600%
800%
1000%
Auto & Home Insurance:
State of the Personal Lines Market
Auto Frequency and Severity Are an
Immediate Challenge
Dearth of Major CATs (Until Recently),
Pricing Discipline Has Helped Home
24
24
Return on Net Worth (RNW) All Lines:
2005-2014 Average
0.9
4.2
6.2
7.6
6.8
4.3
5
7.7
10
8.1
8.9
15
8.5
13.5
20
13.2
17.7
25
24.1
30
Commercial lines have tended to be
more profitable than personal lines
over the past decade, but Homeowners
is on the rise due to the dearth of
major catastrophes in recent years
0
-5
re
Fi
d
an
l
In
M
e
in
r
a
A
M
O
ll
er
th
fL
o
r
y
t
il i
b
ia
lP
a
ic
ed
Source: NAIC; Insurance Information Institute.
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om
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25
Return on Net Worth: All P-C Lines vs.
Homeowners & Pvt. Pass. Auto, 1990-2014*
(Percent)
25%
20%
Average RNW: 1990-2013*
All P-C Lines: 7.8%
PP Auto: 8.1%
Homeowners: 4.3%**
US All Lines
US Home
US PP Auto
15%
10%
5%
0%
-5%
Excluding 1992’s
Hurricane Andrew
-10%
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
Pvt.Pass. Auto Has Consistently Outperformed the P-C Industry as a Whole.
Homeowners Volatility is Associated Primarily With Coastal Exposure Issues
*Latest available.
**Excludes 1992, the year of Hurricane Andrew. If 1992 is included the resulting homeowners RNW is 1.9%
Sources: NAIC; Insurance Information Institute.
26
RNW Pvt. Passenger Auto, 2005-2014
Average: Highest 25 States
7.8
7.8
7.8
7.9
8.1
8.2
8.3
8.6
8.6
8.8
9.0
9.0
9.2
9.4
9.9
10.0
10.1
10.5
11.5
11.7
12.7
12.7
12.8
13.0
Hawaii was the most profitable state
for auto insurers from 2005-2014
13.3
20
18
16
14
12
10
8
6
4
2
0
18.7
(Percent)
HI DC ME ID AK ND VT NH WV OH IA WY MN OR NM VA AZ CA RI CT WI MT UT IL KS WA
Sources: NAIC; Insurance Information Institute
27
RNW Pvt. Passenger Auto,
2005-2014 Average: Lowest 25 States
(Percent)
2.2
3.9
FL
3.6
4.0
4.5
OK
NV
4.7
GA
5.5
SD
5
5.0
5.5
6.2
US
NJ
6.4
TX
5.8
6.4
NC
TN
6.6
NE
5.8
6.7
AL
SC
6.9
NY
5.8
6.9
MO
DE
6.9
7.5
MA
AR
7.5
CO
7.0
7.7
MD
7
PA
7.7
9
IN
Michigan was the least
profitable state for
auto insurers from
2005-2014
3
1
-2.9
MI
LA
MS
-3
KY
-1
Sources: NAIC; Insurance Information Institute
28
RNW Homeowners Insurance,
2005-2014 Average: Highest 25 States
(Percent)
41.7
45
Hawaii was the most profitable
state for home insurers from
2005-2014 due to the absence
of hurricanes during this period
40
35
9.1
9.1
9.3
11.5
11.5
12.6
13.8
13.9
14.0
14.1
15.6
18.0
18.2
18.0
16.9
12.7
9.4
10
14.7
15
18.4
18.4
19.0
20.9
19.0
20
21.1
25
22.2
30
5
0
HI DC RI FL NV DE AK SC VA CA MA OR NY UT ME VT WA CT NH MD ID NC PA NM AZ WV
Sources: NAIC; Insurance Information Institute
29
RNW Homeowners Insurance,
2005-2014 Average: Lowest 25 States
-5.8
-6.0
-30
ND TX MI US NJ WY WI IA IL KS OH MT MO CO KY IN AL SD AR NE MN GA TN OK LA MS
-26.8
-20.1
-25
-13.8
-20
Hurricanes Katrina and Rita made
Louisiana and Mississippi the least
profitable states for home insurers
from 2005-2014
-7.5
-8.4
-11.2
-15
-4.7
-4.8
-4.8
-10
-3.6
-4.0
-5
-2.1
-2.6
6.0
-1.7
RNW HO
0
1.7
7.6
7.5
6.8
4.7
4.6
5
8.0
8.0
10
8.4
(Percent)
Sources: NAIC; Insurance Information Institute
30
Personal Lines
Underwriting Performance
Auto, Home Underwriting
Performance Exhibit Periods of
Both Stability and Volatility
31
31
105.4
105.3
104.9
102.3
101.6
102.1
102.0
101.0
101.3
100.2
98.3
95.5
95.1
98.4
101.1
101.0
101.3
104.2
94.3
95
99.5
100
101.3
105
101.7
110
103.5
109.5
115
107.9
Private Passenger Auto Combined Ratio: 1993–2017F
90
85
80
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15E 16F 17F
Private Passenger Auto Underwriting Performance Is Showing the
Strains of Rising Frequency (and Severity) Trends in Many States
Sources: A.M. Best (1990-2014); Conning (2015E-17F); Insurance Information Institute.
32
Homeowners Insurance Combined Ratio: 1990–2017F
91.5
92.7
90.5
95.3
95.5
Hurricane
Sandy
122.1
106.9
105.8
95.6
89.0
90
100.3
109.3
121.7
111.4
108.2
109.4
121.7
112.7
118.4
113.6
1
94.4
100
101.0
110
117.7
120
113.0
130
116.6
Hurricane
Ike
140
103.9
150
98.2
160
Record
tornado
activity
Hurricane
Andrew
158.4
170
80
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 15E16F17F
Homeowners Performance Has Improved Markedly Since the
2011/12’s Large Cat Losses. Extreme Regional Variation Can
Be Expected Due to Local Catastrophe Loss Activity. Results
in 2016 Will Be Impacted by Severe Spring Weather
Sources: A.M. Best (1990-2014); Insurance Information Institute (2015E-17F).
33
Claim Trends in Private
Passenger Auto Insurance
Rising Frequencies and Severities
in Many Coverages
Will that Pattern Be Sustained?
34
Auto Severity & Frequency by Coverage:
Trending Up in 2015
Annual Change, 2015 Over 2014
Severity
Frequency
12%
10.2%
10%
8%
6%
4%
6.4%
5.7%
4.1%
3.5%
2.2%
1.1%
2%
0.8%
0%
-2%
-1.7%
-4%
Bodily Injury
Property Damage
Liability
PIP
Collision
-2.5%
Comprehensive
Frequency and Severity Were Up Across Most Coverage Types in
2015; A Trend Likely to Continue in 2016
Source: ISO/PCI Fast Track data; Insurance Information Institute
35
Collision Coverage: Severity & Frequency
Trends Are Both Higher in 2015
Annual Change, 2005 through 2015
Severity
Frequency
8%
5.7%
6%
4%
3.9%
4.1%
3.1%
2.8%
2.5%
2%
0.1%
0.9%1.3%
0.5%
4.4%
2.4%
1.3%
0.8%
0%
-2%
-0.1%
-0.5%
-1.4%
-2.4%-2.3%
-1.8%
-4%
-1.8%
-3.6%
-6%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
The Recession, High Fuel Prices Helped Temper Frequency and
Severity, But this Trend Has Clearly Reversed, Consistent with
Experience from Past Recoveries
Source: ISO/PCI Fast Track data; Insurance Information Institute
36
Collision Loss Ratio Trending Upward:
Private Passenger Auto, 2010 – 2015
Loss Ratio
78.9%
80%
77.1%
78%
75.7%
76%
74%
72%
71.5%
71.5%
2011
2012
70%
68%
67.7%
66%
64%
62%
2010
2013
2014
2015
Collision Loss Ratios are Trending Steadily Upward
Source: ISO/PCI Fast Track data; Insurance Information Institute
37
Bodily Injury: Severity Trend Is Up,
Frequency Decline Has Ended—Rising?
Annual Change, 2005 through 2015
Severity
Frequency
8%
5.7%
6%
5.9%
4.7%
4% 2.9%
3.0%
2.0%
2%
4.1%
3.7%
2.1%
1.7%
1.1%
0.0%
0.0%
1.8%
2.2%
0.0%
0%
-1.1%
-2%
-2.2%
-4%
-6%
-3.8%
-5.4%
2005
2006
-4.0%
2007
-4.2%
2008
2009
2010
2011
2012
2013
2014
2015
Cost Pressures Will Increase if BI Frequency and
Severity Trends Persist
Source: ISO/PCI Fast Track data; Insurance Information Institute
38
Property Damage Liability: Severity and
Frequency Are Up
Annual Change, 2005 through 2015
Severity
Frequency
8%
6.4%
6%
4.0%
3.6%
4% 2.9%
2.0%
2.0%
0.9%
2%
1.8%
0.6% 0.4%0.3% 0.6%
1.9%
1.2%
3.4%
1.4%
1.1%
0.0%
0%
-0.4%
-2%
-1.6%
-4%
2005
-3.5%
2006
2007
-3.4%
2008
2009
2010
2011
2012
2013
2014
2015
Severity/Frequency Trends Have Been Volatile, But Rising
Severity since 2011 Is a Concern
Source: ISO/PCI Fast Track data; Insurance Information Institute
39
Comprehensive Coverage: Frequency and
Severity Trends Are Volatile
Severe weather is a principal
cause of the spikes in both
frequency and severity
Annual Change, 2005 through 2015
Severity
20%
Frequency
15.5%
15.4%
15.3%
12.6%
15%
10%
5.8%
5%
1.8%
7.3%
6.2%
2.6%
1.3%
0%
-5%
-1.4%
-3.1%
-10%
-1.5%
-1.7%
-2.5%
-6.3%
-8.1%
-9.8%
-5.9%
-8.9%
-15%
-7.0%
-14.5%
-20%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Weather Creates Volatility for Comprehensive Coverage
Source: ISO/PCI Fast Track data; Insurance Information Institute
40
A Few Factors Driving Adverse Private
Passenger Auto Loss Trends
More People Driving, Lower Gas
Prices, Higher Speed Limits…
41
Why Are People
Driving More Miles? Jobs?
Billions of
Miles Driven
in Prior Year
Miles Driven (left axis)
Millions
Employed
# Employed
Recession
3150
152
150
148
146
3100
3050
144
142
140
3000
2950
138
136
134
132
2900
15:Q3
15:Q1
14:Q3
14:Q1
13:Q3
13:Q1
12:Q3
12:Q1
11:Q3
11:Q1
10:Q3
10:Q1
09:Q3
09:Q1
08:Q3
08:Q1
07:Q3
07:Q1
06:Q3
06:Q1
2850
People Drive To and From Work and Drive to Entertainment. Out of Work,
They Curtail Their Movement.
Sources: Federal Highway Administration (http://www.fhwa.dot.gov/policyinformation/travel_monitoring/tvt.cfm ); Seasonally Adjusted
Employed from Bureau of Labor Statistics; Insurance Institute for Highway Safety; Insurance Information Institute.
42
More People Working and Driving
=> More Collisions, 2006-2016
Number
Employed,
Millions
152
Number Employed (left scale)
Collision Claim Frequency (right scale)
Overall
Collision Claims
Per 100 Insured
Vehicles
6.0
Recession
150
5.9
148
146
5.8
144
5.7
142
5.6
140
138
16:Q1
15:Q3
15:Q1
14:Q3
14:Q1
13:Q3
13:Q1
12:Q3
12:Q1
11:Q3
11:Q1
10:Q3
10:Q1
09:Q3
09:Q1
08:Q3
08:Q1
07:Q3
07:Q1
06:Q3
06:Q1
5.5
When people are out of work, they drive less. When they get jobs,
they drive to work, helping drive claim frequency higher.
Sources: Seasonally Adjusted Employed from Bureau of Labor Statistics; Rolling Four-Qtr Avg. Frequency from Insurance Services
Office; Insurance Information Institute.
43
Change in Auto Fatalities by State:
Especially Severe in Georgia
GA’s auto fatality rate has
increased at a pace nearly 3
times that of the US overall
and far in excess of any other
state in the region
2015 vs. 2014
22%
16%
SC (954)
12%
KY (748)
11%
NC (1,396)
8%
-1%
-5%
0%
5%
USA (38,300)
Fatalities in
Southeast Rising
Faster Than USA
as a Whole
7%
10%
SOURCE: Estimates from National Safety Council.
GA (1,394)
15%
20%
VA (755)
TN (961)
25%
Personal Lines
Growth Drivers
Rate and Exposure are Both
Presently Important
Growth Drivers
45
Monthly Change in Auto Insurance
Prices, 1991–2015*
10%
8%
Cyclical peaks in PP Auto
tend to occur roughly
every 10 years (early
1990s, early 2000s and
likely the early 2010s)
Pricing peak
occurred in late
2010 at 5.3%, falling
to 2.8% by Mar. 2012
6%
4%
2%
0%
“Hard” markets
tend to occur
during
recessionary
periods
Dec. 2015
reading of 5.5%
is up from 4.7%
a year earlier
-2%
'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
*Percentage change from same month in prior year; through Dec. 2015; seasonally adjusted
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.
46
$787
$792
$797
09
10
11
$870
$841
$791
08
$815
$799
07
$816
$831
$842
$830
$786
$690
00
$726
$685
99
$668
$703
$650
$651
$750
98
$800
$705
$850
97
$900
$691
$950
$700
The average expenditure on auto insurance
now finally exceeds the pre-crisis high of
$842 recorded in 2004, taking a full decade
to recover, but on an inflation-adjusted
basis premiums are still below 2004 levels
Annual Pct Changes
2001: 5.2%
2002: 8.6%
2003: 5.6%
2004: 1.5%
2005: -1.3%
2006: -1.8%
2007: -2.1%
2008: -1.0%
2009: -0.5%
2010: 0.6%
2011: 0.6%
2012: 2.3%
2013: 3.3%
$899
Average Expenditures* on Auto Insurance,
1994-2015E
15E
14E
13
12
06
05
04
03
02
01
96
95
94
$600
Across the U.S., auto insurance expenditures fell by 0.8% in 2008
and 0.5% in 2009 but rose 0.5% in 2010, 0.8% in 2011, 2.3% in 2012 and 3.3% in 2013; I.I.I.
estimate is for +3.4% in 2014 and 2015.
* The NAIC data are per-vehicle (actually, per insured car-year)
Sources: NAIC for 1994-2013; Insurance Information Institute estimates for 2014-2015 based on CPI and other data.
47
$120
$128.0
$140
$119.7
$197.7
$191.2
$183.5
$174.6
$168.1
$163.3
$160.1
$157.2
$159.6
$157.3
$151.2
$160
$139.7
$180
$158.5
$200
$159.6
$220
PP Auto premiums written continue
to recover from a period of flat
growth attributable to the weak
economy impacting new vehicle
sales, car choice, and increased
price sensitivity among consumers
$160.3
$ Billion
PPA will generate
$6B - $8B in new
premiums annually
through 2017
$204.0
Private Passenger Auto Insurance
Net Written Premium, 2000–2017F
PPA NWP volume in 2014
was up $26.3B or 16.7%
since the 2009 trough; By
2017 the gain is expected to
be $46.8B or 29.7%
$100
00
01
02
03
04
05
06
07
08
09
10
Sources: A.M. Best (1990-2014); Conning (2015-17F); Insurance Information Institute.
11
12
13
14 15F 16F 17F
48
Homeowners Insurance
Net Written Premium, 2000–2016F
$ Billions
$100
$95
$90
$85
$80
$75
$70
$65
$60
$55
$50
$45
$40
$35
$30
Homeowners insurance NWP continues to rise
(up 150% 2000-2015F) despite very little unit
growth during the real estate crash. Reasons
include rate increases, especially in coastal
zones, ITV endorsements (e.g., “inflation
guards”), compulsory for mortgaged properties
and resumption of home building activity
$84.9
$80.9
$77.0
$71.9
$66.9
$61.1
$49.5
$40.0
$32.4
00
$52.2
$54.8 $55.2 $56.2
02
03
04
05
Sources: A.M. Best; Insurance Information Institute.
$57.5
The Homeowners line
will generate about
$4B in new premiums
annually through 2016
$45.8
$35.2
01
$63.5
06
07
08
09
10
11
12
13
14
15F 16F
49
Personal Lines: Economic and
Demographic Considerations
Auto, Home Are Sensitive to
Underlying Economic
Conditions
50
50
New Private Housing Starts, 1990-2021F
2.1
1.9
1.7
1.5
1.3
1.1
0.9
0.7
0.5
New home starts
plunged 72% from
2005-2009; A net
annual decline of 1.49
million units, lowest
since records began
in 1959
0.55
0.59
0.61
0.78
0.92
1.00
1.11
1.21
1.34
1.43
1.46
1.47
1.49
1.19
1.01
1.20
1.29
1.46
1.35
1.48
1.47
1.62
1.64
1.57
1.60
1.71
1.85
1.96
2.07
1.80
1.36
0.91
Job growth, low inventories of
existing homes, still-low mortgage
rates and demographics should
continue to stimulate new home
construction for several more years
(Millions of Units)
0.3
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 16F 17F 18F 19F20F 21F
Insurers Are Continue to See Meaningful Exposure Growth in the Wake of the
“Great Recession” Associated with Home Construction: Construction Risk
Exposure, Surety, Commercial Auto; Potent Driver of Workers Comp Exposure
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (5/16 for 2016-17; 3/16 for 2018-21F; Insurance Information
Institute.
51
I.I.I. Poll: Renter’s Insurance
Q. Do you have renters insurance? 1
Americans are increasingly choosing
to rent, but are slow to understand the
need to insure, exacerbating the
underinsurance gap
70%
60%
50%
40%
35%
29%
30%
37%
40%
43%
31%
20%
10%
2011
2012
2013
2014
May 2015
Nov. 2015
The Percentage of Renters Who Have Renters Insurance Has Been Rising
Since 2011.
1Asked
of those who rent their home.
Source: Insurance Information Institute Annual Pulse Survey.
52
Auto/Light Truck Sales, 1999-2021F
14.4
16
12
11
10
12.7
New auto/light truck sales fell to
the lowest level since the late
1960s. Forecast for 2014-15 is
still below 1999-2007 average of
17 million units, but a robust
recovery is well underway.
11.6
13
10.4
14
13.2
15
17.0
17.1
17.1
17.2
17.2
17.3
17.3
16.4
15.5
16.1
16.5
16.9
16.9
17.1
16.6
17
17.5
18
17.8
19
17.4
(Millions of Units)
Sales have
returned to precrisis levels
Job growth and improved
credit market conditions
will boost auto sales in
2015 and beyond
Truck, SUV
purchases by
contractors are
especially strong
9
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16F 17F 18F 19F 20F 21F
Yearly car/light truck sales will likely continue at current levels, in
part replacing cars that were held onto in 2008-12. PP Auto premium
might grow by 3.5% - 5%.
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (5/16 for 2016-17; 3/16 for 2018-21F; Insurance Information Institute.
53
Number of Registered Passenger
Vehicles in US, 1999 – 2015E
Vehicle registrations
are growing once
again and now finally
exceed pre-crisis
peak
Vehicle registrations
are expected to
increase at an
annual rate of about
1.5% per year in
2015 and 2016
Sources: Bureau of Transportation Statistics; Barclays Capital estimates, August 2015.
54
Auto Loans and Other Non-Housing Debt, 2004 –
2015*
Auto loan debt
outstanding
reached $1T for
the first time ever
in Q1 2015
Banks are becoming increasingly aggressive in marketing auto loans
*As of Q1 2015.
Source: Federal Reserve Bank of NY Consumer Credit Panel/Equifax; l. I.I.
55
Commercial Lines
Underwriting Performance
56
56
Commercial Lines Combined Ratio, 1990-2017F*
107.9
94.3
14
98.1
93.6
94.8
13
91.1
95
93.6
100
97.3
98.9
102.4
104.2
105.4
102.5
102.0
105
103.5
122.3
110.2
111.1
112.3
109.7
104.1
107.6
110.2
109.5
112.5
118.8
115
110.2
120
109.4
Commercial Lines Combined Ratio
125
110
Commercial lines underwriting
performance improved in 2013/14
but higher cats, diminishing prior
year reserves and rising loss cost
trends in some lines could push
combined ratios higher
*2007-2012 figures exclude mortgage and financial guaranty segments.
Source: A.M. Best (1990-2014); Conning (2015E-17F) Insurance Information Institute.
17F
16F
15E
12
11
10
09
08
07
06
05
04
03
02
01
00
99
98
97
96
95
94
93
92
91
90
90
57
105.8
110
106.5
105.8
Commercial Property Combined Ratio:
2007–2017F
11
12
105
14
15F
90.6
86.3
75
85.8
80
16F
17F
72.4
85
82.7
83.3
90
86.5
95
90.6
100
70
07
08
09
10
13
Commercial Property Underwriting Performance
Has Improved in Recent Years, Largely Due to
Diminished CAT Activity
Source: Conning Research and Consulting.
58
103.6
104.5
101.6
99.7
104.1
103.9
95
99.6
95.1
100
15F
16F
17F
94.2
105
99.0
110
110.8
107.1
115
112.9
General Liability Combined Ratio:
2005–2017F
90
85
80
05
06
07
08
09
10
11
12
13
14
Commercial General Liability Underwriting
Performance Has Been Volatile in Recent Years
Source: Conning Research and Consulting.
59
108.8
108.2
106.6
103.4
106.7
106.8
103.4
97.8
96.8
94.1
92.4
99.1
115.7
118.1
116.2
92.1
95
92.9
100
95.2
105
102.7
110
113.0
115
112.0
120
112.1
125
115.9
Commercial Auto Combined Ratio: 1993–2017F
90
85
80
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15E16F17F
Commercial Auto Results Are Challenged as Rate Gains Barely
Have Yet to Offset Adverse Frequency and Severity Trends
Sources: A.M. Best (1990-2014);Conning (2015E-2017F); Insurance Information Institute.
60
Workers Compensation Combined Ratio: 1994–2015P
100.0
94.0
95
102.0
109.0
115.0
115.0
110.6
104.5
103.5
102.7
105.1
112.6
108.6
101.0
98.5
100
100.0
105
97.0
110
102.0
115
107.0
120
121.7
115.3
125
118.2
130
WC results have
improved markedly
since 2011
90
85
80
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15P
Workers Comp Results Began to Improve in 2012.
Underwriting Results Deteriorated Markedly from 20072010/11 and Were the Worst They Had Been in a Decade.
Sources: A.M. Best (1994-2009); NCCI (2010-2015P) and are for private carriers only; Insurance Information Institute.
61
Workers Compensation Premium:
Fifth Consecutive Year of Increase
Net Written Premium
$ Billions
50
46.5
State Funds ($ B)
46.5
44.3
Private Carriers ($ B)
40
47.8
42.3
33.6
30
28.5
26.9 25.9
34.6 33.8
10
36.4
28.6
25.0
20
31.0 31.3 29.8 30.5
29.1
39.5
39.3
32.1
30.1
45.5
41.8
37.7
35.3 35.7 34.3 35.4
44.2
34.7
26.3 25.2
25.0 26.1
24.2 23.3
22.3
29.2
37.8 38.6 37.6
33.8
31.1
30.3 29.9
32.3
38.5 39.7
36.9
35.1
Pvt. Carrier NWP growth
was +2.9% in 2015, +4.3%
in 2014, +5.1% in 2013 and
8.7% in 2012
0
90
91
p Preliminary
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
Calendar Year
Source: NCCI from Annual Statement Data.
Includes state insurance fund data for the following states: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, UT.
Each calendar year total for State Funds includes all funds operating as a state fund that year.
14 15p
2015 Workers Compensation Direct Written
Premium Growth, by State*
PRIVATE CARRIERS: Overall 2015 Growth = +4.3%
While growth rates
varied widely, most
states experienced
modest positive
growth in 2015
*Excludes monopolistic fund states (in gray): OH, ND, WA and WY.
Source: NCCI.
63
Workers Compensation Lost-Time
Claim Frequency Declined in 2015
Percent
12
10.6
Average Annual Change = –3.6%
(1994–2014)
10
Indicated
Adjusted*
8
6
4
2
3.6
0.5
0.3
0
-0.9
-2
-4
-4.5
-6
-9.2
93 94
95
-3.7
-4.5 -4.1
-4.5
-6.5
-8
-10
-3.9
97
98
99
00
01
-4.3
-4.5
-3.9
-4.9
-3
-3.0
13
14 15p
-5.4
-6.6
-6.9
96
-1.7
-2.2
-2.3
02
03
04
05
06
07
08
09
10
11
12
Accident Year
*Adjustments primarily due to significant audit activity.
2015p: Preliminary based on data valued as of 12/31/2015.
Source: NCCI Financial Call data, developed to ultimate and adjusted to current wage an voluntary loss cost level; Excludes high deductible
policies; 1994-2014: Based on data through 12/31/14. Data for all states where NCCI provides ratemaking services, excluding WV.
Frequency is the number of lost-time claims per $1M pure premium at current wage and voluntary loss cost level
64
Workers Compensation Medical Severity:
Small Decrease in 2015
Medical
Claim Cost ($000s)
30
25
Average Medical Cost per Lost-Time Claim
Medical severity for lost
time claims was down 1%
Annual Change 1991–1993:
+1.9%
in 2015,
the first decline in
Annual Change 1994–2001: +8.9%
at least 20 years
Annual Change 2002–2010:
+6.0%
Cumulative Change = 252%
(1991-2015p)
20
+3.0%-1%
+2.3%
+2.0%
+2.2%
+4.5%+0.4%
+7.0%
+5.9%
+5.8%
+7.8%
+5.4%
+7.7%
$26.3
$26.8
$27.3
$28.0
$28.8
$11.7
96
97
98
99
00 Accident
01 02 03Year
04 05
$23.4
$10.8
95
$22.1
$9.8
94
$18.4
$9.1
93
$17.1
$8.8
92
$13.9
$8.1
91
+1.3%
+6.8%
-2.1%
$12.9
$8.2
+7.4%
+5.1%
+9.0%
$8.1
10
$15.7
+8.3%
+10.1%
$19.4
+7.3%
+10.6%
$20.9
15
$25.0
+13.5%
10
11
12
13
14 15p
$28.5
$26.2
09
+8.8%
5
Accident Year
06
07
08
2015p: Preliminary based on data valued as of 12/31/2015.
1991-2013: Based on data through 12/31/2014, developed to ultimate
Based on the states where NCCI provides ratemaking services including state
65 funds, excluding WV; Excludes high deductible policies.
Insured Catastrophe Losses
2013/14 and YTD 2015 Experienced Below
Average CAT Activity After Very High CAT
Losses in 2011/12
Winter Storm Losses Far Above Average in
2014 and 2015
66
66
U.S. Insured Catastrophe Losses
($ Billions, $ 2015)
$80
$75.7
$70
2012 was the 3rd most
expensive year ever for
insured CAT losses
$10.3
$15.2
$15.5
$13.1
$36.1
$34.6
$14.9
$11.8
$30.1
$7.7
$10.9
$16.8
$7.8
$34.7
$35.8
$6.3
$11.9
$14.8
$11.3
$13.0
$3.9
$10
$8.2
$20
$5.0
$30
$14.4
$40
$9.1
$50
$27.2
$38.9
$60
$0
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 16*
2013/14/15 Were Welcome Respites from 2011/12,
among the Costliest Years for Insured Disaster
Losses in US History. 2016 Is Off to a Costlier Start.
$10.3B in insured
CAT losses though
6/12/16
*Through 6/12/16. 2016 figure stated 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.
67
67
Combined Ratio Points Associated with Catastrophe
Losses: 1960 – 2015E*
9.6
8.0
8.1
3.5
4.0
3.1
4.6
2014
2012
2010
2008
1.6
2.6
2.7
2006
1.6
2002
2004
1.6
2000
3.3
3.3
3.6
2.9
1.0
1998
1996
5.0
5.4
5.9
2.1
1.2
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
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
2.0
1.3
2.0
0.5
0.5
0.7
1966
1964
1962
0.8
1.1
1.1
0.1
0.9
0
1960
4
3.0
3.6
6
3.3
2.8
8
8.8
1960s: 1.04
1970s: 0.85
1980s: 1.31
1990s: 3.39
2000s: 3.52
2010s: 5.46*
2.3
10
1992
12
2
Catastrophe losses
as a share of all
losses reached a
record high in 2011
Avg. CAT Loss
Component of the
Combined Ratio
by Decade
1994
Combined Ratio Points
The Catastrophe Loss Component of Private Insurer Losses Has
Increased Sharply in Recent Decades
*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.
68
Inflation Adjusted U.S. Catastrophe
Losses by Cause of Loss, 1995–20141
Wind/Hail/Flood (3), $21.4
Winter storm
losses were
much above
average in
2014/15 are
will push this
share up
Fires (4), $6.0
Other (5), $0.2
Geological Events, $0.5
Terrorism, $24.5
1.5%
5.4%
0.1%
0.1%
6.2%
Winter Storms, $26.9
6.8%
Insured cat losses
from 1995-2014
totaled $395.6B, an
average of $19.8B
per year or $1.65B
per month
40.7%
Tornado share of
CAT losses is
rising
Events Involving
Tornadoes (2), $154.9
Hurricanes & Tropical Storms,
$161.2
39.2%
Wind losses are by
far cause the most
catastrophe losses,
even if hurricanes/TS
are excluded.
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.
69
Top 16 Most Costly Disasters
in U.S. History—Katrina Still Ranks #1
(Insured Losses, 2014 Dollars, $ Billions)
Storm Sandy in 2012
was the last mega-CAT
to hit the US
$60
$50
$50.2
$40
$30
Includes
Tuscaloosa, AL,
tornado
Includes
Joplin, MO,
tornado
$24.6 $25.3 $26.4
$19.3
$20
$10
$0
$9.4 $11.4
$9.0
$8.1
$7.7
$7.3
$6.9
$4.6 $5.7 $5.8
Irene (2011) Jeanne
(2004)
Frances
(2004)
Rita
Tornadoes/Tornadoes/ Hugo
(2005) T-Storms T-Storms
(1989)
(2011)
(2011)
Ivan
(2004)
Charley
(2004)
Wilma
(2005)
$13.8
Ike
(2008)
Sandy* Northridge9/11 Attack Andrew
(2012)
(1994)
(2001)
(1992)
Katrina
(2005)
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.
70
Winter Storm Losses in the US
1980 – 2015 (Overall and Insured Losses)*
$ Billions
Winter storm losses
have been increasing
rapidly in recent years
Overall losses
(in 2015 values)*
Insured losses
(in 2015 values)*
*Winter storms
include also winter
damages, blizzards
and cold waves
Source: Property Claim Services, MR NatCatSERVICE.
*Losses adjusted to
inflation based on CPI.
71
Convective Loss Events in the US
Overall and insured losses, 1980 – 2015
Overall losses
(in 2015 values)*
$ Billions
The period from 2008-2015 has
been the most expensive on
record for insured losses from
“Convective Events” (severe
thunderstorms, tornado, hail,
lightning and flash flood)
*Losses adjusted to inflation based on CPI
Source: Geo Risks Research, NatCatSERVICE
Insured losses
(in 2015 values)*
Analysis contains:
severe storm, tornado, hail, flash
flood and lightning
72
US Property CAT Rate on Line Index & Global
Reinsurance ROE
US Property CAT ROL
Global Reinsurance ROE
Record traditional capacity, alternative capital and low CAT activity have
pressured reinsurance prices; ROEs are own only very modestly
Source: Barclays PLC from Guy Carpenter; Insurance Information Institute.
73
INDUSTRY DISRUPTORS
Technology, Society and
the Economy Are All
Changing at a Rapid Pace
Thoughts on the Future
74
74
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
Questions
 Are auto insurers
monitoring these trends?
 How are they reacting?
 Will Google take over the
industry?
 Will the number of auto
insurers shrink?
 How will liability shift?
Source: Boston Consulting Group.
75
On-Demand/Sharing/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 unanswered insurance
questions
 Insurance solutions are increasingly
available to fill the many insurance
gaps that arise
76
Data Breaches 2005-2015, by Number of
Breaches and Records Exposed
# Data Breaches/Millions of Records Exposed
222.5
800
700
783
220
200
662
656
Millions
614
180
600
160
498
500
117.6
470
127.7
446
419
92.0
400
66.9
120
85.6
400
321
35.7
157
100
80
300
200
140
60
16.2 22.9
19.1
40
17.5
20
100
0
2005
2006
2007
2008
2009
2010
# Data Breaches
2011
2012
2013
2014
*2015
# Records Exposed (Millions)
The total number of data breaches (+27.5%) hit a record high of 783 in
2014, exposing 85.6 million records. Through June 30, this year has
seen 117.6 million records exposed in 400 breaches.*
*Figures as of June 30, 2015, from the Identity Theft Resource Center,
http://www.idtheftcenter.org/images/breach/ITRCBreachReport2015.pdf
The Sharing Economy: An Update
The On-Demand Economy Will
Transform the American
Workforce and the
P/C Insurance Industry Too
78
The Sharing Economy Has Grown—
And Attracted Political Scrutiny
79
Political Skepticism About the
‘Gig’ Economy
"Many Americans are
making extra money renting
out a spare room, designing
a website ... even driving
their own car. This on
demand or so called 'gig'
economy is creating
exciting opportunities and
unleashing innovation, but
it's also raising hard
questions about
workplace protections
and what a good job will
look like in the future."
--Hillary Clinton,
July 13, 2015
80
Americans Who Offer Services in the Sharing/Gig
Economy Are Statistically More Prone to Workplace Injury
Young, urban minority males are the most likely to offer their
services in the sharing economy.
Sources: The SelfEmployed.com accessed at https://www.theselfemployed.com/gig-economy/infographic-inside-the-neweconomy/ based on a poll by Time magazine, Bursten-Marsteller and The Aspen Institute; Insurance Information Institute.
81
THE ‘INTERNET OF THINGS’
Capturing Economic Value Amid a
Shifting Insurer Value Chain
82
The Internet of Things and the Insurance Industry
 The “Internet of
Things” will
create trillions in
economic value
throughout the
global economy
by 2025
 What
opportunities,
challenges will
this create for
insurers?
 What are the
impact on the
insurance
industry “value
Sources: McKinsey Global Institute, The Internet of Things: Mapping the Value Beyond the Hype,
chain”?
June 2015; Insurance Information Institute.
83
Wearables Show Significant Potential to
Reduce Workplace Injury, Death
 Wearables Today Can Monitor:
 Location
 Heart rate
 Temperature
 Steps/Exertion
 Sweat
 Sleep
 In the Near Future Could Monitor:
 Glucose level
 Oxygen levels
 Pain
 Nausea
84
The Internet of Things and the Insurance Industry
Value Chain
Who owns the data? Where does It flow? Who does the analytics?
Who is the capital provider?
Source: Willis Capital Markets & Advisory; Insurance Information Institute.
85
INSURANCE TECHNOLOGY:
FIN TECH ZEROES IN
Number and Value of Deals Is Increasing
In Search of the Elusive Insurance ‘Unicorn’
86
Insurance Technology Financing Trend:
Change Is Coming
($ Millions)
Insurance tech
deals reached
a new record
in 2016:Q1
$2,000
$1,800
$1,600
Investment
$1,000
45
34
35
30
27
30
27
25
22
20
20
18
$800
19
18
$650
13
$600
10
$400
6
$200
13
10 11
5
4
$62 $29
$22 $18 $32
20
15
11
9
$415
$369
$272
$240
$133
$71 $37 $107
$44
$31
$29
$148
$171
$82
10
5
:Q
11
:Q
11
11 2
:Q
11 3
:Q
4
12
:Q
12 1
:Q
12 2
:Q
3
12
:Q
13 4
:Q
1
13
:Q
13 2
:Q
13 3
:Q
4
14
:Q
14 1
:Q
2
14
:Q
14 3
:Q
15 4
:Q
1
15
:Q
15 2
:Q
15 3
:Q
4
16
:Q
1
0
1
$0
Number of Deals
$1,200
50
40
Investment in
insurance
tech is rising
$1,400
47
$1,848
Source: CB Insights at https://www.cbinsights.com/blog/insurance-tech-overview-q1-2016/; Insurance Information Institute.
87
Insurance Tech Activity by Area
of Interest, 2013 – 2016:Q1
With the ACA in the rear view window,
non-health insurance tech accounts for
the majority of investment
(Percent)
100
90
32
80
70
62
60
49
70
50
40
30
20
10
0
38
30
51
68
2013
2014
2015
2016:Q1
Health Insurance Tech
Non-Health Insurance Tech
Total
Silicon Valley and the venture capital community have the insurance
industry in their sights. Most will fail. Some will succeed.
Source: CB Insights at https://www.cbinsights.com/blog/insurance-tech-overview-q1-2016/; Insurance Information Institute.
Lemonade: Peer-to-Peer (P2P) Insurance
89
Source: Lemonade.com accessed June 24, 2016.
Lemonade: Sour Words About Insurance
Daniel Schreiber here, with updates from Lemonade.
I’m thrilled to report that a few days ago, by unanimous vote of our board and
shareholders, Lemonade became a Public Benefit Corporation, and was also
awarded provisional ‘B-Corp’ certification. Both are firsts for an insurance
carrier, and are points of tremendous pride for our team.
Rebuilding insurance as a social good, rather than a necessary evil, is now part of
our legal mission. Our Chief Behavioral Officer, Professor Dan Ariely, says
that “If you tried to create a system to bring out the worst in humans, it
would look a lot like the insurance of today.” Working in partnership with
nonprofits, and baking giving-back into our business model, holds the promise of a
better insurance experience, and a more valuable insurance company.
In other news, I’m happy to say that we’re putting finishing touches on our product
and will be ready to launch in New York within weeks. The final step is for us to get
our license, and if all goes to plan, we’ll have that shortly.
Be sure to follow us on Twitter, Facebook, and LinkedIn to stay in the know.
Until next time,
Daniel
@daschreiber
90
Source: Email from Lemonade CEO Danieal Schreibeir, May 17, 2016.
Risk Groups in P2P Structures
P2P model is predicated in
part that view that
individuals who know one
another are likely to have
better loss experience
Source: “UberX-ing Insurance : Is Peer-to-Peer Insurance Viable?”, presentation by Jay Sarzen, Aite Group at
DrinkerBiddle Insurance Conference, June 21, 2016.
91
Insurance Information Institute Online:
www.iii.org
Thank you for your time
and your attention!
Twitter: twitter.com/bob_Hartwig
Download at www.iii.org/presentations
92