Distracted Drivers, Meet the Textalyzer

After years of decline in road fatalities, numbers were up 8 percent in 2015. Many believe the rise is due at least in part to distracted driving and advocates are looking to programs that have successfully curtailed drunk driving for potential solutions.

The New York Times reports that one idea from New York lawmakers, would give police officers a new digital device that is the equivalent of the Breathalyzer — a roadside test called the Textalyzer.

An officer arriving at the scene of a crash could ask for the phones of any drivers involved and use the Textalyzer to tap into the operating system to check for recent activity, according to the New York Times article.

“The technology could determine whether a driver had used the phone to text, email or do anything else that is forbidden under New York’s hands-free driving laws, which prohibit drivers from holding phones to their ears. Failure to hand over a phone could lead to the suspension of a driver’s license, similar to the consequences for refusing a Breathalyser.”

However, the proposed legislation faces hurdles to becoming law, including privacy concerns, even though the Textalyzer bill would not give the police access to contents of any emails or texts.

If the law were to pass in New York, some believe it could spread across other states in the same way that the hands-free rules did after New York adopted them.

This is an interesting idea. The insurance industry has long been a major supporter of anti-drunk driving and seatbelt usage campaigns.

Distraction was a factor in 10 percent of fatal crashes reported in 2013, according to National Highway Traffic Safety Administration (NHTSA) data. Some 14 percent of distraction-affected crashes occurred while a cell phone was in use, the NHTSA notes.

A Highway Loss Data Institute study of collision claims patterns in four states (California, Louisiana, Minnesota and Washington) also found that texting bans may not reduce crash rates. Collisions went up slightly in all the states, except Washington, where the change was statistically insignificant.

The use of technology to better assess risk is something that insurers embrace in many different lines of business, including auto and health. Clearly, privacy concerns will need to be weighed, but this is a novel approach to tackling the distracted driving problem.

Check out Insurance Information Institute statistics on distracted driving here.

Industry Well-Prepared to Weather Hail Damage

Hail claims are making headlines following multiple springtime hailstorms in Texas, including one in the San Antonio region that is expected to be the largest hailstorm in Texas history.

While the estimated insured losses from the storms—$1.3 billion and climbing from two storms that hit the Dallas-Fort Worth region in March; as yet not estimated (but expected to be worse) insured losses from a third storm in the Dallas-Fort Worth region April 11; plus a further $1.36 billion early estimate of insured losses from the San Antonio storm April 12—may seem high, property insurers are well-prepared to handle such events.

In a new briefing, ratings agency A.M. Best says it expects limited rating actions to result as affected property/casualty insurers are expected to maintain sufficient overall risk-adjusted capitalization relative to their existing financial strength ratings.

Which insurers will be most affected?

A.M. Best explains that for property insurers, in particular in property lines of business, losses are expected to stem from broken windows and roof damage. This will have an impact on underwriting performance and overall earnings.

Companies with a heavy concentration of automobile physical damage will also have significant losses.

However, for property insurers the increased use of actual cash value (ACV) for roof repairs, increased deductibles, and improved risk management strategies will help limit the amount of the ultimate claim payment, A.M. Best explains.

The impact on most auto physical damage insurers is also expected to be mitigated given the generally large economies of scale of major writers in the market, A.M. Best adds.

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So, while the Texas hailstorm damage is poised to exceed the nine-year average of $1.2 billion for the United States, most insurers are well-capitalized and able to handle these severe weather events.

Nevertheless, as A.M. Best says:

“The volatile weather is a harsh reminder of the damages a property and casualty writer can be exposed to and the need for companies to continue to practice prudent and evolving risk management.”

Check out this review of research and testing related to hail damage by the Insurance Institute for Business & Home Safety.

The Insurance Information Institute also has some handy statistics on hail here.

Industry Partnership Looks to Green, Risk-Informed Future

As we mark Earth Day and as nearly 170 countries gather in New York to sign the Paris climate treaty, a timely new partnership between the insurance industry, the United Nations and the World Bank is set to put vulnerable economies and societies on a path to a green, risk-informed and sustainable future.

The Insurance Development Forum (IDF) aims to incorporate insurance industry risk measurement know-how into existing governmental disaster risk reduction and resilience frameworks and to build out a more sustainable and resilient global insurance market in a world facing growing natural disaster and climate risk.

With more than 90 percent of the economic costs of natural disasters in the developing world uninsured (the so-called protection gap), the IDF mission is to better understand and utilize risk measurement tools to enable governments to use their resources to target resilience and better protect people and their property.

A press release notes:

“The IDF acts as a forum to enable the optimal coordination of insurance related activities; the development of shared priorities; the mobilization of collective resources; the development of strategic and operational relationships within and between governments, industry and international institutions; and, the avoidance of unhelpful and unnecessary fragmentation of efforts and resources. These collective actions can help close the protection gap.”

The IDF will be led by a high level steering group of senior leaders from the insurance industry as well as government institutions supported by an executive secretariat housed at the International Insurance Society (IIS).

IDF chair Stephen Catlin, who is also executive deputy chairman, XL Catlin and deputy chair of the IIS, commented:

“Insurers’ risk management skills help us assess natural disaster risk and can be exported to allow governments at all levels to reduce future losses by designing in resilience into infrastructure projects; and in increasing the use of insurance as a pre-disaster economic resource to allow people to protect their families, property and assets.”

And:

“These skills can increase the utilization of insurance which will reduce the reliance on post-disaster aid and better target resources to the most important and needed humanitarian crises. Research has shown that a 1% increase in insurance penetration can reduce the disaster recovery burden on taxpayers by 22%.”

A keynote address by the UN Secretary General Ban Ki-Moon last week emphasized the critical role the insurance industry can play in building natural disaster resilience.

According to Swiss Re research, the global natural catastrophe property protection gap has risen steadily over the last 10 years, and 70% of the economic losses, or USD 1.3 trillion, were uninsured. In the emerging markets, 80 percent to 100 percent of the losses are uninsured.

Check out this Insurance Information Institute backgrounder on climate change and insurance issues here.

An Early Take on the Kumamoto, Japan Earthquakes

Two earthquakes within a few days may seem like a lot for one region of a country to withstand, but in the case of the insurance and reinsurance industry early indications suggest the impact of the Japan quakes will be manageable.

A magnitude 6.5 earthquake struck the Kumamoto prefecture of Japan last Thursday. Just 28 hours later a magnitude 7.3 quake struck the region. So far, Japanese officials have confirmed 46 fatalities and more than 1,000 people injured.

Reports appear to show significant property damage in the region, but it’s too soon to know what insured losses will be.

Analysts say that based on early information from Japan, the quakes are unlikely to challenge the 2011 Japan earthquake and tsunami in terms of size. The 2011 quake and tsunami caused $35.7 billion in insured damages, according to Swiss Re.

In a research note, Jay Cohen, analyst at Bank of America Merrill Lynch, said the quakes should not change the market much:

“Based on the early information from Japan, we would not expect these quakes to have a material impact on reinsurance pricing.”

And:

“In addition, we do not believe that such events will cause insurers or modeling companies to reassess their catastrophe models.”

One variable is potential business interruption and even contingent business interruption losses.

The second quake caused production to be halted at various factories of leading manufacturers such as Toyota, Sony, Honda and semiconductor manufacturer Renesas Electronics.

Cat modeling firm AIR Worldwide notes that Kumamoto prefecture, in the heart of Kyushu Island, is home to roughly 25 percent of Japan’s semiconductor production. There are also more than 100 semiconductor-related enterprises located in the prefecture. In fact, Kyushu is informally known as “Silicon Island.” The area also has automobile, steel and ship manufacturers, AIR Worldwide says.

The extent of any business interruption losses and further impact on supply chains would depend on how long the factories are closed, analysts note.

Earthquake insurance for commercial risks in Japan is purchased from the private reinsurance/insurance markets. Artemis blog reports that after the second more damaging quake, it looks more likely that Japanese insurers may seek reinsurance support for losses. Some catastrophe bond exposure is also possible, though most attach at a fairly high layer.

The standard dwelling policy in Japan does not cover earthquake but policyholders can choose to add the coverage. Earthquake insurance for dwelling risks is backed by the government via the Japan Earthquake Reinsurance Co (JER). The JER protects all residences that purchase earthquake insurance. More information on earthquake insurance in Japan is available here.

These earlier posts (here, here, and here) by Insurance Information Institute chief actuary James Lynch on the 2011 Japan earthquake and tsunami are useful.

Read up on the importance of understanding earthquake insurance options in the U.S. here.

P/C Rates: Trending Down, But Not As Steeply

Broker Willis Towers Watson has updated its commercial insurance rate predictions for 2016, and says that price declines are slowing.

A complex commercial insurance marketplace—marked by increased underwriting scrutiny and potential challenges stemming from the changing carrier landscape—is raising the likelihood that companies will experience some price increases in various lines.

Back in October 2015, Willis said 10 lines of insurance could expect decreases and just five lines of insurance could expect increases in 2016.

Now the updated outlook for 2016 is that nine lines of insurance are expecting decreases and eight lines of insurance—auto, cyber, employee benefits, employment practices liability, errors & omissions, fidelity, kidnap & ransom, and trade credit— are expecting increases.

And for lines where it anticipated the largest price hikes—cyber and errors & omissions—those price hikes are accelerating.

With hurricane season approaching, it’s worth noting that property remains among those lines expecting a decrease, but average rate reductions are slowing down.

Non-CAT accounts have enjoyed rate reductions for a longer period and carriers cannot afford to cut rates much further, Willis Towers Watson notes.

For cyber renewals, primary premium increases are 5 percent to 15 percent for most buyers and 15 percent to 30 percent for POS retailers and large health care companies with no losses—with additional increases on excess layers.

Willis Towers Watson notes that excess cyber losses have caused a few markets to stop writing large accounts and others to increase their premiums significantly in upper layers of $75+ million placements.

Despite the reduction in capacity by some carriers, available limits in the marketplace are approximately $350 million to $400 million.

Capital markets are also reviewing cyber to determine if they can provide additional relief.

Meanwhile, insurers are focused on employee training, handling of sensitive data, holistic security practices for outsourced data infrastructure, and internal reporting structure, according to Willis Towers Watson.

A Spring Break Insurance Tale

Turns out it’s hard to escape insurance, even on spring break.

A visit to Singer Island, Florida led to an interesting discovery.

We were taking a walking tour in John D. MacArthur Beach State Park. This 438-acre park is the only state park in Palm Beach County and located between the Atlantic Ocean and Lake Worth Lagoon.

Think nature trails, hammocks (the forested kind), tropical trees with names like strangler fig, beach, sand dunes, rare turtles, and birds, lots of birds: osprey, cormorants, gulls and pelicans.

Right outside the nature center is a bust of the previous property owner, John D. MacArthur. Our tour guide happened to mention that Mr. MacArthur made his fortune in the insurance business.

JohnDMacArthur

Apparently, in 1935 Mr. MacArthur acquired the Bankers Life and Casualty Company of Chicago for $2,500 ($44,000 in today’s dollars).

As our tour guide explained, during the Great Depression people didn’t have the money to buy insurance. So Mr. MacArthur came up with a plan to make it affordable. He would charge them $1 (that’s $17.65 in today’s dollars) for a life insurance policy.

There was just one caveat: for the policy to pay out, a person had to die of unnatural causes.

Needless to say, Mr. MacArthur was very successful. Five years later, Bankers had more than $1 million in assets and by 1977 more than $1 billion.

At the time of his death in 1978, Mr. MacArthur’s insurance companies had more than 3 million policyholders, with $5.5 billion of insurance in force and a sales staff of more than 5,000 agents and brokers.

In addition to insurance, Mr. MacArthur had an interest in real estate and development and his holdings included 100,000 acres of land in Florida, mostly in the Palm Beach and Sarasota areas.

Mr. MacArthur later donated a section of his Palm Beach property for use as a public park after a university study convinced him it was a biological treasure.

The MacArthur Foundation (established in 1970 so that his money would go to good use after he was gone) contributed additional funds to help develop the park and nature center. The John D. MacArthur Beach State Park opened to the public in 1989.

Another great story of philanthropy in insurance.

U.S. Dominates March Catastrophe Claims

A reminder of the impact of severe thunderstorms is evident in March catastrophe estimates, with seven separate events across the country resulting in several billion dollars of insured losses.

Aon Benfield’s March Global Catastrophe Recap noted that overall economic losses sustained to property, infrastructure and agriculture across the U.S. from the convective storm and flood damage were anticipated to approach $3.5 billion.

Insured losses incurred by public and private insurance entities were tentatively estimated at $2.0 billion. (Presumably, that number includes estimated payouts by FEMA’s National Flood Insurance Program.)

More than 1,000 individual reports of tornadoes, damaging straight-line winds and hail were recorded by the Storm Prediction Centre, while torrential rains also led to significant riverine and flash flooding in the Lower Mississippi River Valley.

Among the hardest-hit states was Texas, Aon Benfield said, where events during consecutive weeks of greater than golf ball-sized hail in the greater Dallas-Fort Worth metro region led to more than 125,000 home and auto claim filings.

The Insurance Council of Texas has put preliminary estimated insured losses in the state at more than $1.1 billion alone.

Here’s the visual on March catastrophe losses in the U.S.:

UnitedStatesMarchCatastropheLosses

Artemis blog mentions that Impact Forecasting estimates for insured or reinsured losses in the U.S. in the first-quarter of 2016 from severe and winter weather now total $4.48 billion.

“Globally the figure is $5.82 billion, again demonstrating the importance of the U.S. property catastrophe insurance and reinsurance market.”

In its must-read facts and statistics on hail, the Insurance Information Institute notes that events involving wind, hail or flood accounted for $21.4 billion in insured catastrophe losses in 2014 dollars from 1994 to 2014 (not including payouts from the National Flood Insurance Program), according to Verisk’s Property Claim Services.

Information about how to reduce hail damage to businesses and homes is available from the Insurance Institute for Business and Home Safety website here and here.

IoT and Piracy Increase Risks to Shipping

A hacker causes an oil platform located off the coast of Africa to tilt to one side, forcing it to temporarily shut down. A port’s cyber systems are infiltrated by hackers to locate specific containers loaded with illegal drugs and remove them undetected.

These are just a few of the cyber attacks on the shipping industry reported to date, according to Allianz Global Corporate & Specialty SE’s (AGCS) fourth annual Safety and Shipping Review 2016.

But such attacks are often under-reported as companies opt to deal with breaches internally for fear of worrying stakeholders, AGCS notes.

“When reports of attacks do surface, details are usually vague, making it extremely difficult to gauge the headway the industry has made in strengthening online security.”

The shipping industry’s reliance on interconnected technology also poses risks. Cyber risk exposure is growing beyond data loss.

Technological advances including the Internet of Things (IoT) and electronic navigation means the industry may have less than five years to prepare for the risk of a vessel loss, AGCS warns.

There has already been one known incidence of Somali pirates having infiltrated a shipping company’s systems to identify vessels passing through the Gulf of Aden with valuable cargoes and minimal on-board security, leading to the hijacking of a vessel.

In the words of Captain Andrew Kinsey, senior marine risk consultant AGCS:

“Pirates are already abusing holes in cyber security to target the theft of specific cargoes. The cyber impact cannot be overstated. The simple fact is you can’t hack a sextant.”

The industry needs more robust cyber technology in order to monitor the movement of stolen cargoes, according to Kinsey.

For the first time in five years piracy attacks at sea failed to decline in 2015. International Maritime Bureau statistics show there were 246 piracy attacks worldwide in 2015, up from 245 in 2014.

Attacks in South East Asia continue to increase, with the region accounting for 60 percent of global incidents and Vietnam a new hotspot, AGCS reports.

The Insurance Information Institute offers facts and statistics on marine accidents here.

More On Employment and Claim Frequency

Earlier this month Insurance Information Institute (I.I.I.) chief actuary Jim Lynch linked teen employment to the spike in claim frequency. I.I.I. chief economist Steven Weisbart responds:

I think Jim’s post draws the wrong inference from the data. Specifically, the slide pairs the drop in the teenage unemployment rate with the rise in overall collision claim frequency. He infers that if teens are not unemployed, they’re employed and, presumably, driving to work.

But the drop in the unemployment rate of this age group isn’t solely—or even mainly—because they’ve taken jobs. To start with, in 2006-07, there were seven million people ages 16 to 19 in the labor force. That began falling in 2008, crossing six million in 2010 and plateauing at about 5.6 million midway through 2011. So in the space of less than five years, about 1.5 million people ages 16-19 disappeared from the labor force.

In contrast, the number unemployed in this age range dropped from about 1.1 million in 2006-07 to about 0.9 million in 2015. So about 200,000 got jobs. Some who had been in the labor force in 2006-07 must have gone to school, joined the military, were imprisoned, or simply gave up looking for a job (and therefore were not considered to be in the labor force).

If, instead, you look at the number in this age group who were employed in this period, it was 6 million in 2006-07, dropped to 4.3 million in mid-2010, rose to 4.5 million by mid-2014, and was 4.75 million in 2015:Q4. So the number of people in this age group who were employed is still 1.25 million below what it was before the Great Recession and subsequently.

I’ve put together a different slide (below), showing the change in employment and the change in claim frequency. As the number of employed falls with the Great Recession, so does claim frequency. And as employment numbers climb, so does claim frequency.

Employment and Collisions

So I’d say that Jim has a good explanation for the spike in the number of claims; more people get jobs, start driving to and from work and unfortunately get into accidents more often.

But it wasn’t just teen workers. It was everybody.

Tianjin: A Reminder of Insurance Need in Developing Countries

The explosions at the Port of Tianjin, China could ultimately become one of the largest man-made insurance loss events worldwide ever recorded, according to Swiss Re sigma.

Based on Swiss Re’s latest estimates, the total insured property loss of the Tianjin explosions is likely to be around USD 2.5 billion to USD 3.5 billion, making it the largest man-made insured loss event in Asia ever recorded.

Tianjin currently ranks as the third largest man-made insured global loss (in 2015 dollars), behind the September 11, 2001, terrorist attacks in New York, Washington and Pennsylvania and the 1988 Piper Alpha oil rig disaster.

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The Tianjin experience highlights the new potential risks facing developing countries with rapidly-developing economies, according to the latest sigma study.

2015 was the third year in a row that the biggest man-made loss globally originated from an emerging market, a reminder of the importance of insurance for developing countries, sigma says.

“The event shows the large loss potential in a country like China, with a fast-growing economy. If further evidence is needed, in 2013 a fire at a major high-tech semiconductor plant in Wuxi, also in China, caused insured losses of USD 0.9 billion.”

Financial protection through insurance is key to restoring business operations and recouping losses, sigma notes.

Accurate assessment of exposures, appropriate coverage terms and adequate pricing are likewise crucial:

“For re/insurers, they need to actively identify monitor and manage exposures in hazard zones and in areas with high asset-value concentrations.”

The complexities of the Tianjin loss have challenged re/insurers, and highlighted the accumulation of risks that can arise from a single large-scale industrial catastrophe event.

While destroyed and damaged vehicles account for most of the Tianjin losses, uncertainties remain as to the types of insurance policies involved.

Property and cargo present major risk accumulation factors in ports, especially in big centers like Tianjin, sigma observes.

The Insurance Information Institute has useful facts and statistics on man-made disasters here.

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