By Dr. Steven Weisbart, chief economist, I.I.I.
How significant a role does the insurance industry play in the U.S. economy? There are many ways to quantify the answer to this question, and even then the answers do not capture all of the valuable ways insurance contributes to economic growth. Still, it might be instructive to consider briefly one indicator.
The U.S. Commerce Department’s Bureau of Economic Analysis calculates and reports quarterly industry-by-industry contribution to the U.S. $19.25 trillion GDP. In the latest report, for the second quarter of 2017, the insurance industry’s value added contribution was $596.5 billion (seasonally-adjusted at an annual rate). This is 3.5 percent higher than for the same quarter in 2016.
The nearly $600 billion value-added puts the insurance industry ahead of both the information industry (if broadcasting and telecommunications are excluded) at roughly $500 billion, and the transportation industry, at roughly $525 billion. Within the broad field of financial services, the value added by “Federal Reserve banks, credit intermediation, and related activities” was $543.6 billion.
It might be surprising that the insurance industry’s contribution to the GDP exceeds that of banks, but this has been true every quarter since the fourth quarter of 2014—11 quarters and counting. So, relative to banks, the insurance industry’s contribution to the economy has been growing faster.
The historical record for the past five and a half years, expressed as value added as a percent of GDP for banks and insurance is shown in the accompanying graph.
This in from Swiss Re Institute’s Global Insurance Review 2017 and Outlook 2018/2019 report:
The cyclical upswing in the global economy is set to continue in 2018 and 2019, supporting insurance premium volume growth.
Global non-life premiums are forecast to grow by at least 3 percent annually in real terms in the next two years and life premiums by 4 percent.
Emerging markets, particularly in Asia, will remain the driver of global non-life and life premium growth, according to Swiss Re.
The III’s Michael Barry briefs our membership every week on key insurance related stories. Here are some highlights:
The U.S. House of Representatives approved on Tuesday, November 14, the 21st Century Flood Reform Act. It calls for a five-year extension of FEMA’s National Flood Insurance Program (NFIP). The NFIP is due to expire on Friday, December 8, 2017.
Hurricane Irma has to date generated an estimated $5.87 billion in insured claim payouts in Florida, according to the state’s Office of Insurance Regulation (OIR).
The American Heart Association’s new blood-pressure guidelines could impact how life insurers underwrite their policies, the I.I.I.’s chief economist, Dr. Steven Weisbart, told PolicyGenius.com.
Some of you may have been delighted when insurance appeared as a category in a recent Jeopardy show. On Thursday, November 9th the Double Jeopardy round featured a category called “satisfying all your insurance needs.”
The contestants were able to answer most of the questions, but no one could identify a completion bond or term life insurance. For a full list of questions and answers click here.
Today marks the 16-year anniversary of 9/11, and as we remember those who perished and honor first responders on that day, it’s worth noting that we have not had a large-scale terrorist attack on U.S. soil since then.
From a recent discussion by property underwriters Gedion Amesias and Jeri Xu at the Swiss Re Open Minds blog:
“Since 9/11, the U.S. government and four of its allies (Five Eyes alliance) have been spending tens of billions of dollars each year on counter-terrorism. Even though it’s hard to accurately estimate, there are experts that approximate the U.S. spends around $100 billion a year on counter-terrorism efforts. Successful attacks since 9/11 have been carried out by either a lone wolf or a duo, for example the 2016 cargo truck attack in Nice by one driver, and 2013 Boston Marathon bombing by a pair of brothers. Plots that involve more people are more likely to be discovered through the surveillance of their communications, so organized large-scale plots are less likely to occur.”
“Terrorism insurance is effectively insurance against the failure of counter-terrorism. Because counter-terrorism efforts have increased so much post 9/11, a reasonable assumption to make is that the frequency and severity of loss from terrorism have decreased significantly.”
They conclude that underwriters need to think about how terrorists will behave going forward and how governments around the world will counteract terrorism in order to predict where and to what extent future losses may occur.
Willis Towers Watson offers insight into how insurers are responding to meet the evolving nature of terrorism.
The I.I.I. has resources on terrorism risk and insurance here.
As Texas prepares for the imminent arrival of intensifying Hurricane Harvey, already a Category 2 storm, latest analysis shows the enormous potential values at stake.
Just in from CoreLogic: More than 200,000 homes in Texas have the potential for storm surge damage with an estimated total reconstruction cost value (RCV) of almost $40 billion.
Houston, Texas ranks number 7 among the top 15 metropolitan areas for storm surge risk, with a potential 283,380 at-risk homes and an RCV of $53.4 billion.
But don’t forget the potential impact of strong hurricane-force winds.
Earlier from AIR Worldwide: The insured value of residential and commercial properties in coastal areas of Texas totaled $1.2 trillion in 2012, accounting for 26 percent of the state’s total insured property exposure.
The Texas Windstorm Insurance Association (TWIA), is the state’s insurer of last resort for wind and hail coverage for Texas Gulf Coast residential and commercial property owners in the event of catastrophic loss. TWIA covers wind and hail in 14 coastal counties and parts of Harris County. TWIA has initiated its catastrophe plan.
Insurers stand ready to assist all policyholders impacted by Harvey.
Some $23 billion of first-half 2017 global catastrophe losses were covered by insurance, according to preliminary estimates from Swiss Re sigma.
With total economic losses from disasters at $44 billion in the first-half, that means 52 percent was covered.
As Artemis blog reports, this is actually a relatively high percentage insured which makes for a smaller protection gap.
“The 10-year average economic loss of $120 billion and the average insured loss of $33 billion, show that a more typical percentage insured is just 28 percent.”
Severe thunderstorms in the U.S. resulted in the largest losses in the first six months of this year—accounting for $16 billion of the $23 billion insured losses.
Kurt Karl, Swiss Re chief economist explains: “Fortunately, in the U.S., most households and businesses are insured against wind risk so they are financially protected when severe storms strike.”
Whether you’re sharing rides, homes, workspaces, driveways, food experiences, or even, as in China, umbrellas and basketballs, the sharing economy continues to expand into new areas.
And so do the associated risks and liability.
From today’s I.I.I. Daily, via The New York Times: “Airbnb, the peer-to-peer vacation rental and hospitality site, is facing a lawsuit in which a guest says that the company did not perform appropriate background checks on a host who allegedly sexually assaulted her. According to the plaintiff, a background check would have uncovered information that the owner had been arrested and charged with battery, preventing him from listing property on Airbnb according to the terms of service.”
Whether you’re looking to rent out your space to someone or rent a space from someone via a peer-to-peer network, it’s important to know whether you’re insured.
Some tips on peer-to-peer home rental from the I.I.I.
Note: Airbnb has a Host Protection Program that provides hosts and landlords up to $1 million coverage for property damage and liability claims that occur in a listing or on an Airbnb property, during a stay.
But here are the risks that the Airbnb policy doesn’t cover:
“The Host Protection Insurance program does not apply to liability arising from (1) Intentional Acts including: (i) Assault and Battery or (ii) Sexual Abuse or Molestation – (by the host or any other insured party), (2) Loss of Earnings, (3) Personal and Advertising Injury, (4) Fungi or Bacteria, (5) Chinese Drywall, (6) Communicable Diseases (7) Acts of Terrorism, (8) Product Liability, (9) Pollution and (10) Asbestos, Lead or Silica.”
You’ve heard about self-driving cars, but what about autonomous ships?
Fortune Tech reports that the world’s first autonomous cargo ship, to be christened the Yara Birkeland is expected to start sailing in 2018, initially delivering fertilizer along a 37-mile route in southern Norway.
“The ship, according to the Wall Street Journal, will cost $25 million, about three times as much as a conventional ship of similar size, but will save up to 90% in annual operating costs by eliminating both fuel and crew.”
Analysis by Allianz Global Corporate & Specialty (AGCS) shows that human error accounts for approximately 75 percent of the value of almost 15,000 marine liability insurance claims studied over five years, equivalent to over $1.6 billion.
From the AGCS Safety & Shipping Review 2017:
“Autonomous vessels could improve maritime safety and revolutionize movement of cargo on a scale not seen since containerization.”
Check out Insurance Information Institute facts & statistics on marine accidents.