Latest Studies - October 2015

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.

Swiss Re; 20 Pages
August 1, 2015

Since 2001, the protection gap – the difference between the resources needed and the resources available to maintain dependents' living standards after the death of the primary breadwinner – has increased 10 percent. It presently stands at $20 trillion (135 percent of GDP). Life insurance coverage per family has declined 24 percent on average in the same period. The demographic most impacted are families whose primary breadwinner is between 35 and 44 years old.  Life insurance can be a relatively low cost solution for many American families, yet demand is declining. Since 2007, the volume of new individual life sales has declined at an average annual rate of 5 percent (inflation-adjusted), and an increasing number of people have allowed their existing policies to lapse.  At the same time, consumer awareness of underinsurance has improved, with half of families now recognizing that they are underinsured, although consumers across all demographic groups overestimate the actual cost of protection. Yet the resources a family would need to buy mortality protection through life insurance are within reach as the cost of insurance is only about 0.4 percent of household income on average. Life insurers can take actions to simplify underwriting processes, align distribution methods to changing consumer preferences, and abandon the industry jargon in their message to future clients among the younger generation. Covering the gap presents not only a huge protection relief for American families, but also a significant business opportunity for life companies. Insuring all households which lack adequate protection would increase, by more than 100 percent, the $18 trillion in sums assured from individual and group life insurance policies in force in 2010. Full Report

Allianz Global Corporate & Specialty; 32 Pages
September 1, 2015

The new generation of cyber risk is a growing threat to businesses and is far more complex than corporate data breaches or privacy concerns which have been the focus of cybersecurity, according to this report from specialist insurer Allianz Global Corporate & Specialty (AGCS). Cybercrime costs the global economy about $445 billion a year and half the total comes from the world’s 10 biggest economies. Increasing interconnectivity, globalization and the commercialization of cybercrime are driving an explosion in the frequency and severity of cyberattacks in recent years. Cyber insurance is no replacement for robust IT security, but it creates a second line of defense to mitigate cyber incidents. Currently, fewer than 10 percent of companies carry cyber policies. AGCS predicts that cyber insurance premiums will grow globally from $2 billion each year to more than $20 billion by 2025. The report says that future threats will come from intellectual property theft, cyber extortion and the impact of business interruption following a cyberattack or from operational or technical failure. The interruption of information technology systems or the industrial control systems used by energy companies or robots used in manufacturing will be a key risk and a major element of the cyber insurance landscape within the next five to ten years. Full Report

Guy Carpenter; 51 Pages
September 1, 2015

This report identifies four key areas of emerging risk for re/insurers: cyber risk, technology risk, casualty catastrophe and reserving, and life, health and longevity risk. The cyber insurance market is projected to increase from approximately $2 billion in 2015 to $5 billion over the next five years driven by new purchasers and the purchase of more limit by existing buyers. There is exposure from cyber network security and privacy liability policy portfolios as well as the potential for loss to physical assets, which could be significant for energy and utility infrastructures, financial institutions and power grids. The peril’s limited history, lack of data and emerging exposure make it difficult for re/insurers to measure cyber risk and calculate capital needs. The report highlights two technological risks – nanotechnology and drones – which may have unknown liability exposures. Casualty catastrophes, in general, have become increasingly frequent and severe over the past decade, exposing re/insurers to new risks for which they may not have made appropriate provision within their reserves. There are many uncertainties in managing long-tailed, heavily legislated lines of business that can be triggered from emerging risks. Unforeseen inflation and anticipated legislative changes over a 10- to 30-year period present many demands. In order to prepare for emerging risk scenarios, future trends and related uncertainties need to be explicitly identified, contemplated and estimated. Most commonly used reserving techniques rely on historical data, but for emerging risks, that information may not yet exist. The report also addresses longevity risk, which represents a tremendous success for humanity as a whole, but is a growing concern for insurers and reinsurers, which provide annuities, disability protection, long-term care, critical illness and other lifestyle protection coverages. The issue for re/insurers lies in the inability to measure this risk and, in turn, anticipate and quantify its impact. Full Report

Swiss Re sigma 5/2015; Page N/A
September 1, 2015

This in-depth report details underinsurance risk in global property, and it finds that much of the protection gap is due to global uninsured natural catastrophe risk. Total economic losses stemming from natural disasters has averaged $180 billion annually for the past 10 years, with a staggering 70 percent of those losses uninsured. Modelled loss stemming from natural catastrophes worldwide amounts to $153 billion, with the United States, China and Japan representing most of the gap. The property market is estimated to have global premium volumes of 413 billion in 2014. Taking the sum of natural catastrophe data with the economic benchmarking of property markets suggests global underinsurance of property to be at $221 billion. Underinsurance falls into multiple categories, including completely uninsured, insured for certain perils, insured with restrictive policy terms and the undervaluation of assets. To close the gap, the report states that certain measures would need to be taken by insurers and regulatory authorities to change buying behavior and market structures. The report includes several graphics, including Natural Catastrophe Losses, Insured vs. Uninsured Losses, 1975 to 2014; Global Natural Catastrophe Losses Insured vs. Uninsured Losses as a Percent of GDP, 1975 to 2014; and Expected Insured vs. Uninsured Losses by Country, among others. Full Report

Lloyd’s; Cambridge Centre for Risk Studies; Page N/A
September 1, 2015

Lloyd’s City Risk Index 2015-2025 presents the first ever analysis of the economic output at risk in 301 major cities from 18 manmade and natural threats over a ten-year period. Based on original research by the Cambridge Centre for Risk Studies, the Index finds that a total of $4.6 trillion of 301 cities’ projected GDP is at risk from all threats – out of a total projected GDP between 2015 and 2025 of $373 trillion. Emerging economies will shoulder an increasing proportion of risk-related financial loss as a result of their accelerating economic growth – more than 70 percent of total GDP@Risk is associated with emerging economies, with their cities often highly exposed to single natural catastrophes. Earthquake alone represents more than 50 percent of both Lima’s and Tehran’s Total GDP@Risk, for example. Manmade threats are becoming increasingly significant. Market crash, cyberattack, power outage and nuclear accident alone are associated with almost a third of total GDP@Risk. Cities with high asset values are the most financially exposed in absolute terms. Tokyo, Seoul, New York, Hong Kong, Shanghai and London all have significant levels of economic exposure to the impacts of catastrophic events. Taipei, Tokyo, Istanbul and Osaka exemplify those cities that have a combination of high economic value and high exposure to both natural catastrophes and man-made risks, such as market crash and oil price shock. The same is true of Los Angeles and New York, where cyberattack is also a significant emerging risk. In Hong Kong and Shanghai, human pandemic is an additional risk. The index supports the case for more resilient infrastructure and institutions and increased global access to insurance. In principle, about half of total GDP@Risk can be protected by improving aspects of all cities’ infrastructure and crisis management, with insurance playing a key role in this process. Full Report

Risk Management Solutions, Inc. (RMS); 6 Pages
August 24, 2015

This report was released near the 10th anniversary of Hurricane Katrina, the costliest catastrophe ever, with more than half of the $41 billion in property and casualty losses driven by storm surge alone. The report looks to the future to examine how losses from storm surge are expected to change through 2100. It covers how rising sea levels contribute to an increased risk of severe economic damage from flood for six key U.S. cities: New Orleans, Miami, Tampa, Baltimore, New York City and Boston. If another Hurricane Katrina were to strike New Orleans today but with the 2005 levee system, total ground-up full surge losses for Orleans Parish alone would equal around $15 billion — the equivalent of a 440-year return period event. However, of the six cities analyzed, New Orleans is not the city at most risk of a Katrina-like event.  Three other cities — Tampa, Miami, and New York City — have higher likelihoods, especially when the impacts of sea level rise are considered. For example, a $15 billion storm surge event today in Tampa has an 80-year return period, which drops to 30 years by 2100. Miami has a 125-year return period for a $15 billion storm surge event today. However, the risk is projected to be much higher by 2100, when the return period shrinks to just 30 years. In New York City, the likelihood of a $15 billion surge loss today is relatively low with a 200-year return period — but that drops dramatically to 45 years by 2100. Full Report

United States Department of Agriculture Study; 128 Pages
September 10, 2015

Wildfire seasons have grown longer and fires have become more frequent, larger and more severe. This report from the U.S. Forest Service shows the continued expansion of housing development near forests, an area referred to as the Wildland-Urban Interface (WUI), which has direct implications for the cost of wildfire fighting. Increasing densities of people and infrastructure in the WUI makes wildfire management more complex and requires more assets to ensure an appropriate, safe and effective response, which in turn drives up the cost of fighting wildfires. The percentage of homes in the WUI increased by over 5 percent between 2000 and 2010. As of 2010, the WUI of the lower 48 states includes about 44 million houses, or about one in every three houses in the country, with the highest concentration of houses in the WUI in California, Texas and Florida. The publication includes high-resolution maps showing the housing density, land ownership, land cover and wildland vegetation cover for each state. Full Report

U.S. Chamber Institute for Legal Reform; 36 Pages
September 1, 2015

The survey aims to quantify how corporate attorneys, as significant participants in state courts, view the state systems by measuring and synthesizing their perceptions of key elements of each state’s liability system into a 1-50 ranking. The 2015 survey reveals that the overall average scores of the states are increasing, and senior attorneys see the litigation environment improving generally: Half of the respondents (50 percent) view the fairness and reasonableness of state court liability systems in the United States as excellent or pretty good, up from 49 percent in 2012 and 44 percent in 2010. The remaining 50 percent view the system as only fair or poor, or they declined to answer (1 percent). Moreover, a state’s litigation environment continues to be important to senior litigators, with three-quarters (75 percent) of respondents reporting that it is likely to impact important business decisions at their companies, such as where to locate or do business. This is a significant increase from 70 percent in 2012 and 67 percent in 2010. States ranked as having the best liability systems in the 2015 survey were: Delaware, Vermont and Nebraska. The worst ranked liability systems were in Illinois, Louisiana and West Virginia. Full Report

KPMG International; 44 Pages
September 1, 2015

This report, based on a survey of insurance executives from around the world and a series of interviews with insurance leaders, finds that the need to innovate is already creating significant pressures for the insurance sector. Most survey respondents see innovation as a significant opportunity, with 83 percent saying that their organization's future success is closely tied to its ability to innovate. Rapid innovation has created significant challenges for insurers with 48 percent saying that their organizations are already experiencing disruption from new, more nimble competitors.  Respondents from North America were significantly more likely to say they had experienced disruption than their European peers and somewhat more likely to do so than their Asian peers. It is not just up-starts that are creating innovation challenges for the insurance sector. Four in 10 respondents to the survey say that increased competition from their existing competitors would create significant challenges over the next two years.  Most insurers are struggling to catalyze innovation within their own organizations. More than three-quarters (79 percent) say that they are already running just to keep up with their day-to-day requirements. Slightly fewer (74 percent) say they lack the internal core skills needed to drive innovation. A number of key focus areas are identified for those insurers seeking to enhance the results from investment in innovation. With two-thirds of survey respondents saying they already look to other industries for inspiration and innovation models, the report also includes insights from other fast-moving industries and sectors such as automotive, retail, healthcare, and technology, as well as functional viewpoints on areas such as customer focus, people and change, and models to encourage innovation. The full report can be downloaded at

Hylton J.G. Haynes
National Fire Protection Association (NFPA); 56 Pages
September 1, 2015

This report summarizes fire losses in the United States in 2014. Statistical information is provided on the numbers of fires, fire deaths, civilian fire injuries, property damage, and incendiary and suspicious fires. Also includes data on economic losses and car fires.  U.S. fire departments responded to an estimated 1,298,000 fires in 2014. These fires resulted in 3,275 civilian fire fatalities, 15,775 civilian fire injuries and an estimated $11.6 billion in direct property loss. Home fires caused 2,745, or 84 percent, of the civilian fire deaths. Fires accounted for four percent of the 31,644,500 total calls. Eight percent of the calls were false alarms; 64 percent of the calls were for aid such as EMS. Full Report

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