Latest Studies - July 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. PERSONAL LINES CONSUMER MARKETS ANNUAL: THE ACCELERATING PACE OF CHANGE
Conning Inc. ; Page N/A
June 27, 2016

The personal lines market’s buying, shopping and risk behaviors are increasingly influenced by four key factors. “Change in the personal lines market is increasingly consumer-driven,” said Alan Dobbins, a director of Insurance Research at Conning. “The consumer profile is changing due to demographic, cultural, technological and economic forces. The trends within these four forces are shifting continuously, creating an ongoing challenge for personal lines insurers. Cultural shifts of diminished focus on ownership, changing expectations, and growth in drug use are all changing behavioral patterns. Economically, consumers are experiencing the effects of slow economic and wage growth as well as tight credit, reducing overall demand. Of course technology is driving rapid change in consumer communication, service and transaction expectations.” The study identifies the important changes affecting the personal lines consumer, details what is driving those changes and analyzes the potential impact for market participants. This edition focuses on four critical forces of change: demographic, cultural, technological and economic. “Demographic trends influencing the personal lines market include a slowing population growth rate along with changes in age structure, increasing racial and ethnic diversity, and geographic shifts,” said Steve Webersen, head of Insurance Research at Conning. “Insurers that focus on the details behind these market forces will be better prepared for the coming changes in the personal lines market.” The study is available for Conning Library licensees or for purchase from Conning by calling (888) 707-1177 or online at www.conningresearch.com


2. WORLD INSURANCE IN 2015: STEADY GROWTH AMID REGIONAL DISPARITIES
Swiss Re sigma 03/2016; Page N/A
June 29, 2016

This issue of Swiss Re sigma focuses on world insurance in 2015. Despite a difficult environment in 2015 with modest global economic growth of 2.5 percent, direct premiums written grew 3.8 percent in real terms, up from 3.5 percent growth in 2014. However, in nominal US dollar (USD) terms, global premiums were down by 4.2 percent, due to currency depreciation against the USD, particularly in the advanced markets. There was a slight slowdown in the life sector in 2015, with global premium growth declining to 4.0 percent from 4.3 percent, due to weaker performance in the advanced markets. On the non-life side, strong growth in the advanced markets of Asia and improvement in North America and Western Europe contributed to a 3.6 percent increase in global premiums, up from 2.4 percent growth in 2014. The report includes a special chapter on the slowdown in global trade in recent years and its possible impact on the insurance sector.  The issue contains numerous charts and graphs showing premium growth and economic conditions in various regions. Tables showing aspects of 2015 world premium volumes appear in a statistical appendix. The full issue is available from Swiss Re.


3. WHY UK INSURERS ARE WORRIED ABOUT BREXIT PASS
Sophie Roberts
Insurance Day; Page N/A
March 4, 2016

A survey conducted by Insurance Day found that two-thirds of respondents believed the UK insurance industry would be hurt by Britain leaving the EU. One of the biggest common points was the issue surrounding insurance entities use of passporting rights to do business in the EU. With the loss of passporting rights there will be increased regulatory costs for being registered in the UK and the EU. This could eventually lead to many companies having to withdraw from some markets. John Nelson, chairman of Lloyds of London, wrote that the membership of the EU is a, “crucial element in London being able to retain and reinforce its pre-eminent status as the global hub for insurance and re-insurance.” This sentiment was shared across 35 other FTSE 100 companies, as company chairmen and chief executives signed a letter backing the continued membership of the EU. The Insurance Day survey also identified from respondents that the biggest risks to the re/insurance community were: leaving the single market; broken trade relationships; less new business coming into London; dwindling investment opportunities; and issues around regulation and Solvency II compliance. Brexit may additionally leave the UK at a weakened negotiating position with the rest of the word. Inga Beale, chief executive of Lloyd’s, said: “Being part of the EU gives us a seat at the table when it comes to negotiating future regulation that will impact businesses in the UK, including Lloyd’s. Giving that up would mean we wouldn’t be able to influence that.” Full Text (Subscription Required)


4. HOW INSURTECH IS RESHAPING INSURANCE
PwC; 20 Pages
June 1, 2016

Insurance companies are aware they are amidst a tech revolution. This survey of chief executives of insurance companies based in 46 countries, found that three out of four respondents thought that some part of their business is at risk from disruption. Margin pressure and loss of market share are top FinTech related threats. However, despite the awareness of the FinTech revolution, 32 percent of insurers do not deal with FinTech at all. While 43 percent of the executives surveyed indicated that FinTech is at the heart of their corporate strategies, only 28 percent are exploring partnerships with FinTech companies and less than 14 percent are engaged in ventures or incubator programs. The most significant gain for insurers from FinTech is cost reduction. Moving toward cloud-based platforms means lower up-front costs and smaller ongoing infrastructure spending. From an external perspective, the key business impact that insurers expect from FinTech is the challenge of meeting changing customer needs and the ability to match new offerings with their expectations. Full Report


5. THE DECLINE IN LARGE AUTO INSURERS INDUSTRYWIDE CUSTOMER SATISFACTION
J.D. Power; 16 Pages
June 20, 2016

According to this report, large auto insurers are driving industry satisfaction downward as customers are reacting negatively to changes and price increases. The report provides an analysis and basis of understanding why this decline is occurring and identifies five factors that play a major role in customer satisfaction: “interaction; policy offerings; price; billing process and policy information (formerly billing and payment); and claims.” Among these factors, interaction and policy offerings are the primary areas of concern driving down customer satisfaction. Lower level of call center satisfaction led to a 6-point decrease from last year (839 from 845, on 1000 scale) along with the 7-point decrease in dealings with the local agents (864 from 871). The decline in policy offerings satisfaction (809 from 817) is in part due to the difficulty working with the insurers themselves. However, the assisted online interaction has continued to improve and develop billing, policy and claims resolution. This is the first time in the past six years that small insurers achieved a higher overall satisfaction score than large insurers (815 vs. 814, respectively). This is mostly due to the perceived price advantage that small insurers have over large insurers. With a year-over-year 2 percent decline in the percentage of customers who have not experienced a premium increase in the past 12 months, there was an overall 3-point decrease in price satisfaction. While these are all areas of concern for insurance companies, customer loyalty and policy renewals ultimately determine the effect of customer satisfaction. Among “delighted auto insurance customers” (overall satisfaction above 900), 75 percent say they will renew their policy. Full Report


6. AFFORDABILITY IN AUTO INJURY INSURANCE: COST DRIVERS IN TWELVE JURISDICTIONS
Insurance Research Council; Page N/A
June 1, 2016

“Medical utilization rates exceeding national norms are a major contributor to high claim costs in eight of the 12 least affordable auto insurance systems. … In these eight states (Delaware, Florida, Kentucky, Michigan, Nevada, New Jersey, New York and West Virginia), the percentage of auto injury insurance claimants who received diagnostic services, such as magnetic resonance imaging (MRI) and computed tomography (CT) scans, or were treated by specific types of providers, such as chiropractors and physical therapists, was higher than the countrywide average. In many cases, utilization rates were much higher than countrywide averages. Higher medical utilization rates lead to higher injury claim costs, which contribute to higher insurance coverage costs. Other significant cost drivers in the systems examined included high injury claim frequency rates, extensive attorney involvement and high rates of claim abuse. Several of the cost drivers discussed in the report often accompany each other in the states where they are identified. For example, half of the states with high medical utilization rates also experience above-average rates of attorney involvement. Every state, however, was found to face its own unique mix of cost-drivers. For example, only two of the states examined (Florida and Louisiana) were found to have bad-faith litigation environments contributing to high costs and affordability problems. ‘Utilization of medical services inconsistent with evidence-based standards and national norms has been a well-known problem in the general health care system. The findings presented in this report suggest that similar utilization patterns plague auto injury compensation systems in several states,’ said Beth Sprinkel, senior vice president of the IRC. ‘Without effective action to address medical utilization issues in auto injury claims, high claim costs will continue to fuel affordability concerns.’” For more detailed information on the study’s methodology and findings, contact David Corum at IRC@TheInstitutes.org or by phone at (484) 831-9046. For more information about how to purchase the report, visit the IRC’s website at www.insurance-research.org. News Release.


7. INSURING THE FUTURE OF MOBILITY. THE INSURANCE INDUSTRY’S ROLE IN THE EVOLVING TRANSPORTATION ECOSYSTEM
John Matley et al.
Deloitte University Press; 28 Pages
May 13, 2016

This report examines the potential impact of changes taking place in the transportation industry on auto insurance. For future underwriting models, insurers will likely need to consider the advent of safer vehicles, new vehicle designs and new sources of risk and liability. This probably means a decrease in the frequency and, over time, the severity of loss events, changes to vehicle repair and replacement costs, new customer categories and the creation of new insurance products. While widespread availability and adoption of fully autonomous vehicles may be a few years away, car sharing and ridesharing are already gaining traction, particularly among the young or those living in higher-density urban environments. For insurers, shared mobility reduces the number of cars per capita, challenges vehicle-centric underwriting and will likely give rise to large fleet operators. This would mean a transferal of auto insurance from individual buyers to commercial buyers; the introduction of per-use policies; and an increase in the prevalence of self-insurance by larger fleet owners. Full Report


8. SIXTH ANNUAL BENCHMARK STUDY ON PRIVACY & SECURITY OF HEALTHCARE DATA
No byline
Ponemon Institute; Page N/A
May 12, 2016

This study indicates that external criminal attacks and internal security weaknesses make patient data vulnerable to exposure. For six consecutive years, the volume, frequency, impact and cost of data breaches have been consistently high. The latest study shows that 89 percent of healthcare organizations were hit by data breaches and 45 percent had more than five breaches over the last two years. The study covers 91 health plans, healthcare clearinghouses and healthcare providers who transmit any healthcare records electronically and 84 business associates that provide services to healthcare organizations that involve the use or disclosure of the health records of individuals. The study estimates that breaches could cost the healthcare industry as much as $6.2 billion, based on the survey’s findings that the average cost of data breaches to healthcare organizations was over $2.2 million and the average cost to the business associates was more than $1 million. Hacking by criminals was the leading cause of healthcare data breaches for the second year consecutively. Criminal attacks represented 50 percent of the breaches in the healthcare industry, a 5 percent increase compared with last year’s study. Missteps by employees, errors by third parties and stolen computing devices account for the other 50 percent of breaches. More than half of the organizations surveyed acknowledged the need to be more vigilant to make certain that their partners and third parties adequately protect patient data and most also acknowledged that they have not invested in technology or hired a sufficient number of information technology security professionals to mitigate data breaches Full Report


9. INSURANCE DEPARTMENT RESOURCES REPORT. VOLUME 1
National Association of Insurance Commissioners (NAIC); Page N/A
June 8, 2016

The NAIC released the first volume of the 29th edition of the Insurance Department Resources Report (IDRR) to help state insurance departments assess their resources in comparison to other states. The report details how state insurance departments manage available resources to effectively regulate an increasingly complex and competitive industry. The first volume of the IDRR contains information by state on the number of departmental staff and their functions, annual budgets, revenue flows, the number of insurers and insurance producers and the number of consumer complaints and inquires. Key findings include: California reported the largest 2017 budget, which is $56.2 million greater than the second-largest 2017 budget (New York); total taxes collected increased by 4.7 percent; there were 5,926 domestic U.S. insurers in 2015;  state insurance departments received nearly 300,000 official complaints and 1.9 million inquiries. Full Report


10. LESSONS FROM U.S. COASTAL WIND POOLS ABOUT CLIMATE FINANCE AND POLITICS
Donald T. Hornstein
Boston College Environmental Affairs Law Review; 43 Pages
May 31, 2016

This article provides a detailed analysis of the finances of three state residual-risk wind pools in the Gulf and southeastern United States that have been created specifically with hurricane risks in mind. The pools are: Florida Citizens Property Insurance Corp.; Texas Windstorm Insurance Association (TWIA); and the North Carolina Insurance Underwriting Association (NCIUA).  The North Carolina pool utilizes an approach with a pay-it-forward financial structure designed to have in place, at the beginning of each new hurricane season, financial coverage in the event of a 1-in-100-year probable-maximum-loss (“PML”), the standard target for catastrophic insurance used by private insurers in the U.S. The Texas pool uses a different financial strategy, one that depends mostly on its ability to float post-event bonding in the event of a catastrophe. And Florida’s pool is in some ways the most experimental of all wind pools. At times, it covers excess risk with both post-event financing and use of a uniquely Floridian in-state reinsurance facility, and more recently by use of the most aggressive depopulation, or “take-out” program in the country, seeking to encourage and even subsidize the emergence of a new type of private insurance market for catastrophic-wind risk, and to shed policies into it.  The author concludes that his investigation of state residual-risk wind entities reveals a flexible and untried set of approaches to the financing of storm risk. What remains unclear is whether these “experiments in fiscal federalism” are growing toward workable improvements in storm-risk financing or whether, despite their intricacies, they remain “just a shell game.” Full Text


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