Latest Studies - February 2017

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. PROPERTY/CASUALTY INSURANCE RESULTS: NINE-MONTHS 2016
Beth Fitzgerald and Robert Gordon
ISO, a Verisk Analytics business, and the Property Casualty Insurers Association of America; 5 pages
January 18, 2017

Private U.S. property/casualty insurers’ net income after taxes dropped to $31.8 billion in nine-months 2016 from $44.1 billion in nine months 2015. Insurers’ overall profitability as measured by their annualized rate of return on average policyholders’ surplus declined to 6.2 percent from 8.8 percent a year earlier, Insurers’ combined ratio deteriorated to 99.5 percent for nine-months 2016 from 96.9 percent for nine-months 2015, and their $1.7 billion in net underwriting losses in nine-months 2016 compares to a $7.3 billion gain a year earlier. Net written premium growth slowed to 2.8 percent for nine-months 2016 from 4.1 percent for nine-months 2015. Insurers’ net investment income declined to $33.0 billion in nine-months 2016 from $34.9 billion a year earlier, and insurers’ realized capital gains dropped to $5.6 billion from $8.8 billion, resulting in $38.6 billion in net investment gains for nine-months 2016, down $5.1 billion from $43.7 billion for nine-months 2015. According to commentary by Insurance Information Institute chief economist Steven Weisbart, the final quarter is unlikely to brighten the picture, with claims from Hurricane Matthew and the typical fourth-quarter slowdown in premium growth yet to come. Click here for the commentary and here for the report. 


2. FLOODING AND DAMAGING WIND WERE MOST DESTRUCTIVE NATURAL HAZARDS IN 2016
Alexandra Hayes
CoreLogic; Page N/A
January 26, 2017

On January 26 CoreLogic released its annual Natural Hazard Risk Summary and Analysis. The report shows relatively average or below-average activity for most U.S. natural hazards, with the exception of flood and wind, both of which saw above-average activity, due in large part to Hurricane Matthew. This report reviews annual hazard activity in the U.S., including events for flooding, earthquake, wildfire, wind, hail, tornado, hurricanes and windstorms with spotlights on several international events. Total flood loss in 2016 was $17 billion, six times greater than the overall flood damage experienced in 2015. Five flood-related events in 2016 exceeded $1 billion in losses, including: the Louisiana flood in August with losses estimated at more than $10 billion; Hurricane Matthew in October with losses estimated at $3 billion; the Sabine River Basin flood in East Texas and Louisiana in March with losses estimated at $1.3 billion; the Houston flood in April with losses estimated at $1.2 billion; and the West Virginia flash and river flooding in June with losses estimated at $1 billion. Hurricane activity in the Atlantic was slightly higher than average in 2016 with 15 named storms, including eight tropical storms and seven hurricanes. Hurricane Matthew caused an estimated $4 billion to $6 billion worth of insured losses. Due in large part to the strong winds brought by Hurricane Matthew, the land area impacted by severe winds (more than 80 mph) was three times greater than in 2015. The number of wildfires (62,864) in 2016, as well as the total number of acres burned (5,415,121 acres) was below the annual average. Hail activity for 2016 was near average with 243,647 square miles, or 7.8 percent, of the continental U.S. impacted by severe hail, defined as 1-inch or greater. The number of tornadoes in 2016 was near average with 1,059 recorded tornadoes, making it one of the most inactive years since record keeping began in 1954. As of December 1, there were 943 identified earthquakes of magnitude 3.0 or greater across the country, with more than 60 percent in Oklahoma. Following one of the harshest winters (2014-2015) on record, December 2015 through February 2016 was the warmest winter in 121 years, despite experiencing nine winter storms. Full Report


3. HARNESSING TECHNOLOGY TO NARROW THE INSURANCE PROTECTION GAP
Kai-Uwe Schanz and Fabian Sommerrock
The Geneva Association; 48 pages.
December 1, 2016

The global insurance protection gap is an obstacle to resilience in numerous nations where insurance plays only a limited role in mitigating the effects of natural disasters, pandemics or other major risks. For example, approximately 90 percent of the losses from the earthquake that jolted central Italy on August 24, 2016, were uninsured. This report discusses the potential of digital and mobile technologies to close some of the protection gaps in both mature and developing markets. These technologies have the capacity to increase awareness of insurance products and solutions, helping to make them more appealing and affordable. The report provides an in-depth review of major concepts of the economics of insurance and the industry’s approaches to marketing products and services. The report recounts some success stories in the real world and discusses the virtual value chain. The moral hazard related to uses of big data to enhance insurance protection is discussed, along with efforts to remove information asymmetries. Attention is given to the capacity of technology to reduce transaction costs and to enhance the affordability, awareness and appeal of insurance. Regulatory responses to increased applications of digital and mobile technologies in the insurance industry are anticipated and discussed.  Full Report


4. REINSURANCE MARKET OUTLOOK: RECORD CAPACITY SUFFICIENT TO MEET CURRENT DEMAND INCREASE AND FUTURE INNOVATIONS
Aon Benfield Analytics; 24 pages
January 1, 2017

This report analyzes key variables that will affect reinsurance buyers in 2017 renewals. Reinsurance capital increased 5.3 percent to $595 billion through nine months at September 30, 2016, from $565 billion at year end 2015. Traditional reinsurance capital increased 4.7 percent during the period. Alternative capital increased by 9.6 percent, the smallest growth it has reported in five years. This result suggests that traditional capacity is using all the tools at its disposal in order to stave off market share growth from alternative capital. Growth has been isolated to few regions and lines of business. For January renewals, some insurers in the U.S. and Europe looked to secure additional property catastrophe capacity as terms and conditions continued to move in their favor or they looked to meet new regulatory requirements and evolving rating agency thresholds. New lines of business that have seen growth are mortgage and cyberliability. There was also a move by many insurers and reinsurers to lock in coverage on a multiyear basis. Full Report


5. THE U.S. CASUALTY MARKET IN 2017: OUR TOP 10 LIST
Marsh Casualty Practice; 4 pages
January 1, 2017

In this annual release, Marsh has identified the following 10 key trends that will affect the insurance marketplace in 2017: usage-based auto insurance is expected to grow; reliance on technology and sophisticated data capture will continue to drive underwriting decisions and policy language as insurers seek to transfer risk of the unknown to specialty product lines; initial niche success will lead to broader expansion for InsurTech companies; the aggressive marketplace might lead to greater-than-expected volatility for various product lines; conversion to autonomous vehicles will lead to steps towards the consolidation of personal and commercial automobile insurance and products liability; a rise in interest rates could offset the need for increases on certain casualty product lines; personal lines carriers will increasingly use sensors in homes and workplaces to mitigate losses; differentiation in program choices will be more about coverage than price as unknowns increase and carrier positions begin to diverge;  purchases of excess liability limits will increase; and the workers’ compensation market is expected to favor buyers from a risk transfer premium and rate perspective. Full Report


6. DWELLING FIRE, HOMEOWNERS OWNER-OCCUPIED, AND HOMEOWNERS TENANT AND CONDOMINIUM/COOPERATIVE UNIT OWNER’S INSURANCE REPORT: DATA FOR 2014
National Association of Insurance Commissioners; Page N/A
January 1, 2017

The price of homeowners insurance is affected by economic and demographic developments as well as natural phenomena. This report presents premium and exposure data for non-commercial dwelling fire insurance and for homeowners insurance for each state and the U.S. as a whole. Data for homeowners package policies include owner-occupied policy forms HO-1, HO-2, HO-3, HO-5 and HO-8, the tenant policy HO-4 and the condominium/cooperative unit owner’s policy HO-6. The data is displayed in five tables, with written exposures expressed as house-years and total written premiums by state and nationwide for 2014. Three tables provide data on exposures in each state and the District of Columbia, grouped by policy type, individual policy form and amount of insurance coverage. The data are divided into ranges, and the tables also show percentages of total exposure. Two other tables show average premiums for each state and nationwide. The report describes the policy forms in detail and provides data for statutorily established FAIR plans. The American Association of Insurance Services, ISO Data Inc., the National Independent Statistical Service, Independent Statistical Service Inc. and the Mutual Service Office provided the data for all states expect Texas and California. Data for Texas and California were provided by each state’s insurance department. The report discusses the effect on the cost of insurance by the following factors: geographic area, real estate and construction costs; catastrophe exposure; defective drywall; mold damage; and terrorism. Two pie charts show the 2014 percent of homeowners owner-occupied written exposures and of tenant and condominium/co-op written exposures nationwide by policy form. Two bar graphs show 2014 percent comparison of dwelling fire and homeowners owner-occupied written exposures and of tenant and condominium written exposures in a number of categories of amount of insurance. Also included are two tables showing the number of disaster declarations in each state for each year from 2012 through 2016 and the 10 most costly perils since 2003 in the dollars at the time of occurrence and in 2015. Two maps are color-coded to compare 2014 homeowners median amount of insurance and dwelling fire median amount of insurance among the states. Full Report


7. AUTO INSURANCE DATABASE REPORT 2013/2014
National Association of Insurance Commissioners ; Page N/A
January 1, 2017

This report features state-by-state auto insurance data from calendar years 2010-2014 for the combined voluntary and residual market. The report contains earned premium and exposure data – as well as incurred loss and claims data (separately) – from calendar/accident years 2011-2013 for voluntary and residual market business. Many factors affect a state's expenditures and premiums, including underwriting costs, driving locations, accident rates, traffic density, auto theft statistics, repair costs and state laws. There are also differences in state requirements for insurance coverage, limits and benefits. These variances make direct state-by-state comparisons difficult. Full Report


8. REPORT ON PROFITABILITY BY LINE BY STATE IN 2015
National Association of Insurance Commissioners ; Page N/A
January 1, 2017

This report combines calendar year data by line and state from exhibits of the annual statement to develop estimates of profits on earned premium and the return on net worth. The ability to analyze results on a by state by line basis enhances transparency on the financial impact that the economic climate has had on each of these lines. Combined with other material, this information can be utilized in further analysis of competition and market performance. Full Report


9. EARLY ESTIMATE OF MOTOR VEHICLE TRAFFIC FATALITIES FOR THE FIRST 9 MONTHS OF 2016
NHTSA’s National Center for Statistics and Analysis.; Page N/A
January 1, 2017

An estimated 22,875 people were killed in motor vehicle traffic crashes in the U.S. in the first nine months of 2016, according to a statistical projection by the National Highway Traffic Safety Administration (NHTSA). This number of deaths represents an approximate 8 percent increase in traffic fatalities, compared with the 25,808 deaths reported for the same period the previous year. The third quarter of last year was the eighth consecutive quarter during which fatalities increased. Preliminary data from the Federal Highway Traffic Administration (FHTA) indicate that vehicle miles traveled (VMT) in the first nine months of 2016 rose approximately 70.0 billion miles, an increase of approximately 3.0 percent. During the first 9 months of last year, the fatality rate rose to 1.15 fatalities per 100 million VMT, compared with 1.10 fatalities per 100 million VMT in the first nine months of 2015. These figures will be revised when the final file for 2015 and the annual reporting file for 2016 become available in 2018. The article includes a table showing fatalities and fatality rate by quarter and first half as well as the percentage change from the previous year, based on data from the FHTA. Also included is a graph showing percentage change in fatalities in every quarter, compared to the fatalities in the same quarter the previous year. A map shows the percentage change in estimated fatalities in 2016 from reported 2015 fatality counts by NHTSA Region for the first nine months of 2016. Full Report


10. DATA BREACH REPORTS 2016
Identity Theft Resource Center; 272 pages
January 1, 2017

The Identity Theft Resource Center (ITRC) defines a data breach as an incident in which an individual name plus a Social Security number, driver’s license number, medical record or financial record (credit/debit cards included) is potentially put at risk because of exposure. The number of breaches in 2016 was about 1,093 up from 781 in 2015 and the number of records exposed was 36.6 million (down from 177.9 million in 2015). The majority of the data breaches in 2016 affected medical/healthcare organizations (43.6 percent of all records exposed) and government/military (37.9 percent of all records exposed). For each incident the ITRC identified, the report provides the breach ID, name of the breached company, the state where it is based, the number of records exposed if available and a description of the incident. Full Report


11. EXTREME SPACE WEATHER-INDUCED ELECTRICITY BLACKOUTS COULD COST U.S. MORE THAN $40 BILLION DAILY
American Geophysical Union News Release; Page N/A
January 17, 2017

According to a new study published in Space Weather, a journal of the American Geophysical Union, solar storm induced electrical outages could cost tens of billions in the U.S. alone. The study takes into account indirect domestic and international supply chain loss from extreme space weather. In the most extreme blackout scenario postulated by the study, 66 percent of the U.S. population would be affected by the blackout. The daily domestic economic loss could total $41.5 billion plus an additional $7 billion loss through the international supply chain. So far, extreme space weather events have infrequently affected the Earth.  The best-known geomagnetic storm affected Quebec in 1989, sparking the electrical collapse of the Hydro-Quebec power grid and causing a widespread blackout for about nine hours. There was a very severe solar storm in 1859 known as the Carrington event. A widely cited 2012 paper by Pete Riley of Predictive Sciences Inc. said that the probability of another Carrington event occurring within the next decade is around 12 percent. A 2013 report by the insurer Lloyd’s, produced in collaboration with Atmospheric and Environmental Research, said that while the probability of an extreme solar storm is “relatively low at any given time, it is almost inevitable that one will occur eventually.”  Full Release


If you have a suggestion for a study to be included in this section please email info@iii.org.