Latest Studies - September 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. MUTUAL INSURANCE IN THE 21ST CENTURY: BACK TO THE FUTURE?
Swiss Re sigma 4/2016; 44 Pages
August 1, 2016

Mutual companies, which are operated for the benefit of their member-owners and not controlled by outside investors, have been experiencing a moderate period of growth following the recent financial crisis as policyholders have retreated from stock-owned institutions. Mutuals’ share of the world insurance market increased from about 24 percent in 2007 to a little more than 26 percent in 2014. Their share was much higher in the late 1980s and early 1990s, before an upsurge of de-mutualizations in a number of developed countries took place. One of the current challenges facing mutuals is new risk-based regulatory capital standards and the introduction of tougher corporate governance arrangements, designed to boost the resilience of individual insurers and curb excessive risk taking. The requirements could have an undesired effect of putting some mutuals at a competitive disadvantage. However, the biggest challenge to mutuals comes from digital technology, which is profoundly changing the competitive environment for all insurers. Existing mutual insurers recognize the need to innovate and some are on the frontline of change, promoting digitalization in all areas of operations. Some smaller, more traditional mutuals, however, still remain slow to adapt. The growing development of peer-to-peer (P2P) insurance platforms, which enable individuals to share risks among themselves in much the same way that affinity-based mutual insurers do, has also had an impact. Full Report


2. WAKE UP CALL! UNDERSTANDING DROWSY DRIVING AND WHAT STATES CAN DO
Pam Fischer
Governors Highway Safety Association; 73 Pages
August 8, 2016

This report, funded by State Farm, examines the problem of drowsy driving and evaluates the programs being used to address it. According to the National Highway Traffic Safety Administration (NHTSA), from 2009 to 2013 there were more than 72,000 police-reported crashes that involved drowsy drivers, injuring more than 41,000 people and killing more than 800. These statistics do not reflect the full scope of the problem as there is agreement that drowsy driving is significantly underreported. An AAA Foundation for Traffic Safety analysis of data from NHTSA estimates that 7 percent of all crashes and 16.5 percent of fatal crashes involved drowsy driving. That translates to more than 5,000 people dying in drowsy-driving crashes in 2015. NHTSA estimates that the annual societal cost of fatigue-related fatal and injury crashes, not including property damage to be $109 billion. Some of the common characteristics of drowsy driver crashes include: a serious injury or death; a single vehicle leaving the roadway with no evidence of braking; the tendency to occur on high speed roadways and the tendency to involve a driver traveling alone. The countermeasures examined in the report include driver education programs; workplace policies; public awareness programs, engineering solutions such as rumble strips and rest stops and best practices from select states (Iowa, Utah, Texas and New York).  Full Report


3. THE HIGH COST OF HAIL: TOTAL PAYOUTS FOR VEHICLE DAMAGE TOP $7 BILLION FOR 2008-14
No byline
Status Report; Page 6
June 23, 2016

Forecasts of severe thunderstorms with damaging wind and hail are typical of weather reports in the spring and summer in the U.S. In March and April this year, Texas was pounded by hailstones larger than baseballs that shattered windows, tore up roofs and dented vehicles. An undated study of insurance losses to vehicles during the period of 2008-14 from the Highway Loss Data Institute (HLDI) indicates that the costliest years for claims related to hail were 2011 and 2014, with most of the losses in the central area of the U.S. Owners of vehicles damaged by hail file claims under the comprehensive coverage provision of their auto insurance policies, which also covers theft or any physical damage that occurs outside of a crash. For several years the HLDI has been studying the frequency, severity and cost of claims related to hail. The HLDI used data from insurers about comprehensive coverage for losses related to weather and coordinated the data with the National Oceanic and Atmospheric Administration to determine claims for hail damage. For the period of 2008-2014, insurers in the HLDI database paid $5.37 billion in total hail claims. Matt Moore, HLDI vice president, said that periodically the group conducts analyses to determine the effects of weather on insurance losses and notes that hail storms can be particularly damaging for vehicle owners. Although Moore says the latest analysis will be updated when final figures are available, hail losses in 2016 may have been greater than in 2011 or 2014. The article includes a bar graph showing the total frequencies for hail-related vehicle claims each year from 2008 through 2014 for 10 most current model years. Also included is a table listing the top 10 states with the highest hail-claim frequencies, 2008-2014. Full article.

 


4. SEA PIRACY DROPS TO 21-YEAR LOW
International Chamber of Commerce; Page N/A
August 25, 2016

The International Chamber of Commerce’s International Maritime Bureau (IMB) reports that efforts to prevent maritime crime off the coasts of east Africa and Southeast Asia have succeeded in bringing pirate attacks on shipping to the lowest level in 21 years. 2016 is on course to be the first year since 2005 when someone has not been killed by pirates. Despite the general decline in piracy, attacks off the coast of Nigeria have become more frequent as an increasing number of crew members are being kidnapped and held for ransom. During the first half of 2016, 98 actual or attempted pirate attacks were reported, the lowest number since 1995. The 98 attacks during the first half of this year compares with 134 recorded in the same period last year and a record high of 266 in the first half of 2011. Pottengal Mukundan, director of the IMB, said that the decline in piracy around the world was encouraging and attributed the decline to recent improvements in the region of Indonesia and a continuation of enforcement actions against pirates off east Africa. The One Earth Foundation, based in Colorado, estimated that the extra insurance costs of the maritime industry rose to $3.2 billion a year in 2011, at the height of the Somali pirate epidemic. That year, the maritime industry also spent an additional $2.95 billion to reroute ships around the Cape of Good Hope at the southern tip of Africa. Full Report

 


5. MANAGING GENERAL AGENT CHANNEL SHOWS CONTINUED GROWTH, BUT AT WHAT COST?
Conning, Inc.; Page N/A
July 25, 2016

The managing general agent (MGA) market has continued to grow at a rate exceeding that of the property/casualty market overall, according to this study by Conning, Inc. “In our analysis of the MGA and program market we found continued strong growth in excess of the overall property/casualty market, along with the natural ebb and flow of relationships and players in this dynamic market,” said Matt Sternat, vice president, Insurance Research at Conning. “The MGA market is becoming more material to the overall market as well, representing 14 percent of all commercial lines business. However, with year after year of high growth rates relative to the rest of the industry, a cautionary note should be sounded about the underwriting profitability associated with growth in this market. The MGA market has experienced difficulties in the past, and certainly could again in the future.” The study presents the MGA marketplace dynamics, trends, players and outlook. Conning’s proprietary MGA database was expanded and includes information on more than 600 unique MGAs and more than 200 insurers that actively use this distribution channel. “MGAs face the same challenging market conditions as the rest of the property/casualty industry, and there are some signs that these market impacts are starting to take effect,” said Steve Webersen, Head of Insurance Research at Conning. “In our surveys and discussion with MGA executives it was noted that competition is intensifying, and new entrants, not having as deep an expertise in a class of business, are pricing irrationally. However, experienced MGAs and insurers should be well-suited to adapt to changing environments by maintaining focus and underwriting discipline.” The study is available for purchase from Conning by calling (888) 707-1177 or by visiting www.conningresearch.com.


6. 2016 U.S. SMALL COMMERCIAL INSURANCE STUDY
J.D. Power; Page N/A
August 8, 2016

According to the study, after three years of declining rates, insurance providers are no longer able to compete primarily on price and are now focusing their efforts on ways to please their customers. The payoff is a significant increase in satisfaction among their small business commercial customers with a 30-point improvement in overall satisfaction in 2016, to 823 on a 1,000-point scale, up from 793 in 2015. The study, now in its fourth year, examines overall customer satisfaction and insurance shopping and purchasing behavior among small business commercial insurance customers with 50 or fewer employees. Overall satisfaction is comprised of five factors (in order of importance): interaction; policy offerings; price; billing and payment; and claims. This marks the third consecutive year satisfaction has improved. The study finds that interaction improves the most among all study factors, increasing 32 index points from 2015. Website performance showed the largest jump year over year (+36 points), followed by agent/broker (+34) and call center (+28). While interaction is driving the overall increase in satisfaction, it is having the greatest impact on satisfaction of Gen Y customers. This is the only J.D. Power insurance study in which Gen Y is the most satisfied generation. As expected, Gen Y businesses have been operating for a much shorter time, but they typically have higher revenues than the businesses of their Boomer counterparts (51 percent of Gen Y business customers report annual revenue of more than $500,000, compared with 42 percent of Boomers). The study includes a chart ranking individual companies, with American Family, Allied and Nationwide holding the top 3 positions. News Release.


7. LONGER-TERM USE OF OPIOIDS, 3RD EDITION
Dongchun Wang
Workers Compensation Research Institute; Page N/A
June 1, 2016

This study by the Workers Compensation Research Institute (WCRI) examines the prevalence and trends of longer-term use of opioids in 25 states and how often the services recommended by medical treatment guidelines were used for monitoring and managing chronic opioid therapy. The study uses data comprising over 300,000 nonsurgical workers’ compensation claims with more than seven days of lost time and over 1 million prescriptions associated with these claims from 25 states. The study is focused on two time periods, with the latest period covering claims with injuries arising from October 1, 2011, to September 30, 2012, with prescriptions filled through March 31, 2014. The data included in this study represent 40 to 75 percent of workers’ compensation claims in each state. The 25 states examined are Arkansas, California, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Virginia and Wisconsin. The study can be purchased from WCRI.

 


8. CYBER INSURANCE MARKET SHARE AND PERFORMANCE
Fitch Ratings; Page N/A
August 24, 2016

This Fitch Ratings report aggregating the cybersecurity statutory supplement data for the U.S. property/casualty (P/C) insurance industry finds that approximately 120 insurance groups reported writing cyber coverage in 2015 totaling approximately $1 billion in direct written premiums volume. Fitch analyzed cyber insurance market share and performance based on data from a new 2015 statutory supplement to compile company and industry statistics on cyber insurance. The largest writers according to Fitch's analysis are American International Group, Inc. (AIG), accounting for approximately 22 percent of the market, Chubb Ltd., 12 percent, and XL Group Ltd., at 11 percent. Cyber-related insurance coverage represents a significant growth opportunity for P/C insurers. Insurance broker Marsh & McLennan Companies, Inc. (MMC) estimated that in 2014 the global insurance market wrote approximately $2 billion in cyber insurance premiums, which could multiply by a magnitude of three to five times by 2020. “Industry estimates suggest that the global cyber insurance business could increase to $20 billion by 2020, but the lack of information on cyber insurance is a challenge for insurance companies, policyholders, regulators, and investors to evaluate and price risk,” said James Auden, Managing Director, Fitch Ratings. “Challenges in isolating cyber related premiums and exposures from other risks within a package policy create limitations in analyzing the supplemental filing as total cyber insurance premiums are likely understated.” The nature of the new supplemental data filing leads to more limited information regarding underwriting results from cyber business, as information is provided solely on a direct basis and does not include information for incurred losses net of reinsurance and underwriting expenses. The P/C industry's direct loss ratio for cyber stand-alone business in 2015 was 65.2 percent. “The ultimate profitability of the P/C industry's cyber insurance efforts will take some time to assess as the market matures and future cyber-related loss events emerge,” said Gerry Glombicki, Director, Fitch Ratings. Fitch will track premium volume and loss ratios over time under this new supplement to gauge the performance of the cyber insurance market and activity of individual companies. The report is available at www.fitchratings.com


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