Entries tagged with “Economy”.


Five of the seven individual billion-dollar insured loss natural disaster events in 2015 were recorded in the United States, according to Aon Benfield’s Annual Global Climate and Catastrophe Report.

The other two billion dollar events were recorded in Europe.

All of the events were weather-related and below the average of eight. The five events in the U.S. were equal to the 2000-2014 average.

Italy’s May 2012 earthquake was the last non-weather billion-dollar insured loss event.

The all-time record of 17 billion-dollar weather events was set in 2011.

The costliest individual insured loss event of the year was a prolonged stretch of heavy snow, freezing rain, ice, and frigid cold that impacted much of the eastern United States in February 2015. That event prompted an estimated $2.1 billion insured loss.

Other billion-dollar insured loss events in the U.S. included a severe thunderstorm outbreak in the U.S. in May and severe thunderstorms and flooding in December. Each of these events cost an estimated $1.4 billion in insured losses.

Another thunderstorm event in the U.S. in April cost $1.2 billion, while the yearlong drought in the West was another $1 billion insured loss event.

The two non-U.S. billion dollar insured loss events of 2015 consisted of the catastrophic December flooding in the UK that cost an estimated $1.3 billion, and European windstorms Mike and Niklas in March and April which resulted in an estimated insured loss of $1 billion.

CostliestInsuredCatLosses2015

Aon Benfield noted that on a global scale disasters caused insured losses of $35 billion in 2015, below the 15-year mean of $51 billion and 14 percent lower than the median ($40 billion).

This was the fourth consecutive year with declining catastrophe losses since the record-setting year in 2011.

The U.S. accounted for 60 percent of global insured disaster losses in 2015, reflecting the high rate of insurance penetration in the country, according to the report.

I.I.I. facts and statistics on U.S. catastrophes are available here.

U.S. property-casualty insurers face another year of disruptive change in 2016, according to a new report by Ernst & Young.

In its 2016 U.S. Property-Casualty Insurance Outlook, EY says that digital technologies such as social media, analytics and telematics will continue to transform the market landscape, recalibrating customer expectations and opening new ways to reach and acquire clients.

The rise of the sharing economy, in which assets like cars and homes can be shared, is requiring carriers to rethink traditional insurance models.

An outlook for slower economic growth, along with increased M&A and greater regulatory uncertainty, will set the stage for innovative firms to capitalize on an industry in flux in 2016.

EY’s take:

Insurers that stay ahead of these shifts should reap substantial benefits, while laggards risk falling behind, or even out of the race.”

EY reports that competitive pressures in the insurance industry are building as digital technology erodes the advantages of scale enjoyed by established insurers and empowers smaller players to compete for market share through more flexible pricing models and new distribution channels.

It cites the recent launch of Google Compare, which allows customers to comparison shop for insurance, as the start of a larger wave of insurance tech activity in 2016.

Along with this, customer expectations and behaviors are evolving at a rapid pace, often faster than traditional mechanisms can react.

EY observes:

Driven by their interactions in other digitally enabled industries, such as retail and banking, property-casualty customers are increasingly demanding a more sophisticated and personalized experience—including digital distribution, anytime access, premiums accurately reflecting usage and individual risk and higher levels of product customization and advice.”

Policyholders are also seeking coverage of a broader range of risks, such as cybersecurity and under-protected property exposure, according to EY’s outlook.

Hat tip to Insurance Journal which reported on this story here.

Check out a recent presentation by I.I.I. president Dr. Robert Hartwig titled Insurance, the Sharing Economy, Millennials and More.

Suicide-armed assaults and bomb attacks may become an even more attractive tactic for terrorist groups to replicate following the November 13, 2015 attack in Paris, France, according to catastrophe modeling firm RMS.

In a blog post, RMS writes that the Paris attacks—which killed more than 125 people and left 350 injured—are the deadliest in Europe since the 2004 train bombings in Madrid, Spain, where 191 people were killed and over 1,800 injured.

The attacks have exposed France’s vulnerability to political armed violence and alerted the rest of Europe to the threat of salafi-jihadists within their domain, according to RMS.

RMS also notes that the chosen strategy in last Friday’s attacks offers greatest impact. For example, the suicide armed attacks or sieges witnessed at the Bataclan Theater involved a group opening fire on a gathering of people in order to kill as many as possible.

Similar to the Mumbai attacks in 2008, the ability to roam around and sustain the attack, while being willing to kill themselves in the onslaught makes such terrorist attacks more difficult to combat.

From the terrorist’s perspective, these assaults offer a number of advantages, such as greater target discrimination, flexibility during the operation, and the opportunity to cause large numbers of casualties and generate extensive worldwide media exposure.”

Such attacks typically will target people in crowded areas that lay outside any security perimeter checks such as those of an airport or at a national stadium. Probable targets for such attacks are landmark buildings with a large civilian presence, RMS suggests.

Business Insurance reports that victims of the Paris attacks—whether French national or not—can claim compensation for personal injury from Le Fonds de Garantie des Victimes des Actes de Terrorismes et d’Autres Infractions (FGTI), as detailed by France’s insurance industry association Fédération Française des Sociétés d’Assurances on its website here.

France also has a state-backed reinsurer for property losses caused by terrorism, known as GAREAT (Gestion de l’Assurance et de la Réassurance des Risques Attentats et Actes de Terrorisme), which will likely cover any insured property losses resulting from the attacks.

Check out I.I.I. facts and statistics on global terrorism losses here and the latest I.I.I. paper on the renewed and restructured Terrorism Risk and Insurance Program in the U.S.

We spend a lot of time explaining why insurance is good for individuals, society and the economy as a whole, but a new report reverses that equation.

It focuses on the current and anticipated impact of women on the global insurance market.

Conducted by the International Financial Corporation (IFC), AXA and Accenture, the report estimates that women’s individual spending on insurance premiums will grow to between $1.45 trillion and $1.7 trillion by 2030—half of it in just 10 emerging economies.

That represents a doubling from the current annual premium value of the women’s global market of $770 billion.

The report cites an increased level of education, income, improved socioeconomic status, and a greater need for protection as key reasons that make women a big opportunity for insurers.

This is strongly reflected in a very simple yet telling number: women across the world are willing to invest 90 percent of their income into their households.”

Furthermore, women entrepreneurs now represent one-third of the world’s business owners, and they need protection for their businesses. Just 31 percent of women entrepreneurs surveyed held protection or savings-oriented life insurance, for example.

WomensInsuranceMarketProjections2030

The report also highlights that women’s attitudes to fraud, claims and loyalty, their roles as a trusted source of recommendations, and their relational rather than transactional approach to networks make them a valuable customer and inexpensive brand ambassador for insurers.

Women can act as strong advocates or social marketers for insurers and financial services firms, and are more likely than men to recommend a product or service to their friends and family, the report finds. They are also greatly influenced by the advice of their female peers.

Therefore, women can play a key role in explaining and selling insurance products across customer segments, and especially to other women.

What women want and need from insurance varies by age, income level and lifecycle events, however.

The report urges insurers to abandon the one-size-fits-all approach and instead identify and target segments of women who share common needs and constraints in order to take advantage of this growth opportunity.

Check out I.I.I. facts and statistics on careers and employment to discover what percentage of the insurance industry workforce comprises women.

The explosions at the Port of Tianjin, China are set to become one of the largest insured manmade losses in Asia to-date with potential losses of up to $3.3 billion, according to a new report by Guy Carpenter.

The event, which blasted shipping containers, incinerated vehicles in the port and on an adjacent highway overpass, destroyed warehouses, production facilities and dormitories, and impacted a nearby railway station and residential structures, will also be considered one of the most complex insurance and reinsurance losses in recent history.

Many classes of insurance were impacted by the loss, including: containers; cargo in containers; property; auto; and general aviation.

While access to the site is limited, Guy Carpenter said its satellite-based catastrophe evaluation service known as CAT-VIEW was able to utilize high resolution pre- and post-event satellite imagery to understand what exposures were present at the time of the blast and therefore could contribute to the loss.

The findings come as a new study published by Lloyd’s says that manmade risks are having an increasingly significant impact on economic output at risk (GDP).

In its analysis, Lloyd’s City Risk Index finds a total of $4.6 trillion of projected GDP is at risk from 18 manmade and natural disasters in 301 major cities around the world—out of a total projected GDP between 2015 and 2025 of $373 trillion.

However, manmade threats such as market crash, power outages and nuclear accidents are associated with almost half the total GDP at risk.

A market crash is the greatest economic vulnerability—representing nearly one quarter ($1.05 trillion) of all cities’ potential losses, Lloyd’s says.

New and emerging threats such as cyber attack, human pandemic, plant epidemic and solar storm are also having a growing impact, representing more than one fifth of total GDP at risk, Lloyd’s reports.

Governments, businesses and insurers must work together to ensure that this exposure—and the potential for losses—is reduced, according to Lloyd’s CEO Inga Beale.

Lloyd’s research shows that a 1 percent rise in insurance penetration translates into a 13 percent reduction in uninsured losses—a 22 percent reduction in taxpayers’ contribution following a disaster.

Insurance also improves the sustainability of an economy and leads to greater rates of growth. A 1 percent rise in insurance penetration leads to increased investment equivalent to 2 percent of national GDP, Lloyd’s notes.

Check out the I.I.I. publication A Firm Foundation: How Insurance Supports the Economy.

A New York Times article over the weekend takes a behind-the-scenes look at the recent deadly blasts at the port city of Tianjin in China.

The series of explosions and fire that began at a hazardous chemicals storage warehouse in the Binhai New Area of Tianjin August 12, leveled a large industrial area, leaving at least 150 dead and more than 700 injured.

As reported by the NYT, the lack of safety and oversight at the third largest port worldwide is shocking.

Here’s an excerpt:

As recently as 2013, Chinese academics had warned of many unacceptable environmental risks in the district, citing the growing chance of accidents from the storage of dangerous materials so close to residential neighborhoods and singling out the area where the Rui Hai facility was located. That warning, and others like it dating to at least 2008, were ignored.”

The Tianjin catastrophe points to the fact that man-made disasters can have a major impact on a global scale. Warehouses, buildings, thousands of containers and new vehicles were destroyed in the blasts, according to reports.

An initial estimate from analysts put the potential insurance loss at up to $1.5 billion. Some claims are likely to hit reinsurers, rating agencies say.

The incident also highlights the growth of accumulation risks, particularly in highly industrialized areas, according to Dieter Berg, head of department business development, marine global partnership at Munich Re.

In a recent online post for Munich Re’s publication Topics Online, Berg noted:

We as reinsurers have observed again and again over the past years how such individual events can have regional, or even global impact.”

He gave examples such as the destruction of a power plant on Cyprus in 2011 that impacted the national economy, as well as floods in Thailand in 2011 that brought conveyor belts to a halt worldwide.

While insurers and reinsurers are focused on the large loss potential arising from natural hazards, such as flooding or hail, losses are often caused by human beings, particularly around industrial facilities, Berg added.

Such losses (from explosion) are difficult to model, but are comparable to modeling terrorism losses. For large port facilities, we thus analyze not only natural hazards such as flooding, earthquake or hail, but also this type of scenario.”

Insurers and reinsurers need to fully understand the value of goods in ports and all potential exposures in order to calculate adequate premiums, he advised.

The Insurance Information Institute (I.I.I.) has facts and statistics on man-made disasters here.

 

While total economic losses from natural catastrophes and man-made disaster events remain far below-average in the first half of 2015, the global insurance and reinsurance industry is covering a higher than average percentage of those losses.

That’s the key takeaway from preliminary sigma estimates of global catastrophe losses for the first half of 2015, just released by Swiss Re.

Of the $37 billion in total economic losses from disaster events in the first half of 2015, the global insurance and reinsurance industry covered nearly 45 percent, or $16.5 billion, of these losses.

This is higher than the previous 10-year average of 27 percent covered by the global re/insurance industry.

Of the overall insured losses in the first half of 2015, $12.9 billion came from natural disasters, down from nearly $20 billion in first half 2014, and again below the average first-half year loss of the previous 10 years ($25 billion).

Man-made disasters triggered an additional $3.6 billion in insured losses in the first half of 2015, sigma said.

So why did insurance and reinsurance cover a higher proportion of global catastrophe losses in the first half?

The answer lies in the location of the most costly insured natural catastrophes losses for the insurance industry in the first half of 2015—thunderstorms in the United States and winter storm losses in Europe.

These larger loss events, as well as the severe winter weather in North America, all contributed to the lower percentage of uninsured losses through the first half of the year.

Here’s the Swiss Re chart showing the dollar breakout of insured and uninsured catastrophe-related losses from 2005 through 2015:

CatastropheLossesInsuredandUninsured

Note: insured losses + uninsured losses= total economic losses

But, as Artemis blog reports here, sadly the lower proportion of uninsured losses is not related to any major increase in insurance penetration.

The Nepal earthquakes provide a striking example. While economic losses from the quakes are estimated at $5 billion, only around $160 million were insured.

In the words of Kurt Karl, chief economist at Swiss Re:

The tragic events in Nepal are a reminder of the utility of insurance. Insurance cover does not lessen the emotional trauma that natural catastrophes inflict, but it can help people better manage the financial fallout from disasters so they can start to rebuild their lives.”

Check out Insurance Information Institute (I.I.I.) facts and statistics on global catastrophes.

Despite a rather quiet first half of 2015 for global catastrophes, insurers endured at least five separate billion-dollar insured loss events (all weather-related), according to Aon Benfield’s just-released Global Catastrophe Recap: First Half of 2015.

None of the events crossed the multi-billion dollar loss threshold ($2 billion or greater) and four of the five were recorded in the United States, Aon Benfield said.

The costliest event for the insurance industry was an extended period of snow and frigid temperatures in the U.S. during February ($1.8 billion in insured losses). (See our earlier post on first half winter storm losses here).

Other billion-dollar insured loss events in the U.S. included an early April severe thunderstorm outbreak ($1 billion), a severe thunderstorm and flash flood event at the end of May ($1.2 billion), and projected losses arising from the ongoing drought across the West ($1 billion and counting).

The sole billion-dollar insured loss event to be recorded outside the U.S. during the first half of 2015 was Windstorms Mike and Niklas in Western and Central Europe at the end of March/early April. Niklas became the first billion-dollar insured loss windstorm event in Europe since Xaver in December 2013, Aon Benfield said.

Note: the loss totals, which include those sustained by public and private insurance entities, are preliminary and subject to change.

If you’re wondering about the difference between economic and insured loss totals, the 7.8 magnitude earthquake that hit Nepal on April 25 (and subsequent aftershocks) is a good example.

From an economic loss standpoint, the Nepal earthquake ranks as the costliest global natural disaster during the first half of 2015, Aon Benfield reports.

Total damage and reconstruction costs throughout the impacted areas were estimated as high as $10 billion (subject to change), with reconstruction costs in Nepal alone put at nearly $7 billion.

Despite having a multi-billion-dollar economic cost to Nepal with overall economic effects poised to equal more than one-third of the country’s entire GDP, only a very small fraction of those losses – about 2 percent – was covered by insurance.

Check out Insurance Information Institute (I.I.I.) facts and statistics on global catastrophes here.

As my kids head off for their snowy-themed day at camp, the statistic that jumps off the page in the 2015 Half-Year Natural Catastrophe Review jointly presented by Munich Re and the Insurance Information Institute (I.I.I.) is the record $2.9 billion (and counting) in aggregate insured losses caused by the second winter of brutal cold across the Northeastern United States.

As Munich Re illustrates in the following slide, a total of 11 winter storm and cold wave events resulted in 80 fatalities and caused an estimated $3.8 billion in overall economic losses in the period from January 2015 to the end of winter:

USNatCatLosses2015

But the $2.9 billion in insured losses goes higher still when you factor in 2014’s contribution to winter storm losses.

As Munich Re America notes in a press release, if the harsh U.S. winter of 2014/15 is taken as a whole, then the insured losses rise to $3.2 billion and overall economic losses to $4.3 billion.

And this figure does not include indirect losses due to delayed flights, power failures and business interruptions.

As Tony Kuczinski, president and CEO of Munich Re America, says:

The fact that, once again, tens of thousands of people were temporarily left without electricity shows that the U.S. simply must invest in stronger, more weather resilient, infrastructure.”

And when you consider that losses from snow, ice, freezing and related causes typically cost insurers between $1 billion and $2 billion annually, as noted by Dr. Robert Hartwig, I.I.I. president, the impact of the exceptionally cold winter of 2014/15 really starts to bite.

Insurance Information Institute (I.I.I.) chief actuary James Lynch explains how insurance float works and the impact it has on insurance rates. 

Asked for the secret to his success, famed Berkshire Hathaway CEO Warren Buffett often points to insurance float, “money that doesn’t belong to us but that we can invest for Berkshire’s benefit.”

He is talking about premium and loss reserves, the funds that any insurer holds while waiting for claims to settle. That money gets invested, and the investment income is an important revenue source for insurers. It also lowers insurance premiums, since actuaries take investment income into account when setting prices.

But these days float isn’t so buoyant, as you can see from the accompanying chart, which shows the net new money yield – what insurers typically obtain when they invest the float, adjusted for inflation. The National Council on Compensation Insurance (NCCI) estimates the yield, and we at I.I.I. made the inflation adjustment.

USPCNewMoneyVsCPI

The chart goes back decades, and it is easy to see the steady decline in yields. Thirty years ago the float yielded 5 percentage points above the inflation rate.

Yields have fallen inexorably. In recent years, the float has struggled to beat inflation. The post-recession peak has been 2009, when new money yields beat inflation by 2.6 percentage points, but in four of the past six years the net new money yield was negative.

Insurers differ in their investment strategy, but taken as a whole, the industry has suffered from the loss in yield. As a result, insurers have had to deliver better underwriting results in order to be as profitable as they were 10, 20 or 30 years ago.

Last year the property/casualty industry wrote a combined ratio of 97, and delivered an 8.2 percent return on equity.  The industry had a similar ROE in 1983 – 8.3 percent — but ran a combined ratio of 112, thanks in no small part to the tailwind provided by investment yields nearly 8 percentage points above inflation.

Put another way, rates have to be about 15 percent higher today to achieve the same return as a generation ago, and that’s before considering inflation or any other changes in the marketplace.