Older People Projected to Outnumber Children for First Time in U.S. History: The impact on life insurance and retirement

The Insurance Information Institute’s Chief Economist, Dr. Steven Weisbart offers his insight on the impact on life insurance and retirement of the demographic trends highlighted in a recently released Census report.

The report projects that by 2030, the year when all baby boomers will be older than 65, one in every five Americans will be of retirement age. By 2035 older adults will outnumber children for the first time in U.S. history.

On life insurance:  The population age 25-44 (the main life-insurance-buying group) was 85.15 million strong in 2016. The Census Bureau projects it to grow to 88.8 million in 2020, to 94.4 million in 2030, and 95.1 million in 2040.  The number of children under age 18 was 73.6 million in 2016. The census bureau projects it to grow to 73.9 million in 2020, to 75.4 million in 2030, and 76.8 million in 2040.  Thus the size of the “breadwinner with children” segment of the population is projected to grow very slowly in the next two decades, meaning that the market for life insurance will grow very very slowly.

On retirement: the population age 85+ (the main long-lived retirement group) was 6.4 million strong in 2016. The Census Bureau projects it to grow to 6.7 million in 2020, to 9.1 million in 2030, and 14.4 million in 2040. You can see the explosive growth in these projections. We can only hope that people age 63 today, many of whom will live to 85 in 2040, have saved enough to draw sufficient retirement income to pay all of their bills then. Otherwise, this could develop into a massive social problem.


Counterfeit wine does not lead to property insurance payout

The importance having a clear understanding of what your insurance policy does and does not cover was highlighted last week when several trade publications picked up a story about a wine collector who was sold about $18 million worth of counterfeit wine.

The collector had a property insurance policy, and when his claim was denied he sued for breach of contract. A California trial court upheld an earlier decision that the property policy simply does not cover fraud of the kind he experienced.

The judge’s opinion stated: “The plain language of the “PERILS INSURED AGAINST” provision makes it clear that the insurer was insuring against “direct and accidental loss . . . to covered property…” That is “against any losses to the wine not against any losses to the collector’s finances or to his unrealized expectations as to the value of the wine he had purchased.”

Digital transformation in insurance: lessons learned in 2017 and forecast for 2018

Digital transformation refers to the integration of technology into all areas of a business resulting in profound changes in how the business operates and interacts with customers.

A recent McKinsey and Company blog post points out that successful companies do not just focus on a digital strategy but instead devise a strategy for the digital age —  “a complex, many-tiered undertaking that is made more challenging by continuously shortened development cycles.”

The post explores a few of the digital transformation lessons insurance companies learned in 2017 and questions CEOs should be asking in 2018.

Lessons learned in 2017 include:

  • Focusing on the big picture
  • Understanding value drivers
  • Prioritizing technological literacy

Key questions for 2018 are:

  • How should we approach investing in digital?
  • What is our ecosystem strategy?
  • Are we seeing enough value from data and analytics?
  • Is IT effectively partnering with the business?



Avoiding a bad faith lawsuit in Florida

Florida is unique in that it has no objective bad faith standard, defining it as more than “mere negligence” without calling for a showing of evil intent. As a result, carriers need to watch for common pitfalls to reduce costly bad faith awards.

On March 14 Gen Re is offering its clients a webinar called Navigating the Bad Faith Minefield. Here are some of the bad faith related problems specific to Florida the webinar intends to cover:

  • The unique problems posed by “time limit” demand letters and how a missed deadline and/or failure to meet a key term “open up” the policy limit
  • Bad faith in a clear-liability case with a likely judgment exceeding a policy limit. Do carriers have an affirmative duty to offer the policy limit in such cases, even in the absence of a demand?
  • The tender traps that might be used to “set up” carriers for bad faith. How should carriers respond when presented with a serious injury case that involves low limits?


Careers in marine insurance provide a variety of roles

Students considering a career in insurance would do well to look into marine underwriting, a fascinating specialty that calls for a variety of diverse skill sets and abilities.

A recent blog post by Sean M. Dalton, Head of Marine Underwriting for North America at Munich Re highlights the many ways prior education is applied in marine underwriting.

Examples include:

  • Geography and History: Understanding climates, economies, cultures, histories, natural resources, trade, politics, conflicts and more, is at the core of what marine underwriters insure.
  • Communication: written, verbal, and presentation skills, are of critical importance. This applies whether drafting business correspondence, preparing a quote/proposal, or servicing your business.
  • Mathematics: Strong skills in math including finance, statistics, economics, algebra, and calculus all are important and useful in analyzing profitability, developing technical rates, and understanding trends and developments in results.
  • Science: Fields including chemistry, physics, meteorology, and biology are all important to marine underwriters and brokers.
  • Computer Sciences: Utilization of the latest IT capabilities and an understanding of how technology impacts the risks we insure are keys to success. CAT modelling and the application of predictive analytics are some specific examples where the power of technology is helping advance the business.
  • Social Skills: The insurance industry is a “people” business and how we interact with others is of great value. From marketing, negotiation, problem solving, and networking, social and interpersonal skills are keys to a successful career.


For more information about marine insurance visit the website of the American Institute of Marine Underwriters

For other careers in insurance visit InsureMyPath

Assignment-of-benefits haunts Florida’s homeowners insurers

Third party abuse of assignment-of-benefits is having a negative impact on Florida’s homeowners insurers’ 2017 financial results, according to a recent S&P Global article.

An assignment of benefits occurs when a person with an insurance claim allows a third party to be paid directly by the insurance company. Usually this happens after a claim, when the insured assigns their benefits right to a contractor or whoever is making the repair the claim is meant to cover. A loophole in the Florida law invites abuse of the right and the ensuing litigation drives up costs.

S&P Global’s article showed how the loophole has dramatically increased costs at Florida’s Citizens Property Insurance Corp.

Hurricane Irma by itself made 2017 a challenging one for Florida’s Citizens: over $1 billion in net losses and loss adjustment expenses.

But increased litigation expenses (which show up in insurance statements as direct defense and cost containment expenses incurred (DCCE) – often referred to as allocated loss adjustment expenses) – those hurt a lot too. The ratio of homeowners DCCE incurred to direct premiums earned increased to 16.9% from 15.2% in 2016, the average such ratio for the first 13 years of Citizens’ existence was 2.9%. In other words, litigation costs are almost six times worse than they were just a couple of years ago.

Private insurers in Florida are also reporting the negative impact of litigated assignment-of-benefits claims.  Universal Insurance Holdings, Florida’s largest private property insurer, reported that about 12% of its claims from Irma had some aspect of assignment of benefits to them.

So far, legislative reform of assignment-of-benefits abuse remains in limbo.

The Week in a Minute, 2/28/18

The III’s Michael Barry briefs our membership every week on key insurance related stories. Here are some highlights. 

Kentucky (three deaths), Michigan (one), and Arkansas (one) were the site of five fatalities on Sunday, February 25, due to strong winds and flooding.

Authorities are urging residents to evacuate parts of Santa Barbara County ahead of a winter storm expected to hit the area on Thursday, March 1.

U.S. consumers gave their home insurer on average a score of 860, on a 1,000-point scale, according to 6,572 property claimants J.D. Power surveyed between January and November 2017.


The “After Glow” of Tax Reform Politics Too Good to Pass Up for Anti-Insurance Crowd

By Sean Kevelighan, CEO, ‎Insurance Information Institute

After the Tax Cut and Jobs Act of 2017 passed late last year, the Insurance Information Institute received numerous queries about the impact on property/casualty insurers. Given our mission at I.I.I. is not rooted in direct lobbying advocacy, we consciously refrained from engaging in what was sure to be (and was, in fact) a political battleground in some areas during the legislative process. That said, the industry deserves credit for coming together in many ways to ensure insurance receives fair treatment — a lesson learned from 1986 when the industry was sidelined.

While the anti-insurance crowd (most often misleading themselves as “pro consumer” groups) has been quick to add political rhetoric in the form of baseless and wildly exaggerated claims the industry will receive a “windfall” of income, the I.I.I. will, once again, adhere to facts that are based on actuarial and economic soundness.

Objectively, the I.I.I. sees the overall benefits to tax reform for the insurance industry to be well under 1 cent for every premium dollar.

How do we get that estimate?

Equity analysts at J.P. Morgan estimate tax reform would be about 5 percent of industry earnings, which seems reasonable based on what we know. In 2016 – 2017 industrywide results aren’t out yet – net income was $42.6 billion. Five percent of that would be a bit over $2 billion – more than I have in my pocket, but only about one-third of 1 percent of the $600 billion the industry wrote that year.

Here are a couple of other things to consider about insurers and taxes:

  • Insurance companies pay a wide variety of rates. They pay one rate on underwriting profits, another on dividends from preferred stock, another on bond payments and yet another on municipal bond payments which are almost, but not quite, tax-free. The headline rate fell considerably, but many of the other rates didn’t change at all.
  • Some companies may get a tax increase. Foreign-based groups that have historically ceded a portion of their U.S. business to an offshore affiliate based outside the U.S. are now subject to the Base Erosion and Anti-Abuse Tax – call it BEAT. However, the reduction in the overall tax rate may offset the other changes, depending on each company’s circumstances.

It is important to understand that insurance costs will quickly adjust to the new tax reality. Insurers in the largest lines – personal auto and homeowners – adjust their rates annually – sometimes more frequently. The rate – by law – explicitly reflects every cost an insurer incurs, including taxes. When the tax law changes, insurers build the new rate into their models.

Much like any business in America, insurance will use some of the benefits to invest — in its employees, products and services — so as to improve and grow. Given the industry is the second largest financial services contributor to our economy (2.8% of GDP), employing nearly 3 million Americans, it is critical that insurers make their own decisions.  If not, then where does the line get drawn? Next, the anti-business crowd would (or perhaps already has) call on other industries to make uneconomic pricing decisions.

Update: This blog post has been changed to clarify information regarding the BEAT tax.

River flooding in Southern and Central U.S.

A deadly storm system pummeled the southern and central U.S. this weekend leaving many areas flooded. The weather system extended from the Canadian Maritime provinces to Texas, and brought gale force winds and widespread flooding from the northern Midwest through Appalachia.

Flooding will continue to be a threat this week, the Weather Channel reports, as more than 200 river gauges reported levels above flood stage from the Great Lakes to eastern Texas. Floodwaters on the Ohio River in Louisville and Cincinnati are at their highest level in about 20 years.

Flood damage is excluded under standard homeowners and renters insurance policies. However, flood coverage is available in the form of a separate policy both from the National Flood Insurance Program (NFIP) and from a few private insurers.

Below is a look at the National Flood Insurance Program’s flood insurance penetration rates in just a few of the affected areas. The table illustrates the low penetration rates of flood insurance.

(click on table to enlarge)



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