Transcript P6466 - iii Template - Insurance Information Institute

Disruptors in the P/C
Insurance Industry:
Trends, Challenges and
Opportunities
Insurance Information Institute
June 30, 2016
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
Outline
 The Economy: Major Factors Influencing Growth and Profitability
 “Old School” Disruptors
 Insurance, Technology and 21st Century Disruptors
 Auto/Driving Technology
 Cyber
 Sharing Economy
 The Internet of Things: Personal and Commercial Lines Applications
– Wearables and Beyond
 InsureTech (Venture Capital, Start-Ups and Insurance)
 Distribution Trends and Challenges
 Millennials
 As consumers
 As employees
2
THE ECONOMY
The Strength of the Economy Will Greatly
Influence Insurer Exposure Base
Across Most Lines
3
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%
1.1%
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.
4
Real GDP Growth by State:
2015:III - 2015:IV
5
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%
5.2%
5.0%
4.9%
4.8%
4.7%
4.7%
4.6%
4.6%
4.5%
4.5%
2007:Q1 to 2017:Q4F*
Jobless figures
have been revised
downwards for 2016
Unemployment forecasts
have been revised modestly
downwards. Optimistic
scenarios put the
unemployment as low as
4.4% by Q4 of 2016.
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
17:Q1
17:Q2
17:Q3
17:Q4
4%
*
= actual;
= forecasts
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (6/16 edition); Insurance Information Institute.
6
4.7
4.7
4.7
4.9
5.1
5.1
5.1
5.2
5.0
5
5.3
5.4
5.6
5.6
5.6
5.7
5.8
5.8
6.1
6.1
6.1
6.2
6.2
6.3
In May, unemployment rates were
significantly higher in 5 states,
lower in 4 states and the District of
Columbia, and stable in 41 states.
5.5
Unemployment Rate (%)
6
6.4
7
6.7
Unemployment Rates by State, May 2016:
Highest 25 States*
4
Weak economies are
keeping unemployment
relatively high in several
states; Low energy prices
play a role in some.
3
2
1
0
AK
IL LA NM WV AL DC NV MO WA CT AZ SC WY PA RI GA CA KY NC OH IN NJ FL MI NY
*Provisional figures for May 2016, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
7
2
2.5
2.7
3.1
3.2
3.2
3.0
3
3.4
3.5
3.7
3.7
3.8
3.8
3.8
4.1
4.2
4.2
4.2
4.3
4.5
4.5
4.7
4.4
4.1
3.8
4
In May, unemployment rates were
significantly higher in 5 states,
lower in 4 states and the District of
Columbia, and stable in 41 states.
3.9
Unemployment Rate (%)
5
4.7
Unemployment Rates by State, May 2016:
Lowest 25 States*
15 states have
unemployment
rates under 4%
1
0
OK US MD OR TX MS MA MT WI DE TN IA AR MN UT VA ID KS ME CO HI ND VT NE NH SD
*Provisional figures for May 2016, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
8
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 negatives:
 Dollar appreciates weakening US exports
 Delays Fed rate hikes
 Uncertainty
 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?
9
CONSTRUCTION INDUSTRY
OVERVIEW & OUTLOOK
The Construction Sector Is
Critical to the Economy and
the P/C Insurance Industry
10
Value of New Private Construction:
Residential & Nonresidential, 2003-2016*
Billions of Dollars
2016: Value of new pvt.
construction hits
$843.1B as of Apr.
2016, up 68.4% from
the 2010 trough but still
7.5% below 2006 peak
New Construction peaks
at $911.8. in 2006
Trough in 2010
at $500.6B,
after plunging
55.1% ($411.2B)
$1,000
$900
$800
$613.7
$700
$600
$439.7
$500
$298.1
$400
$300
$261.8
Non Residential
Residential
$200
$100
$403.5
$238.8
$0
03
04
05
06
07
08
09
10
11
12
13
14
15
16*
Private Construction Activity Is Moving in a Positive Direction though
Remains Well Below Pre-Crisis Peak; Residential Dominates
*2016 figure is a seasonally adjusted annual rate as of April.
Sources: US Department of Commerce http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
11
Value of Construction Put in Place,
2016 vs. 2015*
Growth (%)
Private: +5.7%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
Public: +1.2%
8.0%
4.5%
5.7%
3.4%
1.4%
1.2%
Private sector construction
activity is up in both the
residential and nonresidential
segments
Total
Construction
Public sector
construction activity
is finally beginning to
create less drag up
after years of decline
Total Private Residential-NonConstruction
Private
Residential-Private
-7.4%
Total Public
Construction
ResidentialPublic
NonResidential-Public
Overall Construction Activity is Up Again After Languishing in Early 2015;
State/Local Sector Government Sector May Be Recovering as Budget
Woes Ease in Some Jurisdictions
*seasonally adjusted data through April 2016.
Source: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
12
Value of New Federal, State and Local
Government Construction: 2003-2016*
($ Billions)
$350
Austerity Reigns
Construction
across all levels
of government
peaked at $314.9B
in 2009
Govt. construction MAY finally be
turning around; still down $24.1B
or 7.7% since 2009 peak
$289.1
$300
$308.7 $314.9 $304.0
$255.4
$250
$216.1 $220.2
$291.3 $290.8
$286.4 $279.3
$270.7 $275.7
$234.2
$200
$150
$100
$50
20
15
*
20
16
*
20
14
20
13
20
12
20
11
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
$0
Government Construction Spending Peaked in 2009, Helped by Stimulus
Spending, but Contracted As State/Local Governments Grappled with
Deficits and Federal Sequestration; Only Now Recovering
*2016 figure is a seasonally adjusted annual rate as of April; http://www.census.gov/construction/c30/historical_data.html
Sources: US Department of Commerce; Insurance Information Institute.
13
PERSONAL LINES EXPOSURE
BASE IS EXPANDING
Top Line Growth for Personal Lines
Exceeds Commercial Lines:
Exposure and Rate Contribute
14
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.
15
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
16
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.
17
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. 18
$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.
19
$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
20
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.
21
Claim Trends in Private
Passenger Auto Insurance
Rising Frequencies and Severities
in Many Coverages
A More Immediate Challenge
22
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
24
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
25
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
26
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
27
A Few Factors Driving Adverse Private
Passenger Auto Loss Trends
More People Driving, Lower Gas
Prices, Higher Speed Limits…
29
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.
30
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.
31
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%
TECHNOLOGY, DISRUPTORS
AND INSURANCE
The Insurance Industry Is on the
Cutting Edge of Providing
Technology-Driven Risk Management
and Insurance Solutions
33
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%
Interest in Technology
issues impacting the
insurance industry are
surging
-37%
-46%
-85%
-200%
0%
*Through May 15.
1Based on a search of Meltwater News
200%
400%
600%
800%
1000%
Interest in Technology Issues and Insurance
Is Surging: Presents Opportunity
 Insurers are at the intersection of many of the most important
technological innovations of the early 21st century
 ProblemSolutionOpportunity
 Industry is too often depicted as a technology laggard
 I.I.I. is highlighting the industry as being on the technological
cutting edge—an innovative, nimble industry with solutions
for managing countless new risks of the current era:
 Sharing economy
Cyber
 Supply Chain
Climate Risk Drones
 Wearable devices
The “Internet of Things”
Auto Technology
 Positions industry well with customers, investors, current and
prospective workers/Millennials, regulators/legislators and
(tech) media
35
CYBER RISK AND INSURANCE
Cyber Risk is a Rapidly Emerging
Exposure for Businesses Large and
Small in Every Industry
36
Data Breaches 2005-2015, by Number of
Breaches and Records Exposed
# Data Breaches/Millions of Records Exposed
Millions
222.5
800
700
783
169.1
614
600
180
160
498
500
140
470
127.7
446
419
92.0
400
66.9
120
85.6
100
321
80
300
200
220
200
662
656
781
35.7
157
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 781 reported data breaches in 2015 was virtually unchanged form
the record 783 reported in 2014. The number of exposed records
soared to 169.1 million, and increase of 97.5%.
Source: Identity Theft Resource Center (updated as of Jan. 6, 2016);
http://www.idtheftcenter.org/images/breach/ITRCBreachReport2015.pdf
Data/Privacy Breach:
Many Potential Costs Can Be Insured
Costs of
notifying
regulatory
authorities
Regulatory
fines at
home &
abroad
Costs of
notifying
affecting
individuals
Data
Breach
Event
Forensic costs
to discover
cause
Defense and
settlement
costs
Lost customers
and damaged
reputation
Cyber extortion
payments
Business
Income Loss
38
Estimated Cyber Insurance Premiums
Written, 2014 – 2020F
Cyber insurance
premiums written
could more than
triple to $7.5
billion by 2020
$ Billions
$8
$7.5
$7
$6
I.I.I.’s Cyber Risk
paper issued
Oct. 2015
$5
$4
$3
$2
$1.5
$2.0
$1
$0
2014
2015E
Source: Advisen (2014 est.); PwC (2015, 2020); Insurance Information Institute.
2020F
39
AUTO TECHNOLOGY &
THE FUTURE OF AUTO INSURANCE
The Road to Fully Autonomous Vehicles:
Long, Dark and Full of Potholes
Tales of the Death of Auto Insurance Are
Greatly Exaggerated
40
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.
41
Media is Obsessed with Driverless Vehicles:
Often Predicting the Demise of Auto Insurance
Some are predicting that
the rise of autonomous
vehicles will reduce claim
frequency by 75% or
more…
,,,and that this technology will
cause average auto insurance
premiums to plunge
Source: Autonomous Consulting as cited in the Financial Times: “Cost of Car Insurance to Plunge With Rise of Driverless
Vehicles, June 28, 2016.
42
I.I.I. Poll: Auto Insurance
Q. Would you be willing to ride in a driverless car?
May 2015
May 2016
2% Don’t Know
No
58
%
40
%
2% Don’t Know
Yes
No
55
%
43
%
Yes
The Percentage Willing to Ride in a Driverless Car Rose Slightly;
Slightly.
71 71%
Percent
of People
of People
Over
Over
64 64
Were
Were
Unwilling
Unwilling
to Ride.
to Ride.
Source: Insurance Information Institute Annual Pulse Survey.
I.I.I. Poll: Driverless Cars
Q. Would you be willing to ride in a driverless car?
Yes
70%
59%
60%
No
58%
56%
50%
40%
Don't Know
40%
55%
43%
40%
43%
30%
20%
10%
2%
1%
0%
May 2014
May 2015
2%
November 2015
2%
May 2016
The Percentage Willing to Ride in a Driverless Car Remains at 43%;
71% of People Over 64 Were Unwilling to Ride.
Source: Insurance Information Institute Annual Pulse Survey.
I.I.I. Poll: Driverless Cars
Why Americans Would Not Want to Ride in a Driverless Car,
May 20161
100%
84%
90%
80%
74%
70%
72%
62%
60%
59%
50%
42%
36%
40%
30%
20%
10%
0%
Would Not Don't Want Computer Cars Would Would Be
Feel Safe to Give Up Could Be
Be Too
Liable for
Control
Hacked
Expensive
Any
Accident
Would
Collect
Personal
Data
Would Be
Boring
1%
1%
None of
These
Don’t Know
Safety Concerns Are Paramount Among Those Who Would Avoid
Driverless Cars.
Based on those who would not ride in a driverless car. Respondents could give more than one answer.
Source: Insurance Information Institute Annual Pulse Survey.
1
I.I.I. Poll: Telematics—
Consumers Still Hesitant
Q
Would you allow your auto insurer to collect information about how
and when you drive in order to set your auto insurance premium?
Don’t Know
1%
Allow if Premium
39% Went Down
Not 42%
Allow
18%
Allow Whether or Not
Premium Went Down
More Than Half of Auto Policyholders Would Allow Their Insurer to
Collect Their Driving Information in Order to Set Premiums.
1Asked
of those who have auto insurance.
Source: Insurance Information Institute Annual Pulse Survey.
The Sharing Economy
The On-Demand Economy Will
Transform the American
Workforce and the
P/C Insurance Industry Too
48
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
49
Ridesharing Regulation/Legislation
and Status of ISO Filings as of 9/30/15
Status Ride Sharing
Legislation/Regulation
Status of ISO Filings
51
Source: ISO.
Homesharing: ISO’s Proposed Changes*
.
*As of Oct. 6, 2015.
Source: ISO/Verisk.
54
The Sharing Economy Has Grown—
And Attracted Political Scrutiny
56
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
57
Percent of Americans Who Have Engaged in the
“Gig/Sharing Economy” by Transaction
Drivers have significant
WC exposures
About 22% of Americans have offered
services in the sharing economy.
Service platforms have the most
direct link to WC; 11% of Americans
have offered their services
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.
58
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.
59
THE ‘INTERNET OF THINGS’
Capturing Economic Value Amid a
Shifting Insurer Value Chain
61
The Internet of Things and the
Insurance Industry Value Chain
The Insurance Industry Value Chain Is Changing for Many Reasons
Source: Willis Capital Markets & Advisory; Insurance Information Institute.
62
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.
63
The ‘Internet of Things’ and
‘The Insurance-Net of Things’
64
The Insurance Industry’s Future
Is in the Cloud…
Human Beings
Rail & Public
Transport
Aviation
Trucking & Fleet
Vehicles
The Cloud
Marine
Transport
Private Motor
Vehicles
66
Wearables and Beyond…
Where The Internet of Things
Meets Health, Disability and Workers
Compensation Insurance
67
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
68
Beyond Wearables: Ingestibles and
Implantables, VR Could Have Big Impacts Too
 Ingestibles:
 Body chemistry
 View malignancies
 Detect diseases
 Medication adherence
 Implantables
 Smart Fabrics
 Virtual Reality
 Computer simulated reality
 Augmented Reality
 Real world environment
supplemented by computer
generated inputs
69
A NEST Case Study
Nest: A Leader in the “Internet of Things”
Collision Course or Cooperation with the
Insurance Industry?
71
Telematics for Your Home:
The Internet of Things
 The home is the next frontier for telematics
 Rapidly becoming a crowded space
 How and with whom will insurers partner?
 Can control increasing array of household
systems remotely
 Heat, A/C
 Fire, CO detection
 Security Systems
 Cameras/Monitors
 Appliances
 Lighting
 Technology is adaptive
 Uses sensors and algorithms to learn about you
72
Partnerships with Insurers: Selling
Safety and Savings Simultaneously
Nest is actively seeking to partner with insurers. As of Jan. 10, 2016, Nest listed
2 insurance partners offering discounts in a number of states
Source: https://nest.com/insurance-partners/ accessed 1/10/16; Insurance Information Institute research.
73
INSURANCE TECHNOLOGY:
FIN TECH ZEROES IN
Number and Value of Deals Is Increasing
In Search of the Elusive Insurance ‘Unicorn’
74
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.
75
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
77
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
78
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 less
likely to commit fraud,
etc.
Source: “UberX-ing Insurance : Is Peer-to-Peer Insurance Viable?”, presentation by Jay Sarzen, Aite Group at
DrinkerBiddle Insurance Conference, June 21, 2016.
79
Distribution Trends
Distribution by Channel Type
Continues to Evolve Around
the World
80
All P/C Lines Distribution Channels,
Direct vs. Independent Agents, 1983-2014
70%
60%
50%
40%
30%
20%
10%
Independent agents steadily lost market share
from the early 1980s through the early 2000s
across all P/C lines, made some games in the mid2000s, but then lost share again in the late 2000s.
Loss rate has slowed in in the 2010s. Direct
channels include exclusive agency companies,
direct marketers and direct sales (e.g., internet)
0%
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
Direct
Independent Agents
Source: Insurance Information Institute; based on data from Conning and A.M. Best.
81
Personal Lines Distribution Channels,
Direct vs. Independent Agents, 1972-2014
80%
70%
60%
50%
40%
30%
20%
10%
Independent agents have lost significant personal
lines market share since the early 1970s.
Although the trend slowed from 2000-2007, it may
be accelerating again.
0%
72 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
Direct
Independent Agents
Source: Insurance Information Institute; based on data from Conning and A.M. Best.
82
Millennials and Insurance
Actively Disengaged or the
Vanity of Youth?
83
2015: Millennials Overtook Baby
Boomers as the Largest Generation
There were
75.3 million
Millennials
in 2015,
overtaking
for the first
time the
Baby
Boomers
who totaled
74.9 million
Source: “This Year Millennials Will Overtake Baby Boomers,” Pew Research Center, January 15, 2015 accessed at
http://www.pewresearch.org/fact-tank/2015/01/16/this-year-millennials-will-overtake-baby-boomers/ .
Channel Preference for Home/Rental
Insurance, by Age Category
2/3 of
Millennials
purchase
dwelling
coverage
directly from
the company
How much of
this is a
generational
preference
vs. having
very simple
insurance
needs?
Sources: “5 Reasons Millennials Aren’t Buying Insurance from Local Agents,” Eric Narisco, Sept. 16, 2015 from
PropertyCasualty360.com based on a study by Effective Coverage and performed by ORC International.
Insurance Customers: Engagement
by Generation
Millennials
are the least
likely to be
engaged with
their insurer
Millennials
are more
twice as likely
to buy online
Millennial’s
families
influence
their choice
in insurers
Sources: Gallup: “Insurance Companies Have a Big Problem with Millennials,” Daniela Yu and Chris Portera,
March 5, 2015.
Millennials as Employees
A Talent Gap Looms
Insurance Industry Employees Are
Older than in Most Industries
88
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
 The number of professionals 55 and older
is 30 percent higher in the insurance
industry than the rest of the economy
 The number of insurance professionals
over 55 has risen 74 percent during the
past 10 years.
 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!
89
Reasons Millennials Give for Not Wanting
to Work in the Insurance Industry
Let’s Change
Their Mind!
Sources: The Institutes.
90
Insurance Information Institute Online:
www.iii.org
Thank you for your time
and your attention!
Twitter: twitter.com/bob_Hartwig
91