Workers Comp:
A Strong Line Rebounds From Pandemic Pressure

Max Dorfman, Research Writer, Triple-I

The workers compensation field is “responding and adapting remarkably well to economic changes,” according to Donna Glenn, chief actuary, National Council on Compensation Insurance (NCCI). “The pandemic brought new occupational illnesses into the system, but it was offset by a reduction of other types of claims back in 2020.”

Glenn made her comments in a new Executive Exchange with Triple-I CEO Sean Kevelighan. She noted that the workers comp industry was in a strong position before the pandemic and, consequently, in its aftermath. This includes seven years of underwriting profitability.

“Strong employment and wages are on the rise, fueling the workers comp system,” Glenn said. “The strength of the labor market is awesome.”

Kevelighan and Glenn noted that changing labor patterns will also affect workers comp claims frequency.

“Frequency declined in 2020 because of the business shutdowns,” Glenn said. “When workers returned, claims activity came back. However, remote work is decreasing overall claim frequency. This is the new normal.”

They also discussed the potential for rising medical costs.

“Medical costs have been fairly stable, but some are talking about medical costs exploding out of control again,” Kevelighan said.

“Medical prices are up,” Glenn agreed, adding that medical inflation “is tame compared to general inflation. The medical industry has benefited from regulation, including medical fee schedules, treatment guidelines and prescription drug formularies, which contribute significantly to the cost-control system in workers comp.”

Further, fewer procedures are happening in hospitals.  Instead, they’re happening in an outpatient environment or ambulatory service center.

Glenn observed that physical therapy and the decrease in use of opioids has also helped. However, she signaled that there may be emerging issues with mental health.

“PTSD, particularly with first responders, comes up with workers comp,” she said. “But mental health is much broader than PTSD. We have to be very mindful of how we take care of workers.”

Kia, Hyundai Vehicles Stolen at Record Rates

Max Dorfman, Research Writer, Triple-I

Bargain-priced Kia and Hyundai vehicles have begun being targeted for theft at rates similar to muscle cars and SUVs, the Highway Loss Data Institute (HLDI) has reported, based on an analysis of 2021 insurance claims. The spike is due, in part, to the fact that the models being stolen don’t have electronic immoblizers that stop thieves from bypassing the ignition.

“Car theft spiked during the pandemic,” said Matt Moore, HLDI senior vice president. “These numbers tell us that some vehicles may be targeted because they’re fast or worth a lot of money and others because they’re easy to steal.”

Ignition immobilizers are standard equipment on almost all vehicles of that vintage made by other companies. They were standard on 62 percent of models of other manufacturers in model year 2000. By model year 2015, immobilizers were standard on 96 percent of other vehicles, but were only standard on 26 percent of Hyundai and Kia vehicle models.

“If it doesn’t have an immobilizer, it does make it somewhat easier to steal,” said Darrell Russell, a former auto theft investigator who is now director of operations, vehicles, at the National Insurance Crime Bureau (NICB).

In Wisconsin, which was affected by these thefts earlier than most, losses from Hyundai-Kia thefts grew more than 30 times from the 2019 level.

Motor vehicle theft continues to be a major issue

In 2020, the FBI found that $7.4 billion was lost to motor vehicle theft, with the average dollar loss per theft at $9,166. A total of 810,400 vehicles were stolen that year. The number of vehicles stolen was up 11.8 percent in 2020, from 724,872 in 2019. The NICB says the pandemic, economic downturn, loss of juvenile outreach programs, and public safety budgetary and resource limitations were key factors in the increase of motor vehicles stolen in 2020.

Preventive measures are important

The NICB recommends a layered approach to prevent vehicles from being stolen that includes:

  • Always locking your doors and removing your keys from the ignition;
  • Using visible or audible devices, like alarms and steering column brake locks;
  • Installing a vehicle immobilizer, like a kill switch or smart key; and
  • Investing in a tracking system.

Chubb Study Parses Insurance-Buying Behavior By Generation

Millennial and Generation Z consumers are more likely than Baby Boomers or Gen-Xers to seek insurance advice from an agent or broker, according to recent findings by Chubb.

The Chubb study explores attitudes about insurance-related matters across five generations of affluent and high net worth consumers in the U.S. and Canada. Its findings reveal differences in:

  • How each generation searches for and purchases insurance;
  • What they look for in an insurance carrier;
  • Their current coverages;
  • The kinds of media they trust most; and
  • How they currently engage with insurance agents.

Majorities of Gen Z and Millennial respondents (53 percent for both) appreciate having their agent or broker educate them on how insurance products and services can match their long-term goals, compared with about 40 percent each for Gen X and Baby Boomers. Unsurprisingly, the study also found that younger generations are more likely to use social media reviews when choosing an agent or broker to advise them. Most Gen Z (94 percent) and Millennial (89 percent) respondents said they rely on social media reviews, compared with 64 percent for Gen-Xers and 56 percent for Baby Boomers.

This quantitative study was being released in conjunction with additional research that agents and brokers can use to tailor their engagement with each of these generations to build greater trust, connection and credibility.

“It’s critical in today’s competitive business environment that we understand the dynamics of catering to different generations, with each evaluating and purchasing insurance very differently,” said Ana Robic, vice president, Chubb Group and Division President, Chubb North America Personal Risk Services. “We encourage our distribution partners to dive into what we’ve made available – and along with us – harness these insights to meet the unique risk management needs of our mutual clients across generations.” 

PFAS-Related Litigation May Signal an Emerging Liability for Insurers

Max Dorfman, Research Writer, Triple-I

Per- and Polyfluoroalkyl Substances (PFAS)—a varied group of human-made chemicals used in an array of consumer and industrial products—present a new potential liability for insurers, as U.S. regulatory activity continues to change, with lawsuit outcomes indicating this is an issue that will continue to develop.

PFAS, which have existed since the 1930s, are creating concern because of how ubiquitous they are, as well as their potential to harm people’s lives. They are used in everything from Teflon coatings to food packaging to firefighting foam, due to their capacity to resist oil and moisture. These qualities are also potentially damaging because they often stay in the human body, never entirely breaking down.

Though studies surrounding PFAS are not conclusive, they have been connected to cancer, pregnancy-induced hypertension, and thyroid disease. Their pervasiveness means everyone likely has some amount of PFAS in their blood stream. There is fear about their presence in water supplies, as well.

“PFAS are water soluble and dissolve readily in soil,” said Cindy Wilk, Global Environmental Liability Expert, Allianz Risk Consulting at AGCS. “An industrial accident or firefighting incident can result in their release into water sources, making local communities vulnerable, but PFAS can also migrate quickly through groundwater pathways to contaminate areas far from their original source.”

PFAS litigation continues to rise

PFAS litigation has seen tremendous growth over the past 20 years, beginning with a lawsuit filed against DuPont, the company that makes Teflon. DuPont was accused of contaminating water from a plant in West Virginia—resulting in a settlement to provide up to $235 million for medical monitoring of over 70,000 people. Several similar lawsuits have followed.

As of 2021, more than 5,000 PFAS-related complaints have been filed in 40 courts, with 193 defendants in 82 industries.

Additionally, in 2021, the PFAS Action Act passed the House and set the Environmental Protection Agency (EPA) on the recent course toward developing new PFAS standards. The act does not include a liability exception for water-wastewater utilities, despite the fact that these entities are not the source of PFAS, thus causing concern that they will be the target of civil litigation

How can insurers respond?

Although the Insurance Services Office (ISO) has not produced a PFAS-specific exclusion for commercial liability policies, work is being done on a draft exclusion, which could be published in late 2022. With that process still underway, several PFAS-related exclusions are circulating, some as a modification to the Total Pollution Exclusion or by establishing a stand-alone PFAS exclusion. Still, insurers must be wary of the potential liabilities, as the Biden Administration’s regulatory focus on PFAS could lead to increased litigation.

Reinsurer Gen Re recommends that insurers:

  • Take inventory of previously underwritten risks;
  • Carefully consider new risks at submissions; and
  • Keep abreast of PFAS, both as to scientific developments and the litigation that it spawns.

Report: Traditional Reinsurance Capital Declining

Report: Traditional Reinsurance Capital Declining

By Max Dorfman, Research Writer, Triple-I

A recent AM Best report finds that traditional reinsurance capital will decrease by approximately $40 billion by the end of 2022, lowering the total to $435 billion. This 8.4 percent decline comes after substantial increases of 15.5 percent for 2019, 8.9 percent for 2020, and 10.7 percent in 2021. The figure incorporates the upturn of the underwriting market and the downturn of the capital and investment markets, with continued geopolitical unrest and the possible decline in global GDP also considered. 

“With interest rates on the rise and equity markets declining, we do anticipate a rather substantial mark-to-market loss in traditional reinsurance capital levels,” said Dan Hofmeister, Senior Financial Analyst at AM Best. Reinsurance capital, working in the opposite direction, has been boosted by underwriting results in spite of heightened catastrophe loss activity in the first half of the year, he said.

Additionally, the report includes a 10-year record of third-party reinsurance capital levels and a prediction that overall third-party capital will remain stable at approximately $95 billion for 2022 compared to $94 billion in 2021.

With traditional and third-party capital together, the report predicts a 6.7 percent decrease in reinsurance capital from both sources, which would constitute the first decline in a decade, as recorded by AM Best.

Florida is emblematic of these struggles

Declines in the U.S. equity market have created capital supply challenges for some insurance-linked securities funds. However, the AM Best report stated that the pullback of traditional reinsurance in catastrophe-exposed markets like Florida could create opportunities for Insurance-Linked Security (ILS) funds. The report states that ILS funds can take advantage of significant price increases and tighter terms and conditions, if traditional capacity is restricted.

Still, Florida continues to be a hotspot for property/casualty losses, with the Triple-I finding that the state’s insurance marketplace has been beset by severe levels of fraud and litigation, driving the homeowner’s insurance market’s crisis in the state. The analysis concluded that the annual cost of an average Florida homeowners insurance policy could increase to $4,231 in 2022.

Reinsurance capital then provides a significant proportion of these costs that are directed to attorney fees and adjusting firms. Additionally, fraud related to roof replacement claims and other construction related matters continue to increase the reinsurance bill in Florida.

“Floridians pay the highest homeowners insurance premiums in the nation for reasons having little to do with their exposure to hurricanes,” said Sean Kevelighan, CEO of Triple-I.

With the threat of decreased capital for reinsurers and the markets in places like Florida experiencing turmoil, reinsurers are actively reviewing their strategy.

Tech Gains Traction
in Fight Against Insurance Fraud

By Max Dorfman, Research Writer, Triple-I

Insurance fraud costs the U.S. $308.6 billion a year, according to recent research by the Coalition Against Insurance Fraud (CAIF).  And, while staffing within insurers’ Special Investigation Units (SIU) is a pain point, CAIF found that use of anti-fraud technology is on the rise.

CAIF notes that hardest-hit insurance lines are:

  • Life insurance, at $74.7 billion annually;
  • Medicare and Medicaid, at $68.7 billion; and
  • Property and casualty, $45 billion.

“There is a huge and monumental impact that insurance fraud causes to American citizens, American families, and to our economy every single year,” said Matthew Smith, the coalition’s executive director.

Another recent CAIF study looked at SIUs and insurers’ response to fraud. The study found that SIU staff grew at 1.4 percent from 2021 to 2022, slower than the 2.5 percent growth rates from two previous studies addressing this issue. Staffing and talent are among the top concerns of anti-fraud leaders CAIF surveyed.

However, an additional CAIF study found that anti-fraud technology is increasingly being used—a positive sign in the fight against these crimes. Among the key findings of that report is that 80 percent of respondents use predictive modeling to detect fraud, up from 55 percent in 2018.

Insurance fraud is not a victimless crime. According to the FBI, the average American family spends an extra $400 to $700 on premiums every year because of fraud. Most of these costs are derived from common frauds, including inflating actual claims; misrepresenting facts on an insurance application; submitting claims for injuries or damage that never occurred; and staging accidents.

To further combat insurance fraud, there are ways to file complaints, including contacting your state’s fraud bureau; contacting your insurer to see if a fraud system is in place; using the National Insurance Crime Bureau (NICB) “Report Fraud” button; and reporting it to a local FBI branch.

“Insurance fraud is the crime we all pay for,” CAIF’s Smith added. “Ultimately, it’s American policyholders and consumers that pay the high cost of insurance fraud.”

Learn More:

Fraud, Litigation Push Florida Insurance Market to Brink of Collapse

Study: Insurers Suspect Rise in Fraudulent Claims Since Start of Pandemic

The Battle Against Deepfake Threats

Matching Price to Peril Helps Keep Insurance Available & Affordable

Setting insurance prices based on the risk being assumed seems a straightforward concept. If insurers had to come up with a single price for coverage without considering specific risk factors – including likelihood of having to submit a claim – insurance would be inordinately expensive for everyone, with the lowest-risk policyholders subsidizing the riskiest.

Risk-based pricing allows insurers to offer the lowest possible premiums to policyholders with the most favorable risk factors, enabling them to underwrite a wider range of coverages, thus improving both availability and affordability of protection.

Complications arise when actuarially sound rating factors intersect with other attributes in ways that can be perceived as unfairly discriminatory. For example, concerns have been raised about the use of credit-based insurance scores, geography, home ownership, and motor vehicle records in setting home and car insurance premium rates. Critics say this can lead to “proxy discrimination,” with people of color in urban neighborhoods sometimes charged more than their suburban neighbors for the same coverage. Concerns also have been expressed about using gender as a rating factor.

Triple-I has published a new Issues Brief that concisely explains how risk-based pricing works, the predictive value of rating factors, and their importance in keeping insurance affordable while enabling insurers to maintain the funds needed to keep their promises to policyholders. Integral to fair pricing and reserving are the teams of actuaries and data scientists who insurers hire to quantify and differentiate among a range of risk variables while avoiding unfair discrimination.

“There is no place in today’s insurance market for unfair discrimination,” the brief says. “In addition to being illegal, discrimination based on any factor that doesn’t directly affect the insured risk would be bad business in today’s diverse society.”

Learn More:

Bringing Clarity to Concerns About Race in Insurance Pricing

Delaware Legislature Adjourns Without Action on Banning Gender as Auto Insurance Factor

Triple-I: Rating-Factor Variety Drives Accuracy of Auto Insurance Ratings

Auto Insurance Rating Factors Explained

Personal Auto Insurers’ Losses Keep Rising
Due to Multiple Factors

Nearly all the largest U.S. personal auto insurers reported poor financial results in the second quarter of 2022, according to an S&P Global Market Intelligence analysis. Several issues contributed to this trend and are putting upward pressure on premium rates as insurers’ loss ratios grow. The loss ratio is the percentage of each premium dollar an insurer spends on claims.

The factors driving negative auto insurer economic performance include:

  • Rising insurer losses due to increasing accident frequency and severity;
  • More fatalities and injuries on the road, leading to increased attorney involvement in claims;
  • Continuing supply-chain issues, leading to rising costs for autos, auto replacement parts, and labor; and
  • More costly auto repairs due to safer, more technologically sophisticated vehicles.

“The private auto business, besieged by the impact of inflation on vehicle repair and replacement costs, swung to a combined ratio of nearly 101.5 percent in 2021 from 92.5 percent in 2020 and 98.8 percent in 2019,” S&P reports. Combined ratio represents the difference between claims and expenses paid and premiums collected by insurers. A combined ratio below 100 represents an underwriting profit, and a ratio above 100 represents a loss. “After the private auto business nearly brought the industry to the brink of breakeven in 2021, we project that it will push the overall combined ratio into the red in 2022.”

At the beginning of the pandemic in 2020, auto insurers – anticipating fewer accidents amid the economic lockdown – gave back approximately $14 billion to policyholders in the form of cash refunds and account credits. While insurers’ personal auto loss ratios fell briefly and sharply in 2020, they have since climbed steadily to exceed pre-pandemic levels.

With more drivers returning to the road in 2022, this loss trend is expected to continue. The severity of the post-pandemic riskiness of U.S. highways is illustrated by the fact that traffic deaths – after decades of decline – have increased in the past several years due to more drivers speeding, driving under the influence, or not wearing seat belts during the pandemic. In 2021, U.S. traffic fatalities reached a 16-year high, with nearly 43,000 deaths. 

“When everyday life came to a halt in March 2020, risky behaviors skyrocketed and traffic fatalities spiked,” said National Highway Traffic Safety Administration (NHTSA) administrator Steven Cliff.  “We’d hoped these trends were limited to 2020, but, sadly, they aren’t.”

This year, NHTSA estimates, 9,560 people died in motor vehicle crashes between January and March, up 7 percent from the same period in 2021, making it the deadliest first quarter since 2002. 

Auto insurers also must contend with cost factors beyond what is occurring on the nation’s roadways. A recent auto insurance affordability study published by the Insurance Research Council (IRC) highlights the role of attorney involvement in driving up insurer expenses – and, ultimately, policyholder premiums – in the states where auto coverage is least affordable. As attorney involvement tends to be more prevalent in claims cases involving bodily injury, the NHTSA numbers are important for understanding upward pressure on auto insurance premium rates.

The IRC – like Triple-I, an affiliate of The Institutes – also points out that consumer spending on auto insurance has grown more slowly over the past 30 years than median household income, at least through year-end 2019 (see chart below).

In a society as dependent as ours is on access to transportation, availability and affordability of auto insurance are important components of overall consumer expenses. Triple-I will continue to report on trends in this important line.

Learn More:

 IRC Releases State Auto Insurance Affordability Rankings

Cellphone Bans Cut Crashes; Telematics Can Help Reduce Distracted Driving

2022 P&C Underwriting Profitability Seen Worsening as Inflation, Hard Market Persist

Pot Legalization Link to Car Crashes Varies by State, Study Finds

Delaware Legislature Adjourns Without Action on Banning Gender as Auto Insurance Factor

IRC Study: Public Perceives Impact of Litigation on Auto Insurance Claims

Distracted Driving Surges Since Start of Pandemic

IRC Releases State
Auto Insurance
Affordability Rankings

Louisiana, Florida, and Michigan are the three least affordable states for personal auto insurance, according to a new report by the Insurance Research Council (IRC). The three most affordable states, IRC finds, are Hawaii, New Hampshire, and North Dakota.

The state-by-state affordability rankings by IRC – like Triple-I, an affiliate of The Institutes – are based on insurance expenditures as a share of median household income. The report draws on data from the National Association of Insurance Commissioners (NAIC), which are only available up to 2019 and, therefore, don’t reflect more recent circumstances, such as the pandemic and the inflationary impact of supply-chain disruptions and the war in Ukraine.

Before these events, auto insurance nationwide had been becoming more affordable since the 1990s, when premiums as a percentage of median household income averaged 1.9 percent.  By the 2010s, it had decreased to 1.6 percent, and, in 2019, that figure stood at 1.56 percent.

During this 30-year period, median household income grew 2.9 percent annually.

Affordability varies dramatically by state, with Hawaii coming in as the most affordable, with expenditures standing at 0.95 percent of income. The least affordable state is Louisiana, with the average expenditure-to-income ratio more than three times higher, at 3.01 percent.

The report notes that attempts to reduce these costs must focus on key cost drivers, including accident frequency, repair costs, injury claim relative frequency, injury claim severity, medical utilization, attorney involvement, claim abuse, uninsured motorists, and litigation climate.

Looking ahead

Pandemic and post-pandemic riskiness of U.S. highways could also impact future affordability trends.  After decades of decline, U.S. traffic deaths have increased in the past several years due to more speeding, driving under the influence, and not wearing seat belts during the pandemic. In 2021, U.S. traffic fatalities reached a 16-year high, with nearly 43,000 deaths. 

“When everyday life came to a halt in March 2020, risky behaviors skyrocketed and traffic fatalities spiked,” said National Highway Traffic Safety Administration (NHTSA) administrator Steven Cliff.  “We’d hoped these trends were limited to 2020, but, sadly, they aren’t.”

In 2022, NHTSA estimates, 9,560 people died in motor vehicle crashes between January and March, up 7 percent from the same period in 2021, making it the deadliest first quarter since 2002. 

The IRC report highlights the role of attorney involvement in driving up insurer expenses – and, ultimately, policyholder premiums – in states where auto coverage is least affordable. As attorney involvement tends to be more prevalent in bodily injury claims cases, the NHTSA numbers are important for understanding anticipated upward pressure on premium rates.

All these factors contribute to increased frequency and severity of claims and, ultimately, higher premiums as insurers seek to maintain required levels of surplus to ensure their ability to keep their promises to policyholders. 

Piracy Incidents Decline, But Horizon Isn’t Clear

Maritime piracy in the first half of 2022 is at its lowest level since 1994, the International Maritime Bureau (IMB) says, with 58 incidents, down from 68 for the same period last year. Nevertheless, the organization cautions against complacency.

For the full year 2020, IMB listed 195 actual and attempted attacks, up from 162 in 2019. The COVID-19 pandemic may have played a role in that rise in pirate activity – as it is tied to underlying social, political, and economic problems – and 2022 may represent the start of a return of a downward trend.

Source: International Chamber of Commerce/International Maritime Bureau (IMB)

Many people outside the maritime and insurance industries don’t realize that piracy remains a costly peril in the 21st century. Global insurer Zurich estimates the annual cost of piracy to the global economy at $12 billion a year.  In its 2022 Safety and Shipping Review, global insurer Allianz reports that piracy comes behind machinery damage or failure, collision, and contact, in terms of number of loss-causing incidents globally – and that total losses have fallen 57 percent over the past decade.

However, the shipping industry is vulnerable to disruptions and, as Allianz points out, has been affected on multiple fronts by Russia’s invasion of Ukraine: from loss of life and vessels in the Black Sea and disrupted trade to challenges to day-to-day operations that affect crews, cost and availability of fuel, and the growing for cyber risk.

“To date, the biggest impact has been on vessels operating in the Black Sea and/or trading with Russia,” Allianz says. “At the start of the conflict, approximately 2,000 seafarers were stranded aboard vessels in Ukranian ports. Trapped crews faced the constant threat of attacks, with little access to food or medical supplies, and a number have been killed.”

According to a recent industry survey, Allianz says, 44 percent of maritime professionals reported that their organization has been the subject of a cyber-attack in the last three years. Accumulations of cargo exposures at mega ports have been rising – and, with ports increasingly reliant on technology, an outage or cyber-attack could effectively close a port.

In February 2022, India’s busiest container port was hit by a ransomware attack, following incidents at U.S. and South African ports in recent years.

A third of organizations surveyed by Allianz said they don’t conduct regular cyber security training or have a cyber-response plan.

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