Stable And Buyer-Friendly Commercial Insurance Marketplace

As hundreds of risk professionals gather in Philadelphia, the birthplace of insurance, for the annual RIMS (Risk and Insurance Management Society) conference, here’s the latest take on corporate risk costs:

  • Businesses saw a 5 percent decline in the total cost of risk (TCOR) in 2016—the third year in a row that corporates have benefited from lower prices, according to the latest RIMS benchmark survey. The study defines TCOR as the cost of insurance, plus the costs of the losses that are retained and the administrative costs of the risk management department. CFO.com has more on the findings.
  • The commercial insurance marketplace remains buyer-friendly and stable for North American insurance buyers, even as it braces for potential changes from Washington D.C. That’s the outlook from Willis Towers Watson in its 2017 Marketplace Realities report which points to the fluidity of capital as a key driver of current market conditions. The report’s line-by-line commercial insurance price predictions for the remainder of 2017 show a mix of increases, decreases and flat rates, as follows:

 

Need For Political Risk Coverage Accelerates

Amid ongoing political upheaval in Venezuela and a volatile geopolitical landscape elsewhere, the need for political risk insurance is rising to prominence for multinational companies.

AP reports that General Motors just became the latest corporation to have a factory or asset seized by the government of Venezuela.

GM said assets such as vehicles were taken from the plant causing the company irreparable damage.

To protect themselves against loss or damage to physical assets caused by political action and instability, businesses should consider purchasing political risk insurance.

This specialty type of insurance can protect against a variety of risks, including:

  • Expropriation
  • Political violence (including terrorism and war).
  • Currency inconvertibility.
  • Non-payment.
  • Contract frustration due to political events.

Due to the accelerating pace of geopolitical uncertainty, the market for political risk insurance is pushing toward $10 billion in 2018, up from $8.1 billion in 2015, according to a KPMG LLP report published last year.

Willis Towers Watson advises multinational companies to buy political risk coverage on operations worldwide — particularly for select regions —while it is still available, Business Insurance reports.

Political risk insurance is available from both private insurers and from government-backed insurers, including the Overseas Private Investment Corporation (OPIC), an agency of the U.S. government.

Aon’s Political Risk Map 2017 captures changing risks for businesses and countries across emerging and frontier markets.

Last year an equal number of countries showed a reduction in political risk as showed an increase, a trend which highlights the persistence of political risk across the globe, Aon said.

Insurers Invest In Artificial Intelligence

About two-thirds of insurers use artificial intelligence-based (AI) “virtual assistants” to handle some customer calls and use of the technology is expected to increase, according to a just-published Accenture survey.

Today’s I.I.I. Daily, via Bloomberg, reports that 85 percent of the executives surveyed by Accenture indicated that they would invest “significantly” in the technology over the next three years.

Insurance companies will spend on average $90 million on artificial-intelligence technologies by 2020, according to research from Tata Consultancy Services.

The Bloomberg article “Insurance Customers Need to Get Used To Talking To Machines” is timely.

A new global study by software company Pegasystems Inc reveals that while consumers are optimistic about the benefits of AI, they are also confused about what AI really does and have misplaced fears that inhibit them from fully embracing AI devices and services.

In the survey of 6,000 customers in six countries, Pegasystems found that only one in three (36 percent) of consumers are comfortable with businesses using AI to engage with them—even if this typically results in a better customer experience.

Digital Insurance reports: “The irony in many cases is that consumers may be surprised to learn they are already exposed to much more AI than they realize.”

Only 34 percent of respondents thought they had directly experienced AI. But when asked about the technologies in their lives, the survey found that 84 percent actually use at least one AI-powered service or device such as virtual home assistants, intelligent chatbots, or predictive product suggestions.

“When asked separately to identify AI-powered devices, only 41 percent knew Amazon’s Alexa and Google Home run on AI.”

U.S. Thunderstorm Losses Add Up To Q1 Record

Topping $5.7 billion. That’s the record cost of insured losses from severe thunderstorms and convective weather in the United States in the first quarter of 2017.

The latest figures come via Steve Bowen, director and meteorologist at Impact Forecasting, the catastrophe risk modeling center at Aon Benfield.

Here’s the chart (via @SteveBowenWx):

Artemis blog offers this perspective:

“It’s the second year in succession that insurance and reinsurance markets have faced a heavy toll from severe thunderstorm related losses, which in turn means impacts to ILS [insurance-linked securities] funds and investors, as severe convective storm risk is a typical peril of many catastrophe reinsurance arrangements that ILS investments are linked to.

Beyond the first-quarter the expensive run-rate of losses from severe thunderstorms has continued, with some further outbreaks in the last fortnight.”

A recent Willis Re study found thunderstorms were just as costly to insurers as hurricanes.

Check out these resources (here and here) from the Insurance Institute for Business & Home Safety on how to protect your home and business from thunderstorms and tornadoes.

Register here for an April 27 Swiss Re and I.I.I. webinar on natural catastrophes.

I.I.I. facts and statistics on tornadoes and thunderstorms here.

Commercial Insurance Prices Moving On Up

Insurers are moving away from the rate cuts of 2016, according to online insurance exchange MarketScout’s take on the first quarter 2017 rate environment.

For the first time in 20 months, the composite rate index for commercial accounts in the United States measured a rate increase at plus 1 percent, MarketScout said.

Richard Kerr, CEO of MarketScout:

“The plus 1 percent composite rate index was driven by larger rate increases in commercial auto, transportation, professional and D&O rates. We also recorded small rate increases in the majority of coverage and industry classifications.”

Rates for business interruption, inland marine, workers’ compensation, crime, and surety coverages held steady in the first quarter. Rates for all other coverages either moderated or increased.

By industry class, every industry experienced a move toward higher rates in the first quarter. Transportation had the largest rate increase at plus 5 percent, MarketScout reported.

Small accounts (up to $25,000) were assessed a 1 percent rate increase in the first quarter of 2017. Medium accounts ($25,001 – $250,000) were flat while both large ($250,001 – $1 million) and jumbo (over $1 million) accounts enjoyed rate decreases of minus 1 percent and minus 2 percent respectively.

Check out Insurance Information Institute facts and statistics on the commercial lines insurance market here.

@united: Do You Have A Reputational Risk Policy?

While the social media firestorm following the forcible removal of a passenger from a United Airlines flight highlights the importance of crisis and reputation risk management, it also underscores the potential liability airlines face from balancing duties to their customers, employees and to shareholders.

USA Today reports that three things govern a carrier’s relationship with its passengers: contracts of carriage, the U.S. Department of Transportation and laws approved by Congress:

United’s dispute with a passenger forcible removed from a Sunday flight shines a spotlight on the contracts that set rules and expectations between carriers and travelers.

“Those contracts are well thought through. They are generally fair and balanced, and they reflect the market,” said Roy Goldberg, a partner at Steptoe & Johnson who practices aviation law in Washington, D.C. “As a general matter, passengers have rights, but airlines have rights, too.”

A Reuters analysis of federal data shows U.S. airlines are bumping passengers off flights at the lowest rate since 1995.

Many insurers and brokers offer reputational risk policies that include crisis management and PR services to assist companies before, during and after a crisis.

More on the story in today’s I.I.I. Daily, via the Wall Street Journal:

On April 11 Oscar Munoz, head of United Airlines, apologized for the forcible removal by the police of Dr. David Dao, a passenger, from United Express Flight 3411 in Chicago. The apology came two days after the altercation led to the widespread expression of anger on social media, including millions of angry posts in the airline’s rapidly growing market in China. Politicians in Washington, D.C., also condemned the airline’s forcible removal of a passenger. Munoz sent a message to employees of United Continental Holdings Inc. apologizing for an incident he characterized as horrific and acknowledging the general public outrage, which he said he shared. The message was in sharp contrast to Munoz’s initial response.

FAA guidance for planning and preparing for your next airline trip here.

Prepare The Same For Every Hurricane Season

Early 2017 Atlantic hurricane forecasts are predicting fewer storms, but here’s why coastal residents shouldn’t let their guard down.

Colorado State University’s (CSU) Tropical Meteorology Project: “Coastal residents are reminded that it only takes one hurricane making landfall to make it an active season for them, and they need to prepare the same for every season, regardless of how much activity is predicted.”

London’s TSR (Tropical Storm Risk): The precision of hurricane outlooks issued in April is low and large uncertainties remain for the 2017 hurricane season.

Forecasters believe development of potential El Niño conditions in the coming months will suppress storm activity.

What are the numbers?

CSU: 11 named storms, with 4 hurricanes and 2 major (Category 3-4-5) hurricanes. The median between 1981 and 2000 was 12 named storms, 6.5 hurricanes and two major hurricanes. U.S. major hurricane landfall is estimated at 80 percent of the long-period average.

TSR: 11 named storms, with 4 hurricanes and 2 major hurricanes. 2017 Atlantic hurricane activity will be 30 percent below 1950-2016 long-term average.

I.I.I. hurricane facts and statistics here, plus information on flood insurance here.

Following Insuring Florida blog for more on hurricane preparedness.

The Cost Of A Dog Bite

When dogs bite homeowners insurers pay out an average of $33,230 per claim.

In fact, dog bites and other dog-related injuries accounted for more than one-third of all homeowners liability claim dollars paid out in 2016, costing in excess of $600 million, according to the Insurance Information Institute and State Farm.

The average cost per claim paid out by insurers actually decreased by more than 10 percent in 2016, but the average cost per claim nationally has risen more than 70 percent from 2003 to 2016 (see chart).

This is due to increased medical costs as well as the size of settlements, judgments and jury awards given to plaintiffs, the I.I.I. reports.

Costs vary widely by state.

The state with the highest average cost per claim was New York, at a whopping $55,671 per claim.

For more state-specific information, go to the I.I.I.’s interactive map.

National Dog Bite Prevention Week® (April 9-15, 2017), is an annual event designed to provide consumers with information on how to be responsible pet owners while increasing awareness of a serious public health issue.

Watch this I.I.I. video for tips on preventing dog bites:

An Elementary Mistake

I.I.I. chief actuary James Lynch explains why ProPublica’s analysis on auto insurance is inaccurate, unfair and irresponsible:

It looks like ProPublica failed its first actuarial exam.

The renowned investigative journalism website has, along with Consumer Reports magazine, published reports that auto insurers systematically charge unfairly high rates to people in minority and low-income communities.

It is an explosive charge—to say that in, for example, Illinois, 33 out of 34 companies the journalists looked at (including the nation’s largest insurers) all systematically price-gouged minority communities and areas with predominantly low income households.

And the charge is inaccurate.

Read Lynch’s full Op-Ed in Insurance Journal here.

Guaranty Funds: A Safety Net For Policyholders

News headlines about the failure of long-term care insurer Penn Treaty American Corp. of Allentown, Pennsylvania, underscore that while failures of U.S. insurers are rare, they are possible.

The New York Times reports that the order from state authorities calling for the liquidation of the medium-sized insurer and the closure of its operations leaves tens of thousands of Penn Treaty policyholders in limbo.

The good news is that a safety net exists to protect policyholders.

For decades, life/health (including long-term care) and annuity policyholders, as well as property/casualty insurance customers have been protected against the insolvency of an insurance company through what is known as a guaranty fund system.

So in this case, state life and health insurance guaranty funds will continue to service the policies of Penn Treaty policyholders, ensuring that they continue to receive coverage, despite the insurer’s failure.

To be eligible for guaranty fund coverage protection, it is important that policyholders continue to pay their policy premiums in full and on time.

Maximum levels and types of policies covered by state guaranty funds vary from state to state. Here is a list of the maximum amount each state’s guaranty fund will pay.

More information on the Penn Treaty Network America Insurance Company liquidation via the National Organization of Life & Health Insurance Guaranty Associations.

And here is additional background information on insolvencies and state guaranty funds, via the I.I.I.