Transcript AIPSO-041013x - Insurance Information Institute

Economic Trends Affecting
Automobile Insurance
AIPSO 10th Residual Market Planning Conference
Providence, RI
April 10, 2012
Steven N. Weisbart, Ph.D., CLU, Senior Vice President & Chief Economist
Insurance Information Institute  110 William Street  New York, NY 10038
Office: 212.346.5540  Cell: (917) 494-5945  [email protected]  www.iii.org
The Strength of the Economy
Will Affect P/C Insurer
Growth Opportunities
Growth Will Expand Insurable Exposures
and Help Absorb Excess Capital
2
Real GDP Growth: Past Recessions
and Recoveries, Yearly, 1970-2012
Real GDP
Growth (%)
In the current recovery,
real yearly GDP growth
has been 2.4% or less
But, following the 1991 and 2001
recessions, real yearly GDP
growth was weaker than 4%
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
8%
7%
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
In most recoveries, real
yearly GDP growth is
often 4% or more
Source: (GDP) U.S. Department of Commerce at http://www.bea.gov/national/xls/gdpchg.xls.
3
March 2013 Forecasts of Quarterly
US Real GDP for 2013-14
Real GDP Growth Rate
4%
3.5%
3.6%
3%
2.9%
2.5%
2.7%
3.4%
2.6%
3.6%
3.7%
3.7%
2.8%
2.9%
3.0%
2.0%
2.1%
2.2%
2% 2.0%
1.6%
1%
1.7%
1.7%
10 Most Pessimistic
1.1%
Median
10 Most Optimistic
0%
13:Q2
13:Q3
13:Q4
14:Q1
Sources: Blue Chip Economic Indicators (3/13); Insurance Information Institute
14:Q2
14:Q3
14:Q4
4
Personal Auto Insurance
Premium Growth
Depends on Exposure Growth,
Price Level Changes, and Other Factors
5
Monthly Change* in Auto Insurance
Prices, 1991–2013
10%
9%
8%
“Hard” markets
tend to occur
during recessions
A pricing
peak, at a
5.4% rate
7%
6%
5%
4%
3%
2%
1%
0%
Latest
(Jan 2013)
at 4.9%
-1%
-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
Cyclical peaks in PP Auto tend to occur approximately every 10 years
(early 1990s, early 2000s, and possibly the early 2010s)
*Percentage change from same month in prior year; through January 2013; seasonally adjusted
Note: Recessions indicated by gray shaded columns.
Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.
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Auto Loans and other Nonrevolving
Credit Outstanding, 1990–2013*
$ Billions
$2,000
No growth in outstanding
nonrevolving credit for
three years
$1,750
$1,500
$1,250
$1,000
Spurt
began in
Dec. 2010
$750
$500
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
Note: Recessions indicated by gray shaded columns. *Latest data is for January 2013, preliminary
Sources: Federal Reserve at
http://www.federalreserve.gov/datadownload/Download.aspx?rel=G19&series=8ee7aa36107a130bcc862d44824a3b86&lastObs=&fro
m=&to=&filetype=csv&label=include&layout=seriescolumn&type=package
National Bureau of Economic Research (recession dates); Insurance Information Institutes.
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Auto/Light Truck Exposure Changes,
2000-2014F
Millions
of Units
new vehicle registrations
scrappage
15.30
15.80
-12.0
-13.0
2013F
2014F
14.00
-11.0
2012E
12.70
-12.0
2011
10.57
5
9.59
16.77
-12.71
2007
15.13
17.33
-12.07
-10.07
2005
2006
17.42
-11.13
2004
17.29
16.94
17.64
-13.30
2002
-12.08
17.51
-14.12
2001
2003
18.09
10
-14.29
15
2000
20
-10.43
-10.63
2010
(15)
2009
(10)
2008
(5)
-14.02
0
In a “normal” 2-year span, new cars would replace about 25 million
old cars, but in 2009-10 only about 17 million old cars were replaced
Sources: NADA, State of the Industry Report 2012, p. 16, at www.nada.org/nadadata citing R. L. Polk; new vehicle
estimate/forecasts from Blue Chip Economic Indicators, 3/2013 issue; scrappage estimates/forecasts from Insurance
Information Institute.
9
PP Auto NWP vs. # of Vehicles
in Operation, 2001–2011
$ Billion
Private Passenger Auto Premium
No. of Vehicles in Operation (millions)
$165
250
245
$155
240
235
$145
230
225
$135
220
$125
215
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
PP Auto premiums written are recovering from a period of no growth
attributable to the weak economy affecting new vehicle sales, car choice,
and increased price sensitivity among consumers
Sources: A.M. Best; NADA, State of the Industry Report 2012, p. 16, at www.nada.org/nadadata citing R. L. Polk;
Insurance Information Institute.
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Something Unusual is Happening:
Miles Driven*, 1990–2013
Billions
3,100
3,000
2,900
2,800
2,700
2,600
2,500
2,400
2,300
2,200
Miles Driven Growth per 5-Yr Span
1997 vs. 1992: 13.9%
2002 vs. 1997: 11.5%
2007 vs. 2002: 6.1%
2012 vs. 2007: -3.0%
Some of the growth in
miles driven is due to
population growth:
1997 vs. 1992: +5.1%
2002 vs. 1997: +7.4%
2007 vs. 2002: +4.7%
2012 vs. 2007: +3.4%
A record: miles driven
has been below the prior
peak for 62 straight
months. Previous record
was in the early 1980s
(39 months)
Will the trend toward
hybrid and non-gasolinepowered vehicles affect
miles driven? What
about the aging and
retirement of the baby
boomers?
2,100
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
*Moving 12-month total. The latest data is for January 2013.
Note: Recessions indicated by gray shaded columns..
Sources: Federal Highway Administration (http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.cfm );
National Bureau of Economic Research (recession dates); Insurance Information Institute.
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Inflation and Claims Trends
14
Prices for Hospital Services:
12-Month Change,* 1998–2013
Recession
Outpatient Services
Inpatient Services
14%
12%
10%
8%
6%
4%
2%
0%
'98
'99
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
Cyclical peaks in PP Auto tend to occur approximately every 10 years
(early 1990s, early 2000s, and possibly the early 2010s)
*Percentage change from same month in prior year; through January 2013; seasonally adjusted
Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.
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Forces that Drive Car Repair Costs:
12-Month Change,* 2001–2013
Recession
Auto repair
Auto body work
14%
12%
10%
8%
6%
4%
2%
0%
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
Cyclical peaks in PP Auto tend to occur approximately every 10 years
(early 1990s, early 2000s, and possibly the early 2010s)
*Percentage change from same month in prior year; through January 2013; seasonally adjusted
Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute.
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PP Auto BI Liability Paid Claim
Frequency*, 2004:Q1-2012:Q3
% Change from same
quarter, prior year
3%
0%
-3%
-6%
2004:Q1
2004:Q2
2004:Q3
2004:Q4
2005:Q1
2005:Q2
2005:Q3
2005:Q4
2006:Q1
2006:Q2
2006:Q3
2006:Q4
2007:Q1
2007:Q2
2007:Q3
2007:Q4
2008:Q1
2008:Q2
2008:Q3
2008:Q4
2009:Q1
2009:Q2
2009:Q3
2009:Q4
2010:Q1
2010:Q2
2010:Q3
2010:Q4
2011:Q1
2011:Q2
2011:Q3
2011:Q4
2012:Q1
2012:Q2
2012:Q3
-9%
The frequency of PP Auto BI paid claims (paid claims as a percent of earnedcar-years) fell (at a slowing rate) from 2004-2010, rose in 2011, fell again.
*measured as % change from same quarter, prior year
Source: ISO Fast Track data.
Trend in PP Auto BI Liability Average
Loss* 2008:Q4-2012:Q3
% Change from same
quarter, prior year
BI liability average loss
seems to be moderating.
7%
6%
5%
4%
3%
2%
1%
*measured as % change from same quarter, prior year
Source: ISO Fast Track data.
2012:Q3
2012:Q2
2012:Q1
2011:Q4
2011:Q3
2011:Q2
2011:Q1
2010:Q4
2010:Q3
2010:Q2
2010:Q1
2009:Q4
2009:Q3
2009:Q2
2009:Q1
2008:Q4
0%
PP Auto PD Liability Paid Claim
Frequency*, 2008:Q4-2012:Q3
% Change from same
quarter, prior year
3%
2%
1%
0%
-1%
-2%
-3%
-4%
The frequency of PP Auto PD liability paid claims fell in 2008-09
but has been essentially flat 10 the last 12 quarters.
*measured as % change from same quarter, prior year
Source: ISO Fast Track data.
2012:Q3
2012:Q2
2012:Q1
2011:Q4
2011:Q3
2011:Q2
2011:Q1
2010:Q4
2010:Q3
2010:Q2
2010:Q1
2009:Q4
2009:Q3
2009:Q2
2009:Q1
2008:Q4
-5%
Trend in PP Auto PD Liability
Average Loss 2008:Q4-2012:Q3
% Change from same
quarter, prior year
3.0%
2.5%
PD growth in average
loss trending down
until 2010:Q3…
2.0%
1.5%
Then rising
fairly steadily
until 2012:Q2
1.0%
0.5%
0.0%
-0.5%
*measured as % change from same quarter, prior year
Source: ISO Fast Track data.
2012:Q3
2012:Q2
2012:Q1
2011:Q4
2011:Q3
2011:Q2
2011:Q1
2010:Q4
2010:Q3
2010:Q2
2010:Q1
2009:Q4
2009:Q3
2009:Q2
2009:Q1
2008:Q4
-1.0%
CDC Report: Cell Phone Use While
Driving, US and Europe, Fall 2011
Percent
saying
“regularly” or
“fairly often”
30%
“In the past 30 days, how
often have you talked on
the phone while you were
driving?”
27.5%
“In the past 30 days, how often
have you sent a text message or
e-mail while you were driving?”
19.5% 20.4%
20%
15.7%
12.8%
10%
7.8%
8.8%
10.4%
8.1%
7.7%
4.3%
2.5%
5.2%
5.9% 6.5%
2.8%
0%
Talked on cell
U.S.
U.K.
Germany
Texted/emailed
France
Spain
Belgium
Netherlands
Portugal
Sources: “Mobile Device Use While Driving—United States and Seven European Countries, 2011,” in Morbidity and Mortality Weekly
Report, Centers for Disease Control and Prevention, Vol. 62, No. 10, (March 15, 2013) available at
http://www.cdc.gov/mmwr/preview/mmwrhtml/mm6210a1.ht5m?s_cid=6210a1_e ;Insurance Information Institute
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Investments
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U.S. Treasury Security Yields*:
A Long Downward Trend, 1990–2013
9%
Yields on 10-Year U.S. Treasury
Notes have been essentially
below 5% for a full decade.
8%
7%
U.S. Treasury
security yields
recently plunged
to record lows
6%
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
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 Feb 2013.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm.
National Bureau of Economic Research (recession dates); Insurance Information Institutes.
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Distribution of Bond Maturities,
P/C Insurance Industry, 2003-2011
2011
15.2%
41.4%
2010
16.3%
39.5%
2009
16.2%
2008
15.7%
2007
15.2%
30.0%
2006
16.0%
2005
36.2%
10.3% 6.3%
26.7%
28.7%
11.7% 7.3%
8.1%
33.8%
12.9%
8.1%
29.5%
34.1%
13.1%
7.4%
16.0%
28.8%
34.1%
13.6%
7.6%
2004
15.4%
29.2%
2003
14.4%
29.8%
20%
31.2%
11.1% 6.4%
12.7%
0%
32.4%
26.8%
32.5%
31.3%
40%
60%
15.4%
15.4%
80%
Under 1 year
1-5 years
5-10 years
10-20 years
over 20 years
7.6%
9.2%
100%
The main shift over these years has been from bonds with longer maturities to bonds
with shorter maturities. The industry first trimmed its holdings of over-10-year bonds
(from 24.6% in 2003 to 16.9% in 2011) and then trimmed bonds in the 5-10-year category.
Falling average maturity of the P/C industry’s bond portfolio is contributing to a drop in
investment income along with lower yields.
Sources: A.M. Best; Insurance Information Institute.
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www.iii.org
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