Latest Studies - December 2016

Each month the Insurance Information Institute compiles recent studies from industry, government, academic and other sources. Topics include consumer issues, industry trends, climate and environment, and studies covering individual lines of business like automobile liability and workers compensation.

1. DOWNWARD TREND IN COMMERCIAL P/C RATES CONTINUED IN Q3, ACCORDING TO CIAB MARKET SURVEY
Council of Insurance Agents & Brokers; Page N/A
November 1, 2016

In the third quarter of 2016 commercial property/casualty rates decreased across all size accounts once again, according to The Council of Insurance Agents & Brokers’ Commercial P/C Market Survey.  The average decrease was -3.2 percent, which is a slight increase from -3.9 percent in Q2. Large accounts once again saw the largest decreases at -4.3 percent, followed by medium-sized accounts at -3.7 percent, and small accounts at -1.5 percent. News Release


2. 2016 AGENCY UNIVERSE STUDY
Independent Insurance Agents and Brokers of America; 122 pages
October 1, 2016

This survey, which is issued every two years, reveals numerous facts about independent agencies, including their numbers, premium base, ownership, mix of business, revenue sources, employment issues and marketing strategies. In 2016, the estimated total number of independent property/casualty agents and brokers in the U.S. is 38,000. This represents a small decrease relative to 2014 that is thought to reflect the current M&A environment, as well as the relatively stable rates of exclusive agency conversions and new agency formation. Since 2004, the estimate has fluctuated between 37,500 and 39,000.  Small agencies make up 21 percent of the population and jumbo agencies almost 2 percent. Small agencies in particular are also gravitating towards large metro areas and away from small rural towns: 57 percent of small agencies are concentrated in large metro areas this year, compared to 50 percent in 2014.  The survey is available to purchase from the IIABA website.  


3. GLOBAL INSURANCE REVIEW 2016 AND OUTLOOK 2017/18
No byline
Swiss Re; Page N/A
November 1, 2016

This report predicts moderate economic growth for the global economy over the next two years, supporting continued growth in insurance premium volumes. Growth in global non-life premiums is projected to fall slightly from 2.4 percent in 2016 in real terms to 2.2 percent in 2017, and accelerate to 3.0 percent in 2018. In the life sector, global premiums are expected to grow by 4.8 percent in 2017 and 4.2 percent in 2018. The emerging markets, in particular emerging Asia, will be the main driver of premium growth in both the non-life and life sectors.  Full Report


4. PRICING IN THE PRIMARY MARKET FOR CAT BONDS: NEW EMPIRICAL EVIDENCE
Alexander Braun
The Journal of Risk and Insurance; Page 811
December 1, 2016

This article examines the pricing of cat bonds using evidence from the primary market. The author examined a data set consisting of almost all cat bond tranches that were launched between June 1997 and December 2012. He confirmed that expected loss is the most important factor in pricing. Covered territory, sponsorship, reinsurance cycle and the spreads on comparably rated corporate bonds also have a major impact on pricing. The author proposes a cat bond pricing model that would be applicable for all territories, perils and trigger types. 


5. MARKET EXPECTATIONS FOLLOWING CATASTROPHES: AN EXAMINATION OF INSURANCE BROKER RETURNS
Marc A. Ragin and Martin Halek
The Journal of Risk and Insurance; Page 849
December 1, 2016

The authors investigated the impact of major catastrophes on equilibrium price and quantity in the insurance market. Specifically, the authors examined whether investors expect total industry revenue to increase following a disaster's blow to insurers’ capital. The authors studied insurance brokers, who earn commission on premium revenue but do not pay losses following a catastrophe. It was discovered that brokers stocks earned unusually high returns on the day of the disaster and that these returns are repeated following the top 20 largest catastrophes. Returns were found to be positively related to the size of the loss and negatively related to existing insurer capital. The conclusion is that major catastrophes are expected to increase net industry revenue, with brokers benefitting most directly. This is consistent with theories of a negative relationship between capital and insurance prices and the absence of elasticity in demand for commercial insurance. 


6. COASTAL WETLANDS AND FLOOD DAMAGE REDUCTION
Dr. Michael W. Beck
University of California, Santa Cruz; Page N/A
October 1, 2016

Scientists from conservation, engineering and insurance sectors studied the impact of Hurricane Sandy in the Northeast United States in 2012, when New York and New Jersey were severely impacted by storm surges. The study found that coastal wetlands along the Northeast coast prevented over $625 million in property damages during this natural catastrophe. Without wetlands, the damage costs would have been much higher for Sandy and other predicted hurricanes. Where wetlands remain, the average damage reduction from Sandy was greater than 10 percent. Experts within the study team expect that the analyses of the effects of Hurricane Matthew earlier this month will demonstrate similar protections. The study was led by UC Santa Cruz; The Nature Conservancy; and the Wildlife Conservation Society in association with Risk Management Solutions and Guy Carpenter & Co. The project was supported by the Lloyd’s Tercentenary Research Foundation with additional support from the Science for Nature and People Partnership (SNAPP). Full Report


7. CORELOGIC ANALYSIS SHOWS THE NUMBER OF HOMES DAMAGED BY A LARGE EARTHQUAKE IMPACTING NORTHERN AND SOUTHERN CALIFORNIA SIMULTANEOUSLY COULD MORE THAN DOUBLE
CoreLogic; Page N/A
October 1, 2016

A recent CoreLogic analysis shows that an earthquake of magnitude 8.3 along the San Andreas fault, which previously was thought to only occur along the northern segment of the fault line, could result in a full rupture and increase the number of homes damaged by 126 percent, from 1.6 to 3.5 million homes.  The reconstruction cost value (RCV) for the damaged homes would increase by 79 percent, from $161 billion to $289 billion. A similar scenario that expands earthquake risk from just the southern San Andreas fault to a full rupture increases the number of homes damaged by 54 percent, from 2.3 million to 3.5 million, and increases RCV by 111 percent, from $137 billion to $289 billion. News Release


8. RANSOMWARE ATTACKS SET TO QUADRUPLE IN 2016
Beazley Group; Page N/A
October 26, 2016

Beazley Group reports that ransomware attacks increased rapidly during the first nine months of 2016. The trend was particularly evident in the financial services, retail and hospitality sectors. Ransom demands remain small, averaging just $1,000. New ransomware variants like Zepto, the increased availability of ransomware-as-a-service and readily available toolkits make it easy for less sophisticated attackers to launch these types of attacks. Most organizations are infected because an employee clicks on a malicious attachment or a bad link in an email message.  Full Report


9. 2016 SURVEY OF CYBER INSURANCE MARKET TRENDS
Advisen & PartnerRe; Page N/A
October 1, 2016

This annual survey conducted by PartnerRe and Advisen, found several shifts and trends in the market for cyber insurance coverage, which is currently estimated to be $2.5 billion to $3 billion in premiums. Some of the most outstanding changes over this period are:  growing demand for coverage in sectors beyond healthcare, retail, and financial institutions, such as professional services; shifts in the factors driving sales, especially as more third parties are requiring the coverage; the importance of first-party coverage is changing as new causes of loss emerge, such as cyber extortion and funds transfer fraud; and growing interest in and coverage for bodily injury and/or property damage arising from a cyber event.  Many of the obstacles to selling cyber coverage remain the same, particularly a lack of education about the exposures and coverage. This lack of knowledge is especially evident in small to mid-size entities, although they are just as exposed to a cyber loss as larger organizations. Advisen data indicates that even though large organizations remain targets, they accounted for less than 20 percent of cyber losses in 2016. Smaller organizations, including those with less than $1 million in annual revenue, accounted for larger percentages of the losses. The survey suggests that cyber insurance will at some point become common coverage for all types of enterprises and that the insurance industry has its work to do educating the market, managing the exposures, mitigating the losses and drawing the line between cyber coverage and other types of property and liability insurance.  Full Report


10. WORKERS' COMPENSATION: BENEFITS, COVERAGE AND COSTS (2014 DATA)
Marjorie L. Baldwin and Christopher F. McLaren
National Academy of Social Insurance; 96 pages
October 1, 2016

This report provides data on benefits, costs, and coverage for state and federal workers compensation programs in 2014. The annual report's purpose is to facilitate policymaking and comparisons with other social insurance and employee benefit programs. In 2014, workers compensation covered an estimated 132.7 million U.S. workers, a 1.9 percent increase in coverage from 2013. Across the five years reported in the study (2010-2014), the number of covered workers increased by 6.4 percent. The increase in coverage reflects increases in employment across the country after the recession of 2008-2009. Workers compensation benefits paid decreased for the second year in a row. The two-year downturn followed a trend of increasing benefits paid between 2010 and 2012. Total benefits paid were $62.3 billion, a decrease of 0.3 percent from 2013. Medical benefits paid for health care were $31.4 billion, a decrease of 0.1 percent from 2013. Cash benefits paid for lost work time were $30.9 billion, a decrease of 0.6 percent from 2013. In 2014, employers’ costs for workers compensation increased for the fourth year in a row with total costs to employers at $91.8 billion, a 4.9 percent increase from 2013. Full Report


11. GLOBAL TERRORISM INDEX 2016
No byline
The Institute for Economics and Peace; 108 pages
November 1, 2016

This is the fourth edition of the Global Terrorism Index which provides a comprehensive summary of the key global trends and patterns in terrorism over the last 16 years, covering the period from the beginning of 2000 to the end of 2015. In 2015 the total number of attacks and deaths from terror each fell 10 percent from a 15-year high. But for the world’s wealthiest nations, it was their worst year in over a decade. The Organization for Economic Co-operation and Development countries suffered 731 attacks, a 23 percent increase from the previous high in 2004 after a steady rise over the past six years. Iraq, Nigeria, and Pakistan — which account for a third of total incidents worldwide — each declined by more than 20 percent. The global economic impact of terrorism reached $89.6 billion in 2015, decreasing by 15 per cent from its 2014 level. Iraq is the country suffering the highest economic impact from terrorism, reaching 17 percent of its GDP. The report includes: terrorist incidents maps; the 10 countries most impacted by terrorism; trends in terrorism 2000-2015; the economic impact of terrorism in 2015; correlates and drivers of terrorism; and several articles by counter-terrorism experts. Full Report


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