Latest Studies - March 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.

1. INSURANCE RESEARCH COUNCIL REPORT DOCUMENTS SUBSTANTIAL GROWTH IN HOMEOWNERS INSURANCE CLAIM COSTS
Insurance Research Council: News Release; Page N/A
February 19, 2015

The cost of homeowners insurance claims has been increasing at twice the rate of inflation despite significant declines in recent years, according to a new report from the Insurance Research Council (IRC) Trends in Homeowners Insurance Claims, 2015 Edition. The average claim payment per insured home countrywide rose from $229 in 1997 to $625 in 2011, before falling to $442 in 2013. Even with the recent decline, average claim payments per insured home have increased at an average annualized rate of 5.0 percent since 1997. During the same period, inflation average approximately 2.4 percent. The IRC examined the frequency of claims and the average cost (severity) of claims paid by homeowners insurance companies. All of the increase in average costs per insured home was due to growth in average claim severity, which increased at an annualized rate of 7.8 percent over the 17-year study period—more than three times the rate of inflation. The rise in claim severity more than offset a 2.6 percent annualized decrease in claim frequency documented in the report. Volatility is a major characteristic of homeowners insurance claim trends explored in the report. Claim frequency trends were found to be significantly more volatile than claim severity trends, especially for experience identified by insurance companies as being related to catastrophe events. The report also documents and compares the volatility of homeowners claim trends within and across states. For information on purchasing the study go to http://www.insurance-research.org/.


2. 2015 NETWORK SECURITY & CYBER RISK MANAGEMENT: THE FOURTH ANNUAL SURVEY OF ENTERPRISE-WIDE CYBER RISK MANAGEMENT PRACTICES IN EUROPE
Advisen Insurance Intelligence. Study; 11 Pages
February 1, 2015

The Executive Summary of this study notes that if risk managers, senior executives and board members of European organizations had any doubt as to the existence of a data security epidemic, 2014 likely changed that. There has been no shortage of examples, with massive data breaches affecting some of the world’s biggest companies, nation-states using the cyber realm as a vehicle of war and businesses sustaining property damage as a result of a cyberattack. The tactics of cybercriminals continued to evolve and the ability to execute attacks became easier. For many companies, being involved in a cyberattack went from a question of “if” to “how bad” will the damage be. Network security risks continued to be increasingly recognized as a risk management focus, and insurance continues to play a bigger role in cyberrisk management strategy. A section on the perception of cyberrisk notes that the percentage of the risk management community that perceives cyberrisk as at least a moderate threat dropped from 98 percent in 2014 to 89 percent in 2015, a percentage in line with the levels seen in the United States, where in response to the same question, 88 percent viewed cyberrisk as a moderate threat. A section on the role of insurance in network security and cyberrisk management found that the percentage of companies participating in the survey that purchase cyber cover in Europe increased from 33 percent in 2014 to 35 percent this year, still significantly below levels seen in the U.S. Full Report


3. CATASTROPHE BOND UPDATE: FOURTH QUARTER 2014
Guy Carpenter; 8 Pages
February 1, 2015

After one of the slowest third quarters to date for property casualty (P/C) catastrophe bond issuance, the fourth quarter of 2014 saw a flurry of activity that resulted in full year P/C cat bond issuance exceeding $8 billion — an industry record. Total risk capital outstanding as of December 31, 2014 equaled $22.9 billion, the highest level of outstanding risk capital the market has ever supported. Full Report


4. UNITED STATES INSURANCE MARKET REPORT 2015
Marsh Risk Management Research; 76 Pages
February 1, 2015

Entering 2015, the property insurance market was significantly oversupplied with capacity, including from alternative capital flowing into the reinsurance market from non-traditional sources such as hedge funds, pension funds, and other institutional investors. Such a scenario generally fosters competition among insurers and favorable rates for insureds. The report covers major lines and markets by industry. Full Report

 


5. NHTSA RELEASES TWO NEW STUDIES ON IMPAIRED DRIVING ON U.S. ROADS
National Traffic Safety Administration; Page N/A
February 6, 2015

This news release highlights two recent studies by the National Highway Traffic Safety Administration (NHTSA) that show that while the number of drunk drivers on the road has decreased, the decline has been offset by increases in the number of those driving under the influence of marijuana and prescription drugs. The agency said that the number of drunk drivers has fallen by almost a third since 2007, but a 2014 survey indicated that nearly one driver in four tested positive for a drug that put them or others at risk. The voluntary and anonymous survey was conducted to collect information from regions across the U.S. Signs along the road informed drivers that they were nearing a data collection site and that those who wished to participate should stop. The 2014 survey showed that approximately 8 percent of drivers on weekend nights had alcohol in their bloodstreams, with slightly more than 1 percent exceeding the legal limit. NHTSA said the number of inebriated drivers in 2014 was 30 percent lower, compared with the 2007 survey and 80 percent lower compared with the first survey in 1973. In contrast, the number of drivers with drugs in their system increased from 16.3 percent in 2007 to 20 percent of drivers during the nighttime on weekends. The number of drivers with marijuana in their systems was nearly 50 percent higher.


6. REPORT ON CYBER SECURITY IN THE INSURANCE SECTOR
New York State Department of Financial Services; 14 Pages
February 1, 2015

The New York Department of Financial Services conducted a survey with respect to cyber security at a significant cross-section of its regulated insurance companies. A total of 43 entities, with combined assets of approximately $3.2 trillion, completed a survey seeking information about each participant’s cyber security program, costs, and future plans. Notably, the department’s analysis of the insurers surveyed found that a wide array of factors – not just reported assets – affect the sophistication and comprehensiveness of the insurers’ cyber security programs. In other words, although it may be expected that the largest insurers would have the most robust and sophisticated cyber defenses, the department did not necessarily find that to be the case. Moreover, the department found that 95 percent of insurers already believe that they have adequate staffing levels for information security and only 14 percent of chief executive officers receive monthly briefings on information security. Recent cyber security breaches at financial institutions and other major corporations should serve as a wake-up call for insurers to strengthen their cyber defenses – particularly given the level of sensitive consumer information that insurers are entrusted with handling. Full Report

 


7. UNPRECEDENTED 21ST CENTURY DROUGHT RISK IN THE AMERICAN SOUTHWEST AND CENTRAL PLAINS
Benjamin I. Cook, Toby R. Ault, Jason E. Smerdon
Science Advances; Page N/A
February 1, 2015

This study forecasts a persistent megadrought in the Southwest and Central Plains of Western North America during the years 2050 to 2100, a drought worse than any in the region over the last 1,000 years. The researchers say that the primary cause of the upcoming drought is global warming from human activities. The western part of the U.S. covered by the forecast suffered megadroughts in the 12th and 13th centuries. Full Report.


8. GLOBAL RISKS 2015
World Economic Forum; 69 Pages
January 1, 2015

This annual edition of the Global Risks report from the World Economic Forum evaluates the top global risks in terms of likelihood and potential impact over the coming 10 years. In 2015 interstate conflict with regional consequences is the number one global risk in terms of likelihood and the fourth most serious risk in terms of impact. In terms of impact, water crises are the greatest risk facing the world. Other top risks include rapid and massive spread of infectious diseases, weapons of mass destruction and failure of climate change adaptation. Full Report


9. BIG DATA AND DIFFERENTIAL PRICING
Executive Office of the President of the United States; 22 Pages
February 1, 2015

This report by the Council of Economic Advisors examines the impact of big data on differential pricing. The report concludes that the ability of companies to gather massive amounts of information (big data) about their customers has not yet led to widespread differential pricing although the issue deserves ongoing scrutiny. Differential pricing (or price discrimination) is the practice of charging different customers different prices, for example, senior citizen discounts or tiered pricing for air travel. The combination of differential pricing and big data raises concerns that some consumers can be made worse off, and have very little knowledge why. The report finds that many companies already use big data for targeted marketing, and some are experimenting with personalized pricing, though examples of personalized pricing remain fairly limited. While substantive concerns about differential pricing in the age of big data remain, many of them can be addressed by enforcing existing antidiscrimination, privacy and consumer protection laws. In addition, providing consumers with increased transparency into how companies use and trade their data would promote more competition and better informed consumer choice. Full Report

 


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