Latest Studies - May 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. 2015 MOTORCYCLE THEFT AND RECOVERY REPORT
National Insurance Crime Bureau; 22 Pages
March 15, 2016

This report, based on data from the FBI, found that motorcycle thefts rose 6 percent in 2015 to 45,555 from 42,856 a year earlier, based on data from the National Crime Information Center of the FBI. The 2015 increase was the first in 10 years. The report also details the seasonal nature of motorcycle thefts. More motorcycles are stolen during warm months—August had the most motorcycle thefts in 2015, followed by July while January and February had the fewest. The top five makes stolen in 2015, from highest to lowest, were American Honda Motor Co., Yamaha Motor Corp., American Suzuki Motor Corp., Kawasaki Motors Corp. and Harley-Davidson Inc. California had the most motorcycle thefts in 2015, followed by Florida and Texas. By city, New York had the most thefts, followed by Las Vegas and San Francisco. The recovery rate of 2015 motorcycle thefts was 39 percent, compared with 41 percent in 2014. The number of motorcycles recovered rose 11 percent from 2014 to 2015. Full Report.


2. DRIVING TO SAFETY: HOW MANY MILES OF DRIVING WOULD IT TAKE TO DEMONSTRATE AUTONOMOUS VEHICLE RELIABILITY
Nidhi Kalra and Susan M. Paddock
RAND; Page N/A
April 12, 2016

According to this report, autonomous vehicles would have to be driven hundreds of millions of miles, and under some circumstances even hundreds of billions of miles, in order to clearly demonstrate their safety when compared to human-driven vehicles. The study found that in order to have autonomous vehicles in daily use other testing methods must be developed to supplement on-the-road testing. Alternative methods might include accelerated testing, virtual testing and simulators, mathematical modeling, scenario testing and pilot studies. Although autonomous vehicles could significantly reduce the number of accidents caused by human error they may not eliminate all crashes. Although the total number of crashes, injuries and fatalities from human drivers is high, the rate of these failures is low in comparison with the number of miles driven. Americans drive nearly 3 trillion miles every year, according to the Bureau of Transportation Statistics. In 2013, there were 2.3 million injuries reported, which is a failure rate of 77 injuries per 100 million miles driven. The related 32,719 fatalities correspond to a failure rate of about 1 fatality per 100 million miles driven. “The most autonomous miles any developer has logged are about 1.3 million, and that took several years. This is important data, but it does not come close to the level of driving that is needed to calculate safety rates,” said Susan M. Paddock, co-author of the study and senior statistician at RAND.  Full Report.


3. TERRORISM RISK INSURANCE: COMPARISON OF SELECTED PROGRAMS IN THE UNITED STATES AND FOREIGN COUNTRIES
Government Accountability Office (GAO); Page N/A
April 12, 2016

This report reviewed the structures of 16 terrorism insurance programs which largely fell into three broad categories. Programs in the first category have a multilayered structure, with insurers, reinsurers, and governments providing coverage. Several programs, including those in Australia and the United Kingdom, use this approach. In the second category, which includes Spain and Israel, government entities provide all the coverage for terrorism risk, and insurers and reinsurers do not take on any risk. The third category includes programs, such as those in Austria and India, in which insurers and reinsurers are entirely responsible for providing coverage and the government has no financial role. In comparison, the United States program involves coverage from the government and insurers, but it differs from many programs as its program does not include the purchase of reinsurance. Among the six programs GAO reviewed in-depth, the loss-sharing arrangements among program participants vary, but program reserves and the private sector likely would be able to cover losses from most conventional terrorist events before public funds are needed, according to program officials. However, in the event of a very large terrorist attack, governments that have a role would potentially be responsible for a substantial proportion of losses. Programs in which the government provides a layer of financial support have greater total amounts of coverage compared to those with only private sector participation. Additionally, private sector coverage is larger under programs in countries with larger economies, as measured by gross domestic product. In the event of a large terrorist attack, insurers in the United States could pay more than the total coverage provided by the other five countries' national programs. Most of the selected programs collect premiums up front to cover losses and program costs; the United States, in contrast, collects reimbursement for actual losses and associated expenses after an event occurs. Full Report.


4. THE OPIOID CRISIS IN AMERICA’S WORKFORCE
Castlight Health; Page N/A
April 1, 2016

This report concludes that nearly one-third of painkiller prescriptions funded by employer plans are being abused. Nearly one in 20 workers who have received an opioid prescription have shown a pattern of drug abuse. According to the American Society of Addiction Medicine, opioid abuse costs U.S. companies $10 billion a year in absenteeism and lost productivity. Workers who abuse painkillers account for nearly half of all spending by employers on painkillers. Those workers incur nearly twice as much in medical costs—on average $19,450—as non-abusers. Full Report


5. LONG-LEAD PREDICTIONS OF EASTERN UNITED STATES HOT DAYS FROM PACIFIC SEA SURFACE TEMPERATURES
K. A. McKinnon et al.
Nature Geoscience; Page N/A
March 28, 2016

The authors of this study have come up with a way to predict deadly heat waves and rainfall deficits in the eastern United States up to 50 days in advance by looking for a distinctive pattern of water temperatures across a wide span of the North Pacific Ocean. The occurrence of the pattern significantly increases the chances of a heat wave occurring. Full Report.


6. 2016 SENSOR DATA SURVEY: DISRUPT OR BE DISRUPTED
Ernst & Young; 15 Pages
April 1, 2016

This report discusses the benefits and perils for insurers of using sensor data sources including telematics, wearable tech and real-time risk underwriting. To understand insurers’ attitudes towards the risks and opportunities of using these sources Ernst & Young surveyed high level executives from nearly 400 insurance companies around the world and 1,400 firms from other sectors, including banking, electronics, retail, telecom, automotive and other sectors. The survey addressed both current practices and future plans. The results show that leading insurers are already innovating with telematics, wearable technology and sensor data, though not as much as leaders from other sectors. Sensor data is important to insurers in particular because direct, unmediated customer relationships may soon become the rule due to unfiltered data provided directly by customers. Survey respondents were asked to identify best-in-class firms in terms of customer knowledge and insights. It is no surprise that technology leaders dominated the top 10. The first insurer to make the list, Aegon, ranked 41st overall. When asked if they were able to collaborate with customers for mutual benefit insurers ranked last compared to other sectors with automotive ranking first. Insurers were also least able to utilize insights from new data sources to get customers more value.   Full Report.


7. GLOBAL INSURER MERGERS & ACQUISITIONS IN 2015: THE BIG BANG
Conning Inc. ; Page N/A
March 16, 2016

According to the press release accompanying this study, “The aggregate value of global insurance transactions in 2015 was four times higher than in 2014, while the number of $1 billion-plus transactions announced was three times higher than the recent annual average. ‘Record setting global mergers and acquisitions activity in 2015 was characterized by an unprecedented number of high-value strategic transactions,’ said Jerry Theodorou, vice president, insurance research at Conning. ‘Close to half of the billion-dollar-plus transactions were outbound transactions by Japanese and Chinese buyers, as the Japanese sought external growth opportunities and the Chinese pursued asset accumulation and diversification strategies. Four consolidation transactions among U.S. health insurers alone, valued at $100 billion, accounted for more than half of the global insurer mergers and acquisitions value.’  The study tracks and analyzes both U.S. and non-U.S. insurer M&A activity across property/casualty, life/annuity and health insurance sectors. Specific transactions are detailed, and trends are analyzed across all sectors.  ‘M&A activity in 2015 was driven by continued low interest rates, high levels of industry capital, and low-growth economies in developed countries,’ said Steve Webersen, head of insurance research at Conning. ‘While many of these issues have been in place for some time, they came to a head in 2015, as insurers capitulated to the need for acquisitions to spur growth. Looking forward, the transformative consolidations of 2015 may pressure other competitors to merge, and may also provide opportunities for mid-market players as certain components of the merged businesses are spun off and talent is displaced.’ ” The study is available for purchase from Conning by calling (888) 707-1177 or by visiting the company’s website at www.conningresearch.com


8. FINANCIAL REPRESSION: THE UNINTENDED CONSEQUENCES
Swiss Re; 36 Pages
April 1, 2016

This paper discusses the unintended consequences of low or negative interest rates implemented during the global financial crisis by central banks around the globe.  Financial repression describes official policies directing funds to markets that would otherwise go elsewhere and reduces diversification of funding sources to the economy, representing a risk for financial stability. While unconventional monetary policies help to finance the public sector’s debt burden they also come with significant costs. The unintended consequences include potential asset price bubbles, an impaired credit intermediation channel and increasing economic inequality. Since the financial crisis, U.S. savers alone have lost roughly $470 billion in interest income. Over the same period, E.U. and U.S. insurers have lost around $400 billion in yield income. This currently corresponds to an annual "tax" of roughly 0.8% of total financial assets on average, lowering long-term investors' capacity to channel funds to the real economy. Swiss Re's own index, the first to measure financial repression, shows that financial repression remains very high, albeit down from its 2011-2012 peak. The major driver of change post 2007-2008 has been monetary policy. The longer such extraordinary and unconventional monetary policies are in place, the more challenging the exit phase will be. Full Report.


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