Latest Studies - August 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 sigma 04/2015; 48 Pages
June 24, 2015

In 2014 the global insurance market improved only slightly while the global real gross domestic product increased by 2.7 percent, close to the 2.8 percent annual growth rate over the last 10 years. Advanced markets led the improvement in the insurance market, with the United Kingdom showing the most growth. The rate of growth in the United States rose slightly to 2.4 percent, and the market improved in some nations in Western Europe. The rate of growth declined in Advanced Asia, primarily because of continuing sluggishness in Japan. Emerging markets increased at a slower rate generally, with an overall rate of 4.1 percent in 2014, compared with 4.6 percent the previous year. Many nations worked to overcome domestic problems, structural deficiencies and uncertainty about the effects of a decision by the Federal Reserve in the United States to scale back its quantitative easing program. The performance of the equity markets of advanced nations was stronger than in emerging markets, and the yields of government bonds continued to be very low. The life sector of the global insurance market returned to profitability, with premiums rising 4.3 percent, after declining 1.8 percent in 2013. The continuing contraction of the life insurance market in North America was easily offset by very strong growth in Oceana and strong results in Western Europe and Japan. China was primarily responsible for the premium growth rising to 6.9 percent in emerging markets in 2014, compared with 3.6 percent the previous year. Premiums in the nonlife sector of the global market increased 2.9 percent in 2014, slightly higher than the 2.7 percent growth rate in 2013. This improvement is attributed in part to strength in advanced markets. Significant improvement was seen in North America, while premiums increased in Western Europe at a rate of 0.6 percent, a return to growth after years of decline. The document includes a map of the world, color-coded to show real premium growth rates in 2014 for life and nonlife policies in advanced markets and emerging markets. The map comes from Swiss Re Economic Research & Consulting. Two similar maps show premium growth for the life and nonlife sectors. Also included are eight bar charts and 15 graphs displaying data from Swiss Re, Oxford Economics, Datastream, Bloomberg and other sources. Ten tables showing various aspects of 2014 world premium volumes appear in a statistical appendix. Full Report

Jill Carle
The Pew Research Center; 18 Pages
July 14, 2015

A new survey on international challenges conducted by the Pew Research Center before the United Nations Climate Change Conference convenes in Paris in December indicates that many people around the world consider global climate change as the greatest threat. Climate change is a leading concern particularly in Latin America and Africa, where the majority of respondents said they were very concerned about global warming. The Islamic militant group ISIS and its influence in Iraq and Syria was most frequently cited as the primary concern among Europeans and Middle Easterners. The article includes a map of the world, color coded to show the nations where the primary concern was climate change, ISIS, economic instability or the expanding influence of Russia, Iran or China. In half of the nations surveyed, global economic instability was a prominent concern and represented the second largest concern in half of the nations surveyed. Compared with other respondents, South Koreans and Americans showed the most concern about cyber attacks. The document includes a table showing the top concern of 40 nations and the percentage that named climate change, economic instability, ISIS, Iran’s nuclear program, cyber attacks or territorial disputes involving Russia and China as their top concern. Full Report

Howard Botts, Thomas Jeffery, Wei Du and Logan Suhr
CoreLogic; 20 Pages
June 1, 2015

This year’s storm surge report from CoreLogic discusses the number and value of single family residences that are exposed to storm surges in the Atlantic basin, which includes both the Gulf and Atlantic coasts. The report indicates that the potential damage could easily total billions of dollars, even at the local level for a single storm. Areas at risk of flood damage from a storm surge are not limited to locations along the coast. Three years ago, Hurricane Sandy showed that one storm is all that is needed to generate a large amount of property damage in a densely populated area. This report considers the number of homes at risk of storm surge and the reconstruction cost value (RCV) to completely rebuild residences. The study also analyzes storm surge risks at the metropolitan level. This year’s hurricane season is expected to be similar to the last two, with fewer storms than the 30 year average of 12 storms, with six developing into hurricanes, three of which could become major storms. The report shows that a total of more than 6.6 million homes along both the Gulf and Atlantic coasts are at risk of damage from storm surges. The RCV of these homes is estimated as totaling nearly $1.5 trillion. The RCV is based on complete destruction so the cost of reconstruction could be less than the total property loss. The article includes a color-coded map of the Eastern seaboard of the United States to show coastal areas at low, moderate, high, very high or extreme risk of an Atlantic storm surge. Also included are six tables. The first shows total number of homes in each of the five risk categories nationally and their estimated RCV. The second shows the RCV of properties in the five risk categories in each state. The third lists the residential exposure for the five risk categories by coastal region. Table 4 ranks the states according to the number of properties at risk. The fifth table lists the total properties at risk and the total RCV for the top 15 metro areas in the United States The last table compares storm surge inundation and fresh water flooding for select metro areas by listing the total properties exposed to flood or surge inundation, the total properties in both a FEMA Special Hazard Flood Area (SHFA) and a surge zone, the percentage of properties in both a SFHA and a surge zone, total properties located only in a SFHA, percentage of properties located only in a SFHA, total properties located only in a surge zone and percentage of properties located only in a surge zone. Full Report

Conning. News release; Page N/A
July 13, 2015

This study by Conning is the second in an annual series investigating the U.S. life-annuity consumer. The introduction to the research notes that over the past decade the path to industry growth has been elusive and strategies centered on Baby Boomers may be stalling because assumptions developed for that group may not be effective as the population changes. In the series Conning reviews major U.S. population trends, concentrating on aspects that can have an impact on the individual life-annuity industry. According to the research, the aging population and growing number of people becoming responsible for securing their own retirement income is a growth opportunity for insurers who can provide guaranteed income streams. Among the findings, the study notes that members of Generation X are in their peak earning years and more likely to have dependents than the other generations so their need for life insurance to protect against untimely death is high. The study says insurers need to embrace the Internet to meet Generation X, not just to cultivate them as consumers, but also to attract talent. The study also indicates that there is a great need for basic financial planning information for Generation Y, including education on the various types of financial protection products and how they work. The study concludes that three major cultural markets in the United States, Hispanics, African-Americans, and Asian Americans, are growing and becoming more important for insurer success. The study is available for purchase from Conning by calling (888) 707-1177 or by visiting the company’s website at News Release

Swiss Re; 31 Pages
July 1, 2015

Although the San Andreas Fault often receives most of the attention when earthquakes are discussed, another major fault is located in the Midwest. Although there has been much less activity in the New Madrid seismic zone in modern history, research by Swiss Re indicates that serious attention should be given to the economic risks associated with this seismic zone, risks that could possibly be devastating. The New Madrid earthquake was a complex event that spanned 1811 and 1812. Most earthquakes involve a main shock and a series of smaller aftershocks, but the New Madrid quake jolted the central part of the United States repeatedly for two months. Since the area was sparsely populated at the time, there was little property to be damaged. However, a series of earthquakes of similar magnitude today could cost the insurance industry $150 billion and would represent the costliest natural disaster of all time. The total damage from an earthquake of the same severity would be more than $300 billion. The Swiss Re report discusses the seismic, demographic and economic factors that lead to such large estimated damage numbers. Although most insurers, reinsurers, rating agencies and policymakers have made plans for a single temblor as large as the New Madrid earthquake, it is unclear whether their plans cover more than one such quake. Swiss Re’s analysis recommends more thorough planning, with insurers bearing most of the responsibility in terms of capital requirements, effective claims processing and the promotion of earthquake insurance among property owners. Full Report

University of Virginia; Page A1
July 13, 2015

Although rollover crashes account for only about 2 percent of all crashes they account for roughly one-third of all occupant fatalities – about 7,500 highway deaths each year in the United States. The annual cost of rollover injuries and fatalities is about $50 billion. Until now there were no crash-test dummies specifically designed for determining how the human body may react to and become injured in this type of crash. The University of Virginia’s Center for Applied Biomechanics with a grant from National Highway Traffic Safety Administration is working on designing a human-like rollover dummy. “Our ultimate goal is to learn how to protect people in rollover crashes,” said Jason Kerrigan, a professor with the center. “What we learn in this lab is of great use to automobile manufacturers, researchers at other test facilities, and can be used for vehicle design improvements to eventually substantially reduce death and serious injury from these types of crashes.” Full Text

Yale Project on Climate Change Communication; 56 Pages
June 29, 2015

As superstorm Sandy battered the U.S. East Coast in 2012, residents in communities along the Connecticut shore received “mandatory” evacuation orders, but most people did not leave. This study provides insights into why some people decide to evacuate in the face of a weather emergency and why others try to ride out the storm. The report identifies five distinct groups of Connecticut coastal residents based on their attitudes towards hurricanes: the “First Out” (21 percent of the population); the “Constrained” (14 percent); the “Optimists” (16 percent); the “Reluctant” (27 percent); and the “Diehards” (22 percent). The First Out are the most likely to evacuate during a hurricane whereas the Diehards are the least likely to leave. Each group, however, has unique characteristics.  The First Out perceive the greatest risk from hurricanes and are likely to evacuate if a storm is forecast to make landfall nearby. Of the First Out residents who experienced superstorm Sandy, 55 percent evacuated. The Constrained understand the risks of staying home during a hurricane but feel they would have trouble evacuating if they wanted (or needed) to because of poor health, disability, pets or lack of money. 22 percent of the Constrained evacuated during superstorm Sandy. Optimists have the lowest expectations of all the groups that a hurricane of any strength will occur in the next 50 years, although they say they would evacuate if one did occur. Optimists are the least prepared and most likely of all the groups to perceive significant barriers to evacuating. The Reluctant are less afraid of hurricanes than average and tend to live farther from the coast than the other groups. However, Reluctant individuals would evacuate if told to do so by a relevant authority – especially local police or fire departments, another local government official or the governor’s office. Diehards have the lowest hurricane risk perceptions of all the groups and are the least likely to evacuate. Diehards feel self-reliant and confident that they can protect themselves; they also believe it is safer to stay home than to evacuate so they can protect their property. Pets are an important barrier to leaving for 25 percent of the Diehards. Of the Diehards who experienced superstorm Sandy, only 6 percent evacuated. The unique perceptions and needs of coastal Connecticut residents in the event of a hurricane underscores the importance of tailoring messages about storm preparedness, the nature of storm hazards and the likelihood of different damages, as well as evacuation resources. Full Report

Swiss Re; Page N/A
July 15, 2015

This report found that the number of recalls per year in the United States has almost doubled since 2002. The increase has been influenced by regulatory changes and an increasingly globalized food supply chain. Food contamination costs U.S. health authorities $15.6 billion per year. Nearly 9 million Americans became sick from contaminated food in 2013 alone. Half of all food recalls cost the affected companies more than $10 million – highlighting the value of risk transfer through insurance. Food manufacturers operate in a vast, globalized supply chain, where one mislabeled product or contaminated ingredient can cause sickness, death, multimillion-dollar losses and massive reputational damage for the affected companies. The report describes how risk mitigation and risk transfer through insurance can protect food manufacturers operating in a highly globalized, often fragmented, supply chain. The public sector is also heavily affected by contaminated food. According to the U.S. Department of Agriculture, costs for the U.S. public health system from hospitalized patients and lost wages in 2013 alone was $15.6 billion. In total 8.9 million people fell ill from the 15 pathogens tracked, with over 50,000 hospitalized and 2,377 fatalities. Risk management tools to ensure safe food production exist. They must be applied and adapted to ever more complex global markets and supply chains. Adaptation also means taking lessons learnt to places where they are yet unknown and tailoring them to local conditions. The experience insurers gather through their claims experience is an important resource for knowledge sharing for client companies. Full Report

PwC, CSFI Centre for the Study of Financial Innovation; 44 Pages
July 1, 2015

This biennial survey examines risks facing the insurance industry and identifies those that appear most urgent to insurance practitioners and close observers of the insurance scene around the world. The survey was conducted between March and April 2015 and is based on 806 responses from 54 countries. The survey found that regulation tops the list of external risks for the third consecutive edition of the survey. Respondents noted that the industry is better prepared than in previous years to manage risks. One of the most striking issues worrying insurers is cyber risk, specifically software failure and data security. The top global risks are regulation, macro-economy, interest rates, cyber risk and investment performance. Full Report.

Bill Briggs
Deloitte University Press; Page N/A
July 1, 2015

This annual report from Deloitte Consulting identifies eight key technology trends: the CIO as chief integration officer; the API (application programming interfaces) economy; ambient computing; dimensional marketing; software defined everything; core renaissance; amplified intelligence; and the IT worker of the future. According to the report insurers are launching more consumer-centric marketing initiatives such as real testimonies from consumers and these new tools are expected to deliver a 40 percent increase in retention. In the IT worker of the future section, Michael Keller, CIO of Nationwide Insurance, explains how Nationwide’s IT strategy is to become a learning-driven organization that anticipates and adapts to changes in business demand and technology trends. On the security front, the report states that if today’s Internet is the metaphorical size of a golf ball, tomorrow’s will be the size of the sun. That means that nearly every car, computer, appliance, toy, thermostat and piece of office equipment could be connected and online—and potentially vulnerable to hacking from anywhere on the planet. The most effective means to combat cyber threats remain elusive, and any successful approach will likely require a combination of technical, legal, entrepreneurial and public policy collaboration. One development demonstrating potential is the use of crowdsourcing for the purposes of public safety and security. For example, in Latin America, citizens are helping the government fight narcotics-related murders by mapping the activities of drug dealers. Ultimately, the effective fight against cyber crime may well rest on the efforts of a global crowd helping to root it out. Full Report

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