Transcript ncci-051415x - Insurance Information Institute

The Workplace of Tomorrow
The “On-Demand” Economy and
Implications for Workers Compensation
NCCI Annual Issues Symposium
Orlando, FL
May 14, 2015
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
P/C Insurance Industry
Financial Overview
2014: Second-Best Year in the
Post-Crisis Era
Modest CATs, Strong Markets
Workers Comp Improvement
Helped Too
2
$55,501
$63,784
$33,522
$19,456
$3,043
$28,672
$35,204
$62,496
Net income fell
modestly
(-12.5%) in
2014 vs. 2013
$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%
$24,404

$ Millions 
$80,000 

$70,000 

$60,000 

$50,000 

$65,777
P/C Industry Net Income After Taxes
1991–2014
$0
•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.
Sources: A.M. Best, ISO; Insurance Information Institute
14
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
-$10,000
Profitability Peaks & Troughs in the P/C
Insurance Industry, 1975 – 2016F
ROE
25%
1977:19.0%
History suggests next ROE
peak will be in 2016-2017,
but that seems unlikely
1987:17.3%
20%
1997:11.6%
15%
9 Years
2006:12.7%
2013
9.8%
2015F=7.0%
2016F=6.8%
10%
5%
2014
8.2%
0%
1975: 2.4%
1984: 1.8%
1992: 4.5%
2001: -1.2%
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15F
16F
-5%
*Profitability = P/C insurer ROEs. 2011-14 figures are estimates based on ROAS data. Note: Data for 2008-2014 exclude
mortgage and financial guaranty insurers.
Source: Insurance Information Institute; NAIC, ISO, A.M. Best, Conning
ROE: Property/Casualty Insurance by
Major Event, 1987–2014
(Percent)
P/C Profitability Is Both by
Cyclicality and Ordinary Volatility
20%
Modestly
higher
CATs
Katrina,
Rita, Wilma
Low
CATs
15%
10%
Sept. 11
5%
0%
Hugo
Lowest CAT
Losses in
15 Years
Andrew
Northridge
4 Hurricanes
Financial
Crisis*
Sandy
Record
Tornado
Losses
-5%
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14*
* Excludes Mortgage & Financial Guarantee in 2008 – 2014.
Sources: ISO, Fortune; Insurance Information Institute.
6
Underwriting Gain (Loss)
1975–2014*
($ Billions)
$35
$25
Underwriting
profit in 2014
totaled
$12.3B
Cumulative
underwriting deficit
from 1975 through
2013 was $493B
$15
$5
-$5
-$15
-$25
High cat losses
in 2011 led to
the highest
underwriting
loss since 2002
-$35
-$45
-$55
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
Large Underwriting Losses Are NOT Sustainable
in Current Investment Environment
* Includes mortgage and financial guaranty insurers in all years.
Sources: A.M. Best, ISO; Insurance Information Institute.
$671.6
$673.9
$674.7
14:Q3
14:Q4
$624.4
14:Q2
$586.9
$583.5
$567.8
$570.7
$550.3
$538.6
$559.1
$566.5
$544.8
$530.5
$540.7
$511.5
$490.8
14:Q1
13:Q4
13:Q3
13:Q2
13:Q1
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 12/31/14 stood
at a record high $674.7B
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
$650
$614.0
2007:Q3
Pre-Crisis Peak
$700
$607.7
Drop due to near-record
2011 CAT losses
$662.0
($ Billions)
$653.3
Policyholder Surplus,
2006:Q4–2014:Q4
The industry now has $1 of surplus for every $0.74 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 2015
in very strong financial condition.
8
Net Premium Growth (All P/C Lines):
Annual Change, 1971—2014
(Percent)
1975-78
1984-87
25%
2000-03
Net Written Premiums Fell
0.7% in 2007 (First Decline
Since 1943) by 2.0% in 2008,
and 4.2% in 2009, the First 3Year Decline Since 1930-33.
20%
2014: 4.1%
15%
2013: 4.4%
2012: +4.2%
10%
5%
0%
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
-5%
Shaded areas denote “hard market” periods
Sources: A.M. Best (1971-2013), ISO (2014), Insurance Information Institute.
9
NPW Premium Growth: Peaks & Troughs in the
P/C Insurance Industry, 1926 – 2014
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%
2014
4.1%
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.
Commercial Lines NPW Premium Growth:
1975 – 2014E
ROE
35%
30%
Commercial lines is prone to more
cyclical volatility that personal
lines. Recently, growth has
stabilized in the 4% to 5% range.
Economic Shocks,
Inflation:
1976: 22.2%
Tort Crisis
1986: 30.5%
25%
Post-9/11
2002: 22.4%
20%
15%
Post-Hurricane
Andrew Bump:
1993: 6.3%
10%
1988-2000:
Period of
inter-cycle
stability
Post Katrina
Bump:
2006: 7.7%
2014E
4.0%
5%
0%
Note: Data include state funds beginning in 1998.
Source: A.M. Best; Insurance Information Institute.
02
03
04
05
06
07
08
09
10
11
12
13
14E
-15%
Great
Recession:
2009: -9.0%
88
89
90
91
92
93
94
95
96
97
98
99
00
01
-10%
Recessions:
1982: 1.1%
75
76
77
78
79
80
81
82
83
84
85
86
87
-5%
201020XX?
Postrecession
period of
stable
growth?
Direct Premiums Written: Comm. Lines
Percent Change by State, 2007-2013
3.2
3.1
3.0
2.7
2.2
2.0
1.7
1.3
0.6
CT
NM
LA
MS
NJ
NY
US
MO
6.5
WI
MA
6.7
TN
4.1
6.8
9.8
IN
AR
10.0
MN
US: 1.3%
11.3
14.0
TX
Growth Benchmarks: Commercial
WY
15.6
AK
19.1
ID
23.6
25.8
IA
KS
26.3
NE
33.7
41.4
SD
VT
42.1
OK
Only 30 states
showed any
commercial lines
growth from 2007
through 2013
OH
91.1
100
90
80
70
60
50
40
30
20
10
0
ND
Pecent change (%)
Top 25 States
Sources: SNL Financial LLC.; Insurance Information Institute.
12
Direct Premiums Written: Comm. Lines
Percent Change by State, 2007-2013
Bottom 25 States
-25.1
NV
WV
AZ
-22.4
-12.7
FL
-13.6
-12.6
DE
-11.7
HI
-4.9
DC
-11.4
-4.3
UT
MT
-3.7
CA
SC
MI
RI
ME
NC
KY
VA
WA
IL
-30
MD
-25
CO
-20
PA
States with the poorest
performing economies also
produced the most negative
net change in premiums of the
past 6 years
-15
-10.7
-3.3
GA
-10
OR
-2.7
-2.1
-2.0
-1.9
-1.1
-1.1
-1.0
-0.9
-0.8
-0.5
0.1
-5
NH
Pecent change (%)
0
0.2
0.4
0.5
5
AL
Nearly half the states have yet to
see commercial lines premium
volume return to pre-crisis levels
Sources: SNL Financial LLC.; Insurance Information Institute.
13
Direct Premiums Written: Workers’ Comp
Percent Change by State, 2007-2013*
*Excludes monopolistic fund states: ND, OH, WA, WY as well as WV, which transitioned to a competitive structure during this period.
Sources: SNL Financial LC.; Insurance Information Institute.
-8.0
AR
-4.1
VA
-5.8
-3.7
PA
TN
-3.0
TX
-5.7
-2.9
NM
MD
-2.4
US
-1.0
IL
-2.3
-0.6
WI
NH
-0.3
DC
MN
3.0
4.5
MI
VT
4.8
IN
10.6
KS
8.1
11.0
NJ
NE
11.5
CT
CA
NY
13.4
21.5
24.3
SD
IA
1.5
Only 13 states showed positive
growth in the workers comp line
from 2007 – 2013 (up from just 5
through 2012), the result of large
job and payroll losses and a soft
market. Even through 2014,
fewer than half the states will
have recouped DPW losses
30.8
32.9
35
30
25
20
15
10
5
0
-5
-10
-15
OK
Pecent change (%)
Top 25 States
14
Direct Premiums Written: Worker’s Comp
Percent Change by State, 2007-2013*
-33.3
-33.5
DE
HI
*Excludes monopolistic fund states: ND, OH, WA, WY as well as WV, which transitioned to a competitive structure during this period.
Sources: SNL Financial LC.; Insurance Information Institute.
MT -71.0
NV
-43.8
-32.5
-27.5
FL
SC
MO
AZ
ME
LA
CO
ID
AK
NC
GA
RI
MA
States with the poorest
performing economies also
produced some of the most
negative net change in
premiums of the past 6 years
OR
-26.5
-23.0
KY
UT
-22.1
AL
-17.1
-16.3
-16.0
-15.4
-15.3
-14.7
-12.0
-11.3
-11.1
-8.8
-8.7
-8.4
-8.1
0
-5
-10
-15
-20
-25
-30
-35
-40
-45
-50
-55
-60
-65
-70
-75
-80
MS
Pecent change (%)
Bottom 25 States
15
INVESTMENTS:
THE NEW REALITY
Investment Performance is a Key
Driver of Profitability
Low Yields Have an Especially
Large Influence on Profitability of
Long-Tailed Lines Like WC
16
Property/Casualty Insurance Industry
Investment Income: 2000–20141
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
$46.2
$39.6
$37.1 $36.7
$30
00
01
02
03
04
05
06
07
08
09
10
11
12
Due to persistently low interest rates,
investment income fell in 2012, 2013 and 2014.
1
Investment gains consist primarily of interest and stock dividends.
*Sources: ISO; Insurance Information Institute.
13
14
U.S. Treasury Security Yields:
A Long Downward Trend, 1990–2015*
9%
Yields on 10-Year U.S. Treasury
Notes have been essentially
below 5% for a full decade.
8%
7%
6%
U.S. Treasury
yields plunged to
historic lows in
2013. Longerterm yields
rebounded then
sank fell again.
5%
4%
3%
2%
1%
0%
Recession
2-Yr Yield
10-Yr Yield
'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
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 April 2015.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research
(recession dates); Insurance Information Institute.
19
Treasury Yield Curves:
Pre-Crisis (July 2007) vs. April 2015
6%
5%
4%
3%
2%
4.82%
4.96%
5.04%
4.96%
4.82%
Treasury yield curve remains
near its most depressed level
in at least 45 years.
Investment income is falling
as a result. Even when the
Fed begins to raise rates,
yields unlikely to return to
pre-crisis levels anytime soon
1%
4.82%
4.88%
5.00%
2.33%
1.69%
0.02%
0.02%
1M
3M
6M
0.23%
1Y
2.59%
1.94%
0.87%
April 2015 Yield Curve
Pre-Crisis (July 2007)
0%
2Y
5.19%
1.35%
0.54%
0.09%
4.93%
5.00%
3Y
5Y
7Y
10Y
20Y
30Y
The Fed Is Actively is Signaling that it Is Like to Begin to Raise Rates
But No Sooner than June and Probably Later
Source: Federal Reserve Board of Governors; Insurance Information Institute.
20
Book Yield on Property/Casualty
Insurance Invested Assets, 2007–2016F
(Percent)
4.6
Book yield in 2014 is
down 114 BP from
pre-crisis levels
4.42
4.4
4.19
4.2
3.95
4.0
3.71
3.8
3.74
3.52
3.6
3.38
3.4
3.28
3.20
3.2
3.13
3.0
07
08
09
10
11
12
13
14E
15F
16F
The yield on invested assets continues to decline as returns on
maturing bonds generally still exceed new money yields. The end
of the Fed’s QE program in Oct. 2014 should allow some increase
in longer maturities while short term interest rate increases are
unlikely until mid-to-late 2015
Sources: Conning.
$10.06
$11.37
$6.18
-$7.90
-$19.81
-$5
-$10
-$15
-$20
-$25
$7.04
$5.85
$8.92
$3.52
$9.70
$9.13
-$1.21
$6.63
$6.61
Realized capital gains rose
sharply as equity markets rallied
in 2013-14
$16.21
$13.02
$10.81
$9.24
$6.00
$1.66
$9.82
$9.89
$4.81
$20
$15
$10
$5
$0
$2.88
($ Billions)
$18.02
P/C Insurer Net Realized
Capital Gains/Losses, 1990-2014
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
Insurers Posted Net Realized Capital Gains in 2010 - 2014 Following Two
Years of Realized Losses During the Financial Crisis. Realized Capital
Losses Were a Primary Cause of 2008/2009’s Large Drop in Profits and ROE
Sources: A.M. Best, ISO, Insurance Information Institute.
24
Property/Casualty Insurance Industry
Investment Gain: 1994–20141
$70
$60
$50
$64.0
$58.0
$56.9
$52.3
$51.9
$47.2
$44.4
$42.8
$40 $35.4
$59.4
$55.7
$58.7
$56.2
$54.2
$53.4
$56.2
($ Billions)
$48.9
$45.3
$39.2
$36.0
$31.7
$30
$20
$10
Investment gains in 2014
dropped slightly (-4.3%)
from the post-crisis high
reached in 2013
$0
94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09 10 11 12 13 14
Total Investment Gains Were Relatively Flat in 2014 as Low Interest Rates
Pressured Investment Income but Realized Capital Gains Remained Robust
1
Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.
* 2005 figure includes special one-time dividend of $3.2B;
Sources: ISO; Insurance Information Institute.
2015
Non-Financial Challenges and
Criticisms of Workers Comp
A Number of Issues Have Stirred
Interest in Workers Compensation in
the First Part of 2015
27
Challenges Raised in the Workers
Comp Line
 Opt Out Legislation: Coalition of large employers is
aggressively pushing for legislation that would allow
them to forego purchasing WC coverage in favor of
creating their own programs while also seeking to specify
the criteria for claiming and the size of benefits
 Allowed in TX for many years and passed in OK in 2014
 Failed in TN in 2015; Lobbying in AL, FL, GA, NC, SC
 Challenges to Exclusive Remedy: Assertion that after
reforms in several states the WC “Grand Bargain” has
been breached and that benefits are now insufficient
 Objective of trial lawyers is to tap into the tort system
28
Recent Challenges Raised in the
Workers Comp Line
 ProPublica/NPR Attack Series: “The Demolition of Workers Comp”
(Published in March 2015)
 Thesis: WC benefits have been hollowed out and that workers were
often no longer well served by the system
 Claims 33 states watered down benefits under the guise of reform
 Series relied on a number of anecdotal cases of claimants who
believed they were adversely impacted
 I.I.I. made forceful rebuttal focusing on:
 Magnitude of insurer payouts to injured workers
 Material improvements in workplace safety, in part due to WC
incentives
 Benefits of cost controls without compromising outcomes
http://www.iii.org/article/a-letter-to-the-editor-about-workers-compensation 29
ProPublica/NPR Attack on Workers
Compensation
 In March 2015, ProPublica/NPR published a series
entitled “The Demolition of Workers Comp”
 Thesis: WC benefits have been hollowed out and that
workers were often no longer well served by the system
 Series relied on a number of anecdotal cases of
claimants who believed they were adversely impacted
 Claims 33 states have watered down benefits under the
guise of “reform”
 I.I.I. made forceful rebuttal, demonstrating that:
 Insurers spend $40B+ each year treating injured workers
 Workplace is materially safer, in part due to WC incentives
 Application of managed care to WC reduces cost with no
adverse impact on outcome (“blank check” unsustainable)
30
INSERT WNBC PROPUBLICA VIDEO HERE
31
Labor Markets Trends:
Recovery Continues in 2015
2014
Largest Increase in Jobs Since 1997
Unemployment Rate Fell to Lowest
Level Since 2008
Payrolls Expanded to Record High
32
Unemployment and Underemployment
Rates: Still Too High, But Falling
January 2000 through April 2015,
Seasonally Adjusted (%)
18
"Headline" Unemployment Rate U-3
16
Unemployment + Underemployment Rate
U-6
14
12
U-6 soared from
8.0% in March
2007 to 17.5% in
October 2009;
Stood at 10.8%
in Apr. 2015.
8% to 10% is
“normal.”
10
8
“Headline”
unemployment
was 5.4% in Apr.
2015. 4.5% to
5.5% is “normal.”
6
4
2
Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Stubbornly high unemployment and underemployment constrain overall
economic growth, but the job market is continuing to improve.
Source: US Bureau of Labor Statistics; Insurance Information Institute.
33
US Unemployment Rate Forecast
Rising unemployment
eroded payrolls
and WC’s
exposure base.
11%
Unemployment peaked
at 10% in late 2009.
10%
6%
5%
4.5%
4.5%
4.6%
4.8%
4.9%
5.4%
6.1%
6.9%
7%
8.1%
9%
8%
9.3%
9.6%
10.0%
9.7%
9.6%
9.6%
9.6%
8.9%
9.1%
9.1%
8.7%
8.3%
8.2%
8.0%
7.8%
7.7%
7.6%
7.3%
7.0%
6.6%
6.2%
6.1%
5.7%
5.6%
5.4%
5.3%
5.1%
5.0%
5.0%
4.9%
4.8%
2007:Q1 to 2016:Q4F*
Jobless figures
have been revised
downwards for
2015/16
Unemployment forecasts
have been revised modestly
downwards. Optimistic
scenarios put the
unemployment as low as
5.0% by Q4 of 2015.
07:Q1
07:Q2
07:Q3
07:Q4
08:Q1
08:Q2
08:Q3
08:Q4
09:Q1
09:Q2
09:Q3
09:Q4
10:Q1
10:Q2
10:Q3
10:Q4
11:Q1
11:Q2
11:Q3
11:Q4
12:Q1
12:Q2
12:Q3
12:Q4
13:Q1
13:Q2
13:Q3
13:Q4
14:Q1
14:Q2
14:Q3
14:Q4
15:Q1
15:Q2
15:Q3
15:Q4
16:Q1
16:Q2
16:Q3
16:Q4
4%
*
= actual;
= forecasts
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (5/15 edition); Insurance Information Institute.
34
Unemployment Rates by State, March 2015:
Highest 25 States*
4
2
5.4
5.4
5.5
5.6
5.6
5.6
5.7
5.7
5.7
5.8
5.9
6
6.0
6.2
6.3
6.3
6.3
6.4
6.5
6.5
6.6
6.6
6.7
6.8
6.5
6.1
Unemployment Rate (%)
7.1
7.7
8
In March, 23 states and the District
of Columbia had over-the-month
unemployment rate decreases, 12
states had increases, and 15 states
had no change.
Residual impacts of the
housing collapse, weak
economies are holding
back several states
0
DC NV MS SC LA WV AK CA NJ CT GA RI TN AZ NM IL WA IN AL FL NY AR MI MO US MD NC
*Provisional figures for March 2015, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
35
2
1
3.1
3.4
3.5
3.7
2.6
3
3.8
3.8
3.9
3.9
4.1
4.1
4.0
4
4.1
4.2
4.2
4.2
4.6
4.8
4.8
5.1
5.3
5.1
4.8
5
In March, 23 states and the District
of Columbia had over-the-month
unemployment rate decreases, 12
states had increases, and 15 states
had no change.
4.6
Unemployment Rate (%)
6
5.4
Unemployment Rates by State, March 2015:
Lowest 25 States*
Strength in Energy,
Agricultural Statesmost also avoided
housing bust
0
OR PA KY OH ME MA VA DE WI CO KS TX
*Provisional figures for March 2015, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
HI MT WY IA NH OK ID
VT MN SD UT ND NE
36
(600)
(800)
(1,000)
Monthly losses in
Dec. 08–Mar. 09
were the largest in
the
post-WW II period
-426
-422
-486
(400)
-776
-693
-821
-698
-810
-801
(200)
-294
-272
-232
-141
-271
-15
-232
-38
-115
-106
-221
-215
-206
-261
-258
-71
400
113
192
94
110
120
117
107
199
149
94
72
223
231
320
166
186
219
125
268
177
191
222
364
228
246
102
131
75
172
136
159
255
211
215
219
263
164
188
222
201
170
180
153
247
272
86
183
175
223
313
238
272
243
209
235
218
414
319
202
261
94 213
20
3
32
64
81
55
3
0
231
52
170
52
126
57
200
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
Monthly Change in Private Employment
January 2007 through Apr. 2015 (000s, Seasonally Adj.)
600
3,042,000 jobs were created
in 2014, the most since 1997
Jobs Created
2014: 3.042 Mill
2013: 2.452 Mill
2012: 2.315 Mill
2011: 2.396 Mill
2010: 1.282 Mill
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
213,000 private
sector jobs were
created in April.
Private Employers Added 11.97 Million Jobs Since Jan. 2010 After
Having Shed 5.01 Million Jobs in 2009 and 3.76 Million in 2008 (State
and Local Governments Have Shed Hundreds of Thousands of Jobs)
37
Nonfarm Payroll (Wages and Salaries):
Quarterly, 2005–2014:Q4
Billions
$7,750
$7,500
$7,250
Prior Peak was
2008:Q3 at $6.54 trillion
Latest (2014:Q4) was
$7.57 trillion, a new
peak--$1.34 trillion
above 2009 trough
$7,000
$6,750
$6,500
$6,250
$6,000
$5,750
Recent trough (2009:Q1)
was $6.23 trillion, down
5.3% from prior peak
Growth rates
2011:Q4 over 2010:Q4: 2.6%
2012:Q4 over 2011:Q4: 6.7%
2013:Q4 over 2012:Q4: 1.7%
2014:Q4 over 2013:Q4: 5.1%
05:Q1
05:Q2
05:Q3
05:Q4
06:Q1
06:Q2
06:Q3
06:Q4
07:Q1
07:Q2
07:Q3
07:Q4
08:Q1
08:Q2
08:Q3
08:Q4
09:Q1
09:Q2
09:Q3
09:Q4
10:Q1
10:Q2
10:Q3
10:Q4
11:Q1
11:Q2
11:Q3
11:Q4
12:Q1
12:Q2
12:Q3
12:Q4
13:Q1
13:Q2
13:Q3
13:Q4
14:Q1
14:Q2
14:Q3
14:Q4
$5,500
Note: Recession indicated by gray shaded column. Data are seasonally adjusted annual rates.
Sources: http://research.stlouisfed.org/fred2/series/WASCUR; National Bureau of Economic Research (recession dates); Insurance
Information Institute.
38
Payroll vs. Workers Comp Net Written
Premiums, 1990-2014P
Payroll Base*
$Billions
$7,000
WC NWP
$Billions
Wage & Salary Disbursements
3/01-11/01
WC NPW
7/90-3/91
$50
12/07-6/09
$45
WC premium
volume dropped
two years before
the recession began
$6,000
$5,000
$40
$35
WC net premiums
written were down
$14B or 29.3% to
$33.8B in 2010 after
peaking at $47.8B
in 2005
$4,000
$3,000
$30
E
14
13
12
11
10
09
08
07
06
05
04
03
02
01
00
99
98
97
96
95
94
93
92
91
$25
90
$2,000
Continued Payroll Growth and Rate Gains Suggest WC NWP Will Grow
Again in 2015
*Private employment; Shaded areas indicate recessions. WC premiums for 2014 are I.I.I. estimates..
Sources: NBER (recessions); Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI; I.I.I.
39
CONSTRUCTION,
MANUFACTURING & ENERGY
OUTLOOK
Key Sectors Critical to the
Economy and the P/C
Insurance Industry
40
Value of New Private Construction:
Residential & Nonresidential, 2003-2015*
Billions of Dollars
New Construction peaks
at $911.8. in 2006
Trough in 2010
at $500.6B,
after plunging
55.1% ($411.2B)
$1,000
$900
$800
2015: Value of new
pvt. construction
hits $702.4B as of
Mar. 2015, up 40%
from the 2010
trough but still 23%
below 2006 peak
$15.0
$613.7
$700
$600
$353.4
$500
$298.1
$400
$300
$261.8
Non Residential
Residential
$200
$100
$349.0
$238.8
$0
03
04
05
06
07
08
09
10
11
12
13
14
15*
Private Construction Activity Is Moving in a Positive Direction though
Remains Well Below Pre-Crisis Peak; Residential Dominates
*2015 figure is a seasonally adjusted annual rate as of March.
Sources: US Department of Commerce http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
41
Value of Construction Put in Place,
March 2015 vs. March 2014*
Growth (%)
Private: +2.9%
Public sector
construction activity
is finally beginning to
create less drag up
after years of decline
9.0%
20%
15%
10%
5%
Private sector construction
activity is up in the
nonresidential segment but
residential growth is sluggish
2.0%
Public: -0.3%
16.5%
2.9%
0%
-0.3%
-0.6%
-2.6%
-5%
Total
Construction
Total Private
Construction
Residential-Private
NonResidential-Private
Total Public
Construction
ResidentialPublic
NonResidential-Public
Overall Construction Activity is Up, But Growth In the Private Sector
Slowed in Late 2014 While Picking Up in the State/Local Sector
Government Sector as Budget Woes Ease in Some Jurisdictions
*seasonally adjusted
Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
42
Value of New Federal, State and Local
Government Construction: 2003-2015*
($ Billions)
$350
Construction
across all levels
of government
peaked at $314.9B
in 2009
$289.1
$300
$255.4
$250
$216.1 $220.2
Austerity Reigns
Govt. construction MAY be
stabilizing; still down $47.3B or
15.0% since 2009 peak
$308.7 $314.9 $304.0
$286.4
$278.2
$269.0 $273.1 $267.6
$234.2
$200
$150
$100
$50
$0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
Government Construction Spending Peaked in 2009, Helped by Stimulus
Spending, but Contracted As State/Local Governments Grappled with
Deficits and Federal Sequestration
*2015 figure is a seasonally adjusted annual rate as of March; http://www.census.gov/construction/c30/historical_data.html
Sources: US Department of Commerce; Insurance Information Institute.
43
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
1.01
1.11
1.26
1.41
1.46
1.49
1.52
1.52
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, 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 15F 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 (5/15 and 3/15); Insurance Information Institute.
44
(Thousands)
6,500
6,300
6,200
6,100
6,000
5,900
5,800
5,700
5,600
5,500
5,400
5,581
5,522
5,542
5,554
5,527
5,512
5,497
5,519
5,499
5,501
5,497
5,468
5,435
5,478
5,485
5,497
5,524
5,530
5,547
5,546
5,583
5,576
5,577
5,612
5,629
5,629
5,628
5,627
5,608
5,623
5,632
5,641
5,649
5,668
5,684
5,724
5,746
5,798
5,815
5,813
5,833
5,856
5,854
5,866
5,893
5,918
5,953
5,937
6,006
6,032
6,062
6,103
6,114
6,121
6,152
6,169
6,191
6,201
6,231
6,275
6,316
6,347
6,338
6,383
6,400
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
2/30/20
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-12
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
Construction Employment,
Jan. 2010—April 2015*
Construction employment
is +948,000 above
Jan. 2011 (+17.4%) trough
Construction and manufacturing employment constitute 1/3 of all WC payroll exposure.
*Seasonally adjusted.
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
45
Construction Employment,
Jan. 2003–April 2015
(Thousands)
Construction
employment as of
Apr. 2015 totaled
6.383 million, an
increase of 948,000
jobs or 17.4% from
the Jan. 2011 trough
Construction
employment
peaked at
7.726 million
in April 2006
8,000
7,500
Gap between prerecession
construction
peak and today:
1.34 million jobs
7,000
The “Great Recession” and
housing bust destroyed 2.3
million constructions jobs
6,500
6,000
Construction employment
troughed at 5.435 million in
Jan. 2011, after a loss of 2.291
million jobs, a 29.7% plunge
from the April 2006 peak
5,500
5,000
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
The Construction Sector Was a Growth Leader in 2014 as the Housing Market,
Private Investment and Govt. Spending Recover. WC Insurers Will Benefit.
Note: Recession indicated by gray shaded column.
Sources: U.S. Bureau of Labor Statistics; Insurance Information Institute.
46
MANUFACTURING SECTOR
A Potent Driver of Jobs, Workers Comp
Payroll Exposure
America’s Manufacturing Renaissance
Has Hit a Rough Patch with the High
Dollar and Collapse in Oil Prices
47
12,250
12,000
11,750
11,500
11,250
11,460
11,460
11,466
11,497
11,531
11,539
11,558
11,548
11,554
11,555
11,577
11,590
11,624
11,662
11,682
11,707
11,715
11,724
11,747
11,760
11,762
11,770
11,769
11,797
11,834
11,857
11,899
11,916
11,930
11,941
11,965
11,961
11,948
11,951
11,947
11,961
11,980
12,002
12,006
12,006
12,007
12,005
11,983
12,011
12,022
12,040
12,072
12,086
12,102
12,122
12,131
12,142
12,154
12,177
12,191
12,205
12,214
12,237
12,282
12,301
12,318
12,321
12,321
12,322
12,500
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
2/30/2
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
Manufacturing Employment,
Jan. 2010—April 2015*
(Thousands)
Since Jan 2010,
manufacturing
employment is up
(+862,000 or +7.5%)
and still growing.
Manufacturing employment is a surprising source of strength in the
economy. Employment in the sector is at a multi-year high.
*Seasonally adjusted.
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
48
Dollar Value* of Manufacturers’
Shipments Monthly, Jan. 1992—March 2015
$ Millions
$500,000
The value of Manufacturing
Shipments in March 2015 was
$482.2B—down 5.1% since the
July 2014 record high of $508.1B
$400,000
$300,000
Ja
n9
Ja 2
n9
Ja 3
n9
Ja 4
n9
Ja 5
n9
Ja 6
n9
Ja 7
n9
Ja 8
n9
Ja 9
n0
Ja 0
n
0
Ja 1
n
0
Ja 2
n
0
Ja 3
n
0
Ja 4
n
0
Ja 5
n
0
Ja 6
n
0
Ja 7
n
0
Ja 8
n
0
Ja 9
n
1
Ja 0
n
1
12 1
-J
a
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-J
a
14 n
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a
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-J
an
$200,000
Monthly shipments in March 2015 are similar to pre-crisis (July 2008) peak but has
declined in recent months due to the strong US dollar and weakness abroad.
Manufacturing is energy-intensive and growth leads to gains in many commercial
exposures: WC, Commercial Auto, Marine, Property, and various Liability Coverages.
* Seasonally adjusted; Data published May 4, 2015.
Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/ 49
Manufacturing Growth for Selected
Sectors, 2015 vs. 2014*
Growth (%)
Non-Durables: -9.4%
Durables: +3.6%
20%
10%
3.6%
9.3%
8.0%
3.2%
1.3%
2.7%
1.2%
0%
-0.4%
-10% -3.2%
-20%
-0.9%
-2.2%
-9.4%
Manufacturing of durable
goods is stronger than
nondurables in 2015
-30%
-40%
-2.5%
Impact of falling
energy prices
-32.5%
-38.0%
Textile
Products
Plastics &
Rubber
Chemical
Petroleum &
Coal
Food
Products
Non-Durable
Mfg.
Transportation
Equip.
Computers &
Electronics
Electrical
Equip.
Machinery
Fabricated
Metals
Primary
Metals
Wood
Products
Durable Mfg.
All
Manufacturing
-50%
Manufacturing Is Expanding in Many Sectors But Declining Energy Prices Are
Dragging Down Industry Figures. Continued Gortwh Across a Number of
Sectors that Will Contribute to Growth in Insurable Exposures Including: WC,
Commercial Property, Commercial Auto and Many Liability Coverages
*Seasonally adjusted; Date are YTD comparing data through March 2015 to the same period in 2014.
Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/ 50
ENERGY SECTOR
America’s Energy Boom Has Been a
Strong Driver of the Economic Recovery,
but Prices Are Falling
Workers Comp Have Benefited from the
Energy Boom, But Exposures Will Suffer
as Energy Prices Swoon
52
Price of Crude Oil (West Texas
Intermediate), 2000 – 2015*
Dollars per Barrel
$20
$0
$31.08
$26.18
$25.98
$40
$30.38
$93.23
$97.98
$94.05
$79.48
$61.95
$72.34
$48.54
$60
$41.51
$56.64
$80
$66.08
$100
$94.88
$99.60
$120
Crude oil prices have
fallen by nearly half
from their levels just a
year ago, adversely
impact oil and gas
industry employment
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
*Through March 2015.
Source: Energy Information Administration; Insurance Information Institute.
(Thousands)
Despite recent declines, Oil and
gas extraction employment is
210
still up 24.3% since Jan. 2010 as
the energy sector booms.
Domestic energy production is
200
essential to any robust
economic recovery in the US.
180
170
160
150
156.4
156.4
156.7
157.6
158.7
157.8
158.0
159.5
160.0
161.5
161.2
161.2
163.1
164.4
166.6
169.3
170.1
171.0
172.5
173.6
176.3
178.2
178.5
180.9
181.3
182.3
184.7
185.2
186.2
187.8
188.6
189.3
189.4
189.4
190.5
192.2
193.1
194.6
194.0
193.8
193.1
192.5
193.0
193.4
193.3
193.1
194.0
194.0
194.0
195.4
193.7
194.6
196.4
197.6
198.6
198.4
199.4
201.5
201.0
201.2
199.4
197.6
197.7
194.4
190
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
2/30/21
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
Oil & Gas Extraction Employment,
Jan. 2010—April 2015*
After peaking at its highest level
since 1986, O&G employment is
falling as oil and gas prices decline
*Seasonally adjusted
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
54
POSITIVE LABOR MARKET DEVELOPMENTS
Key Factors Driving Workers
Compensation Exposure
56
Average Weekly Hours of All Private
Workers, Mar. 2006—April 2015
(Hours Worked)
34.8
34.7
34.6
34.5
34.4
Hours worked
plunged during
the recession,
impacting
payroll
exposures
34.3
34.2
34.1
34.0
33.9
Hours worked totaled
34.5 per week in April,
just shy of the 34.6
hours typically worked
before the “Great
Recession”
33.8
33.7
33.6
33.5
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
*Seasonally adjusted
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics at http://www.bls.gov/data/#employment; National Bureau of Economic Research (recession
dates); Insurance Information Institute.
57
Average Hourly Wage of All Private
Workers, Mar. 2006—April 2015
(Hourly Wage)
$30.00
$25.00
$20.00
$15.00
The average hourly wage
was $24.87 in April 2015,
up 17.2% from $21.22
when the recession
began in Dec. 2007
Wage gains
continued during the
recession, despite
massive job losses
$10.00
$5.00
$0.00
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
*Seasonally adjusted
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics at http://www.bls.gov/data/#employment; National Bureau of Economic Research (recession
dates); Insurance Information Institute.
58
ADVERSE LONG-TERM
LABOR MARKET DEVELOPMENTS
Key Factors Harming Workers
Compensation Exposure and the
Overall Economy
59
Labor Force Participation Rate,
Jan. 2002—April 2015*
Labor Force Participation as a % of Population
68
Labor force
participation
continues to shrink
despite a falling
unemployment rate
67
66
65
64
Large numbers of
people are exiting (or
not returning to the
labor force)
63
62
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
*Defined as the percentage of working age persons in the population who are employed or actively seeking work.
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics at http://www.bls.gov/data/; National Bureau of Economic Research (recession dates);
Insurance Information Institute.
'15
60
Number of “Discouraged Workers,”
Jan. 2002—April 2015
Thousands
1,400
“Discouraged Workers” are
1,300
Large numbers of
people are exiting
people who have searched
1,200
for work for so long in vain (or not returning to)
1,100
the labor force
that they actually stop
1,000
searching and drop out of
900
the labor force
800
700
600
500
400
300
200
100
0
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
There were
756,000
discouraged
workers in
March 2015
'12 '13 '14 '15
In recent good times, the number of discouraged workers ranged from
200,000-400,000 (1995-2000) or from 300,000-500,000 (2002-2007).
Notes: Recessions indicated by gray shaded columns. Data are seasonally adjusted.
Sources: Bureau of Labor Statistics http://www.bls.gov/news.release/empsit.a.htm ; NBER (recession dates); Ins. Info. Inst.
61
The “On-Demand” (Sharing)
Economy
The On-Demand Economy Will
Transform the American
Workforce and the
P/C Insurance Industry Too
62
Labor on Demand: Huge Implications for
the US Economy, Workers & Insurers
63
The “On-Demand” World is Not New…
Companies like
Angie’s List
(established in
1995 and going
online in 1999)
have been
around for
decades
The Geek Squad
has been
around since
1994…
Peapod
sprouted way
back in 1989!
Source: Insurance Information Institute.
64
…But the “On-Demand” World is Exploding
as Is the Demand for “On-Tap” Workers
Need something
done around the
house…Click on
Handy
Hate doing
laundry?
Washio will do it
for you…
Hate doing just
about everything?
Taskrabbit will
take on virtually
all your “tasks”…
Source: Insurance Information Institute.
65
You Can Live Your Life with the Swipe
of a Finger…
Get married…
…Move
…And if it doesn’t work
out…
66
Some Players in the On-Demand Economy
Have Become Household Names
Rent a place…
…Need a Lyft?
…This ride has taken
Wall Street to the
stratosphere
67
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
68
INSERT AMAZON VIDEO HERE
69
Technology and Employment
What Makes the On-Demand
Economy Possible?
Why Does It Matter for Insurers?
70
GLOBAL SHIPMENTS OF SMARTPHONES (MILLIONS)
Smartphones are the
breakthrough technology behind
the on-demand economy
2015: ~50% of adults globally
have a smartphone
2020: About 80% will own one
Growth in Temporary Workers vs.
All Nonfarm Employment, 2010-2015*
Annual Percent Change
20%
18.6%
Demand for temporary
workers has increased 2 to 3
times faster than for workers
overall in recent years
18%
16%
14%
12%
10%
8%
6.6%
6.2%
6%
5.7%
6.5%
5.3%
4%
2%
0.8%
1.6%
1.7%
1.8%
2.3%
2.3%
0%
2010
2011
2012
*Through March 2015.
Source: US Bureau of Labor Statistics , Insurance Information Institute.
2013
2014
2015*
The On-Demand Economy and
American Workers: What Is Happening?
 Technology is Fundamentally Transforming How Resources are
Allocated and Used in the Economy
 Labor is No Exception to this Transformation
 Technology Offers New Opportunities to Match Labor to Jobs
 Owners of spare capacity (workers with time and skill) can be paired
at low cost with those with a demand for that time and skill
 Bringing together labor and those who employ labor is not new
 BUT: Pairing occurs with a speed and breadth never before possible
 Witnessing the Demise of the Traditional Understanding of What
is Meant by a “Good” Job
 Concept born in the Industrial Age (1880-1980), is eroding
 Disintermediation of the firm as the place where labor, jobs matched
 Accelerating Trends that Started with Labor Strife, Globalization
and Automation that Began in the 1970s and 1980s
74
What’s In Store for the American Worker,
Labor Force and Workers Comp
THE NEW AMERICAN WORKER: Two Schools of Thought
 OPTIMISTIC OUTLOOK
 Technology frees workers from the bonds of centralized, hierarchical
institutions (the firm)
 Enhanced coordination of “haves” with “needs” that bypass firms as
intermediaries
 Who Benefits?
 “Flexers”: People who value or require flexibility in work
arrangements (stay-at-home parents, retirees, students, disabled)
 Professionals: People with portable skills that can be offered through
online platforms (semi and high-skilled trades, professional services)
 Unemployed/Underemployed: Offers at least some opportunity to
offer and utilize skills and generate income
Sources: Wall Street Journal; The Economist; Insurance Information Institute research.
75
What’s In Store for the American Worker,
Labor Force and Workers Comp
 PESSIMISTIC OUTLOOK
 On-Demand companies are software-driven marketplaces and
position themselves as “platforms” rather than “employers”
 Enormous valuations (e.g., $40B for Uber on $2B in earnings) reflect
the extraction of resources that otherwise would go to benefits,
investments in safety, training, etc.
– Uber’s valuation was greater than that of 72% of the S&P500 at YE 2014
– Valued more than Delta Airlines, Kraft Foods, CBS, Macy’s, Hilton, Aflac…
 Jobs reduced to freelanced, temporary “gigs”
 Low skill workers and those who lack flexibility are left further behind
 Workers treated as independent contractors without intrinsic or basic
economic rights
 What Is Potentially Lost or Compromised?
 Stability, Retirement Benefits, Sick Pay, Maternity Leave, Overtime
 Health Insurance, Liability Coverage, Workers Comp Coverage
Sources: Wall Street Journal; The Economist; Fortune; Insurance Information Institute research.
76
Potential Consequences for Insurers
 On-Demand Platforms Have Struggled with Concepts of Liability
 There Has Been a General Resistance to Assuming Liability or
Responsibility Unless Compelled to Do So
 Companies Have Sought to Keep as Much Liability as Possible on
the Individual Offering their (Contracted) Labor or Resources
 Minding the Gap
 Traditional insurance will often not cover a worker engaged in offering
labor or resources through these platforms
 E.g., Auto ins. generally won’t cover you if you while driving for Uber
 Home ins. won’t cover for other than occasional rentals of property
 Unless self-procured, on-demand worker (independent contactors) will
generally have no workers comp recourse if injured on the job
 Long Legislative and Court Battles Lie Ahead
 Insurance Solutions Becoming More Common
77
On-Demand Workers
Who Are They?
And Who’s Driving Demand for Them?
78
Percent of People Who Have Engaged in an
“On Demand/Sharing Economy” Transaction
Percent
20%
19%
18%
The majority of the US population
has yet to engage in the “On
Demand” economy
16%
14%
12%
9%
10%
8%
8%
6%
6%
4%
2%
2%
0%
Tried It--Any
Sector
Entertainment &
Media
Automotive &
Transportation
Hospitality &
Dining
Retail
About 19% of the US population has engaged in an
“On Demand/Sharing Economy” Transaction
Sources: PwC survey of 1,000 adults in the U.S., conducted online, December 2014; Insurance Information Institute.
79
Age of People Who are Providing the
Sharing/On-Demand Economy
65+
16%
18 to 24
14%
55 to 64
8%
25 to 34
24%
45 to 54
14%
35 to 44
24%
Being a provider of
services in the
Sharing/On-Demand
Economy is
attractive to workers
in the 25-44 age
range (who want
flexibility in raising
families) as well as
seniors age 65+ who
see the offering their
services on-demand
as a way to augment
retirement income
About 7% of US population are providers in the Sharing
Economy, cutting across age and incomes;
51% of those familiar with the concept could see them
selves as providers within the next two years.
Sources: PwC survey of 1,000 adults in the U.S., conducted online, December 2014; Insurance Information Institute.
80
Household Income: Providers of the
Sharing/On-Demand Economy
$150,000 $149,999
3%
$200,000+
11%
$100,000 $149,999
11%
$75,000 $99,999
16%
Less than
$25,000
19%
$25,000 $49,999
24%
Being a provider of
services in the
Sharing/On-Demand
Economy is
particularly
attractive to workers
with household
incomes under
$50,000
$50,000 $74,999
16%
About 7% of US population are providers in the Sharing
Economy, cutting across age and incomes;
51% of those familiar with the concept could see them
selves as providers within the next two years.
Sources: PwC survey of 1,000 adults in the U.S., conducted online, December 2014; Insurance Information Institute.
81
The On-Demand Economy and
Wall Street
Wall Street Loves the On-Demand
Economy
Labor Markets, Insurance Markets
Will Be Impacted
82
An UBER Case Study
Uber is the Best Known of the
On-Demand Companies
Wall Street Loves Uber
Vested Interests Hate Uber
84
Looking Ahead:
Disruptive Forces Rule
Technology’s Impacts on the
Economy, the Workforce and the
Insurance Industry Will Be
Significant
88
Worldwide Industrial Robot Installations,
1992-2017F
Worldwide installations of
industrial robots exceeded
200,000 in 2014—a new
record and will approach
300,000 by 2017
36,000 installations are
expected in North America
by 2017
*Estimate.
Sources: Outlook on World Robotics 2014, International Federation of Robotics; Insurance Information Institute.
89
Future Shock: Many More Transformative
Technologies Are Around the Corner
By 2035, it is estimated
that 25% of new vehicle
sales could be fully
autonomous models (more
than 4 million people work
in transportation
occupations today)
Up Next
 Driverless cars
 Driverless trucks, trains,
planes and ships
 Wearable devices
 Implantable devices
 Artificial intelligence
Source: Boston Consulting Group.
 Advanced robotics
90
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
93