Category Archives: Insurers and the Economy

Insurance Payouts Underpin Disaster Recovery Process

Tens of thousands of policyholders caught in a disaster in 2016 were better able to recover from the losses and hardships inflicted thanks to insurance.

Global insured losses from catastrophes totaled around $54 billion in 2016 – the highest level since 2012, according to the latest report from Swiss Re sigma.

North America accounted for more than half the global insured losses in 2016, with insured losses from disaster events reaching $30 billion, the highest of all regions.

This was due to a record number of severe convective storms in the United States and because the level of insurance penetration for such storm risks in the U.S. is high, sigma noted.

For example, a hailstorm that struck Texas in April 2016 resulted in an economic loss of $3.5 billion, of which $3 billion, or 86 percent, was covered by insurance.

“With insurance, many households and businesses benefited from insurance payouts for the heavy damage to their property caused by large hailstones.”

However, insurance cover is not universal. The shortfall in insurance relative to total economic losses from all disaster events—the protection gap—was $121 billion in 2016. See this chart:

“Under-insurance against catastrophe risk is a reality in both advanced and emerging markets, and there is still large opportunity for the industry to help strengthen worldwide resilience.”

For example, Swiss Re noted that the U.S. has been and continues to be critically underinsured for flood risk, with a flood protection gap of around $10 billion annually.

Additional Insurance Information Institute facts and statistics on global catastrophe losses are available here.

The Definition And Risk Of Terrorism Is Shifting

A man drives a car into pedestrians on Westminster Bridge, keeps driving, crashes the car outside the Houses of Parliament, then tries to enter the complex armed with a knife. Four people are dead, including a policeman and the assailant, and at least 40 injured.

The investigation into yesterday’s terrorist attack in the heart of London is ongoing, as Westminster bridge reopens and Parliament gets back to work.

Small group and “lone wolf” terrorist attacks are seen as indicative of the shifting nature of terrorism, according to experts (here and here).

In the U.S. such attacks have yet to meet the $5 million damage certification threshold required to trigger the government-backed terrorism risk insurance program (the Terrorism Risk Insurance Program Reauthorization Act of 2015).

Broker Marsh reports that while recent attacks may have resulted in little direct physical damage and losses, they still have the potential for significant business disruption costs and contingency losses, for example if a city is put under curfew, or travelers cancel reservations, travel is disrupted, and business activity levels are diminished.

To address these evolving threats, insurers have adapted coverage to consider: active shooter situations; extra expense for evacuating people due to threat; contingent interruption of operations; canceled reservations; loss of attraction.

Policies can be structured to include nonphysical damage scenarios such as damage resulting from a cyber event, and nuclear, biological, chemical, and radiological (NBCR) risks.

Terrorism preparedness is evolving too as businesses adapt to the changing threat (see active shooter prevention and response steps).

The last major terrorist attack in the UK in July 2005 targeted the public transportation system during rush hour and left 52 people dead.

Insurance Information Institute facts and statistics on terrorism risk available here.

This chart, via the New York Times, shows that with the exception of the 9/11 and Oklahoma City attacks, there is no year since 1970 when terrorism killed more than 50 people in the United States:

Winter Weather Hazards Alert

With winter storm warnings in place for large swathes of the Northeast, including major metro hubs of Philadelphia, New York City and Boston, the onset of heavy snow is all but a certainty.

But as insurers and reinsurers will tell you, the term ‘winter storm’ covers a multitude of hazards, such as high winds, snow, severe cold, and freezing rain, all of which can cause significant property damage and ultimately insured losses.

Insurance Information Institute facts and statistics show that from 1996 to 2015 winter storms resulted in about $30.4 billion in insured catastrophe losses (in 2015 dollars), or about $1.5 billion a year on average, according to Property Claim Services (PCS).

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Given the broad definition and impacts of winter storms, how we prepare for them and prevent loss has to expand too.

Check out this FEMA resource on what actions to take when you receive a winter weather storm alert from the National Weather Service for your local area, and what to do before, during and after a snowstorm and severe cold.

And here’s a handy last minute winter weather checklist from the Insurance Institute for Business & Home Safety to help homeowners and businesses prepare for power outages, prevent frozen pipes and roof collapses due to snow.

Most Serious Workplace Injuries Cost More Than You Think

$60 billion is a lot of money. Think about it.

For example, insured losses from global disaster events were around $49 billion in 2016, according to Swiss Re.

That’s a large number too, but not as large as the $59.9 billion cost to U.S. employers of the most serious workplace injuries and accidents in 2014, per the just-released 2017 Liberty Mutual Insurance Workplace Safety Index.

By the way, the most serious ones are injuries that cause employees to miss six or more days of work.

The nearly $60 billion in direct workers compensation costs to U.S. businesses translates into more than $1 billion a week that companies spend on these injuries, the index suggests.

As big as it sounds, the total cost actually fell from $61.9 billion in 2016, according to Liberty Mutual.

The 10 leading causes of the most disabling work-related injuries account for $49.9 billion, or 83.4 percent of the total cost of $59.9 billion.

The top three causes of the most disabling work-related injuries are:

–Overexertion ($13.8 billion, 23 percent)

–Falls on same level ($10.6 billion, 17.7 percent)

–Falls to lower level ($5.5 billion, 9.2 percent)

Collectively, these three causes represent almost half the cost of the leading accidents. Check out the chart:

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Developed annually by the Liberty Mutual Research Institute for Safety, the index is based on information from Liberty Mutual Insurance, the U.S. Bureau of Labor Statistics (BLS) and the National Academy of Social Insurance.

The index helps employers, risk managers and safety practitioners make workplaces safer by identifying critical risk areas so that businesses can better allocate safety resources.

Here are some useful additional facts and statistics on workers compensation from the Insurance Information Institute.

Preparing For The Next Ground Stop To Your Business With Insurance

If you were flying United Airlines Sunday night, chances are you may have been delayed.

A computer outage grounded all of United’s domestic flights for more than two hours, according to this NBC report, though the glitch affected only aircraft on the ground and did not impact international flights.

The ground stop was issued after the Aircraft Communications Addressing and Reporting System, or ACARS, had issues with low bandwidth, NBC said.

This is not the first time that a computer glitch or system outage has affected United’s operations, or indeed those of other airlines.

Allianz warns that in today’s interconnected industrial world non-physical or non-damage causes of business interruption (BI) are becoming a much bigger issue.

Physical perils like fire and explosion and natural catastrophes are still the top causes of BI that businesses fear most, but preparing for non-damage perils is becoming increasingly critical.

This shift in BI risk means that intangible hazards, such as a cyber incident or interdependencies from global networks, can cause large revenue losses for companies without inflicting property damage.

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With this ever-expanding range of BI risks, it’s good to know insurers have you covered.

Several pertinent BI insurance coverages developed by insurers are outlined in the Allianz Risk Barometer 2017 report:

  • Non-Damage BI (NDBI) insuring loss of income and ongoing costs from interruption of business caused by situations where there is no physical damage to the insured, the supplier or customer and there is no BI claim to be made, this coverage indemnifies a business for lost revenue due to disruption
  • Data Driven (Cyber) BI insuring loss of income and ongoing costs from interruption of business due to unavailability of data and computer systems caused by hacking, technical failure or human error.

Additional resources on covering losses with business interruption insurance are available from the Insurance Information Institute here.

Diverse Strategies As Insurers Embrace Digital Innovation

The routes to a digital future are many and varied, but for insurers the question is how to get there?

A new survey by Willis Towers Watson of 200 senior-level insurance executives offers some insight into the way forward.

The findings suggest that M&A and partnerships are likely to trump internal investment as insurers look to deliver digital transformation.

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Almost half (45 percent) of respondents to the survey signaled a clear preference for acquisitions as the way forward to gain digital capabilities.

By contrast, fewer than one in five insurers (17 percent) said they have a preference for internal development.

That’s not to say that internal innovation efforts have no place at these insurers, according to Willis Towers Watson, it’s more about getting the balance right between organic and inorganic growth.

Well over one-third (38 percent) of survey respondents say they have no preference between the two routes. In other words, they will use both acquisitions and internal innovation as the circumstances suit.

As insurers embrace a more outwards-looking approach to innovation, the survey suggests that traditional M&A deals are not the only option.

As Willis Towers Watson says:

“Many insurers are investing in a disparate range of technologies via venture capital funds – either through their own in-house venture capital arms, or third-party funds. This may be an attractive way to make a number of small bets on nascent innovations, rather than betting the house on an as-yet unproven technology.”

The survey found that one-third (31 percent) of respondents from the property/casualty insurance sector have set up a corporate venture arm already, while another third (32 percent) are considering doing so.

Innovation was a key topic of discussion at the Insurance Information Institute Property/Casualty Insurance Joint Industry Forum held yesterday in New York. For coverage of the forum go to the I.I.I. website.

Latest On Employment Trends

What are the latest employment trends for P/C, life/annuity, health insurers, reinsurers, agents & brokers, independent claims adjusters and third-party administrators?

The U.S. Labor Department’s Bureau of Labor Statistics (BLS) just published data as of November 2016 on detailed insurance industry employment and the Insurance Information Institute (I.I.I.) website contains updated multi-decade trend data in chart form.

Some of the key takeaways:

—In November 2016, on a year-over-year basis, employment in most segments of the insurance industry was up to varying degrees. Commentary by Dr. Steven Weisbart, chief economist for the I.I.I.:

“For the 12 months ending in November 2016, P/C carrier employment rose by 9,600 (+1.9 percent) to 523,500. However, this result does not echo longer-term trends. Over the last four years, for example, P/C carrier employment has risen and fallen in a narrow range of 510,000 to 530,000.”

—The agent/broker segment gained 900 jobs in November 2016 vs. November 2015 (up 0.1 percent) to 778,400. Employment growth in this category in the last three years has been extremely strong.

—Among smaller industry segments, reinsurance carrier employment in the U.S. fell in November 2016 vs. November 2015 (down 700, or -2.7 percent) to 24,900.

—Employment at independent claims-adjusting firms on a year-over-year basis for November 2016 rose by 2,400 (4.2 percent) to 59,200—the highest employment level seen for this segment in at least 25 years.

Looking Ahead: Commercial Insurance Pricing

Where are U.S. commercial insurance rates headed in the coming year?

Latest analysis from online insurance exchange MarketScout gives some insight.

This from Richard Kerr, CEO MarketScout:

“We expect more moderate rate reductions for the coming year for all but a few lines of business. If interest rates increase, rate reductions could accelerate.” 

December closed out the year at a composite rate reduction of 1 percent, according to MarketScout.

Employment practices liability insurance and crime were the only coverages with rate increases in December, with increases of 1 to 2 percent.

Workers’ compensation rates decreased from down 1 percent to down 2 percent in December. Commercial property rate decreases moderated from down 3 percent to down 2 percent.

The soft market is now 16 months old, but seems longer because the composite rate in 2015 was flat or plus 1 percent for the first eight months before dipping into negative territory.

Kerr noted that generally the soft or hard market cycles last at least three years.

Most industries are cyclical to some extent and the Insurance Information Institute offers further explanation of the property/casualty insurance market cycle here.

Nat Cat Losses Increase in 2016

Total global insured losses from natural catastrophes and man-made disasters in 2016 rose to at least $49 billion in 2016, 32 percent higher than the $37 billion recorded in 2015.

Preliminary estimates from Swiss Re sigma put insured losses from natural catastrophe events at $42 billion in 2016, up from $28 billion in 2015, but slightly below the annual average of the previous 10 years ($46 billion).

Man-made disasters triggered an additional $7 billion in insurance claims in 2016, down from $9 billion the previous year.

Hurricane Matthew and severe storms in the United States generated high losses during the year, Swiss Re noted.

Insured losses from Hurricane Matthew, which caused devastation across the east Caribbean and southeastern U.S. in October, are estimated to be in excess of $4 billion, while economic losses were $8 billion.

Matthew was also the deadliest natural catastrophe of the year globally, claiming up to 733 lives, most of those in Haiti.

A number of severe weather events impacted the U.S. in 2016, including a series of severe hail and thunderstorms.

The costliest was a hailstorm that struck Texas in April, resulting in economic losses of $3.5 billion and insured losses of $3 billion due to heavy damage to property from large hailstones, Swiss Re said.

Swiss Re chief economist Kurt Karl, noted in a press release:

“In this case, because households and businesses were insured, they were much better protected against the financial losses resulting from the storms.”

Total economic losses from natural catastrophes and man-made disasters globally are estimated at $158 billion in 2016, significantly higher than the $94 billion recorded in 2015, due to some large natural catastrophes such as earthquakes and floods.

The gap between total losses and insured losses in 2016 shows that many events took place in areas where insurance coverage was low, Swiss Re said.

Earthquake losses, in particular, underscore the underinsurance problem. For example, government sources put the overall reconstruction cost of an earthquake in August in Italy as high as $5 billion. But insured losses for that event are only a fraction of the total, estimated at $70 million, mainly from commercial assets.

“Society is underinsured against earthquake risk. And the protection gap is a global concern.”

The Kumamoto quakes that struck Japan in April were the costliest disaster event of the year, causing at least $20 billion in economic losses, and $5 billion in insured losses.

Growing P/C Innovation Amid InsurTech, Trump Disruption

The pace of innovation in the U.S. property/casualty industry will accelerate in 2017, as technology advances and the growth of InsurTech raise customer expectations for greater innovation and new business models, according to a new report by Ernst & Young.

In its 2017 U.S. Property/Casualty Insurance Outlook, EY says the industry is at an inflection point, as continued economic headwinds provide little support for insurers plagued by shrinking investment incomes, escalating claims costs and rising regulations.

A new Trump administration raises the prospect of further economic and regulatory change and with the P/C industry in flux, this is a good time for CEOs to think through their future business strategies, EY suggests.

As insurers look to adapt to disruptive market shifts, EY expects companies will do more to develop a culture of innovation in 2017:

“The Internet of Things, telematics, artificial intelligence, driverless cars and blockchain have the potential to transform industry fundamentals and even redefine the nature of risk. In the future, competing for market share will be increasingly dependent on technology, data and analytics.”

With more than 1,000 InsurTech startups in operation, the pace of P/C innovation will speed up next year.

For example, in 2017 InsurTech startup Trov plans to roll out on-demand insurance that will enable customers to use their smart phones to turn coverage for personal belongings on and off. Trov is an example of how product innovation directed towards millennials could disrupt the P/C insurance model, EY says.

“Incumbents will be watching this space closely, creating venture funding groups that are actively monitoring and investing in InsurTech initiatives.”

Insurers will take digital transformation to the next level in 2017, expanding their use of robotics and advanced analytics across most aspects of their business, from claims handling and underwriting to customer relationship management (CRM) systems and risk management, according to EY’s outlook.

See our earlier blog post for latest data on the InsurTech sector.

Read about the top InsurTech deals of the year as reported by Insurance Networking News here.