Transcript workerscomp-082515x - Insurance Information Institute

Economic Forces Shaping the
Workers Compensation Insurance
Industry of Today and Tomorrow
Workers Compensation Educational Conference
Orlando, FL
August 25, 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
Reasonably Strong Performance
Workers Comp Improvement
Helped Too
2
$55,501
$63,784
$18,172
$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%
2015:Q1 ROAS = 10.8%
$24,404


$ Millions 
$80,000 


$70,000


$60,000


$50,000

$65,777
P/C Industry Net Income After Taxes
1991–2015:Q1
$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
15:Q1
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 – 2015:Q1
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%
2015:Q1
10.8%
2013
9.8%
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
15:Q1
-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
P/C Insurance Industry
Combined Ratio, 2001–2015:Q1*
As Recently as 2001,
Insurers Paid Out
Nearly $1.16 for Every
$1 in Earned
Premiums
Heavy Use of
Reinsurance
Lowered Net
Losses
Relatively
Low CAT
Losses,
Reserve
Releases
120
115.8
110
Best
Combined
Ratio Since
1949 (87.6)
107.5
100.1
98.4
100
Avg. CAT
Losses,
More
Reserve
Releases
Cyclical
Deterioration
101.0
100.8
Relatively
Low CAT
Losses,
Reserve
Releases
99.3
Higher
CAT
Losses,
Shrinking
Reserve
Releases,
Toll of Soft
Market
Sandy
Impacts
Lower
CAT
Losses
106.3
102.4
100.8
96.7 97.2 96.0
95.7
92.6
90
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15: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.
6
Return on Net Worth (RNW) All Lines:
2004-2013 Average
25.6
30
Commercial lines have tended
to be more profitable than
personal lines over the past
decade
18.4
25
6.6
7.1
7.1
-1.0
0
4.9
5
7.8
7.9
10
8.9
9.2
15
13.2
13.4
20
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re
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ll
M
er
h
t
al
y
P
al
c
i
ed
f
ro
t
il i
b
a
Li
C
Source: NAIC; Insurance Information Institute.
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om
A
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ut
t
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C
m
om
a
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e
P
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A
ll
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8
Commercial Lines NPW Premium Growth:
1975 – 2014E
ROE
35%
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%
30%
Tort Crisis
1986: 30.5%
25%
Post-9/11
2002: 22.4%
20%
1988-2000:
Period of
inter-cycle
stability
Post-Hurricane
Andrew Bump:
1993: 6.3%
15%
10%
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.
11
09
07
01
99
97
95
93
91
89
87
85
83
81
79
77
75
-15%
05
Great
Recession:
2009: -9.0%
-10%
13
Recessions:
1982: 1.1%
03
-5%
201020XX?
Postrecession
period of
stable
growth?
Direct Premiums Written: Comm. Lines
Percent Change by State, 2007-2014
90
Growth Benchmarks: Commercial
43 states showed
commercial lines
growth from 2007
through 2014
70
60
US: 5.9%
11.8
10.3
8.7
8.5
8.4
8.0
7.9
7.6
7.1
6.6
5.9
5.9
5.8
5.4
4.5
WI
MA
AR
CT
NY
NJ
CO
NM
OH
LA
US
MS
NH
MO
13.9
IN
MN
14.6
AK
20.6
TX
15.2
21.0
KS
20
WY
22.5
IA
24.8
30
29.4
40
33.3
50
36.8
Pecent change (%)
80
80.4
Top 25 States
NE
OK
VT
SD
0
ND
10
Sources: SNL Financial LLC.; Insurance Information Institute.
12
Direct Premiums Written: Comm. Lines
Percent Change by State, 2007-2014
Bottom 25 States
2.2
2.1
1.4
0.9
ME
SC
ID
2.8
2.8
3.1
3.2
3.3
3.3
3.7
3.8
3.9
4.1
4.2
4.4
-22.2
WV
NV
DE
AZ
-19.9
-10.7
-9.2
-6.9
HI
DC
AL
VA
KY
IL
UT
PA
GA
WA
RI
CA
MT
MD
MI
-25
OR
-20
-6.5
-15
FL
States with the poorest
performing economies also
produced the most negative
net change in premiums of the
past 6 years
-10
-5.3
-5
-3.2
-1.3
0
TN
Pecent change (%)
5
4.5
10
NC
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, 2007-2014*
0.0
NH
*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.
MD -1.3
0.1
VA
RI -1.1
0.1
GA
IL
WI
MI
NE
KS
CT
NJ
OK
NY
-5
IA
0
PA -1.1
0.5
CO
1.7
3.8
TX
2.7
3.9
NM
6.7
MN
4.2
7.1
IN
5
US
7.5
MS
10
9.4
15
11.7
14.6
20
Only 21 states have seen
works comp premium volume
return to pre-crisis levels
18.7
20.6
22.3
25
24.4
27.1
SD
30
27.1
Pecent change (%)
35
CA
40
35.1
Top 25 States
14
Direct Premiums Written: Worker’s Comp
Percent Change by State, 2007-2014*
*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.
-34.9
-30.3
OR
AK
ME
SC
AR
TN
LA
MO
AZ
NC
ID
MA
DC
States with the poorest
performing economies also
produced some of the most
negative net change in
premiums of the past 7 years
NV
-29.5
DE
-25.2
-19.5
UT
HI
-19.4
KY
-23.4
-17.9
FL
MT
-17.1
AL
-14.4
-13.5
-12.2
-11.7
-9.2
-9.2
-9.1
-8.5
-6.0
-4.8
-3.6
-2.9
-2.6
0
-5
-10
-15
-20
-25
-30
-35
-40
-45
-50
-55
-60
-65
-70
-75
-80
VT
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: 2000–2015E1
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 $46.7
$39.6
$37.1 $36.7
$30
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15E
Due to persistently low interest rates,
investment income fell in 2012, 2013 and 2014.
1
Investment gains consist primarily of interest and stock dividends.
Sources: ISO; Insurance Information Institute.
*2015 figure is estimated based on annualized data through Q1.
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%
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
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 July 2015.
Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research
(recession dates); Insurance Information Institute.
18
S&P 500 Index Returns, 1950 – 2015*
Annual Return
Volatility is endemic to stock markets—and
may be increasing—but there is no persistent
downward trend over long periods of time
60%
50%
40%
30%
20%
10%
0%
-10%
Fed Raises Rate
-20%
Tech Bubble
Implosion
-30%
2015
YTD:
-8.1%
14
12
10
08
06
04
02
00
96
94
92
90
88
86
84
82
80
78
76
74
72
70
68
66
64
62
60
58
56
54
52
50
-50%
Energy Crisis
98
-40%
Financial
Crisis
*Through August 24, 2015.
Source: NYU Stern School of Business: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html Ins. Info. Inst.
Labor Markets Trends:
Recovery Continues in 2015
In 2014…
Largest Increase in Jobs Since 1997
Unemployment Rate Fell to Lowest
Level Since 2008
Payrolls Expanded to Record High
25
Unemployment and Underemployment
Rates: Still Too High, But Falling
January 2000 through July 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 10.4%
in June 2015.
8% to 10% is
“normal.”
10
8
“Headline”
unemployment
was 5.3% in July
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.
26
(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
117
189
252
227
210
20
3
32
64
81
55
3
0
231
52
170
52
126
57
200
Jan-07
Feb-07
Mar-07
Apr-07
MayJun-07
Jul-07
AugSepOct-07
NovDecJan-08
Feb-08
Mar-08
Apr-08
MayJun-08
Jul-08
AugSepOct-08
NovDecJan-09
Feb-09
Mar-09
Apr-09
MayJun-09
Jul-09
AugSepOct-09
NovDecJan-10
Feb-10
Mar-10
Apr-10
MayJun-10
Jul-10
AugSepOct-10
NovDecJan-11
Feb-11
Mar-11
Apr-11
MayJun-11
Jul-11
AugSepOct-11
NovDecJan-12
Feb-12
Mar-12
Apr-12
MayJun-12
Jul-12
AugSepOct-12
NovDecJan-13
Feb-13
Mar-13
Apr-13
MayJun-13
Jul-13
AugSepOct-13
NovDecJan-14
Feb-14
Mar-14
Apr-14
MayJun-14
Jul-14
AugSepOct-14
NovDecJan-15
Feb-15
Mar-15
Apr-15
MayJun-15
Jul-15
Monthly Change in Private Employment
January 2007 through July 2015 (000s, Seasonally Adj.) 3,042,000 jobs were created
in 2014, the most since 1997
600
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
210,000 private
sector jobs were
created in July.
Private Employers Added 12.84 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)
27
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%
4.9%
4.8%
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 (8/15 edition); Insurance Information Institute.
28
5.3
5.4
5.5
5.5
5.5
5.5
5.7
5.7
5.7
5.8
5.8
5.9
5.9
6
5.9
6.1
6.1
6.1
6.4
6.4
6.6
6.6
6.8
6.9
7.0
In June, 21 states and the District of
Columbia had over-the-month
unemployment rate decreases, 12
states had increases, and 17 states
had no change.
6.3
Unemployment Rate (%)
8
7.4
Unemployment Rates by State, June 2015:
Highest 25 States*
4
2
0
WV DC NV AK MS SC LA NM CA AL GA NJ AZ IL
*Provisional figures for June 2015, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
RI MO NC AR CT TN FL MI NY OR PA US
29
Unemployment Rates by State, June 2015:
Lowest 25 States*
3.1
3.5
3.6
3.7
3.8
3.8
3.9
3.9
4.0
4.1
4.2
4.0
4
4.4
4.5
4.5
4.6
4.6
4.7
4.9
5.1
5.2
5.3
5.2
4.9
5
4.7
3
2.6
Unemployment Rate (%)
6
In June, 21 states and the District of
Columbia had over-the-month
unemployment rate decreases, 12
states had increases, and 17 states
had no change.
2
1
0
WA MD OH KY IN VA DE ME MA WI KS OK CO TX WY HI ID MN MT NH SD IA VT UT ND NE
*Provisional figures for June 2015, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
30
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.
32
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.
33
CONSTRUCTION INDUSTRY
OVERVIEW & OUTLOOK
The Construction Sector Is
Critical to the Economy and
the P/C Insurance Industry
37
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
1.10
1.12
1.27
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 (8/15); Insurance Information Institute.
43
(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
6,335
6,365
6,377
6,377
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
May-15
Jun-15
Jul-15
Construction Employment,
Jan. 2010—July 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.
47
Construction Employment,
Jan. 2003–July 2015
(Thousands)
Construction
employment as of
July 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.
48
ENERGY SECTOR
America’s Energy Boom Has Been a
Strong Driver of the Economic Recovery,
but Prices Are Falling
Workers Comp Has Benefited from the
Energy Boom, But Exposures Will Suffer
as Energy Prices Swoon
49
150
*Seasonally adjusted
Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
Jul-15
May-15
Mar-15
Jan-15
Nov-14
Sep-14
Jul-14
May-14
Mar-14
Jan-14
Nov-13
Sep-13
Jul-13
May-13
Mar-13
Jan-13
Nov-12
Sep-12
Jul-12
May-12
Mar-12
Jan-12
Nov-11
Sep-11
Jul-11
May-11
Mar-11
Jan-11
160
Nov-10
170
Sep-10
210
Jul-10
(000)
May-10
180
Mar-10
190
156.5
156.4
156.7
157.6
158.7
158.1
158.4
159.7
160.2
161.5
161.4
161.0
162.7
164.3
166.6
169.2
170.1
171.2
172.6
174.0
176.6
178.2
178.7
180.6
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
194.2
193.3
193.8
200
Jan-10
Employment in Oil & Gas Extraction,
Jan. 2010—July 2015*
Oil and gas extraction
employment was up
28.8% by Oct. 2014 but
falling energy prices
have taken their toll
Employment in the O&G
segment is down 3.8%
since its Oct. 2014 peak
52
MANUFACTURING SECTOR
A Potent Driver of Jobs, Workers Comp
Payroll Exposure
America’s Manufacturing Renaissance
Has Hit a Rough Patch with the High
Dollar/Chinese Devaluation,
Weak Export Markets
53
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
12,327
12,327
12,333
12,335
12,350
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
May-15
Jun-15
Jul-15
Manufacturing Employment,
Jan. 2010—July 2015*
(Thousands)
Since Jan 2010,
manufacturing
employment is up
(+890,000 or +7.8%)
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.
57
The “On-Demand” (Sharing)
Economy
The On-Demand Economy Will
Transform the American
Workforce and the
P/C Insurance Industry Too
58
Labor on Demand: Huge Implications for
the US Economy, Workers & Insurers
59
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
64
Technology and Employment
What Makes the On-Demand
Economy Possible?
Why Does It Matter for Insurers?
65
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
69
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
72
On-Demand Workers
Who Are They?
And Who’s Driving Demand for Them?
73
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.
74
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.
75
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.
76
The On-Demand Economy and
Wall Street
Wall Street Loves the On-Demand
Economy
Labor Markets, Insurance Markets
Will Be Impacted
77
An UBER Case Study
Uber is the Best Known of the
On-Demand Companies
Wall Street Loves Uber
Vested Interests Hate Uber
79
Uber says drivers are
independent
contractors. State of
California says they’re
employees. Big
impacts for several
lines of insurance
including WC!
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
85